At the start of 2020, Lloyds (LSE: LLOY) shares were trading for above 60p. However, today a share in the British bank would set me back just 43p.
As we’ve hopped from crisis to crisis, be it the pandemic or the cost of living, the Lloyds share price has suffered. But is this the time for me to be loading up with some shares for my portfolio? Let’s find out.
A beaten-down stock
The last five years have told a dire story for Lloyds, as the stock has seen its share price pulled back by over 35%. In fact, since the turn of the century investors in Lloyds have seen losses of 87%.
2022 has told a similar story as mounting pressures like inflation have seen market confidence on its knees. To combat this, the Bank of England has pushed up interest rates. And this has caused problems for Lloyds.
Higher rates increase the likelihood of customers defaulting on payments. Obviously, this is not good news.
I also think the beaten-down price may suggest investors are preparing for a recession. Previous crises have seen the Lloyds share price take massive hits. And clearly, this would be the case in the future. Maybe this is already reflected in the stock’s price.
With this said, I’m not giving up on Lloyds just yet.
One of the most prominent attractions of the stock is its dividend yield. With inflation spiking to 9.4% in the UK for June and looking like it’s not slowing down, its 4.63% yield offers me a hedge against rising rates. This passive income stream could come in handy in times ahead.
Further, I like the look of Lloyds due to its low valuation. With a price-to-earnings (P/E) ratio of 5.79, this leads me to believe that it’s undervalued. By comparison, competitor HSBC trades on a P/E just shy of 11.
There’s also the double-edged sword of interest rates. As mentioned, higher rates may hinder the firm. However, hikes will also allow the bank to charge lenders more when borrowing. With the next Bank of England rate-setting meeting coming in August, there’s been talk of rates rising by 50 basis points. This could provide a boost for revenues, helping to raise the Lloyds share price.
But with the housing market slowing, this could be an issue for the mortgage lender.
Yet the transition it has made into the rental market is one I like. Through Citra Living, the firm aims to purchase nearly 50,000 homes by the end of the decade. Long term, I think this will bear fruit for Lloyds.
Why I’d buy
The Lloyds share price may face stumbling blocks in the months ahead. But I think at 43p the stock would be a smart long-term buy for me. Its low valuation and dividends are tempting factors. And rising interest rates should hopefully have a positive spin-off on the firm.