The last few weeks have been turbulent for shareholders in Lloyds Banking Group (LSE: LLOY). As a crisis rocked regional US banks, Lloyds shares plunged from their February high.
At the height of this latest crisis, the Lloyds share price had plunged by almost a fifth. But then financial markets rebounded after the emergency rescue of giant Swiss bank Credit Suisse on 19 March.
The stock rides a roller coaster
On 9 February, Lloyds stock hit its 52-week peak of 54.33p. But as fears over banking contagion swept markets, bank shares nosedived.
At the height of this fear on Monday, 20 March, the Lloyds share price hit its 2023 low of 43.66p. This left it down 19.6% in just 39 days. That’s a fairly steep fall for a ‘boring’ FTSE 100 stock.
As bank stocks dived, trading volumes soared. Over the past year, an average of 209.5m Lloyds shares were traded each day. On 17 March, over 587.4m shares changed hands. Whoa.
As this banking panic receded, stocks bounced back. On Thursday, the shares closed at 49.02p, leaving them 12.3% above their March bottom.
Here’s how this stock has performed over six periods:
| Five days | +1.8% |
| One month | -5.9% |
| Year to date | +7.0% |
| Six months | +15.1% |
| One year | +8.5% |
| Five years | -28.8% |
Despite recent ructions, the stock has risen by 7% in 2023. This beats the wider FTSE 100’s gain of 3.9% (all returns exclude cash dividends).
This Big Four bank’s stock has also beaten the Footsie over one year, rising 8.5% versus 0.9%, respectively. Over the past half-decade, it has lost nearly 29% of its value, versus a 6.6% gain for the FTSE 100.
I’m holding on to my shares
My wife bought Lloyds stock for our family portfolio in late June 2022 at 43.5p per share. At the recent low, our gain per share had crashed to just 0.16p. Today, we’ve recorded a paper profit of 12.8%.
That said, we have no intention of selling at anywhere near current levels. To me, the stock is priced for long-term disappointment, whereas I hope for increased dividends and more capital gains in future.
At present, Lloyds is valued at £32.6bn, making it a FTSE 100 stalwart. Still, I think the shares are undervalued, despite their latest rebound.
At 49.02p each, the shares trade on a price-to-earnings ratio of 6.8 and an earnings yield of 14.7%. This is double the earnings yield of the wider FTSE 100.
In addition, Lloyds offers a dividend yield of 4.9% a year — about a quarter above the Footsie’s cash yield. Even better, this payout is covered three times by trailing earnings. To me, this seems a solid margin of safety.
Then again, Lloyds’ 2023 earnings are set to be lower than 2022’s. As the UK economy weakens and interest rates rise, banks’ bad debts and loan losses will leap this year.
Also, the ongoing cost-of-living crisis has damaged household budgets and consumer confidence — more bad news for corporate earnings.
Nevertheless, I’d happily buy more of the shares today — if I had the cash to spare, that is!
