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Should I Sell Barclays PLC And Buy Prudential plc?

These are what I regard as the key bull:bear considerations for both companies.

Barclays

At the end of October, Barclays (LSE: BARC)(NYSE: BCS.US) reported profits for the first nine months of the year of £2.8bn. Basic earnings per share for the period hit 21.9p. The quarterly dividend was held at 1p.

Barclays shares are priced at 250p today. That seems cheap if the company can earn almost 22p per share in just nine months. However, in September, Barclays was forced into a 1:4 rights issue. While this will shore up the company’s balance sheet, it will also dilute earnings.

The market is also worried over the size of fines that Barclays may have to face for LIBOR fixing, exchange rate manipulation and interest rate swap miselling.

To reflect all of this, the consensus of analyst profit expectations has been in sharp decline since July. Back then, earnings per share (EPS) of 33.5p was expected for the full year. Today, that figure is 26p. An average of 30.4p is expected for 2014.

A big dividend rise is also forecast for next year. That puts the shares on a 2014 P/E of 8.2, with an expected yield of 4.3%.

Prudential

The recent trading statement from insurance giant Prudential (LSE: PRU)(NYSE: PUK.US) trumpeted strong profit growth in Asia and fund inflows for its asset management subsidiary M&G.

While not without ups and downs, Prudential’s last five years have been far less eventful than Barclays’. As ever, this is best demonstrated in the insurance giant’s dividend record. This has shown an average annual increase of 10.2%. The payout from the Pru has been increased every year since 2005.

The steady growth of the business is reflected in the company’s share price progression. While Barclays is up 57% in those five years, the share price of Prudential has more than trebled.

Prudential’s success has seen the shares earn a P/E of 15.7 times forecast earnings for 2013. That is surprisingly inexpensive given how well the company has traded. After all, the average FTSE 100 stock is priced on a forecast P/E of 14.6 times earnings.

Verdict

Prudential is a top company but if the new boss at Barclays can turn things around, I expect greater upside from the bank’s shares. For that reason, I will be sticking with Barclays.

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> David owns shares in Barclays but none of the other companies mentioned.