In late March, I resumed writing for this website after an eight-year break. I returned because, as a value investor and a contrarian, I saw the March market meltdown as an incredible opportunity to help investors make outsized gains. At its 2020 low on 23 March, the FTSE 100 closed below 4,994 points, a level it first breached way back in September 1997 (23 years ago).
As I write, the Footsie has recovered to stand at 6,415, up over 1,420 points (28.5%) in eight months. However, of all FTSE 100 shares, I’ve written about one stock far more than any other. That is Lloyds Banking Group (LSE: LLOY) — and the ups and downs of the Lloyds share price have dominated my writing in late 2020.
The Lloyds share price is a roller coaster
What a year it’s been for the Lloyds share price and the bank’s long-suffering shareholders. Lloyds came close to collapse in the global financial crisis of 2007–09. Alas, thanks to the Covid-19 pandemic, Lloyds underwent another horrific crash 12 years later. At their 52-week high, Lloyds shares closed at 67.25p on 16 December 2019. As coronavirus spread worldwide, stock markets went into shock. By 3 April, the Lloyds share price had crashed to close at 27.73p — down almost three-fifths (58.8%) in under four months.
As Covid-19 infections eased after the spring, the Lloyds share price rebounded, hitting 36.88p on 8 June, two months later. From September onwards, Lloyds shares went into freefall and breached every floor with ease. Lloyds shares collapsed to 23.58p on 22 September. Thus, the bank’s stock had lost 65% of its value in nine months.
Good news drives Lloyds share price up 65%
Banks are highly economically sensitive — and we’ve endured the worst economic contraction in over 300 years. But to see the Lloyds share price below 25p baffled me. Was one share of the UK’s biggest retail bank (with 30 million customers) really cheaper than a packet of crisps? Hence, since the summer, Lloyds became my #1 value share. I was convinced that buying Lloyds shares was a highly geared play on economic recovery in 2021. For me, Lloyds was a one-way bet, hence my obsessive coverage.
Encouraging vaccine results and Joe Biden’s presidential win have sent shares soaring in November. The FTSE 100 index is up 15% so far in November and in line for a record-breaking month. This good news lit a fire under the Lloyds share price, sending it skyrocketing in just two months. Today, Lloyds shares trade at 39p, up 15.4p — almost two-thirds (65.4%) — since late September. So much for the death of value investing.
What would I do with this stock today?
If I owned any (which I don’t), what would I do with Lloyds shares today: buy, hold, or sell? At today’s market value, Lloyds is worth just £25.3bn. That’s a very modest price tag for a leading British bank. Furthermore, I suspect that 2020 won’t be as bad as initially predicted for Lloyds. After all, the Black Horse bank did make a pre-tax profit of £1bn in the third quarter. Also, I fully expect Lloyds’ dividend to return in 2020, underpinning the stock. Hence, at today’s price of 39p, I’d definitely keep buying Lloyds shares. Ideally, I’d do so inside an ISA, so as to bank a lifetime of tax-free dividends and future capital gains!
