Does the Lloyds (LSE: LLOY) share price make it one of the best value stocks to buy today? Certainly at first glance Lloyds’ share price seems to scream irresistible value.
City analysts think earnings will soar 400%+ in 2021, leaving the FTSE 100 bank trading on a forward price-to-earnings (P/E) ratio of below 8 times. What’s more, brokers are forecasting a hefty hike for the annual dividend. Thus, Lloyds boasts a handsome 4.5% dividend yield.
Reasons to be cheerful
Increased investor optimism has helped the Lloyds share price rise an impressive 50% over the past 12 months. And there are good reasons why the Lloyds share price could begin rising again very soon, such as:
#1: Final Covid-19 restrictions are set to end. Noise coming out of Westminster suggests another delay to easing final Covid-19 restrictions is highly unlikely. New health secretary Sajid Javid has said July 19 will be “the end of the line” for restrictions, and that Britons will have to learn to live with the virus. Prime minister Johnson has also pledged not to reinstate lockdowns once they end in a further boost to UK-focussed shares such as Lloyds.
#2: The robust UK housing market. Even with Covid-19 restrictions persisting the UK economy has performed terrifically well so far in 2021. This has helped keep house prices charging higher, an important occurrence for Lloyds, thanks to its role as Britain’s biggest mortgage lender. What’s more, it appears as if house prices should continue rising long into the future too. This is because low interest rates and massive government help for first-time buyers look set to continue.
Lloyds share price: cheap for a reason?
The government might be more determined than ever to end Covid-19 restrictions. But plans may well be delayed again if new coronavirus cases keep soaring due to the rampant Delta variant. The number of new infections just hit its highest since January, despite the successful vaccine rollout.
It could be argued that Lloyds faces huge risk even if final restrictions are rolled back in a fortnight. Many fear that the end of Covid-19 lockdowns as the Delta variant spikes could prove a catastrophe for the economic recovery, and thus the earnings rebound for Britain’s banks, if the pandemic worsens significantly.
I’m also concerned for Lloyds as I think interest rates will remain at rock-bottom levels for a long time, regardless of whether or not Covid-19 cases keep rising. In a sign of things to come, Bank of England chief Andrew Bailey recently warned against “a premature tightening in monetary conditions” in response to rising inflation. Low rates have been a thorn in the side of British banks for more than a decade, reducing the difference that they can charge borrowers and give to savers and thus curtailing profits.
The Lloyds share price looks cheap, then. But I think the bank is cheap because of its highly-fragile profits outlook. I’d much rather buy other FTSE 100 shares.
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…
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.