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 Lloyds Banking Group 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 Lloyds Banking Group 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.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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

Investing Articles

3 high-yield dividend shares to consider buying for a retirement portfolio

Dividend shares can provide retirees with regular passive income in their golden years. Our writer picks out three with yields…

Read more »

Investing Articles

Tesla stock has halved. Could it now double – or halve again?

After a wild few months for Tesla stock, Christopher Ruane weighs some pros and cons of the investment case. Could…

Read more »

Investing Articles

Does it make sense to start buying shares as the stock market wobbles?

Does a rocky stock market make for a good or bad time to start buying shares? This writer reckons it…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£15k of passive income a year? It’s possible with the right dividend strategy!

To figure out how much dividends are needed for a lucrative passive income stream, investors must understand which strategies get…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As US markets wobble, I’m listening to Warren Buffett!

The long career of billionaire investor Warren Buffett has included plenty of market turbulence. Here's what our writer's learnt from…

Read more »

UK money in a Jar on a background
Investing Articles

5 shares yielding over 5% to consider for a SIPP

Christopher Ruane introduces a handful of FTSE 100 and FTSE 250 shares he thinks an income-focussed SIPP investor should consider.

Read more »

Investing Articles

Here’s how an investor could invest a £20k ISA to target £1,500 of passive income per year

Can a £20,000 ISA throw off close to £30 per week on average of passive income when invested in blue-chip…

Read more »

Investing Articles

As gold hits $3,000, this FTSE 100 stock is primed for blast off

As Western institutions scramble to get as much gold as they can lay their hands on, Andrew Mackie believes this…

Read more »