Suffice to say, 2018 has been another tough year for investors in Lloyds Banking Group PLC (LON:LLOY) (LLOY.L). The bank’s stock price has declined by around 24% since the start of the year, with Brexit uncertainty appearing to encourage investors to sell, rather than buy.
Its prospects for the first half of 2019 could be relatively uncertain in my view. Investors seem to be giving UK-focused shares a wide berth at the moment. As the Brexit date moves closer, it would not surprise me if this trend continues. It may even increase, since Brexit represents a significant change to the UK’s political and economic outlook.
Lloyds, though, could offer long-term recovery potential in my opinion. I feel that the UK’s economic outlook may be more positive than many investors are anticipating. It is due to deliver GDP growth of 1.7% per annum over the next few years, while employment levels are high and wage growth is ahead of inflation.
Therefore, the bank may be able to continue its run of improving financial performance, with it thus far not experiencing a negative impact from Brexit. And with it ramping-up spending in areas such as digital opportunities, it may be able to generate improving EPS growth over the medium term.
Since Lloyds has a dividend yield of over 6% following its share price fall, I believe it could offer good value for money at the moment. It may also be able to generate a high total return in the long run – particularly since it has a P/E ratio of around 7 at the moment.
Therefore, while further challenges could be ahead in the near term, I feel that UK-focused stocks may offer investment appeal for the long run. With a low valuation and what I see as a sound strategy, I’m cautiously optimistic about the company’s recovery potential.