Is Lloyds’ share price now too cheap for me to miss?

The Lloyds share price is looking incredibly cheap from both an earnings and income perspective. Should I buy it for my UK shares porfolio today?

| 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 Lloyds Banking Group (LSE: LLOY) share price is on a major rollercoaster ride. The FTSE 100 bank isn’t alone in suffering extreme turbulence, of course, as investors digest the potential impact of the Omicron variant on the economic recovery. However, a case can be made that Lloyds’ share price could now be too cheap to miss.

City analysts are expecting the bank’s earnings to drop 22% year-on-year in 2022. Next year’s projection leaves Lloyds trading on a forward price-to-earnings (P/E) ratio of just 7.4 times.

On top of this, number crunchers think Lloyds will have the financial strength to keep raising dividends next year, despite that expected earnings reversal. A 2.57p per share reward is currently anticipated, up from the 2.34p dividend that’s predicted for 2021. This results in a mammoth 5.4% dividend yield.

Should you invest £1,000 in M&G right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if M&G made the list?

See the 6 stocks

Cheap for a reason?

At a current price of 47.3p the Lloyds share price offers plenty of value on paper. Its P/E ratio for 2022 sits well inside the widely-regarded bargain benchmark of 10 times and below. Furthermore, that dividend yield for next year makes mincemeat of the FTSE 100 forward average of 3.4%.

However, I also think that Lloyds’ cheap valuation reflects the high threat that next year’s earnings dip could come in much worse than expected. It also illustrates the uncertain outlook for the UK economy over the long term. Highly cyclical shares like banks face the prospect of extremely weak profits growth in the shadow of a long economic hangover from Covid-19 and the stresses caused by Brexit.

Growing fears for Lloyds’ share price

My concerns over Lloyds have ratcheted up a notch or two in recent days. This is because the emergence of Omicron has increased the chances of subdued revenues growth and a tsunami of bad loans in 2022, possibly beyond. It’s early days of course and the harshness of this particular Covid-19 mutation is yet to be ascertained. But it’s something investors like me need to take seriously given the pandemic-related carnage dealt to banks last year.

The Omicron outbreak could also have a significant impact on the scale and timing of Bank of England rate rises. It had been suggested that Threadneedle Street could begin raising its benchmark as soon as next month. Such action might now be in jeopardy, dealing a further blow to Lloyds’ profitability. Higher rates allow banks to charge individuals and companies more to borrow their cash.

I’d buy other cheap FTSE 100 shares

Lloyds isn’t a complete basket case. Its shares could soar in price if the Omicron virus proves to be less dangerous than earlier assessments indicated. Profits could bounce if the housing market remains strong (Lloyds is by far the UK’s biggest home loans provider). Work to improve its digital operations could also pay off handsomely as online banking goes from strength to strength.

It’s my opinion that the risks outweigh the potential rewards, however. Sure, the Lloyds share price is cheap. But aside from those Covid-19-related worries, I also fear the bank has a lot to lose as competition in all its major product areas grows. This is why I’d much rather buy other cheap FTSE 100 shares right now.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Here’s my plan to survive and thrive in a stock market correction

A falling stock market can be an opportunity, but investors need a plan. Stephen Wright shares his strategy for taking…

Read more »