Why Barclays Shares Are Still a Steal
Barclays stock soars, then slumps
At its 52-week high, the Barclays share price peaked at 198.86p on 8 March. But then a US-centred banking crisis sent financial stocksSponsored Product nosediving worldwide.
With 12 days, Barclays stock had collapsed to a 52-week low of 128.1p on 20 March. In other words, it crashed by more than a third (-35.6%) in under two weeks. Wow.
However, the Blue Eagle bank’s shares have since rebounded. As I write on Friday afternoon, they stand at 159.94p. This values the Big Four bank at £24.9bn.
Here’s how Barclays share have performed over seven timescales:
|Year to date||+1.0%|
Barclays shares have risen over periods ranging from five days to one year. However, they’ve lost close to a quarter of their value in five years. Note that these figures excluded cash dividends, which would add several percentage points a year to these returns.
Five reasons I’d buy Barclays shares now
Despite leaping by almost a quarter (+24.8%) from its March low, Barclays stock still looks a steal to me today. Here’s why:
1. Barclays shares have one of the lowest price-to-earnings ratios in the entire FTSE 100 index. It’s a lowly 5.4, which translates into a bumper earnings yield of 18.6%.
2. Their dividend yield of 4.5% a year is comfortably ahead of the Footsie’s yearly cash yield of around 3.7%.
3. Even better, this payout is covered a whopping 4.1 times by earnings, which seems a huge margin of safety to me.
4. Barclays’ Common Equity Tier 1 (CET1) ratio — one key measure of its financial strength — is 13.6%, well above its statutory minimum.
5. In its latest results (released yesterday), Barclays unveiled a quarterly net profit of £1.8bn, up 27% on Q1 2022’s £1.4bn. Also, its UK bank and credit-cards business are both performing better than expected.
A bumpy ride ahead for Barclays?
While things look rosy for the bank now, looking in the rear-view mirror doesn’t help to see the road ahead. And I suspect that 2023 will be a much tougher year for UK banks than 2022.
Firstly, I expect banks’ net interest margins — the spreads between lending rates and savings rates — to fall in 2023-24. This will reduce banks’ net interest income — one key source of profits.
Secondly, with disposable incomes squeezed hard by rising interest rates and soaring household bills, I predict much higher bad debts and loan losses for banks this year.
Conversely, what might give the Barclays share price a boost? I expect shareholders would respond favourably to higher dividends. Also, a further share buyback to replace the recently completed £500m programme should lift earnings per share over time.
Weighing up these various pros and cons, I am still very bullish on Barclays shares today. Now if only I had some spare cash to invest…
Why buy Barclays shares:
Here are five reasons why buying Barclays shares seems like a good opportunity:
1. Low price-to-earnings ratio
The price-to-earnings ratio for Barclays shares is one of the lowest in the FTSE 100 index at 5.4. This means that Barclays shares have a bumper earnings yield of 18.6%.
2. High dividend yield
Barclays shares offer a dividend yield of 4.5% a year, which is higher than the Footsie’s yearly cash yield of around 3.7%.
3. Strong dividend payout coverage
This payout is covered a whopping 4.1 times by earnings, which seems a huge margin of safety to investors.
4. High Common Equity Tier 1 ratio
Barclays’ Common Equity Tier 1 (CET1) ratio is one key measure of financial strength and at 13.6%, is well above its statutory minimum.
5. Strong financial results
In its latest results, Barclays unveiled a quarterly net profit of £1.8bn, up 27% on Q1 2022’s £1.4bn. The company’s UK bank and credit-cards business are also performing better than expected.
These five reasons suggest that Barclays shares are still a steal, despite a rocky ride in the past. However, as with any investment, there are some risks to consider.
Risks of investing in Barclays shares:
Here are two reasons why you might want to proceed with caution when investing in Barclays shares:
1. The uncertain economic climate
2023 is expected to be a much tougher year for UK banks than 2022. Banks’ net interest margins are expected to fall in 2023-24, reducing net interest income, a key source of profits. Higher bad debts and loan losses for banks are also predicted this year, as disposable incomes are squeezed hard by rising interest rates and soaring household bills.