The Motley Fool

Why I think the Lloyds share price and other UK shares could rocket in 2021

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.

Woman sneaker shoe and Arrow on street with copy space background
Image source: Getty Images

I think the Lloyds (LSE: LLOY) share price and many other UK stocks are tremendously undervalued at current levels. Investors have been selling these companies due to the uncertain outlook for the UK economy.

It’s clear the economy is heading into an extended period of uncertainty. The pandemic, coupled with Brexit, are two headwinds that could cause further instability in the year ahead.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

However, when I look past these macroeconomic issues and focus on the underlying fundamental performance of UK shares, I’m incredibly excited by what I see. 

That’s why I’m backing these businesses, as well as the Lloyds share price for 2021. 

UK shares on offer

The main reason why I’m optimistic about the outlook for UK shares in 2021 is Brexit. No matter what happens over the next few weeks, any deal or no deal will bring some certainty. This will allow companies and investors to plan.

What’s more, after the first couple of months, we should have a much better idea of how the divorce will impact companies, and how badly their earnings/sales will be affected.

Once again, this will bring clarity to an uncertain situation. It should also give investors more to go on when evaluating investments like the Lloyds share price. 

Graph Falling Down in Front Of United Kingdom Flag

Other UK shares should prosper as the coronavirus pandemic recedes. A vaccination programme is already in progress across the UK and, by the first half of next year, global vaccination efforts should be well underway.

This could be hugely positive for travel-related companies like Carnival and IAG. Also, domestic UK banks such as Lloyds and its peers, Barclays and Virgin Money, for example, may be able to move on from the crisis and re-focus on growth. Combined with the ending of the Brexit debacle, these lenders could benefit from a double tailwind in 2021. 

Lloyds share price 

I think Lloyds should see a much better performance than many of its peers in this best-case scenario. 

There are a couple of reasons why I believe the lender could be a better investment. First of all, it’s one of the most profitable banks in Europe with a return on equity in the double digits. Second, the lender is well capitalised. And third, for the past few years, management has been concentrating on reducing costs to improve profit margins. 

Combined, these three factors should help the group’s profitability in the years ahead. However, despite its potential, the Lloyds share price is trading at a significant discount to book value. This isn’t appropriate. Companies deserve to trade at a discount to book value if they’re losing money for investors. 

Lloyds is likely to lose money overall this year, but profits could surge over the next few years. On that basis, I believe the Lloyds share price is hugely undervalued.

Like many other UK shares, it could benefit significantly from an improvement in trading performance over the next few years. As such, I reckon there’s a good chance the investment could yield high total returns for shareholders in the years ahead.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Barclays and 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.