Three reasons to buy Lloyds’ shares at a bargain price right now

Lloyds’ shares have fallen on a broad drop in banking stocks but there are three key reasons for me why they should be bought now at a bargain price.

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Lloyds’ (LSE: LLOY) shares have fallen around 10% since the announcement on 10 March of the collapse of Silicon Valley Bank. They remained depressed on further news that struggling Credit Suisse would not receive fresh funding from its major shareholder.

The decline in Lloyds’ share price is in line with similar drops in the price of many other bank shares. However, there are three reasons why Lloyds’ shares should be bought by me right now at a bargain price.

Created with Highcharts 11.4.3Lloyds Banking Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Continued strong performance

First, Lloyds’ Q4 results showed that it continues to perform extremely strongly. Profits before tax were £1.8bn, up 80% year on year. Revenues over the same period rose more than 20% to £5bn. This was ahead of consensus analyst expectations of £4.7bn.

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

Also positive was that the bank’s net interest margin increased year on year to 3.22% in Q4. This was again ahead of consensus analyst expectations of 3.16%.

For the full year, underlying profit before impairment of £9.0bn was up 46% on 2021.

Second, Lloyds decided to pre-emptively offset the impact of any significant deterioration this year in its operating environment.

This was done by making a £1.51bn impairment charge for 2022, compared to NatWest’s £337m. Barclays’ 2022 impairment charge of £1.22bn followed a separate £1.597bn in litigation costs from its over-issuance of bonds in the US.

Overall cost discipline also remained good at Lloyds. Operating costs were £8.8bn in 2022, a rise of just 6% over 2021 — in line with guidance.

UK and international growth strategy

Third, Lloyds’ growth strategy is well balanced between the UK and international markets. As part of its ‘Helping Britain Prosper’ initiative, Lloyds is expanding its presence as the UK’s largest mortgage provider. Last year it lent £14.3bn to the UK’s first-time home buyers.

The strategy also includes funding for the UK’s transition to a low-carbon economy and its key growth industries. In 2022, Lloyds funded over £13bn in green and sustainable financing. It also made around £12bn of discretionary investments in climate-aware strategies through Scottish Widows.

Lloyds is also looking to bolster its Corporate & Institutional banking business that has a significant international presence. Specifically, it wants to expand its trading and origination capabilities across debt capital markets, foreign exchange and fixed income. 

One risk for Lloyds is that the UK economy significantly underperforms other Western economies over an extended period. However, it looks to me that Lloyds’ expansion of its Corporate & Institutional banking and energy transition businesses will offset any lost opportunities elsewhere.

£2bn buyback announced

Additionally positive for the stock is the planned £2bn share buyback announced in the Q4 results. Also announced was an increase in the bank’s 2022 full-year dividend to 2.4p, an increase of 20%.

Given the bank’s solid fundamentals, growth prospects and the recent sharp fall in its share price, I have added to my holding of Lloyds shares. 

But what does the head of The Motley Fool’s investing team think?

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

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.

Simon Watkins has positions in Lloyds Banking Group. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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