Is now the time to buy Lloyds shares?

The Lloyds share price continues to soar. Can it keep going? And should I invest in the FTSE 100 bank today? Here’s what I’m doing now.

| 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.

The rampaging Lloyds Banking Group (LSE: LLOY) share price has reached new significant levels in recent days. On Monday, the FTSE 100 bank closed at its most expensive since February 2020, above 51.11p per share. It’s fallen back a fraction, but remains a good 75% more valuable than it was a year ago.

Yet despite these gains, Lloyds’ share price still seems to offer top value, on paper. Not only does the business trade on a forward price-to-earnings (P/E) ratio of just 6.6 times. Lloyds also boasts a magnificent 4.7% dividend yield at current prices.

Sparkling results

The euphoria around Lloyds has been boosted by some solid financials released in late October. In a forecast-beating release, The Black Horse Bank said that pre-tax profits clocked in at £5.1bn for the first nine months of 2021. That compares to the profit of just £620m recorded in the same period in 2020.

Lloyds said the result “largely [reflected] the improved economic outlook for the UK” in the period versus the deterioration expected last year. While net income dropped 1% year-on-year between January and September to £11.1bn, the bank benefitted from the release of cash held to cover a possible surge in bad loans.

For this, Lloyds reported a net credit of £791m for the nine months to September. That compares with net impairments exceeding £3.9bn in the corresponding 2020 period.

On the right track?

Things are certainly brighter at Lloyds than they were a few months ago. Economic conditions in the UK are more robust than many had predicted, despite Covid-19 cases rising again and booming inflation. This explains why the FTSE 100 bank also lifted its full-year guidance last week.

The recent surge in consumer price inflation also seems to have played into the hands of the banks. It’s brought forward the prospect of Bank of England rate rises, possibly as soon as the Monetary Policy Committee’s upcoming meeting on Thursday.

Critically, concerns of a sharp slowdown in the housing market as Stamp Duty returns have also been shot down. Latest HMRC data showed home sales in September hit levels not seen since 2005. This is a big deal to Lloyds as Britain’s most popular mortgage provider.

Why I won’t buy Lloyds shares

Lloyds might be flying at the moment. But I think this could be as good as it gets over at the bank.

The UK economy has bounced back strongly, sure. But remember that Britain took a particularly big economic hit in 2020, meaning that this bounce back has come from a very low base.

In fact, I remain extremely concerned about the economic outlook in 2022 and beyond as a long Covid-19 hangover and sustained Brexit turbulence threaten. The Institute for Fiscal Studies is predicting long-term GDP growth of just 1.5%.

I’m also concerned that while interest rates look set to rise, they could still remain around historical lows should the economy indeed struggle, harming profits at banks like Lloyds still further. So while Lloyds’ shares are cheap, I’d much rather buy other FTSE 100 shares with better growth prospects today.

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.

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.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Should I buy skyrocketing Palantir stock for my ISA in 2025?

This red-hot artificial intelligence share has even outperformed Nvidia so far this year. Is it finally time I added it…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

2 of my favourite UK growth shares this December!

These FTSE 250 growth shares offer excellent value right now. Here's why I'll buy them for my portfolio if the…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

10% dividend growth! 2 FTSE 100 stocks tipped to supercharge cash payouts

These FTSE 100 stocks have strong records of dividend growth. And they're expected to keep on delivering, as Royston Wild…

Read more »

Investing Articles

Down 17% in a month and yielding 7.39%! Is this FTSE 100 share a screaming buy for me?

When Harvey Jones bought Taylor Wimpey last year he thought this FTSE 100 share was a brilliant long-term buy-and-hold. Has…

Read more »

Investing Articles

Here’s how I’m using a £20k ISA to target £11k+ in income 30 years from now

Is it realistic to put £20k in an ISA now and earn over half that amount every year in passive…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could only keep 5 UK stocks from my portfolio I’d save these

Harvey Jones is running through his portfolio of top UK stocks to see which ones he couldn't bear to do…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

I’m aiming for a million buying unexciting shares!

By investing regularly in long-established, proven and even rather dull businesses, this writer plans to aim for a million. Here's…

Read more »

Investing Articles

3 things to consider before you start investing

Our writer draws on his stock market experience to consider a few vital lessons he would use to start investing…

Read more »