Lloyds (LON:LLOY) is one of the most heavily traded shares on the London Stock Exchange, and for good reason. Finance is the beating heart of London. To an outsider, you would think UK banks are a great sector to buy and hold, as financial activities dominate the commercial life of the country. Unfortunately, the answer is far from straightforward.
Is Lloyds (LON:LLOY) a good investment in the long term?
The 2008 Global Financial Crisis has dealt a hammer blow to the UK banking sector. Lloyds’ (LLOY) share price has yet to recover to the 2007 highs. In fact, no UK bank has. Those buoyant pre-GFC days saw Lloyds trade near 300p. Now? Closer to 40p.
Lloyds’ role in the GFC is a saga in itself. UK government partially nationalised the bank (through a 43% stake). Only through years of relentless work, Lloyds finally weaned itself from the Treasury in 2017. Then, the pandemic hit and inflicted yet more credit losses on the company.
Why should you buy Lloyds shares? A good question, since banks are not exactly a hub of innovative entities. Growth is hard to come by and when it does, it is usually associated with the credit cycle. Furthermore, banks are associated with the increasingly wobbly property market. Lastly, Lloyds is a UK-focussed bank. This means that investors are exposed to the underperforming UK economy. Some recent statistics show that the UK was the first to go into a recession during the pandemic and last to come out.
That said, UK banks are not going anywhere. They will still be around decades from now. Perhaps they will be smaller or merge, but they will continue to comprise a big chunk of the UK market. When UK banks perform well, they do reward shareholders with rising share prices and dividends.
Therefore, I would not discount buying UK bank shares like Lloyds for your portfolio.
The best time to buy Lloyds shares is when the credit cycle is at its most bearish.
For example, during the 2008 crisis or 1992 recession. In both cases, bank stocks were hit hard. But when they recovered, they multi-bagged over a short period of time.
The question is that of timing. How do we really choose to start buying? Well, there is no hard and fast rule on this. I would look for a few markers:
- Is the bank in need of more equity?
- Will the bank cut dividends?
- Is there a potential for M&A (mergers and acquisition)?
Another point to look for is fear. Are investors discounting an overly bearish outcome on banks? When they do, I would ease gently into the stock over a period of time and then assess.
Hard to say right now because of so much uncertainties in the market.
Lloyds share price has swung 30 percent top to bottom over the past year, but in a reasonable well-defined trend (38-55p). On results, Lloyds seem to be doing fine over the past few quarters. The most recent quarter saw pre-tax profits at £1.5 billion (see below). No surprises lurk in its balance sheet.
Source: Lloyds
At a price-earnings ratio of just 7, Lloyds is inexpensive (but Barclays appears cheaper at 5!). Lloyds shares also has a dividend yield of almost 4.9%. In a way, Lloyds share has some value proposition.
The climate for UK stocks has been deteriorating for some time.
Lloyds’ share price traded above 50p earlier this year. Now prices are hovering around 43p. There are three distinct reasons for this:
- A drop in market sentiment – due to a variety of reasons, particularly the war in Ukraine and inflation. The former caused a massive setback in Lloyds share price back in March (prices dropped from 52p to sub 40p).
- ‘Mini Budget’ turmoil in September – that caused mortgage rates to skyrocket and gilt prices to plunge. This resulted in a darkening outlook for the financial sector
- Wobbly housing prices – investors are now expecting the UK housing market to soften into 2023, which may reduce profits on banks.
Chartwise, I expect Lloyd’s current trading to stay for the foreseeable future.
With the UK economy underperforming others, investors are not terribly confident about the performance of the UK banking sector.
More brokers are slapping ‘Sell’ recommendations on Lloyds compared to a year ago, and less analysts are putting out ‘Outperform’ ratings on the bank. Therefore I would not be surprised to see the stock range trade in the foreseeable future.
The macro picture is just not supporting a cyclical upswing just yet.
Source: Financial Times
The current Lloyds (LON:LLOY) share price is 44.76p which is a change of 0.69 or -1.51% from the last closing price of 44.76 with 93,497,144 shares traded giving Lloyds a market capitalisation of £36,337,730,787. The most recent daily high has been 45.87 and daily low 44.53. The Lloyds share price 52 week high has been 54.33 and the 52 week low 38.51. Based on the most recent Lloyds share price opening of 44.76, the current Lloyds EPS (earnings per share) are 0.07 and the PE (price earnings ratio) is 6.21.
Pricing data automatically updates every 15 minutes
To buy shares in Lloyds (LON:LLOY), you need a trading or share dealing account. Follow these three steps if you want to buy shares in Lloyds Bank:
- Decide if you want to buy Lloyds shares in the short-term or invest in the long-term
- Compare share dealing and trading fees in our comparison tables
- Choose which broker is right for you and open an account
Buying one LON:LLOY share costs 44.76p. However, as well as the 44.76p cost of buying the shares you will also have to pay stamp duty, commission when you buy and sell shares and custody fees for holding your shares on your account. You also have to consider the difference between the bid price (the price at which you sell shares) and the offer price (the price at which you buy shares). These fees vary depending on what sort of account you open, and with what broker. You can compare the different costs associated with the different types of trading and investing accounts in our comparison tables below.
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