A bull market is coming and my Lloyds shares are ready for liftoff

I bought fists from Lloyds (LSE: LLOY) shares on December 1 for 49p each. So far, they haven’t done much.

As I write this, they are trading slightly lower at 47.82p, but that’s fine. I don’t buy stocks with the hope of a quick profit in a few months, but for the long term. I mean a minimum of five years, and ideally 10 years or more. I’d like to say I’m holding Lloyds for life, but that’s tempting fate.

No stock is without risk

Investing in stocks is never without risk. Lloyds was once seen as a dividend-earning machine, but before the financial crisis it wiped out 95% of its value.

Investors holding on to this falling knife are hurting as Lloyds shares continue to slide. They are down 26.43% over five years, and 0.73% over 12 months. At least they have avoided the recent banking crisis, so far, as investors decide these UK-focused banks are largely safe from US or European contagion.

There is no sign of the next bull market today, as inflation continues to rage. Investors who dived into stocks on the assumption that the US Federal Reserve will soon start cutting base rates have been too quick. It remains hawkish.

But at some point, a bull market will come. I have no idea when, but history shows that share prices always recover, if you give them enough time. When they do, I hope Lloyds shares will join in the fun.

Lloyd’s certainly looks well-valued, currently trading at a bargain 6.5 times earnings. The price-to-book ratio is just 0.7, below the single figure that indicates fair value.

I look forward to brighter times

It doesn’t guarantee success, of course. The stock has looked cheap for years, but not for good. For all I know, I have walked into a value trap.

But I was happy to buy Lloyds shares in December, and I’d be happy to buy them today, if I had money to spare. Even though the stock has been low for years, I still need to make money from the dividend. Lloyds currently yields 5%, guaranteed three times by earnings. Advances look likely, with an attractive 6.2% yield forecast, while the cap remains low at 2.7.

Last year, Lloyds posted a full-year pre-tax profit of £6.9bn, despite the credit crunch. The common equity level ratio 1 (CET1), which compares the bank’s capital to risk assets, fell from 17.3% to 15.1% in 2022, but still exceeds the ongoing target of 12.5%. Management also announced a new £2bn share buyback. It’s cash, why not?

There are many risks, such as a UK recession or a house price crash. Bull markets can last longer than expected. Lloyds shares may fall before they finally start to rise, but if they do, I will buy more.

Then I will continue reinvesting the dividends while I wait for the liftoff to arrive. The bull market will come, given time.