Lloyds shares fell 3% in 2022. Time to sell or buy?

Lloyds shares have dipped by 3% in 2022, leaving them at the same level they were 10 years ago. With recession looming, am I mad to own this bank stock?

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As I write on Wednesday afternoon, shares in Lloyds Banking Group (LSE: LLOY) hover around 46.5p, up 0.8% today. After a promising start to 2022, Lloyds shares have fallen slightly this year. So do I back this bank stock to leap in 2023?

Lloyds shares have gone nowhere for a decade

Looking at the long-term chart for Lloyds shares, they have made no ground for at least 10 years. Indeed, I could have bought the Black Horse bank’s stock at today’s price in December 2012. Here’s how the share price has performed over the short and medium term:

Five days+4.1%
One month+1.5%
Six months+7.0%
2022 YTD-2.8%
One year-3.2%
Five years-31.7%

Despite gaining ground over the past half-year, Lloyds stock is down almost 3% in 2022, plus it’s lost almost a third of its value over five years. However, these figures excluded cash dividends, which would boost these returns by several percentage points each year. Nevertheless, Lloyds has not been a great investment for many a year.

We own Lloyds stock

My wife bought into Lloyds in late-June at an all-in price just below 43.5p. Hence, we’re currently sitting on a paper profit of 3p a share, or almost exactly 7%. So far, so good for a FTSE 100 stock.

I’m positive on Lloyds stock and have high hopes for these shares in the coming years. As a fundamental investor, I aim to buy into quality companies at sensible prices. Based on its current fundamentals, this stock still looks too cheap to me — despite being a near-perpetual ‘value trap’.

At 46.5p, this share is roughly midway between its 52-week low of 38.1p and its 52-week high of 56p. This values the group at £31.3bn — a fairly modest price tag for one of the UK’s biggest financial firms.

Furthermore, Lloyds trades on a reasonable price-to-earnings ratio of 7.7 and a chunky earnings yield of 13.0%. Also, its above-average dividend yield of 4.6% a year is covered 2.8 times by earnings. To me, this suggests plenty of headroom for this cash payout to increase over time. And as an income investor, I appreciate the long-term value of decent dividends.

2023 will be tough for banks

Almost universally, economists predict a prolonged UK recession next year. Usually, this would spell bad news for British banks, but Lloyds’ balance sheet is very strong and packed with high-quality assets. Thus, although I fully expect bad debts and loan losses to rise in 2023, I’m sure Lloyds can take this pressure.

Also, a toxic combination of soaring inflation and skyrocketing energy bills will restrict consumer and corporate spending and borrowing next year. This would hit Lloyds 2023 revenues, profits, and earnings. Again, I see this outcome as largely baked into the current share price.

In summary, I see Lloyds shares as a low-risk bet on a post-2023 economic recovery. And that’s why I’m prepared to buy more shares if they fall much further!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D'Arcy has an economic interest in Lloyds Banking Group shares. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

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