3 reasons the Lloyds share price could still soar in 2024

Investors who are bullish about the Lloyds Bank share price have enjoyed a good first half. But will it be a contrasting year of two halves?

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Lloyds Banking Group (LSE: LLOY) share price is up 17% in 2024 so far, and it’s up 29% in two years.

Could this be the best we’re going to get, even though we’re still looking at a 1% fall in five years? If I thought so, I might sell. But I don’t plan on that.

Changing sentiment

Market sentiment’s clearly changed in 2024. And, for the first time in a long while, it looks like investors see banks in a better light. Or at least they don’t seem to rate them as quite the pariahs they once did.

As ace investor Ben Graham once noted that in the short term, investors tend to follow the markets, follow their emotions… anything but rationality. But in the long term, fundamental valuations win through.

And even during the 2020 stock market crash, Lloyds still looked financially healthy and in no danger of going under.

Still, market sentiment’s hard to read, and I might have read it wrong.

Interest rates

People are split on the effect an interest rate fall will have on the UK’s banks. On the one hand, lower rates can cut into a bank’s lending margins and damage its profits.

In Q1, Lloyds’ underlying net interest income already dropped 10%, to £3.2bn. Results were lower across the board than the same quarter of 2023.

Then again, it’s no good worrying about what interest a bank can charge people who aren’t actually borrowing money. As the UK’s biggest mortgage lender, Lloyds has taken a hit from the property market slowdown.

I’m hoping that more mortgage borrowers, even at lower rates, will mean bigger profits. So please Bank of England, I’d like a cut.

Too cheap

My final reason is that I think the Lloyds share price is just too low on fundamental measures, which ties in with the thing about sentiment.

The stock’s forward price-to-earnings (P/E) ratio has risen to 9.7, as the shares have gained in 2024. Many will see that as fair value for a stock in the risky finance sector right now. And I have to confess, I’d say there’s a fair chance they’re right.

But with forecasts putting the P/E as low as 6.5 by 2026, and the dividend yield up to 6.8%? Come on market, you know that’s too cheap. What’s that? Forecasts are often wrong, and you say I’ve been getting Lloyds wrong every year for years?

Wrong again

Both those points are fair. The economy’s still in a bit of a mess, and I’d guess it will be a few years yet before we’re back to normality.

Set against that, the Lloyds valuation might be about right now. And we might need actual results before things get better.

But if the Lloyds share price doesn’t end 2024 higher… well, I’m in it for the long term, and there’s always next year.

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.

Alan Oscroft has positions in Lloyds Banking Group 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.

More on Investing Articles

Investing Articles

2 of the best US growth and dividend stocks to consider!

These heavyweight US stocks have been delivering tasty investor returns for decades. Here's why they could remain great picks for…

Read more »

Investing Articles

I reckon these 2 penny shares are hidden gems worth a closer look!

Some penny shares are well-known, whereas many others go under the radar, but that doesn’t necessarily mean they aren’t potentially…

Read more »

Investing Articles

Just released: our 3 best dividend-focused stocks to buy before August [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

2 FTSE 100 shares with blockbuster yields investors should consider buying

Our writer has noticed that these FTSE 100 shares offer mammoth dividend yields, and reckons investors should take a closer…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Down 36% and yielding 7.8%, is this FTSE 250 share a bargain?

Christopher Ruane looks at a FTSE 250 share with a sizeable dividend yield and a recent record of dividend growth.…

Read more »

Investing Articles

Is Barclays one of the FTSE 100’s best bargain stocks?

Right now, Barclays' shares are cheaper than those of FTSE 100 rival stocks Lloyds and NatWest. So should I buy…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Is a takeover offer about to boost the Rentokil stock price, and should I buy?

The Rentokil share price is up 10% on takeover rumours. Is it a stock to buy or one to be…

Read more »

Investing Articles

Here’s my Rolls-Royce dividend forecast for 2024-27!

Our writer considers whether the Rolls-Royce dividend might be reinstated in coming years, based on financial performance and stated payout…

Read more »