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Lloyds shares: 3 reasons I would, and wouldn’t, buy this FTSE 100 stock

A Lloyds tech engineer works on the bank's digital platform
Image: Lloyds

The Lloyds Banking Group (LSE: LLOY) share price has rocketed in value since the beginning of 2021. The UK banking share has risen by almost 30% since the bells rang in New Year’s Day. Compare that with the 8% rise the broader FTSE 100 has recorded in that time.

But concerns over spiking Covid-19 cases due to the Delta variant has caused the Lloyds share price to struggle for traction more recently. Is the market making an error by giving the bank the cold shoulder again?

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Three reasons I’d buy the FTSE 100 share

Here are three reasons why I’d buy Lloyds for my own stock portfolio today:

1) Coronavirus cases are falling again. Waning investor appetite for Lloyds shares last month came as health experts warned that coronavirus cases could soar again. Some even suggested that 200,000 new cases a day could be seen. But recorded cases have fallen for seven days in a row, the number hitting a peak of around 54,000 earlier this month. It’s possible, then, that fears over disruption to the economic recovery have been greatly exaggerated and that the Lloyds share price will start rising again very soon.

2) The housing market is booming. Lloyds generates a huge amount of profit from mortgage lending and is responsible for around 20% of all home loans issued in Britain. It is therefore reaping the rewards of soaring homebuyer demand and rocketing property prices. I expect business to keep booming on this front too, thanks to low Bank of England base rates and government support to first-time buyers.

3) Lloyds offers eye-popping value. It can’t be argued that the Lloyds share price looks incredibly cheap on paper. At 47p per share this penny stock trades on a forward price-to-earnings (P/E) ratio of just seven times. As well, the UK bank share carries a mighty 4.7% dividend yield for 2021. This figure smashes the broader 3.1% average for FTSE 100 shares.

The Lloyds share price: cheap for a reason?

That being said, could the low Lloyds share price be reflective of the bank’s high-risk profile? First and foremost Britain isn’t out of the woods just yet in its fight against Covid-19. Infection rates could soar again as government rules on movement and masks are eased back and travel restrictions are unwound. There’s also the possibility that more deadly variants like delta could be around the corner.

There’s also the possibility that low Bank of England base rates will remain in place for a long time. This has been a thorn in the side of Lloyds and its peers since the 2008/2009 financial crash, reducing the difference between what rates the banks can offer to borrowers and savers. This week a key policymaker explained why the Bank of England remains cautious over lifting rates soon.

Finally, the Lloyds share price struggle as digital-based challenger banks like Starling Bank and Monzo grab market share from the traditional operators. All things considered I’d be happy to look past Lloyds and buy other UK shares today.

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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.

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