Is Lloyds share price a buy as its rally accelerates?

Summary:
• Lloyds share price has been on an upward trend. Here are the reasons the price has been gaining and the risks involved in investing in it.

Lloyds share price has been on an upward momentum in the past one month. The stock is up by more than 10% and has outperformed HSBC, whose share price has jumped by just 2%. Barclays, on the other hand has been on a tear, rising by more than 22%. So, is it time to buy shares of Lloyds bank?

Why Lloyds bank shares have surged

Generally, stocks in the FTSE 100 have been rallying in the past month. Indeed, the overall index has jumped by about 10% in the past 30 days. This rally happened at a time when most investors are pricing-in a recovery of the economy. Indeed, the manufacturing, services, and construction PMI data released this week showed some improvement in the UK.

Still, Lloyds bank shares still lag those of HSBC and Barclays. The shares have dropped by more than 44% compared to HSBC and Barclay’s decline of about 32%. Indeed, the shares have lagged these banks even on a long-term chart. In the past five years, they have dropped by 59% compared to Barclay’s 50% and HSBC 35%.

The shares have rallied in the past five days because of positive comments made by the bank’s CEO. He said that the firm can cover the bad debt that are rising because of the coronavirus pandemic.

Is Lloyds a buy?

All this leads to the question on whether Lloyds shares are a buy today. First, let us look at what analysts think about the form. The chart shown below summarizes the recent calls by sell-side firms. In a recent note, analysts at Goldman Sachs said that the shares were a sell while those at HSBC said that they were a buy. According to Marketbeat, the average ratings of the shares is at £50, which is a significant increase from the current price of £35.

Lloyds Bank Share Analysts Calls

Risks for investing in Lloyds

There is no doubt that Lloyds shares are relatively cheap today. The shares have almost halved in the past year, bringing the price to book ratio to about 0.5. At times, shares are usually cheap for a reason. There are two big risks I foresee when you are considering to invest in Lloyds.

First, unlike HSBC and Barclays, Lloyds is mostly a national brand. It does not have any meaningful revenue from outside the UK. This means that investing in it is betting for the UK economy.

Second, Brexit is a major risk for the bank. If Johnson fails to request for an extension, the result could be catastrophic for the bank. While its key peers like Standard Chartered, Barclays, and HSBC would be hurt, earnings from overseas would help to offset the pain.

Finally, Lloyds does not have any trading revenue. In a recent statement, Deutsche Bank said that momentum in the FICC segment was increasing. This means that the same could be happening for Lloyds peers like Barclays that have vast trading segments.

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Lloyds share price technical forecast

On the daily chart, we see that Lloyds share price has been in an upward trend and is approaching the 23.6% retracement level at 38.86. Also, it is trying to move past the psychological level of 35.0. The price has also moved above the 50-day exponential moving averages. This means that the price may continue to rally in the short term as bulls attempt to test 38.86.

On the flip side, a move below the 50-day EMA at 33 will signal that there are still more sellers in the market.