Barclays PLC: The Bank To Watch In 2014

The road to recovery may be bumpy, but Barclays PLC (LON: BARC) will get there in the end, Harvey Jones says.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Electric shock

After a blistering couple of years, it was time for Barclays (LSE: BARC) (NYSE: BCS.US) to take a breather, and the share price duly ended 2013 where it began. As an investor who missed out on the 2011 and 2012 surge, that pleases me. I hate buying volatile stocks (and the banks are volatile these days) on the back of a good run. Now, I reckon Barclays could be the bank to watch in 2014.

You always have to keep a close eye on Barclays, especially if you’re a regulator. The US Federal Energy Regulatory Commission is currently trying to collect $488 million in fines, after Barclays was found to have manipulated the American electricity market. Its lawyers are still trying to wriggle out of that one, but the string of fixing, rigging and mis-selling scandals seems to have no end, so brace yourself for more shocks in 2014.

Transformer

You should also brace yourself for more profits volatility. Note that shocking 20% drop in Q3 profits. That was largely due to the £741 million costs of Project Transform, so let’s hope the short-term hit is worth it, by ultimately changing the culture of the bank for the better (and finally stemming the flow of scandals). 

I am concerned about the performance of its global investment bank, where profits recently halved to £463 million after revenues from fixed income, currency and commodities plunged. This is part of an industry-wide trend, penance for the financial crisis. There are macro threats, too, including Q3 tapering, the next phase of the eurozone crisis and the shaky Chinese shadow banking system. The last two would slaughter banking stocks if they explode into deadly life, as some analysts predict. Barclays would get burned like everybody else.

Yet Barclays has underlying strength. It is steadily boosting its core tier 1 ratio, which now stands at 11.3%, up from 11.1% at the end of June. Its diversified business mix and global exposure helped it post £4.97 billion profit in Q3, despite that 20% dip. It has just won its highest ever share of the European equity capital market. It is slowly beefing up its dividend, and now yields 2.3%. Better still, it is on a forecast yield of 4% for December 2014. Buy now and you are locking into a rising income stream.

How to buy the banks

We all know Barclays has problems and the road to recovery is a long one. Trading at 8.3 times earnings, that is acknowledged in the price. You have to pay 14.6 times earnings to buy so-called good bank HSBC. Better still, while Barclays suffered a whopping 27% drop in earnings per share growth in 2013, this is forecast to blossom into 27% growth for the next 12 months. And that is something else to watch out for in 2014.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Harvey doesn’t hold shares in any company mentioned in this article.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »