Lloyds shares have jumped 25% in 3 months, but still look cheap to me

Lloyds (LSE: LLOY) shares are showing signs of life after jumping almost a quarter in the past three months. This is not the only one FTSE 100 shows that it is also an all-time high elimination index, but I think there is more to come.

Investors in the UK’s benchmark blue-chip index have every right to feel optimistic today. But those like me who prefer to buy stocks when they are cheap, rather than going up too high, are also a bit wary.

FTSE 100 shares are back

I went on a FTSE 100 shopping spree last autumn and every stock I bought has jumped since then. persimmon (28.82%), Rio Tinto (14.42%) and Rolls-Royce (31.08%) all give instant gratification. The last deposit I bought was Lloyds itself, and I am now up 8.74%.

When I look at the index today, I don’t see as many stone cold buying opportunities as I did three or four months ago. But Lloyds still got hold of me. The stock still trades at just 7.1 times earnings. The price-to-book ratio is 0.7 (where 1 is seen as fair value). It’s not as cheap as it used to be, but it’s still cheap.

It’s the same story with dividends. While the yield has dropped to 3.8%, it is still handsomely covered by 3.8 times earnings, and the future is bright. Lloyds shares are forecast to return 5.2%, and the cap will remain comfortably at 2.7. I’m looking forward to receiving dividend payments so I can plow them back into Lloyds shares.

While the stock price has done well lately, it is still down 0.21% measured in one year and 21.17% in five years. This ship has not yet sailed.

I don’t expect Lloyds to be ahead in 2023. We all know how troubled the UK economy is. While higher interest rates allow banks to expand their net interest margins, they also put pressure on the housing market.

Long-term buy-and-hold for income and growth

Lloyds cannot hope to combat the slowdown at home with overseas expansion, given its high domestic exposure. This is a British bank, and Britain is not an economic powerhouse.

On the other hand, I think the torture is overdone. We saw that on Friday, when the UK didn’t go into recession after all of last year (although it did come close).

Property sales and house prices may be falling, but as mortgage rates ease, the market may not be able to break even. Also, blue-chip dividend aristocrats like Lloyds are finally receiving the interest they deserve from investors now that the US tech boom has lost its glamour.

I see the current issue as a buying opportunity, rather than a threat. As I said, I like to buy stocks when the outlook is bleak and the price is low. It’s better than when it was booming and investors bid up the price. Lloyds is in that position today.

I will not add to the holding. But that’s only because I have enough exposure from new purchases and want to diversify into other sectors. But I think Lloyds is still a buy at today’s price of 53.01p.