Lloyds (LSE: LLOY) shares are a funny thing. They look like a screaming buy on almost every level, but steadfastly refuse to take off like I think they should.
Investors are fascinated by the company. It’s the most heavily researched financial stock on the entire FTSE 100 with 378,949 average monthly searches. That smashes second-placed Barclays at 125,900 and sixth-placed NatWest Group with a mere 12,843 searches.
Survey after survey shows it is one of the most bought stocks on the index, too. Despite all that activity, its share price scarcely shifts. This seems harsh on Lloyds, which has worked hard to repair its balance sheet since the financial crisis. It’s now so financially solid that its share price barely wobbled during this year’s banking crisis (unlike Barclays).
It’s a mystery
Despite that, the Lloyds share price is down 6.9% over the last year. Over five years, it’s down 24.83%. The stock has crashed 90% since the start of the millennium.
Nobody expects Lloyds to return to its former glories, having largely shed its risk-taking investment bank operations. Instead, it paddles happily in the shallows of retail and small business banking. Unfortunately, in these troubled times, they’re choppy too.
Lloyds is the UK’s biggest mortgage lender, its subsidiaries include Halifax, and is on the front line of a potential house price crash. The thing is, house prices haven’t crashed. Arrears and repossessions are still low. Mortgage rates are retreating, and markets are banking on interest rate cuts next year. It still doesn’t help.
Rising interest rates have allowed Lloyds to widen its net interest margins, the difference between what it charges borrowers and pays savers. That’s a key measure of banking profitability but did little to boost the share price. Yet at the first sign that margins are narrowing, as happened recently, the stock falls.
Clearly, markets have an attitude problem. They don’t trust the banks. On 25 October, Lloyds posted pre-tax profits of £1.86bn for the three months to September 30, beating estimates.
It didn’t help.
Social justice campaigners moan about all the money that Lloyds is making, but investors clearly feel it’s nowhere near enough.
I’m still buying and holding
Investors seem to have grown weary of the bank’s whopping great yield, too. Lloyds now yields 5.66%. That is forecast to grow to 6.55% in 2023 and 7.21% in 2024. By then, I would expect savings rates and bond yields to have tumbled, making this an even more attractive income stream. Doesn’t help.
Mortgage business has fallen, but that’s to be expected. I’m more impressed by the fact that Lloyds has managed to hang onto most of its savers, despite offering disappointing rates. I’d never bank with Lloyds but I’m more likely to buy its stock as a result. That was so I can take profit from those who do bank with it, as Lloyds does.
Lloyds shares look dirt cheap, trading at just 5.6 times earnings. Makes no difference. The Lloyds share price remains stranded around the 42p mark. I’ve bought it three times this year. Nothing happens.
I’ll almost certainly buy more Lloyds shares. It’s the biggest conundrum on the FTSE 100, but one day, I think investors will wake up to the opportunity. And if they don’t, I’ll console myself with my high and rising dividend stream.
