Although the Lloyds (LSE: LLOY) share price has stalled year-to-date, the last 12 months have seen the stock return 16% to investors. And in the last six months, the share price is up nearly 9%.
Lloyds has experienced a volatile market over the past few years with issues such as the pandemic, inflation, and more recently the war in Ukraine. But currently trading hands for just under 50p, this begs the question: are the shares too cheap for me to pass on? Let’s take a look.
Uncertain economic conditions
The last few months have seen inflation spike for several reasons. I recently mentioned how the Office for National Statistics revealed how inflation hit a 30-year high last month, rising to 6.2%. And this jump presents both good and bad news for Lloyds.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Firstly, to combat this rise, the Bank of England has increased interest rates. Pushing rates up to 0.75% from 0.5%, this will allow Lloyds to charge more when lending to customers, in turn boosting revenues. Of course, this is good news for the firm.
However, rising inflation and the cost of living could reduce the likelihood of people taking out loans from the bank. This means it may actually be negative news for the firm.
Wider outlook
With that said, there are wider factors when looking at the Lloyds share price.
To start, a tempting factor for me is Lloyds’ low valuation. The stock currently trades on a price-to-earnings ratio of 6.62. This is well below the widely accepted bargain threshold of 10. Plus, coupled with the substantial 4% dividend offered, this leads me to believe Lloyds may be a solid investment.
What also excites me about the firm is the action new leader Charlie Nunn is taking. Having joined in August last year, he’s navigated moves to expand the group back into the wealth management and investment banking space. He’s also made plans to streamline the business. While obviously not good for the soon-to-be ex-employees, Lloyds plans to axe between 60-100 branches as it adapts to the consumer trend of online banking. This move will provide the firm with a large saving from expenditures. And these funds can be reinvested in future projects.
On top of this, the group posted strong results for 2021. Most significantly, net profit rose to £5.8bn, up from £1.3bn the year before.
What I’m doing
So, while the months ahead may prove to be a difficult time for the bank, I think the stock holds plenty of potential. Increased interest rates have the possibility to both benefit and harm the firm. Yet wider factors such as its low valuation, strong dividends, and Charlie Nunn at the helm, for me, make Lloyds a strong buy. Currently sitting below 50p, I think the Lloyds share price offers great long-term value. As such, I would be willing to add it to my portfolio today.
