Lloyds shares have soared nearly 16% in one month. Do I think they are cheap shares today?

After having a disastrous 2020, Lloyds shares have been rising from their recent lows. Are they cheap shares today, or a value trap for investors?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

This has probably been the worst year for shareholders in Lloyds Banking Group (LSE: LLOY) since the global financial crisis of 2007–09. Lloyds is the UK’s largest domestic lender, so it’s no surprise that Lloyds shares have been brutally battered during the coronavirus crisis.

Lloyds shares crash cruelly

Over the past 12 months, Lloyds shares have ridden a roller coaster of epic proportions. At their 52-week high on 13 December, they closed at 73.66p. Even as recently as 20 February (a mere eight months ago), they hovered around 56.55p. Then global markets were hit by a ‘perfect storm’ of selling pressure, as investors sold shares to invest in safer assets such as government bonds.

Covid-19 was the reason for this worldwide fear and panic selling. It sent the UK’s FTSE 100 index crashing by a third, losing 2,600 points to close below 5,000 on 23 March. With UK gross domestic product (GDP) plunging and unemployment soaring, Lloyds shares were directly in the firing line. By 3 April, they had collapsed spectacularly, plunging to as low as 27.73p on 3 April.

Then came a huge relief rally, as global lockdowns and social restrictions helped to curb and contain the pandemic. Lloyds shares joined in the fun, soaring by a third (33%) to hit 36.88p on 8 June. At least long-suffering Lloyds shareholders had a pleasant summer, right? Wrong, because the next downward lurch was lurking just around the corner.

Down go Lloyds shares again

The next 15 weeks saw Lloyds shares battered by yet more body blows, with their price collapsing 35% to a 2020 low of 23.59p by 22 September. What appeared to be a strong post-March relief rise turned out to be a sucker’s rally that dragged in buyers before crash #2.

As I write, Lloyds stock hovers around 27.28p, down more than half (55%) in one year and a staggering 63% below their 52-week high 10 months ago. But a little bit of good news is that Lloyds shares have bounced back from their depths of a month ago. Today, they stand 15.7% above their 22 September low, which is some small consolation to their owners.

I think the share price is too low

Right now, Lloyds shares are a little above 27p each. With this small change, you could buy half a pint of milk or part-ownership of Britain’s largest bank. I know which option I’d choose.

Sure, buying Lloyds shares has been a painful, loss-making move at almost any time in the past 13 years. Also, Lloyds’ expected 2020 profits are set to be wiped out by loan losses triggered by lockdowns. The sought-after dividend has been ditched at the request of regulators. And it’s impossible to value this stock today using the usual fundamentals and metrics.

But Lloyds is huge, really huge. It has 30 million customers across powerful brands including Lloyds Bank, Bank of Scotland, Halifax, and Scottish Widows. Furthermore, it easily has enough risk capital to ride out the downturns until a coronavirus vaccine arrives. Thankfully, a huge chunk of its balance sheet is boring old mortgages (mostly with low loan-to-value ratios and housing equity galore).

Today, I see Lloyds as a cheap, leveraged bet on bumper post-Covid-19 profits. Therefore, I’d happily buy and hold Lloyds shares today, ideally in an ISA to bank tax-free capital gains and a passive income when the bank’s cash dividends return!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »