Why I’d buy Virgin Money and Lloyds Bank shares right now

Why I’d buy Virgin Money and Lloyds Bank shares right now

The Motley Fool  | Jun 01, 2020 16:10

Why I’d buy Virgin Money and Lloyds Bank shares right now

A lot of FTSE 100 stocks have started recovering from the Covid-19 stock market crash. Sadly, that doesn’t include Lloyds Banking Group (LSE: LON:LLOY). Lloyds bank shares are still hovering around the 30p level, 50% down since the start of the year. By comparison, the FTSE 100 itself has pulled back to just a 19% drop over the same timescale.

The Lloyds share price has actually picked up a little since its lowest point in the crash. It’s up 18%, which would be a nice gain in more normal times. But that’s not much comfort for long-suffering Lloyds shareholders (like me). And we don’t even have our dividends to tide us over, now the banks have all suspended them.

We can’t blame the pandemic lockdown for all of the woes, though. Lloyds Bank shares were already under pressure from a slowing housing market and the resulting weakness in retail banking demand. And then we had Brexit too, that ogre that the country seems to have conveniently forgotten at the moment. With EU negotiations on the back burner while we fight the virus, no progress has been made, and the sides seem as far apart as ever.

Lloyds Bank shares That doesn’t bode well for banking stocks in general, or for Lloyds Bank shares specifically. But, though out economic outlook has genuinely been getting gloomier, I remain convinced that markets have overreacted. I really do see Lloyds shares as oversold and undervalued. In the medium term, I expect a recovery at least to 50p levels, and a resumption of the dividend. I’ll be happy with that.

Challenger The Virgin Money (LON:VM) (LSE: VMUK) share price is also down around the same 50% as Lloyds Bank shares since the start of the year. But it did initially drop lower than Lloyds, so the comeback looks more impressive in percentage terms. At one point, the price was down a scary 75%, and Virgin Money shares have doubled in value since then.

Challenger banks are potentially open to greater risk than the much larger established banks. They just don’t have the same cash reserves as the big players. But they don’t have the same risk of legacy bad debt either, so that’s an upside. Still, I’d always expect Virgin Money shares to be more volatile than Lloyds Bank shares in tough economic times. And the smaller weight of the challenger banks, with the agility that can be a boon in bullish times, can quickly turn to look more like a liability.

Two strong buys But when I examined Virgin Money a month ago, I though its liquidity was easily enough to get it through the crisis. With little chance of the bank going bust, in my view, I thought the shares were cheap. The price has only edged up around 4% since then, and I still rate Virgin Money a buy.

But that’s not in preference to Lloyds. I’d buy more Lloyds Bank shares too.

The post Why I’d buy Virgin Money and Lloyds Bank shares right now appeared first on The Motley Fool UK.

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended 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.

Motley Fool UK 2020

First published on The Motley Fool

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.

';