Is the Lloyds share price outstanding value or a value trap?

first_img G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Diageo and 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. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Our 6 ‘Best Buys Now’ Shares Image source: Getty Images I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Enter Your Email Address The ‘Boris bounce’ didn’t last long for Lloyds (LSE: LLOY). Its share price peaked at 67.25p on 16 December, the Monday after the general election. By mid-January, it was back below 60p. The market evidently had second thoughts about the FTSE 100 bank’s prospects long before its results last week and the broad market sell-off this week.The shares closed yesterday at 52p. Most brokers, analysts and media tipsters are bullish on the stock, as they have been for years. Indeed, a majority reckon it offers outstanding value. Against that, a not insignificant minority argue it’s a value trap. I’ve been in the latter camp for a good while. But I think it’s now quite a conundrum. I’m asking myself if it could finally be time to back the Black Horse.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…CheapPurely on the common numerical indicators of value, Lloyds looks cheap. The current share price is 1.02 times the tangible net asset value (TNAV) of 50.8p a share reported in its results.It’s at 14.9 times earnings of 3.5p a share. And with earnings forecast to zoom to 6.8p this year, the multiple comes down to just 7.6.Meanwhile, a dividend of 3.37p gives a yield of 6.5%. And this is expected to rise to 6.7% this year on forecasts of an increase in the payout to 3.5p.As I say, Lloyds looks cheap.Economic cycleBanks are highly geared to the health of the wider economy. As such, they fare badly in an economic downturn. There’s a risk the spread of the coronavirus could tip the global economy into a recession, and a risk the Brexit divorce could spark a UK recession too.Even if neither happens, Lloyds will face a recession at some point. And with the current economic cycle looking long in the tooth by historical standards, a recession is looming ever closer on the horizon. Furthermore, with UK consumers and businesses over-indebted and under-saved like never before, this recession could be a particularly severe one.Rising bad debtsInsolvency specialist Begbies Traynor has been tracking the health of the UK economy since 2004 in its quarterly ‘Red Flag Alert’ reports. The latest shows that at the end of 2019, almost half a million UK businesses were in “significant financial distress” — the highest level since its reports began.Lloyds’ latest results, may be an unpleasant taste of things to come. It reported a 38% rise in bad debt impairments to £1.3bn (on a pre-impairment profit of £8.8bn). In the last recession, impairments reached £16.7bn.Here’s what I’d buyLloyds undoubtedly looks cheap on the valuation metrics. I’m almost tempted, but at this stage of the economic cycle I’m still more inclined to see it as a value trap, and to avoid it. Particularly, as the recent market sell-off means many quality defensive businesses are now trading at attractive valuations.If I was in the market for blue-chip stocks today, I’d be buying Diageo, GlaxoSmithKline and Unilever (among others). Plus one or two of my favoured recovery prospects, notably BT.center_img Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Simply click below to discover how you can take advantage of this. Is the Lloyds share price outstanding value or a value trap? “This Stock Could Be Like Buying Amazon in 1997” G A Chester | Wednesday, 26th February, 2020 | More on: LLOY See all posts by G A Chesterlast_img

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