Global stock markets are in turmoil and Lloyds (LSE: LLOY) shares are feeling the heat, like many others. I reckon this makes now a great time for me to buy them.
My favourite time to buy top FTSE 100 stocks is when they have fallen in value through no fault of their own. That allows me to buy a good company at an unfairly low price, rather than a bad company at a deservedly low price.
I’d buy Lloyds shares in today’s turmoil
I don’t like buying stocks after profit warnings. That suggests the underlying business is in a poor state and the recovery process could be lengthy. I don’t like buying them in the middle of takeover speculation, either. All too often that proves to be hot air, inflating a bubble that deflates just as quickly.
Lloyds shares have fallen 11.65% in the past week, in a period when the company has not delivered any significant news. In fact, its last meaningful announcement was two months ago on 27 July, when the bank published its half-year results.
They showed a healthy 65% increase in net income to £7.2bn. Pre-tax profits fell 6% to £3.6bn, but that was because the previous year’s earnings were boosted by the release of cash set aside to cover bad Covid debts that never materialised.
The outlook was promising for Lloyds Banking Group, and the company can hardly be blamed for the current sell-off. That is down to last week’s controversial mini-budget by Chancellor Kwasi Kwarteng.
It sparked a meltdown in the pound and global investor confidence in the UK. The FTSE 100 has fallen by 3.82% in the last five days, while financial services sector rival Barclays is down 8.82%.
I have been looking for a good time to buy Lloyds shares and now I think I’ve found it. They look cheap, trading at 5.77 times earnings. The price-to-book value is just 0.6, where a figure of 1 is considered fair value.
Lloyds stocks offers an attractive passive income stream, too. The current yield is 4.6%. It is forecast to rise to 5.3%, as management continues to restore dividends. That payout is expected to be covered three times by earnings, and looks solid.
It’s another FTSE 100 bargain
Of course, there are huge dangers. The UK is plagued by what the Bank of England calls “dysfunctional markets”. Interest rates could fly as high as 6% in the spring, leading to a sharp rise in mortgage arrears and bad debts. House prices could fall, triggering a vicious circle.
Lloyds is fully exposed to the UK’s ailing economy, because it is now a purely domestic bank, focusing on consumers and small businesses. Yet rising interest rates could partly work in its favour. They will allow Lloyds to increase net interest margins, the difference between what it pays savers and charges borrowers.
I plan to buy Lloyds shares over the next few days despite the risk that they may have further to fall. The next few months will be bumpy, but I’m not investing for months. I aim to hold this stock for years, or ideally, decades. Lloyds looks like a solid company going cheap. I’ve waited enough. This is my moment to buy it.