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Following a favourable decision in a court case on mis-selling car finance, Lloyds (LSE: LLOY) shares stormed to the top of the FTSE 100 leaderboard on 1 August, posting a 9% gain for the day.
The barnstorming day is emblematic of a great few years for the Black Horse Bank. The share price doubled in the last two years. It tripled in the last five.
With valuations still looking reasonable and interest rates high, an obvious question is raised. Will Lloyds shares continue their resurgence? Or have most of the gains been and gone?
Eyewatering
Hang on a minute now. A 9% rise in a day? That’s almost unheard of, isn’t it? Well, yes. The huge jump in share price conveys just what a boon the ruling was for the bank.
For context, lenders for car loans had been accused of offering perverse incentives. So you had people being talked into, some might say coerced into, buying cars on finance with eyewateringly high interest. Some estimates had the total fines to be in the region of £45bn, around the market cap of Lloyds.
While this is significant news in the here and now, one of the core tenets of Foolish investing advice is to take a longer time horizon. I’m buying a stock for decades, not months or even years. With patience as the watchword, I see the next decade or two being good for the banking sector.
Interest rates are high, a key metric that allows more flexibility in borrowing and lending. It’s no accident that the Lloyds share price floundered in the ZIRP (zero interest rate period) but surged after rates shot up in 2022.
With inflation looking annoyingly sticky and 10-year gilts higher than under Trussonomics, higher rates may stay with us for some time yet.
Bullish
The prospects look bright for the reasons above, but valuations seem reasonable too. Lloyds trades at around 11 times earnings, a slight discount compared to Warren Buffett’s largest bank stock Bank of America at 13 times earnings.
Analysts seem bullish too. One price target expects the shares to reach the £1 mark in the next 12 months, a figure that seemed very distant not so long ago.
Of course, London is a world-leading financial hub, which mean Lloyds is not the only belle at the ball.
Like Lloyds, Natwest Bank operates heavily in the UK and is outperforming it year to date. HSBC offers exposure to China and its growing economy. Barclays might look like the best of the lot, with its share on course to triple in only a couple of years and yet with a price-to-earnings ratio of around nine.
Overall, the banking sector looks to be in as good health as it has for decades. As for Lloyds in particular? I still think it’s one to consider even at an 84p share price.
