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Some of the world's largest investment banks have been lowering their price targets to Lloyds Banking Group (LSE:LLOY) shares. These include Goldman Sachs and citi group.
There are reasons why analyst sentiment has become more bearish recently. But I think the time to buy stocks is when other investors don't want to. So should I turn to Lloyds for my portfolio?
Goldman: uncertainty over auto loans
Goldman Sachs has reduced its price target from 64p to 63p. The main reason for this is the uncertainty over the final outcome of the ongoing investigation into auto loans.
Last year, Lloyds set aside £450m to cover potential liabilities. And although the case is still ongoing before the UK Supreme Court, the possibility of this spreading to other loans increases the risk.
As a result, Goldman analysts have lowered their price target to account for the unpredictability. But with the stock still trading below 55p, as I write, it is still well below the revised estimate.
However, it is worth noting that car loans are not the only potential challenge for Lloyds at the moment. There is also the possibility of considering lower interest rates as the year 2025 approaches.
Citigroup: internal risks
At the start of the year, analysts at Citigroup gave a Buy rating to Lloyds shares (despite the car loan risk). However, they are now much less positive, with a price target of 56p.
As the new year approaches, HSBC It is Citi's preferred British bank. And that's mainly because it has less of a UK focus than companies like Lloyds, which is facing a challenging economic environment at the moment.
House prices have been rising through 2024. And while they are still below their 2022 highs, this is likely to impact demand for mortgages.
The Bank of England's interest rate cut could help overcome this difficulty. But this is likely to replace one problem with another, as lower rates typically cause lending margins to tighten.
Is it time to be greedy?
Importantly, Lloyds still maintains its competitive advantage intact. The bank has the largest market share of retail deposits in the UK, giving it a cost advantage when funding its loans.
From a long-term perspective, this is potentially the most important thing. And that raises the question of whether you should consider buying shares now.
I think the potential auto loan liability is much more important than the macroeconomic issue. That's because, as Goldman analysts point out, it's nearly impossible to estimate accurately.
However, the lower Lloyds' share price falls, the more it offsets this risk. And in the long term, I think the structural advantage Lloyds still has matters far more than the short-term risks it faces.
Why am I not buying?
While I don't disagree that Goldman has a price target well above the stock's current level, I'm not willing to buy it. The reason is relatively simple: there are other opportunities that I like even more.
For my own portfolio, I'm looking to focus on these. But I will be keeping an eye on the Lloyds share price as things progress and I don't rule out the shares reaching a level that I think is too cheap to ignore.
