I think some banks stocks could do well over the next five years. However, I find it hard to get excited about Lloyds – I reckon it may underperform its peers.
One downside to this bank is that it is predominantly UK focused. So, its fortunes are tied to the UK economy, which isn’t exactly firing on all cylinders at the moment.
For 2026, the IMF is projecting UK GDP growth of just 1.3% (versus global growth of 3.1%). UK growth may pick up in the coming years, but I don’t expect growth to be strong – we just don’t have the growth industries (e.g. technology).
Another downside to Lloyds is that it lacks the growth drivers other banks have. Barclays, for example, has a significant investment banking division. So, it can capitalise on IPOs. Other banks have large wealth management divisions so they can capitalise on rising equity markets.
With Lloyds, the story is mainly about UK mortgages. Ultimately, it’s a bit of a one-trick pony.
As for the valuation, the stock looks fully valued to me today. At present, Lloyds is trading on a P/E ratio of about 13 and a price to book value ratio of about 1.3.
So, I don’t think there’s a lot of scope for an upward valuation rerating in the near term. This could limit gains.
Overall, I’m not very bullish on Lloyds taking a five-year view. It could do well if the UK economy booms and it leverages technology to cut costs, however, in my view, there are better bank stocks to buy.
