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So far, 2023 has done little for the Lloyds share price. Very little indeed.
Shares are up less than 1% since the beginning of the year. In a five-year perspective, they are down 8%.
That's not the full picture. The stock at least currently has a juicy dividend yield of 5.3%. Still, both the share price and the dividend per share are lower than they were five years ago.
However, the bank is hugely profitable and remains a leading player in the UK banking market with many millions of customers.
Could this suggest Lloyds shares could start to recover in 2024? If not at its 1999 level of around five pence a share, then at least at Lloyds' most recent 2015 share price of over 80 pence?
What might require a recovery
Ultimately I doubt it.
Lloyds' business has performed well in recent years despite a difficult environment. Last year, for example, it made an after-tax profit of £5.5bn. That's a lot for a company that currently has a market capitalization of less than six times that amount.
Many investors prefer to value banking shares using the price-to-book ratio rather than the price-to-earnings ratio, but Lloyds' share price looks cheap using either of these metrics at the moment.
Despite that, the price has shown a considerable drop in the long term. Even at what appears to be a bargain price, the company doesn't seem to generate widespread enthusiasm among investors.
Perhaps investors simply don't like Lloyds, for example because of its long-term value destruction or its slowness to restore the dividend to its pre-pandemic level (something it has not yet achieved).
Or perhaps the lackluster price is more reflective of the fundamentals. Although earnings are strong, the risk of rising defaults impacting profitability is a real concern.
For Lloyds' share price to recover strongly in 2024, I believe either investor enthusiasm for the bank must grow significantly or the company must demonstrate that its underlying performance is strong.
But I think both are likely to be affected by broader economic performance, which is outside the bank's control.
There is no rush to buy
So while the price could rise sharply next year, I currently don't expect that to happen unless the economy improves significantly.
However, as a long-term investor, you could say: “so what?” Lloyds is a huge, highly profitable bank trading at what looks like a cheap valuation. I could buy while the Lloyds share price remains in pennies and hold for the long term, potentially getting paid 5% for my patience.
But there have been other times in the past when Lloyds shares looked cheap, only to fall further. I think the risk of an economic slowdown hitting the profits of British banks, including Lloyds, in 2024 is significant.
I am in no rush to invest in the banking sector and prefer to see how the broader economy performs first. I may buy Lloyds shares again at some point in the future, but not anytime soon.
