Lloyds Banking Group plc (LYG): Did This Bank Penny Stock Meet Expectations in Q1?

We recently compiled a list of the 10 Best Bank Penny Stocks to Buy Now. In this article, we are going to take a look at where Lloyds Banking Group plc (NYSE:LYG) stands against the other bank penny stocks.

The US banking sector in 2024 faces various challenges and opportunities. Although the industry has recovered from the bank failures of early 2023, it now deals with a slower economy, tighter regulations, and the possibility of interest rate cuts, all of which present risks for the sector.

In the past year, the US banking sector observed the collapse of a couple of well-known banks, which led to uncertainty in regional bank stocks. When considering the broader context, last year's bank closures were not particularly notable in terms of quantity. The year's total of five closures pales in comparison to 2009 and 2010, which saw 140 and 157 closures, respectively. However, 2023 stood out due to the substantial total assets of the affected institutions, primarily driven by the significant sizes of First Republic Bank, Silicon Valley Bank, and Signature Bank.

The banks were also heavily funded by uninsured deposits, as a significant portion of their customers held deposits exceeding the FDIC insurance limit of $250,000. This increased their risk during sector volatility. Despite these closures and the following instability, many bank stocks regained stability and ended 2023 with positive returns.

The economic outlook indicates slower growth and the possibility of a rate cut in 2024. This may result in a dip in bank profitability, although it is expected to remain strong, with an anticipated return on common equity ranging from 10% to 11%. Moreover, asset quality is predicted to weaken but should remain manageable, with strong pre-provision earnings providing support.

There are economic risks to consider, including the potential for a recession if the Federal Reserve is not careful enough with rate cuts, as well as the persistent threat of inflation that could result in prolonged high rates. Moreover, credit card charge-offs are anticipated to rise. However, banks with more diversified deposit bases and fewer uninsured deposits are less likely to face high risks as compared to those with more uninsured deposits. Regulatory changes, including the finalization of new capital and resolution requirements, may be implemented in 2024 in response to the banking failures of the previous year.

Despite these challenges, the banking sector is expected to maintain strong profitability and capital buildup, aided by a potentially more favorable rate environment later in the year. Moreover, there are potential investment opportunities in regional banks perceived as undervalued. With this context in mind, let's take a look at the best bank penny stocks to buy now.

Our Methodology

To compile a list of the 10 best bank penny stocks to buy, we conducted an in-depth analysis. Our first step was to identify banks with share prices below $5. To assess their investment potential, we examined the number of hedge fund investors in these banks during Q1 2024. We used Insider Monkey's database of over 900 hedge funds to rank the best bank penny stocks according to the hedge fund sentiment.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

An aerial shot of a business district with the company's headquarters towering above its competitors.

Lloyds Banking Group plc (NYSE:LYG)

Number of Hedge Fund Holders: 12

A prominent U.K. financial institution since 2009, Lloyds Banking Group plc (NYSE:LYG) offers a comprehensive suite of banking and financial services. Through dedicated divisions, the company serves individuals and businesses of all sizes. Retail customers get everyday banking solutions, while Commercial Banking caters to mid-sized and larger companies. Meanwhile, Insurance & Wealth helps clients with financial planning, and the "Other" segment covers trading activities and one-time gains.

Lloyds Banking Group plc’s (NYSE:LYG) Q1 2024 results met expectations despite a slight dip in profitability. The company’s other income rose by 7% due to increased activity and strategic initiatives. Asset quality remained strong with a low impairment charge. Loans and deposits experienced minor reductions.

Lloyds Banking Group is expected to generate an additional 300 million pounds ($380 million) in annual revenue from its UK business banking unit by 2026, according to CEO Charlie Nunn. This forecast comes as corporate confidence in Britain rises despite existing challenges.

Analysts' price targets for Lloyds Banking Group plc (NYSE:LYG) stock are clustered around $3, with a high of $3.53 and a low of $2.49. This suggests an upside potential from the current price levels. Moreover, 9 analysts have given a rating of “Buy” to Lloyds Banking Group plc (NYSE:LYG) stock.

Of the 920 funds being tracked by Insider Monkey at the end of Q1 2024, 12 reported owning a stake in Lloyds Banking Group plc (NYSE:LYG). English Capital Management was the leading hedge fund investor letter in the company.

Overall LYG ranks 4th on our list of the best bank penny stocks to buy. You can visit 10 Best Bank Penny Stocks to Buy Now to see the other bank penny stocks that are on hedge funds’ radar. While we acknowledge the potential of LYG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LYG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.