Forget the gold and oil price! Here’s why I’m banking on a Lloyds share price rally

Jonathan Smith reviews why a retail banking focus could make the Lloyds share price a winner in the near future, over oil and gold.

| 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.

Just when you think that we could be in for a tame week in financial markets, along comes some volatility! Over the past few weeks we have seen this in the gold price and the oil price. For me, I’d rather steer clear of both and instead look to the Lloyds Banking Group (LSE: LLOY) share price.

The oil price collapse is fresh at the moment. On Monday evening, the contract for WTI (West Texas Intermediate) oil for May delivery dropped below $0. This was something which many people thought was impossible. This meant the price dropped more than 100% in a single day. 

Looking at gold, earlier this month the precious metal hit highs not seen for almost 10 years. It is up almost 8% in the past month, following a surge in demand for a safe-haven asset for investors to buy.

Why stocks over commodities?

For me, stock movements are a lot more predictable than commodity prices. You can analyse a company, along with the financial statement, current market conditions, new product launches and more and make a reasonable assumption of a subsequent share price rally. This is not the same for commodities.

Oil for example is notoriously volatile and unpredictable. It is governed far more by physical demand and supply, along with trading technicalities (such as futures contracts). You also have to take the cost of storage into account for both gold and oil, which is not the case when investing in the stock market.

Why invest in Lloyds shares?

A lot has been written recently on the slump in the Lloyds share price. It has fallen over 50% from the start of 2020. There is one large reason for this. It has been due to the impact of the coronavirus on consumers. People like you and I have been in lockdown now for over a month. Spending on our credit and debit cards have dried up and applications for new mortgages halted. At a business level, these spending cuts have been seen as well.

Lloyds is the largest retail bank in the UK and does not have the investment banking capabilities of the likes of Barclays and HSBC. This factor has made it painful for revenues and profit. Yet the reason for the share price slump is exactly the reason I think it could rally.

The stock market recovery is expected to be a ‘V’ shape, in that the sharp move lower will bounce with a sharp move back higher. We may already be starting to see this, with the FTSE 100 up around 12% in the past month. If we get a reopening of the UK economy over the next month or so, Lloyds is going to be one of the first firms to really benefit.

As soon as consumers get back out, and have the ability to spend via businesses being open, profitability for Lloyds should bounce.

I also would not wait until this happens to buy the stock. Currently it has a P/E ratio of around 9, and a price-to-book ratio of 0.44. These are historically low levels to buy for the longer term.

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.

Jonathan Smith owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, 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.

More on Investing Articles

Investing Articles

FTSE shares: a bargain way to start building wealth in 2025?

Christopher Ruane explains how, by buying FTSE 100 shares at what he thinks are bargain prices, he hopes to build…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 ISA mistakes to avoid in 2025

Our writer outlines a trio of mistakes investors can make in their ISA, to their cost, and explains why he’s…

Read more »

Older couple walking in park
Investing Articles

3 UK shares to consider as a long-term investment for retirement

Our writer identifies three UK shares with long-term growth potential he believes investors should think about holding until retirement and…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

Could this beaten-down FTSE 250 stock be on the cusp of a recovery in 2025?

After this FTSE 250 financial services stock lost another 24% of its value in 2024, Andrew Mackie sees the potential…

Read more »

The Milky Way at night, over Porthgwarra beach in Cornwall
Investing Articles

Warren Buffett says make passive income while sleeping! Here’s my plan to do so

Billionaire Warren Buffett has said many wise things over the past half a century, including a thing or two about…

Read more »

Investing Articles

£5,000 invested in this FTSE 250 company 5 years ago is now worth over £24,000

Stephen Wright looks at how a FTSE 250 food stock has more than quadrupled over the last five years –…

Read more »

Investing Articles

I asked ChatGPT to name the best FTSE 100 stock and it picked this engineering giant

Dr James Fox asked generative artificial intelligence to name the best stock to invest in on the FTSE 100 in…

Read more »

Closeup of "interest rates" text in a newspaper
Investing Articles

Why I think right now could be the best time to buy UK stocks in over 20 years

UK bond yields hitting multi-decade highs are causing UK stocks to fall. Stephen Wright thinks there are opportunities, but investors…

Read more »