The FTSE 100 often takes a lot of flak for its lack of blue-chip tech listings. SpaceX‘s blockbuster IPO in June once again highlighted the huge and growing gulf between the UK and US stock markets on this front.

But that’s not to say the FTSE 100 isn’t packed with popular stocks. Take the following example. According to AJ Bell, one particular Footsie share is currently 12 times more popular than SpaceX stock right now.

So which is it? And should you consider adding it to your portfolio right now?

Top of the pile

Lloyds Banking Group (LSE:LLOY) is the share I’m talking about. In the last week, it’s accounted for 12.6% of all Buy orders on the AJ Bell platform. That’s miles ahead of SpaceX, which ranks way back in seventh position (1% of all stock purchases).

The FTSE 100 bank is surging for one good reason: growing expectations of UK interest rate hikes. Take Bank of America analysts who on Wednesday (23 September) tipped rate increases in both November and February. Before this, they’d been expecting the Bank of England (BoE) to make no changes before cutting rates in late 2027.

The reason for this U-turn? The threat of persistently high inflation as the Iran War drives energy prices.

Big rate boost

Higher interest rates can be great news for retail banks like Lloyds. Banks often pass on rate increases to savers slower than they do to borrowers. The difference provides a big boost to their net interest margins (NIMs), a key measure of banking profitability.

Lloyds has recently modelled the potential impact of interest rate changes on its own profits. The figures illustrate perfectly the boost any rate rises could give to its bottom line:

These forecasts are based on three factors. It assumes no material change in the balance sheet, and that these basis point changes will happen all at once. It also presumes 100% of any rate rise is applied to the interest Lloyds earns on its loans, but that only 50% is passed on to the interest it pays savers.

What could go wrong?

Yet these forecasts aren’t without risks which, if realised, could damage Lloyds’ dividends and its share price.

For instance:

• Deposit competition forces Lloyds to raise savings rates faster.
• Strong mortgage competition limits rate increases for borrowers.
• Interest rates may not rise by the same amount.
• Lending and deposit balances may shrink, impacting the balance sheet.
• The bank’s invested money (the structural hedge) earns less than expected.

One final, critical risk to consider is that interest rates may not rise at all, making those forecasts redundant. The BoE could choose to maintain rates to support the sluggish economy.

Are Lloyds’ shares a buy?

Lloyds’ share price has surged 16% since late March. This leaves it with a price-to-earnings (P/E) ratio of roughly 11, and a dividend yield of 4.1%.

So am I buying Lloyds’ shares for my portfolio? Not at today’s valuation — the bank’s P/E ratio and yield are both unattractive compared to their 10-year averages (8 times and 5.7% respectively).

And given those risks I’ve described, I’m not motivated to buy Lloyds shares at today’s price. I think I’d rather leave the FTSE 100 company on the shelf and find other stocks to buy, like the one described below.

What income stock do we like better than Lloyds Banking Group Plc right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Royston Wild does not hold any positions in the companies mentioned.