Lloyds shares or Barclays stock: which would I buy?

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At the end of June, I counted at least 40 banks that were listed on the London Stock Exchange. These range from one mega-bank with a market value exceeding £100bn down to tiny regional businesses with modest market caps. What’s more, I see deep value hiding in some of the UK’s biggest retail banks. For example, I’ve kept a close eye on Lloyds Banking Group (LSE: LLOY) shares and Barclays (LSE: BARC) stock for at least 12-18 months.

I’m drawn to these two particular banking stocks for several reasons. First, both are household names with fairly easily understood business models. Second, both have strong balance sheets (in response to the global financial crisis of 2007-09). Third, their shares look cheap to me right now. But which of the two would I prefer to buy, Lloyds or Barclays?

I like Lloyds shares

The Lloyds share price has been on a rollercoaster ride since Covid blew up 2020. Here’s how the shares have performed over five different timescales:

One month 0.4%
Six months -14.6%
One year -6.7%
Five years -34.6%

It’s clear Lloyds stock has lost some value over six months and one year. However, it’s down more than a third over five years — a period during which the FTSE 100 index fell just 1.3%. All figures exclude dividends, but these sustained price falls have still dragged down Lloyds’ fundamentals to the point where they look temptingly cheap to me. Here they are:

Share price 43.23p
52-week high 56p
52-week low 38.1p
Market value £29.6bn
Price/earnings ratio 5.8
Earnings yield 17.3%
Dividend yield 4.6%
Dividend cover 3.7

As the table shows, based on Friday’s closing price of 43.23p, Lloyds shares offer a double-digit earnings yield and a dividend yield above that of the FTSE 100 as a whole, with very good dividend cover. To me, these are the hallmarks of a classic value share. However, the numbers are based on trailing — or backward-looking — results.

Alas, I expect Lloyds’ earnings to decline in 2022-23, driven down by various factors out of its control. These include red-hot inflation (especially for oil and fuel), rising interest rates, a global economic slowdown or recession, and the war in Ukraine. But perhaps many of these fears may already be baked into the current Lloyds share price?

Barclays is another bargain

Here’s how Barclays stock has performed over the same four time periods:

One month -0.3%
Six months -19.6%
One year -6.7%
Five years -22.9%

The stock has followed a broadly similar trajectory to Lloyds, falling over all four timescales. Here are Barclays’ fundamentals:

Share price 157.84p
52-week high 219.6p
52-week low 140.06p
Market value £25.8bn
Price/earnings ratio 4.5
Earnings yield 22.2%
Dividend yield 3.8%
Dividend cover 5.8

As you can see, Barclays has similar value characteristics to Lloyds: a high earnings yield and a well-covered cash dividend. However, unlike the Black Horse bank, the Blue Eagle bank has an investment-banking division, whose earnings can be volatile and unpredictable. This may explain why Barclays appears even cheaper than Lloyds at present.

Which stock would I buy now?

My honest answer to my title question is I would buy both shares for their value features. In fact, I recently bought into both banks — and I’d happily buy even more shares at these price levels!

The post Lloyds shares or Barclays stock: which would I buy? appeared first on The Motley Fool UK.

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Cliffdarcy has an economic interest in Barclays and Lloyds Banking Group shares. The Motley Fool UK has recommended Barclays 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.