The Motley Fool

Why I’d forget the Lloyds share price and buy this UK bank share!

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.

A brochure showing some of Lloyds Banking Group's major brands
Image: Lloyds Banking Group

2021 has so far proved to be a happy time for the Lloyds Banking Group (LSE: LLOY) share price. Prices of the FTSE 100 firm have soared 20% since share trading began in January and are up by almost 50% year-on-year.

It’s no surprise that some investors are attracted to the Lloyds share price. The Covid-19 vaccination drive on these shores has gone off almost without a hitch. So hopes of a strong economic rebound have grown, boosting expectations that Lloyds’ revenues will surge and bad loans will stop streaming in.

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...

Yet despite these rises the share price still looks mighty cheap on paper. City analysts think the bank’s earnings will soar 240% in 2021. This leaves a price-to-earnings growth (PEG) ratio of just 0.1, a distance below the bargain benchmark of 1. Lloyds also carries a meaty 3.7% forward dividend yield, one that nudges ahead of the broader average for UK shares.

Danger ahead

All that said, the cheap Lloyds share price isn’t something I’m tempted to grab a slice of. It’s not just the threat of a fresh surge of Covid-19 cases means, and what this could do to near-term profits expectations.

There are obstacles facing Lloyds that concern me as a long-term investor. How will the FTSE 100 business rise to the challenge of increasing competition? And will it have the wherewithal to compete with the smaller, nimbler digital-based banks in particular? How could it cope if interest rates remain locked at rock-bottom lows for another decade? Can Lloyds be expected to deliver strong earnings growth beyond 2021, given its lack of exposure to fast-growing foreign markets?

I’d ignore Lloyds share price and buy this bank

All this explains why I’d rather invest in Banco Santander (LSE: BNC) today. Of course this business faces some of the same challenges as Lloyds, like low interest rates. But I think this particular UK banking share is in a much better place to deliver strong long-term returns.

This is because Santander has considerable emerging markets exposure. In these regions populations are growing quickly and wealth levels are booming, yet financial product penetration remains extremely low. This provides exceptional revenues opportunities for banks in this region. South America is Santander’s largest market, from which it sources around 42% of underlying profit.

Covid-19 presents a significant risk to Santander in the near term. The public health emergency is much worse in its core Brazilian marketplace in particular, casting a shadow over the country’s economy. What’s more, Brazil’s economy is highly dependent on strong commodity prices. A fresh plunge in raw material values should the pandemic worsen could also deal a heavy blow to trading conditions at Santander.

That being said, I’m still confident that this banking business should deliver solid returns over a long time horizon. And today the bank trades on a PEG ratio of just 0.7 for 2021. This, along with a chunky 4.2% dividend yield, makes Santander a very attractive buy for me, in my opinion.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Royston Wild 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.

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.