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I think Lloyds shares could be a stock market crash bargain worth buying

Rupert Hargreaves
Scene depicting the City of London, home of the FTSE 100

Lloyds (LSE: LLOY) shares have been a poor investment to own this year. However, the stock could be a market crash bargain worth buying today. Its long-term growth potential and current valuation are highly attractive. 

Lloyds shares on offer 

Investor sentiment towards Lloyds shares has crumbled over the past six months. The financial giant is expected to report significant losses from the coronavirus crisis. The Bank of England’s decision to push interest rates down to a record low will also squeeze profit margins this year. 

Nevertheless, these should be temporary factors. The country’s largest mortgage lender may face higher losses in the near term. Still, in the long run, customers will continue to use the lender’s services. This should ensure that the group has a steady stream of income for many decades. 

Therefore, investors may be better off looking past near-term uncertainty. If the economy experiences a strong recovery in the second half of 2020, Lloyds shares may also recover strongly. As one of the largest banks in the UK, the group is in a great position to provide capital to businesses and customers who need it to weather the storm. This should help the company grow its bottom line despite having to deal with low interest rates. 

At the same time, figures show that UK consumers have been saving record amounts over the past few months. This may mean that Lloyds does not see the sort of loan losses that were predicted in the worst-case scenario.

If consumers deposit this cash with the bank, it could also give the company more capital to lend to customers. Once again, this might help the group expand its bottom line, despite the headwinds facing the financial sector. 

Investor returns

No matter what happens to the UK economy in the second half of 2020, it’s highly likely Lloyds shares will become a dividend investment once again. The bank entered the crisis with a lot of capital on its balance sheet. This suggests that when it is allowed, management will look to return some of these funds to investors.

Regulators demanded that banks like Lloyds suspend dividends at the height of the crisis, but now the worst seems to be over, it could only be a matter of time before this restriction is lifted. 

So overall, it is clear that Lloyds is facing a few uncertain months ahead, but the lender is well placed to capitalise on any recovery in economic activity across the UK.

As such, if the economy does see a V-Shaped rebound in the second half of 2020, the lender’s bottom line could surge. That would be a big positive for Lloyds shares. Regulators may also allow the bank to restore dividend payouts in this scenario.

All indications suggest that this stock could provide high total returns for long-term investors buying today with a low level of risk. 

The post I think Lloyds shares could be a stock market crash bargain worth buying appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.

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