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I have noticed that the Lloyd's (LSE:LLOY) share price has had a decent run so far this year.
So what fueled this mini-resurgence and what awaits us in the future? Let me offer my two cents.
False dawn or new horizons?
Lloyds shares have risen 14% in the calendar year from 48p at the start of the year to current levels of 55p.
Over a 12-month period, the shares rose 22% from 45p this time last year, to current levels.
I believe that a large part of the increase has been the green shoots of economic activity in recent months. Inflation levels have dropped and the real estate market seems to be reacting positively. It's worth remembering that Lloyds is the UK's largest mortgage provider.
Before I get carried away, I should point out that Lloyds shares have been stagnant for many years. They are not alone, as many of the UK's big banks haven't exactly soared since the financial crisis of 2008. Then they had to deal with Brexit, the pandemic and, now, economic challenges.
Whats Next?
Let me be very clear: it is extremely difficult to predict what may or may not happen to a stock price in the future. There are many moving parts, internal and external, that could affect this.
For Lloyds, the most positive would be the economic problems that favor the business. The most important would be the reduction of interest rates. This could push the share price above 60p. However, there is no guarantee that this can happen.
If rate cuts occur, it could stimulate home buying and the real estate market. This would be very useful for Lloyds due to its dominant position in the market.
On the other hand, continued economic problems may not be good news. Lloyds' risk compared to other established banks such as HSBC, for example, is the lack of international diversification. As Lloyds relies primarily on the UK market, this could prevent the stock from moving further forward.
Another issue that could affect the recent share price rise is the Financial Conduct Authority (FCA) investigation into the mis-selling of car finance. A fine could affect performance, profitability and drive down the share price.
my posture
From an investment perspective, personally, I would be willing to buy some shares of my holdings the next time I can for several reasons.
Firstly, a dividend yield close to 5% is attractive. However, I am aware that dividends are never guaranteed.
Next, the stock appears to be good value for money, trading at a price-to-earnings ratio of around eight.
Finally, it is difficult to ignore Lloyds' position in the UK banking ecosystem – especially as the UK's largest mortgage provider. In my view, the property imbalance in the UK means that future growth opportunities could propel the business back to past glories in the long term.
Overall, I don't see the Lloyds share price rising much further, at least not in the short to medium term. This small increase in recent months has been a reaction to positive economic news. If the economic positivity were to continue, I see Lloyds shares also rising slightly.
