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The Lloyds share price still looks cheap to me! I’d buy it today in an ISA

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Harvey Jones
·3-min read
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Businessman standing in front of screen
Businessman standing in front of screen

Trading at just over 40p, the Lloyds Banking Group (LSE: LLOY) share price still looks like a bargain to me. I say ‘still’ because the FTSE 100 bank has been on a rip-roaring run lately, rising 70% in the last six months.

Despite this, I continue to see a great buying opportunity here. The Lloyds share price has taken such a beating over the last decade that it remains inexpensive, despite its rapid growth surge in recent months. That’s why I’d buy it in a Stocks and Shares ISA today.

Measured over five years, the stock is down 40%. It actually trades a third lower than 10 years ago, when the Lloyds share price topped 60p. The trauma of the financial crisis has cast a long shadow, and the pandemic has made matters worse.

Top FTSE 100 recovery stock

Lately, investors have been looking to the post-Covid future, with growing optimism. The big banks were hit hard by last year’s lockdowns, as economic activity stalled. The financial sector was one of the the FTSE 100′s worst performers, along with oil stocks. I think that makes it a tempting way to play the recovery, once vaccines do their work.

The big banks have made massive provisions for debt impairments. Thanks to government support, such as furlough and other measures including payment holidays, customers may not be as hard-hit as the banks originally anticipated. If the economy bounces back strongly, the Lloyds balance sheet and share price could look a lot healthier.

Lloyds trades at a bargain 10.2 times forward earnings. Its price-to-book value of 0.6 is also tempting, well below the 1.0 generally considered fair value.

The Lloyds share price looks good value

I think this is a good time to buy stocks that will pay attractive dividends. Lloyds cut shareholder payouts last year, but restored them in February. Brokers now forecast a yield of 3.9%. Better still, that’s covered 2.5 times by earnings. In the longer run, I’d anticipate income of 5-6% a year.

Many analysts have warned that inflation could sweep the world, once people are released from lockdowns and start spending their pent-up savings. Bond yields are rising in anticipation, and that’s good news for the banks.

It should help them increase their net interest margins, the difference between what they pay depositors and charge borrowers. Again, this would spell good news for the Lloyds share price.

There are risks, inevitably. First, my rosy economic scenario may not come to pass, due to vaccine problems or mutant Covid strains. After years of retrenchment, Lloyds is now a shrunken entity focused on the UK, leaving it exposed to domestic troubles.

As the UK’s biggest mortgage lender, it could suffer if the current housing boom goes into reverse. The share price has disappointed for years.

That wouldn’t stop me from adding Lloyds to my ISA portfolio at today’s low share price. It remains a top income stock, and I’d aim to hold for the long term. To retirement and beyond.

The post The Lloyds share price still looks cheap to me! I’d buy it today in an ISA appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2021