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Where will the Lloyds share price go in October?

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After a sustained bull run, shares in banking giant Lloyds (LSE: LLOY) have had a lacklustre summer. While the Lloyds share price is 85% higher than it was a year ago, it has mostly been on a downward trajectory since the end of May.

Could autumn see a reversal in this trend? Here’s what I think may happen to the Lloyds share price in coming weeks.

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Upside drivers for the Lloyds share price

While the Lloyds share price has been drifting downwards in recent months, I think the fundamental investment case remains robust. It has a strong position in its home UK market, where it is the leading mortgage lender. By operating under different names, such as Lloyds, Halifax, and Bank of Scotland, it is able to appeal to different customer types in a variety of locations.

While fintech is making inroads into UK banking, the large banking groups continue to be highly profitable. Lloyds numbers among these. In its half-year results, the company’s underlying profit topped £4bn. If half-year earnings per share of 5.1p were sustained across the full year, the prospective price-to-earnings ratio at the current Lloyds share price would be below 5. That strikes me as excellent value.

However, this has been true for some time. The half-year results did not lead to a sustained positive rerating of the banking giant. It is still the only long-term penny share in the FTSE 100. Additionally, there is no specific reason to expect positive news on Lloyds in October. If anything, I see a risk that concerns about economic hits such as supply chain issues could weigh on default rates by business customers.

Bearish perspectives on Lloyds

Lloyds has restored its dividend and returned to very strong business performance. But still its shares have been sliding. Why is that?

Various factors have dented enthusiasm for the Lloyds story this year, in my view. A shift in chief executives and its push into being a landlord has highlighted the potential for missteps as the organisation evolves. Additionally the large price gain in the past 12 months suggests that heightened expectations have already been factored into the Lloyds share price. To push the share price upwards, the bank may need to surprise investors with some positive news. That could include stronger than expected results, or a special dividend. A third-quarter trading update scheduled for 28 October could be worth watching.

Meanwhile, there remains uncertainty about how sustained the UK’s economic recovery from the pandemic has been. If it shows signs of stuttering as employers move beyond furlough and emergency support schemes, that risks higher default rates on Lloyds’ mortgage book.

I’d buy at the current Lloyds share price

So I don’t see particular reasons to expect wild swings in the Lloyds share price in October. However, I do see the recent fall in the Lloyds share price as a buying opportunity for my portfolio. It is a well-run, profitable business in a durable sector. I think its long-term prospects remain solid, and the restored shareholder distributions could be raised further in line with the bank’s progressive dividend policy. Any fall in October could be a buying opportunity for me, as I am happy to buy and hold Lloyds in my portfolio for years to come.

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Christopher Ruane owns shares in Lloyds. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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