LloydsBanking Group (LSE: LLOY) is the UKs most traded stock, but that is bad news for private investors because recent performance has been hopeless. That doesnt worry me quite the reverse. In fact, this is one of the reasons I put my neck on the line andtipped Lloydsas my top FTSE 100 play for 2016.
The 100 club
Membership of the so-called Lloyds 100 Club fans betting on the share price hitting 100p has dwindled, with the share price dropping 25% to 63p in the last six months. Itcontinues to fall, down 12% over the last month and 2% thisweek, and every time it does, I reckon the buy case gets even stronger.
Its a Foolish thing. Some of us here are so keen on picking up topstocks at bargain prices that we cheer in a rather unseemly fashionevery time one of our favourites takes a tumble.
Happily, I am not the only one touting Lloyds right now. Investment bank UBS has just given global banks a reality check, warning that cheap oil and black central bank policy will punish earnings, but it picked out Lloydsfor praise (along with Royal Bank of Scotland Group). UBS admires Lloyds as a capital-generative business that shouldreturn more than half its market cap in dividends and buybacks over the next five years.
Profits will also be boosted by accelerated bank branch closures, which attracts angry headlines and hurts oldercustomers, but is an unstoppable force as more customersbank online and footfall drops by 10% a year. The big boys have no choice but tocut costs if they are tocompete with UK challenger banks. Lloyds has already set its stall out, with plans to focus on digital operations, rather than physical floorspace.
Not everybody shares my liking for Lloyds. HSBC has just slashed its target price from 103p to 80p (although that still leaves27% upside from here). I can understand why, as UK interest rates arent going anywhere, making it harder for Lloyds to boost net interest margins. I am also watching the UK economy warily, asthe Bank of England downgrades growth expectations. Wages are now growing at their slowest pace since 2013, and that couldhurtLloyds, whichis largely a domestic operationthese days.
These concerns are largely reflected in todays lowprice. The drop has scuppered ChancellorGeorge Osbornes public flotation plans, as he needs a price of 73.6p to break even, but that doesnt make any difference to you. Osborne is offering a 5% discount to retail investors whoopee! butfrankly, withthestock discounted a massive30% from its 52-week high of 89p, who cares about that? Waiting for the flotation makes no sense as the share price hasto rise at least 17% before you can claim your 5% discount.
Lloyds may fall further, but with the shares now trading on a bargain price 7.7 times earnings, and with a forecast yield of 5.1% for December, you really cant gripe about todays price. Yes, it may fallfurther, but there is a strong case for locking into that futureincome stream sooner rather than later.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.