The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price has gained 7% this year, and it’s a stock that is firmly on my watchlist. The bank has surprised me this year in some ways, with it being ahead of the index and also not feeling any ill-effects of the uncertainty surrounding the UK economy.
Of course, Lloyds has improved its business model significantly so that it is in a relatively strong position to cope with challenging economic periods. The bank has reduced its efficiency ratio so that few large-cap banks are equal to it. This suggests that it has made strong progress since the financial crisis, when it was in a very challenging position.
As well as improving its efficiency, the bank has also been able to improve its financial strength. Stress tests have shown it may outperform some of its listed peers should the UK economy experience a difficult period. This could help to reduce the company’s overall risks, which would obviously be good news for its risk to reward ratio.
Lloyds is also on my watchlist at the moment because I’m searching for value in the stock market. The company’s P/E of under 9 really appeals to me at the moment, and I suspect it could increase over time if the bank is able to perform as expected. That’s particularly relevant with the index being at an all-time high just now.
It may struggle to some degree if UK economic weakness increases, since it relies on the UK for nearly all of its revenue. However, with PPI provisions falling to zero in Q3 and 2019 being the deadline for new claims, its outlook may be relatively positive.
Therefore, after its 7% gain in 2017, I believe Lloyds has investment potential for the long run. It could be a good addition to my ISA in future years.