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Company Lloyds Group (NYSE: LYG)
Submitted By: Tad40
Member Rating: 99.25
Submitted On: 10/11/2010
Stock Price At Recommendation: $4.64

Lloyds' Profile

CAPS Rating (out of 5)



London, UK



Market Cap

$78.2 billion



Citigroup (NYSE: C)

Allied Irish Banks (NYSE: AIB)

Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.

This Week's Pitch:
Lloyds shares have been doing far worse than Barclay's [(NYSE: BCS)] or the Royal Bank of Scotland [(NYSE: RBS)] since January 2009.

But there's something the general public doesn't know: The government will be selling ALL its stock in this bank in early 2012.

Right now, the government is the only thing standing in the way of this bank giving shareholders a very big cash check. But when the government can no longer veto what this bank does with its money, shareholders will be getting a huge surprise in the mail.

The bank is Lloyd's, headquartered in London, England and listed on the New York Stock Exchange under LYG. Why does Lloyd's have so much money that it's dying to give some of it away? Two reasons.

For openers, it's good at raising money. It raised some of that extra $14.4 billion it currently has on hand by itself. And it wants to raise $40 billion this year. (So far, it's on track, with $29 billion already collected.)

It's also making a lot of money. Its pre-tax profit last quarter was $2.6 billion.

A year earlier, it still hadn't recovered from the big financial crisis in the West and the initial hit it took from purchasing mortgage lender HBOS (think Bank of America's takeover of Countrywide) – and it was in the red for $6.3 billion.

But Lloyd's is coming back and coming back strong.

And while the UK and the whole of Europe, except Germany, are scuffling, Lloyd's is upbeat. Its CEO, Eric Daniels, said recently, "Our [economic] forecasts are below consensus and we are NOT dependent on a faster recovery for our growth story."

Sometime next year, the "secret" I just told you will get out. People will learn that Lloyd's is sitting on a mountain of cash that it's planning to give back to shareholders as soon as it can. Once the average shareholder knows that, forget it. Lloyd's price will start to skyrocket and it'll be too late for you to invest.

You need to invest right now. If you think it's a little early, I have news for you. It's never too early to invest in a great bargain. And Lloyd's is just that. Its price-to-earnings ratio based on what it's expected to make in the next 12 months is 7.3. The average price-to-earnings ratio of big banks (based on their recent earnings) is 22.45. Lloyd's is going for about a 70% discount.

And its price-to-book ratio is 1.03. In other words, you're paying for the net price of Lloyd's assets. The business is free. Plus, its growth rate should easily be in double digits next year.

Early? I don't think so.

This is a company with lots of cash that's growing fast. You'll be getting in ahead of the crowd. That's how you make the big money. And you'd be getting in at a 70%-80% discount. While you wait for your big payoff, Lloyd's should be going up by at least half that amount, 35%-40% and perhaps more.

Not only that, but when Lloyd's pays out those big cash checks, you'll be first in line to receive yours.

Nobody is noticing that this "poor" bank is burdened with too much cash and no way to get rid of it. Lloyd's wants to make you happy in early 2012, but they can't do it unless you're a shareholder.

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