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I’ve noticed that the Lloyds (LSE: LLOY) share price has been on a decent run so far this year.
So what prompted this mini-resurgence, and what’s on the cards moving forward? Allow me to offer my two cents.
False dawn or new horizons?
Lloyds shares have risen 14% in the calendar year from 48p at the beginning of the year, to current levels of 55p.
Over a 12-month period, the shares are up 22% from 45p at this time last year, to current levels.
I reckon a big part of the rise has been the green shoots of economic activity in recent months. Inflation levels have come down, and the property market seems to be reacting positively. It’s worth remembering that Lloyds is the largest UK mortgage provider.
Before getting carried away, I must note that Lloyds shares have been in the doldrums for many years now. They’re not alone, as many of the big banks in the UK haven’t exactly soared since the financial crash of 2008. Next, they had to contend with Brexit, the pandemic, and now, economic challenges.
What’s next?
Let me be very clear, it’s extremely hard to predict what may or may not happen to a share price moving forward. There are many moving parts, internal and external, that could impact this.
For Lloyds, the biggest positive would be economic issues favouring the business. The big one would be interest rates being slashed. This could propel the share price upwards of 60p. However, there’s no guarantee this could happen.
If rate cuts occur, it could stimulate house buying and the property market. This would serve Lloyds well due to its dominant market position.
On the flip side, continued woes on the economic front may not be good news. The risk with Lloyds compared to other established banks, like HSBC, for example, is the lack of international diversification. As Lloyds primarily relies on the UK market, this could prevent the shares from moving further forward.
Another issue that could dent the recent share price rise is the Financial Conduct Authority’s (FCA) investigation into car finance mis-selling. A fine could dent performance, returns, and send the share price tumbling.
My stance
From an investment perspective, personally, I’d be willing to buy some shares for my holdings when I next can for a few reasons.
Firstly, a dividend yield of close to 5% is attractive. However, I’m aware that dividends are never guaranteed.
Next, the shares look decent value for money as they trade on a price-to-earnings ratio of around eight.
Finally, Lloyds’ position in the UK banking ecosystem – especially as the UK’s largest mortgage provider – is hard to ignore. The housing imbalance in the UK means future opportunities for growth could potentially propel the business to former glories in the longer term, in my view.
Overall, I can’t see the Lloyds share price climbing too much further, at least not in the short-to-medium term. This small rise in recent months has been a reaction to positive economic news. If the economic positivity were to continue, I can see Lloyds shares edging upwards too.
