The Lloyds share price looks like an unmissable bargain. Here’s what I’d do

The Lloyds Banking Group plc (LSE: LON) share price looks like a bargain buy as it trades below 30p. But is it really cheap given Covid-19 troubles?

| 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 share price looks like a bargain buy today at less than 30p. Should you grab this chance to buy its stock at a dirt cheap price?

Shares in Lloyds Banking Group (LSE: LLOY) have dropped by half during the Covid-19 crisis. But this is not just a one-off fall. The Lloyds share price is down more than 95% since topping 680p just before the 2008 financial crisis.

Despite this, it remains one of the most traded names on the FTSE 100, and I personally tipped it before coronavirus struck, at around 57p. 

Long-term bargain buy?

At the time, it traded at around eight times earnings, with a price-to-book value of just 0.5 and a juicy prospective yield of 5% or 6% a year. The Lloyds share price looked like a bargain buy to me then. But it is harder to judge today, as the pandemic destroys traditional valuation methods.

Investors in Lloyds had grown used to its disappointing share price performance, their consolation was the promise of dividends galore as it steadily restored payouts. That dream has gone for now, after the Prudential Regulation Authority (PRA) instructed banks to halt dividends and share buybacks, to increase lending capacity to help businesses and individuals survive the crisis.

This was a particular blow to Lloyds customers, as the bank had pledged to increase the frequency of its dividends to once a quarter from June.

The Lloyds share price is under siege

We should be grateful for the 2008 financial crisis in one respect. The regulators forced stricken banks to create substantial capital and liquidity buffers, and the PRA has urged them to dig into these, to support the economy while maintaining their own safety.

Banks have come in for criticism for playing it too safe, and failing to channel desperately needed funds via the coronavirus business interruption loan scheme. While in many countries, the government 100% backs emergency loans, in the UK, banks must cover 20%, which is understandably making them wary.

Despite all the uncertainty, the opportunity to buy Lloyds below 30p looks difficult to resist. Aren’t we always saying that investors should seize moments like these?

You will need nerves of steel, though. The longer the lockdown lasts, the harder the recovery will be, as more businesses fold and millions lose their jobs. Debt impairments will surely rise, while near-zero interest rates will squeeze net lending margins. The UK housing market is in lockdown, and Lloyds is exposed, as the group has 20% of the mortgage market.

Investors are wary. While the FTSE 100 has rebounded by 25% in the last fortnight, Lloyds stock has hardly budged. You would have to be a particularly brave, contrarian investor to buy its stock today. 

On the other hand, 30p is undeniably cheap. If you plan to hold for at least 10 years, the Lloyds share price could one day prove a bargain buy. I’m sorely tempted.

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.

Harvey Jones 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

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »