So far, 2021 has been a good year for US financial stocks, including banks. Both the as are up 20% and 26% respectively so far.
Similarly, the UK banking sector has shown a strong recovery since the early days of the pandemic. So today we are looking at member Lloyds Banking Group (LON:) (NYSE:).
Lloyds is one of the largest banks by market capitalization on the UK main index. Others are HSBC (LON:) (NYSE:), Barclays (LON:) (NYSE:), NatWest (LON:) (NYSE:) and Chartered by default (LON:) (OTC:).
This is how the shares of these five banks did in 2021:
LLOY: an increase of 28%;
HSBC: up 11%;
BARC: up 17%;
NWG: an increase of 21%;
STAN: up 0.5% (i.e. flat).
On June 24, LLOY shares closed at 47.20p ($2.6 for US-domiciled stocks). The current price supports a dividend yield of 1.21% and the market cap is £33.5 billion (or $46.6 billion). : Retail, commercial banking and insurance, and wealth. It serves approximately 30 million customers under 13 brands, including Lloyds Bank, Halifax, Bank of Scotland and Scottish Widows.
The UK's largest bank released its first quarter trading figures and statistics on April 28. Total revenues fell 7% year-on-year to £3.64 billion (or $5.06 billion). Pre-tax profit was £1.8 billion (or $2.5 billion), up 338% year-on-year, while after-tax profit was £1.3 billion (or $1.8 billion), an increase of 60% on an annual basis.
The red-hot housing market was the main catalyst for mortgage portfolio growth. Overall, the latest numbers beat market expectations and made many investors more optimistic about the Lloyds share price than they ever were.
CEO Antonio Horta-Osorio noted:
“… the underlying asset quality of our various portfolios has remained strong with a favorable credit experience. While uncertainty remains, the UK economy is performing better than expected thanks to a very successful vaccination program.”
Horta-Osorio had already announced his retirement, starting in the coming weeks. The bank has named Charlie Nunn as its new CEO.
Starting point
Banking remains a cyclical sector. Investors focused primarily on growth are generally not big fans of FTSE 100 bank stocks. The Great Recession of 2008-09 and domestic banking scandals have proven to be highly volatile and therefore risky investments.
Yet the recent Q1 data and positive momentum in 2021 make us more optimistic about equities than usual. Recent announcements from the UK government also show that the economy could recover faster than initially expected. In the summer months, consumer spending is likely to increase and most businesses will return to normal.
The forward P/E and P/S ratios of LLOY stocks stand at 8.61 and 2.09, respectively. Combined with the current low price-book value of just 0.69, we think the share price could continue to rise.
However, given how far stocks have risen so far in 2021, profits can be made in the short term as well. Interested readers would find a better value around 45p or even lower. Before the end of the year, LLOY stock could attempt to hit the 55p level seen before the start of the pandemic in early 2020.
Finally, investors who don't want to invest their entire capital in Lloyds stock, but are interested in bank stocks, may want to consider an exchange-traded fund (ETF). Examples are:
Invesco KBW High Dividend Yield Financial ETF (NASDAQ:) – Up 25.3% YTD;
iShares Global Financials ETF (NYSE:) – up 19.3% YTD;
SPDR® S&P Bank ETF (NYSE:) – up 23.6% YTD.
Lloyds shares have delivered the highest returns among these leading banks. The 52-week range was 23.58p-59.94p.
