A 5% rise over the course of 2023 sounds… meh! But the Lloyds Banking Group (LSE: LLOY) share price chart hides a fair bit of drama.
By early February 2023, Lloyds shares had climbed 19%, only six weeks into the year. We long-suffering shareholders wondered if, finally, we were about to reap our long-awaited rewards.
But then came a long slide. And by late October, we were looking at a 12% year-to-date fall.
What was behind it all? And, what might be next?
Screaming cheap?
I’d say we’ve had a clear conflict between forces in 2023. One is the very low Lloyds stock valuation, on fundamentals.
Even after the recovery at the end of the year, the stock’s price-to-earnings (P/E) ratio is still down at 6.5. And the dividend yield is up at 5.3%, growing to over 6% by 2025.
That looks like a no-brainer buy to me — a bank going cheap, in a long-term cash-cow sector.
But when I think that, I have to pause. Lots of people clearly don’t agree with me, include ones with very able brains.
The risks
The gloomy side has been all about inflation and interest rates, the tough housing market, bad debt costs, and all those bad things that have crowded the economic headlines in 2023.
Buying bank shares when the economy is more out of control than it’s been in decades? I can see why folk might not want to do that.
But, when it comes to stocks that I really do think are cheap, I’m a long-term optimist. I’ve said it before, I know, at the start of the year. But this time, I do think the Lloyds share price could head up in 2024.
Bright 2024 outlook
The main thing is, all that bad news stuff that’s kept Lloyds shares in the dumps… well, it looks like it’s set to get better in 2024.
UK inflation has come down to around 4%, a lot quicker than hoped. Bank of England Governor Andrew Bailey is still not too keen to lower rates yet, though I think he’s wise to keep the lid on optimism for a bit. Still, new mortgage rates are already on the way down.
The Financial Times does point out that the real long-term battles against inflation, and to get back to sustainable growth, have really only just begun, mind.
Long term
I might be upbeat, but I try not to put too much store in short-term projections. A single country’s economy, never mind the whole global outlook, is a very complex and imprecise thing.
And no matter how close we might get, we can’t plan for the unexpected. And unexpected things happen all the time.
What’s the solution? For me, it’s to go by the long-term prospect for the companies I want to invest in.
And, I simply don’t see how banks can’t have a prosperous long-term future. A top-up on Lloyds might be my first stock buy in 2024. Unless I go for Barclays shares instead.
