Holding the Lloyds Bank (LSE: LLOY) stock in my investment portfolio has been an exercise in patience for me. For the past year, the FTSE 100 penny stock has been fluctuating in a range. As I write, it is trading at an underwhelming 45p.
House price boom
But I am hopeful that it can recover. In fact, I believe that it could actually double my money this year. Fundamentally, there are two aspects in favour of the bank. The first is the continued house price boom, which defies explanation.
There is far less government support available to the real estate sector now than during the pandemic. Interest rates have risen, which should also deter house buyers. And economic growth might be back, but we are not exactly seeing a boom. But the housing market keeps going! Lloyds Bank is the biggest mortgage lender in the UK. So, the ongoing property boom should be in its favour.
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Lloyds Bank has also decided to become a property owner now. Under the brand name of Citra Living, launched last year, the bank aims to buy 10,000 houses by 2025. Of course this is not an immediate revenue generator, but I do believe that it could positively impact the long-term prospects for the bank.
Rising interest rates are good news for the Lloyds Bank share price
Rising interest rates is also good news for the bank, which depends on its interest income in a big way. With the way inflation is going, I reckon that interest rates will continue to rise in the UK. A the last count, inflation was at 7% on an annual basis. And it is expected to rise further soon.
Of course too much inflation is bad news for growth. And for the Lloyds Bank share price. Already, economic growth has been slower than anticipated initially post-lockdowns. Growth forecasts are also being cut now, which means that it should slow down even further.
Low market valuation
Yet, I believe that the Lloyds Bank stock could double my money this year. There are plenty of positives still going for it, and some analysts forecast that its share price could rise to 88p in the next 12 months, which is pretty much a doubling from the current levels.
I can speculate where this number comes from. Based on its forward earnings estimates, my calculations show that the stock is trading at a price-to-earnings ratio of 7.5 times, which is pretty low. The average FTSE 100 P/E is at 15 times, for comparison. Just from this, it follows that if the Lloyds Bank stock were to rise to reflect the average FTSE 100 P/E, its share price would have to double.
A healthy dividend yield for Lloyds Bank
Now that it is also a dividend stock, with a not-too-bad yield of 4.5%, I think investors might view it even more favourably than they have in the past. Its yield is higher than the 3.5% levels for the FTSE 100 on average. Of course it is not inflation beating, but then that number is quite hard to beat these days. I bought the stock a while ago, and intend to stick with it for now.
