It’s not been a pleasant time for investors recently. This bear market seems to have been going on far longer than anyone expected. Global share prices have had a difficult few years, and with increasing worries over Brexit, there are more reasons for investors to be fretful.
Examine a share price graph of Lloyds (LSE: LLOY) and you will see a valuation that has remained moribund ever since the dark days of the Credit Crunch. At no point since the crash has the share price ever broken above 80p. And at some points it has fallen below 50p.
Lloyds has been through a lot
And recently the share price has been falling once more, currently standing at just 63p. Yet, if you take a step back, you can see a lot of positives in this company.
Lloyds Banking Group is a massive concern, owning the Lloyds, Bank of Scotland, Scottish Widows and Halifax brands. It’s the leading mortgage provider in the UK, and one of its largest banks. It also has substantial fund management, insurance and pensions operations.
After many years of travails since the Great Recession, UK banks look to be on a firmer footing. Most of Lloyds’ bad debts have now been cleared, Britain’s economy is now booming, and the high level of job creation and business start-ups will provide a boost to the retail division.
What’s more, a resurgent housing market, with increasing property prices and a rising number of transactions and mortgages, means its mortgage business will do well.
However, in this deflationary world interest rates remain firmly stuck at 0.5%, and I suspect will stay at this level for a long time to come. This limits the money that Lloyds will make. And the immense reputational damage to the banks means there is still a steady flow of fines and litigation, adding further downward pressure to profitability.
But a gradual recovery is on the cards
Overall, my balanced view is that this company, which began to turn a profit in 2015, will steadily increase its earnings year-on-year. The firm has already resumed payment of a dividend, and a yield of 2.38% is set to rise gradually with time.
But I suspect it will take a long time for Lloyds to return to the multi-billion pound profits of yesteryear. So don’t expect an overnight turn-around.
Instead, contrarians will sense an opportunity here for a gradual recovery in this business. I already see investors warming to Lloyds as an investment proposition, and there was plenty of interest in the recent share sales. The buzz on discussion boards and amongst small investors is that this is a firm that might just be on the up.
So you should regard this business as a slow-growth, high-yielding stock that you should tuck away in your portfolio for the long-term. This is one for the patient investor.
