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Lloyds Banking Group (LSE: LLOY) shares remain stubbornly low, at around 50p. And the 2023 price rise has started falling back.
Still, we’re looking at a forward price-to-earnings (P/E) of only around 7.5, with dividends yields around 7%. Lloyds shares have got to be a buy, right?
I suggest three reasons why investors might prefer to sell.
Barclays
Did you see what just happened to Barclays shares? They fell nearly 8% after FY22 results on 15 February. The figures weren’t too far away from expectations. A big lending boost from higher interest rates didn’t really materialise as hoped though.
The bank’s 2023 outlook seems to be the most disappoint thing. Barclays saw its return on tangible equity (RoTE) drop from 13.1% to 10.4% in 2022. And all it now expects from 2023 is “greater than 10%“.
That doesn’t exactly paint a rosy picture for the banking sector in the coming year.
Interest rates
Higher interest rates should mean bigger lending margins for banks. But we’ve seen Barclays not getting much of a boost, and I think I’d expect Lloyds to perform worse on that measure.
It’s because Lloyds is the UK’s biggest mortgage lender, and interest rates are hitting mortgage repayments. It’s no good hoping for better margins if mortgage holders are defaulting.
And we don’t yet know what effect the property squeeze will have on homebuyers taking out new mortgages this year. On balance, I’d say high interest rates are probably not good for Lloyds.
Uncertainty
Perhaps the biggest reason to sell Lloyds shares is uncertainty. I can definitely sympathise with that. The economic outlook is poor, to say the least. Britain might have avoided a technical recession in 2022. But the chances of doing the same in 2023 seem slim.
And aren’t people like me always banging on about not buying shares in things we don’t understand? If anyone really understands the prospects for the financial sector in 2023, they know a lot more than I do.
For investors averse to risk, Lloyds shares really might not be the ideal investment to go for.
Why not?
So why won’t I sell Lloyds shares? Well, Barclays did indeed post disappointing results. But on 17 February, NatWest reported its biggest profit since 2007. Disappointingly though, with a lukewarm outlook, its shares lost 7% in early trading.
But this is all about 2023 anyway, and should surely only be of interest to people seeking short-term gains. For those investors, I don’t predict a successful year.
And then there’s the interest rate thing. Again, I don’t really care about one-off things that are only around for a relatively short time. I fully expect inflation and interest rates to fall, and for mortgage lending to get back in full swing.
Best times
And what better time to buy when uncertainty is driving so many investors away from the stock market? And away from financial stocks like banks specifically? It makes shares cheaper.
I think bank shares will rise in the long term, and dividends will keep on coming. And I reckon times of uncertainty are the best times to buy, not sell.
