FTSE 100 banking biggie Lloyds Bank (LSE: LLOY) has seen a turn of fortunes at the stock markets recently. A couple of weeks ago, when I last wrote about Lloyds, the share price was languishing at sub-30p levels. These levels weren’t seen even during the worst of the stock market crash in March. In fact, they are 23% lower than the average share price in March.
Some of this was to be expected. It was only in late March that LLOY, along with other banks, suspended dividends. I imagine that would have put off investors, who only think of Lloyds as a passive income investment. The Lloyds share price has not gone anywhere for years now, so capital appreciation is not on the cards.
What’s next for the Lloyds Bank share price?
But the tide seems to have turned. After losing ground in the second and third week of May, the Lloyds share price is now improving. In the last week of May, it averaged at 30.8p, which is a 6% increase from the week before. The next question is whether this long-beleaguered banking stock can finally become a good growth share to buy?
I would not bet on it, is my short answer. It is entirely possible that the Lloyds Bank share price could see some recovery in the near term. But that is likely to be due to factors distinct from the bank’s prospects. For instance, the FTSE 100 index as a whole is recovering well. It has closed above 6,000 in the last six trading sessions. The return of buoyancy in investing is lifting share prices across the board. I think the Lloyds Bank share price is one of the beneficiaries from this overall trend.
Don’t depend on the momentum
Moreover, while many other FTSE 100 stocks’ prices have recovered quite a bit, even going back to their pre-crash levels, the Lloyds Bank share price is still struggling. In fact, as I pointed out earlier, it is still trading below its March crash levels. As a result, it is entirely possible that investors see it as one of the few FTSE 100 stocks with potential to inch up in the near term.
But momentum can carry a stock only so far. As the lockdown gets relaxed, Lloyds Bank will be back in business, but there could be more pain in store even then. UK’s banks are bracing for increased bad debts as firms find it difficult to pay off loans in a poor economic environment. If the economy continues to look stressed even after the lockdown is over, it will continue to drag down banks’ performance. This of course, includes Lloyds.
I’d wait for signs of turnaround in its performance before investing in Lloyds for the long term. I reckon there are far more promising FTSE 100 stocks, even though the share price looks attractive at the moment.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.