Up 35% from this year’s low! Here’s where I think Lloyds shares are headed in H2 of 2024

My Lloyds shares are already doing well this year but that’s not guaranteed to continue. What factors could turn the tide for the bank?

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Looking at a graph of Lloyds (LSE: LLOY) shares over five years might be a little underwhelming. While, admittedly, the price has recovered most of its 2020 losses, it’s still down 5% since mid-2019. 

But this year paints an entirely different picture.

The share price faltered a little as the year began but since hitting a low of 41p in February it’s made a spectacular comeback. Now up 35% at 55.4p, the price is inching ever closer to a new five-year high.

Can it crack the 70p level in 2024? Let’s have a look at the factors that are for and against it.

An economy in limbo

The UK economy is currently a bit wobbly, to say the least. It’s certainly doing better than last year, I’ll give it that. But things aren’t exactly solid.

The FTSE 100 has hit new highs and investor sentiment seems generally positive. But still, big firms like ARM Holdings and Flutter have recently jumped ship for the US. Even the index’s largest energy company, Shell, is threatening to hop across the pond. And, the sudden and unexpected election adds a whole new twist. If the outcome causes further turbulence in the country, more locally-listed companies may start eyeing foreign shores. 

Inflation has finally fallen to the Bank of England’s 2% target but when exactly interest rates may be cut remains unconfirmed. They’re a bit of a double-edged sword for banks — cutting profits from loans but also reducing the risk of bad debts.

All of this is pertinent to Lloyds’ share price as it’s closely tied to the UK’s economic well-being. 

And the good news?

If all goes well in the election, Lloyds stands to benefit from the economic prosperity that could follow. Falling interest rates combined with a bolstered job market should increase loan approvals while reducing the risk of defaults. This should allow the bank to redirect capital put aside for bad debt allowance into more lucrative investments.

The bank’s balance sheet is solid and financials are agreeable. The shares are likely undervalued by around 15% based on future cash flow estimates, and the price-to-earnings (P/E) ratio of 7.7 is on par with the industry average. As such, analysts don’t expect huge growth from here but are generally more positive than negative.

The reason I’m holding my shares

My shares are currently up by around 10% since I bought them. The share price may climb even further this year but more importantly, I should still benefit even if it doesn’t.

Why?

Because Lloyds boasts an attractive dividend yield of 5%. And although its recent track record was mired by the pandemic, historically it’s been a reliable payer. Adding together both the yield and price growth over the past year, shareholders have enjoyed near 30% returns. I don’t expect that kind of growth to continue but even if it does half as well, it’s still higher than average.

Overall, I’m positive about Lloyds.

Positive enough to throw more cash in? Maybe not right now. But I’ll revisit that decision after the election.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Hartley has positions in Lloyds Banking Group Plc and Shell Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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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