Are Lloyds shares bargain buys at under 50p?

Young Black man sat in front of laptop while wearing headphones

Image source: Getty Images

Despite a strong start to the year, Lloyds (LSE: LLOY) shares have struggled in recent times following the issues we’ve seen in the financial sector and the impact they’ve had on investors’ confidence. In the last month alone, the stock has dropped by over 6%. More widely, the last five years have been pretty bleak, with the FTSE 100 bank down over 25%.

Despite this, with the stock trading hands below the 50p mark, I think now could be a smart time to snap up some shares. Here’s why.

Rate hikes

While inflation has wreaked havoc in the market for the last year or so, Lloyds has benefited from the rises in interest rates that have been put in place as a result. With inflation continuing its surge in the UK (figures for February came in hotter than expected), the Bank of England has been tightening its monetary policy, with the base rate now at 4.25%.

Lloyds has been a beneficiary of this, as higher rates have allowed the bank to charge customers more when borrowing. For 2022, its underlying net interest income jumped by 18%. And with the Bank expected to hike rates until at least the summer, Lloyds should continue to reap the rewards.

Inflation concerns

That said, higher inflation isn’t all good news for the business.

First, with inflation still sitting above 10%, the UK is faced with the constant threat of a recession. Clearly, this wouldn’t be good news for Lloyds. And with its sole focus on the UK, it’s at risk more than many of its competitors.

Second, while it’s benefited from the BoE’s actions, higher rates mean it’s more likely that customers might default on loan payments. Again, this could have a detrimental impact on Lloyds’ performance in the near future.

The positives

Despite this, there are still plenty of reasons to like Lloyds. The stock offers a dividend yield of nearly 5%.

And with inflation not expected to fall back to average levels until later this year, the passive income generated from investing in it could come in handy.
Story continues
The stock also looks cheap to me.

It currently trades on a price-to-earnings ratio of under 7, which is around half that of the FTSE 100 average. On top of this, I also think the business is safe from the troubles we’ve seen in the past few weeks with other banks. Its CET1 ratio, which compares its capital against its risk-weighted assets, sits at 14.1%, above its 12.5% target.

Lloyds also has plenty of cash available, highlighted by its recent announcement of a GBP2bn buyback scheme.

So is the stock a bargain?

At under 50p, are Lloyds shares a bargain in that case? I think so. The bank is set to continue to profit in the months ahead if interest rates continue to rise.

And with its strong dividend yield and low valuation, I deem it a smart buy. I already own Lloyds shares. And while I’d be keen to top up my holdings at its current price of 48p, I don’t have the spare cash at the moment.

Should this change in the near future, I’ll most certainly be rushing to buy some more shares! The post Are Lloyds shares bargain buys at under 50p? appeared first on The Motley Fool UK. More reading

Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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 2023

airport-taxis listed on couponmatrix.ukalex-and-alexa listed on couponmatrix.ukgold-standard-nutrition listed on couponmatrix.ukjigsaw listed on couponmatrix.uklush listed on couponmatrix.uk11-degrees listed on couponmatrix.uk
airport-taxis listed on couponmatrix.ukAirport Taxis are a professional and affordable service that is dedicated to getting its customers to and from airports. They offer people the convenience of getting picked up from their own home and dropped off at the airport of their choice for their business trips and holidays. You will have a great choice of vehicles and you can get a price quote straight away on their site. Using Groupon discount codes for Airport Taxis will let you get your trip of to the best start by saving money. The price of a taxi might be something you think about avoiding, but when you consider the cost of fuel and parking at the airport you won’t be saving much if anything. Take into account the savings you can make with an Airport Taxis discount code from Groupon and there will be nothing in it. Simply type the details of where you want to be picked up from and where you are going. You will then be given prices for a single or return trip for your choice of vehicles. After choosing that you will then need to enter the head passengers name and contact number, how many passengers will be travelling and with what luggage. Pop in the dates and times and you will be good to go.
alex-and-alexa listed on couponmatrix.ukDress your little ones to impress with Alex and Alexa. This kidswear brand is the global style destination for boys and girls - combining cutting edge looks with baby-friendly designs, it’s the perfect pick for luxury looks that are still comfortable and functional. With an Alex and Alexa discount code from us, you can save on picks from big names like Chloe, Stella McCartney and Lacoste. Embrace your little one’s personality with Alex and Alexa!
gold-standard-nutrition listed on couponmatrix.ukGSN is affordable, loaded with protein and nutrients, and it reduces meal prep down to a measly six minutes. If you care about fitness but often find yourself short of time, this one’s a no brainer! Whether it’s the Gold Standard Nutrition Pots O Gold or the convenient protein bars for nutrition on-the-go, we’ll help you save money at GSN with a Gold Standard Nutrition discount code to reduce the order total. Try out these high-protein meals and snacks for a well-balanced diet that unlocks more free time – the bundle discounts could save you a fortune!
jigsaw listed on couponmatrix.ukFashion is temporary, but style is permanent. At Jigsaw, you’ll discover stylish, high-quality clothes at affordable prices, so you stay looking timeless for years to come. Stand above the trends with a Jigsaw discount code and adorn your wardrobe with immaculate fashions for every season. With dedicated accessories and footwear collections, plus new lines added each week, you can express your personality to perfection.
lush listed on couponmatrix.ukLush has revolutionised the cosmetics world with their famously effective cruelty-free products. From fizzing bath bombs to hard-working hair treatments, Lush products are 100% handmade, 100% vegetarian and 100% free from animal testing. Treat yourself with a Lush discount code and discover the sweet-smelling world of natural cosmetics. Fresh and environmentally friendly, with a touch of indulgence - what’s not to love?
11-degrees listed on couponmatrix.uk11 Degrees was started in 2014 by Geordie Shore legend Gaz Beadle, and just as the popular reality show defied expectations to become an ongoing nationwide hit, the business has gone from strength to strength too. The team behind the wildly popular merchandise on offer - that you can buy at a substantial discount using the 11 Degrees discount code - have got their finger firmly on the button when it comes to durable, urban chic that instantly sets you apart as a true player.