UK Markets closed

Lloyds share price still rising! Time to cash in or load up?

Tom Rodgers
Hedge shaped as the pound symbol inside a glass piggy bank

Long-suffering investors can’t be blamed if they’ve taken profits from the recent stunning rise of the Lloyds share price.

A 12% jump in the Lloyds Bank (LSE:LLOY) price on the back of positive Brexit noises saw many investors cash out. After all, the share price is creeping back towards the 2019 high of 66p last seen in March.

The bank’s fortunes are closely linked to the price of the pound, given its strong UK focus. And Lloyds is seeing the benefit from the possibility that all the Brexit pain we’ve had to suffer could be over.

Boris Johnson now reckons he’s got a deal the EU can stomach, even if there are rumblings in the background from the DUP over the Good Friday agreement.

Buy or sell?

Lloyds Bank is the cheapest share of all the FTSE 100 companies. It dipped under 50p in the summer, which means a low barrier to entry for retail investors.

It’s also considered a bellweather for the state of the British economy at large, so if Lloyds is doing well, confidence in the market is generally higher.

At a trailing price-to-earnings ratio of 11.1, the Lloyds share price still looks super cheap to me. Especially when you consider that the analysts reckon there’s much more upside to come in the event of a positive Brexit deal.

I would wager there’s quite a large proportion of UK investors sitting on cash piles right now, waiting for the tipping point when confidence shakes loose and stocks begin to soar.

Watch the numbers

Having to pay out a lot more than it thought to settle PPI claims was a blow to the bank’s bottom line: a rush on claims for the 29 August deadline saw bosses forced to set aside another £1.8bn. The total cost of this debacle could reach £20bn for Lloyds alone.

However, figures in the latest results were not bad at all. Good performance across the 2019 first half saw dividends rise 5% higher, operating costs cut by 3%, meaning more cash on hand, with tangible net assets per share of 53p.

After-tax profits of £2.2bn were backed by a strong return on equity of 11.5%. These are all numbers I like, and I can’t fathom why the market has been so sour on the Lloyds share price. Well, that’s not strictly true, I can. As investing hero Warren Buffett famously said: “The stock market is a manic depressive,” in that it totally overreacts to the slightest whiff of bad news.

What now?

UK bank stocks are going into a crucial period: in the next two weeks each of Barclays, HSBC, Royal Bank of Scotland and Standard Chartered are due to report earnings, while the Lloyds Q3 results are coming out on Thursday 31 October.

A dividend yield of 5.2% means Lloyds is outpacing the FTSE 100, so that’s just one more reason to hold.

If I owned the Lloyds share price I’d be hanging on right now. Skim off a few profits, sure, but if you don’t have to, don’t sell.

More reading

Tom owns no 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 2019