I think the key to being a successful investor is a willingness to adapt and change your mind.
It’s no secret that I have always struggled to get on board with Lloyds Banking Group (LSE: LLOY). In the past, the bank suffered from a few misfortunes, and its stock price was rocked by Brexit worries.
Now things have settled a bit, I thought it would be a good time to re-evaluate the share.
Last year, the Lloyds share price suffered heavily due to complaints regarding the alleged misselling of PPI. The bank paid billions of pounds out to customers, and its profits fell by 26%.
Lloyds has set aside £2.5bn for 2019 PPI payments after a surge of enquiries was brought on just before the deadline date. This brings its total payments in respect to PPI payments to approximately £21.9bn.
Brexit uncertainties also contributed to Lloyds shares underperformance. No one quite knew on what terms the UK would be leaving the EU, and what this would mean for the country’s economy.
As my fellow-Fool, Kevin Godbold, points out, many people believe that the country is on the verge of economic prosperity. And when a nation’s economy performs well, its banks tend to as well, as consumer and business confidence increases. More people might take out mortgages to buy homes, and more businesses may seek loans.
I share this confidence. I think over the long term, the UK’s economy will perform well.
Lloyds’s success is possibly linked more closely to the UK’s prosperity than its rivals, such as HSBC, as most of its revenues stem from domestic operations.
Over the past five years, the Lloyds share price has fallen by 26%. Could this drop present a buying opportunity for value investors, or is it a value trap?
As the Lloyds share price has taken a hammering over recent years, could now be a good time to pick up a bargain?
The numbers certainly make an interesting argument. With the recent slump in the share price, the price-to-earnings ratio is just 10, and the shares have a prospective dividend yield of 5.5%. Therefore, this could put Lloyds on the radar for income and value investors alike.
With much of the bad news hopefully behind it, it is now time for Lloyds to dust itself down and move forwards.
And this is what the bank seems to be doing. It is hoping to become a leaner outfit, by cutting jobs and closing branches, and focusing on its core activities.
Buying Lloyds shares could be a good contrarian buy for an investor who is optimistic about the long-term future of the UK economy.
If you are confident, the question is: is Lloyds in a good position to capitalise on this?
Only time will tell.
T Sligo has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and 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.