After a strong 2013, Lloyds (LSE: LLOY) (NYSE: LYG) has had a rather disappointing first half of 2014. Indeed, the part state-owned bank has seen its share price fall by 6% during the course of 2014, which means it has underperformed the flat performance of the FTSE 100.
However, for long-term investors, this could present a great buying opportunity.
A Turnaround
Clearly, Lloyds has endured a painful few years as it sought to integrate the failed HBOS business. Its strategy, though, has been sound as it has sought to offload assets that carried too much risk and for which it was not generating a decent return. The process of selling off non-core assets has been long, arduous and, while not yet complete, is well on its way to helping restore Lloyds to its pre-credit crunch level of profitability. Certainly, there is still some way to go, but Lloyds is expected to return to the black this year and, furthermore, is forecast to grow earnings by an impressive 8% next year.
Barriers To Entry
Despite all the talk of challenger banks, major banks such as Lloyds continue to benefit from vast barriers to entry. Part of the reason for this is their willingness to offer ‘loss leading’ current accounts so as to generate potential cross-selling opportunities. This, in turn, enables the big banks to generate larger profits over the long run since their potential customer base for highly profitable products such as loans and credit cards is larger than smaller peers. Although the government is trying to encourage more competition, Lloyds and its large peers look set to dominate over the long run.
Looking Ahead
With the banking sector continuing to experience negative sentiment, now could be a good opportunity for long-term investors to buy shares in Lloyds. Indeed, the company looks great value at present, trading on a price to book value of just 1.36. Certainly, Lloyds may need to make further write downs of assets going forward, but it seems as though this is being comfortably priced in by the market.
In addition, with dividends per share set to more than double next year this could be the start of a comeback for Lloyds. With its great value, improving yield and dominant market position, it could help to make a positive contribution to your mortgage repayments.
