One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful” – or, in other words, sell when others are buying and buy when they’re selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.
So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
A fund-raising frenzy
Barclays (LSE: BARC) (NYSE: BCS.US) survived the global economic crisis of 2007/08 better than many banks – it didn’t require a multi-billion pound government bail-out, for example – but it certainly hasn’t been without its own raft of problems.
Just being a bank is enough reason for many people to dislike it as a company, and scandals such as the mis-selling of payment protection insurance (PPI) and interest-rate hedging products only add fuel to the fire of adverse public opinion.
More specific to Barclays, the bank is now the subject of a public petition – signed by no less a figure than double Olympic gold-medallist Mo Farah – as a result of its decision to withdraw banking services for 250 money-transfer companies, because, the bank said, of concerns about money laundering and the financing of terrorism.
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And in other bad news, it was only last month that the Prudential Regulation Authority assessed Barclay’s leverage ratio at 2.2%, far below the required 3%, thereby creating a £13bn shortfall in the bank’s capital requirements.
The deficit forced Barclays into a four-way frenzy of fund-raising: a rights issue, from which it hopes to raise close to £6bn; the issue of hybrid debt securities, expected to raise a further £2bn; retention of earnings and capital accretion (eg, from the sale of assets); and what the bank described as “a prudent reduction” of its leverage exposure. When news of its “Leverage Plan” hit the market, Barclays’ share price dropped by 6% in a day – and it’s slipped even further since.
Some people might see all of the above as reason to avoid investing in Barclays. But others clearly see an opportunity to buy at a lower price, whilst the company is out of favour with the market, and they put the bank into the number 3 position in our latest “Top Ten Buys” list*.
Buyers will obviously be hoping that the bad news will quickly pass (and that there won’t simply be more to replace it) – if it does, there should result in a recovery in the share price. What may also have tempted them is a dividend that’s expected to increase substantially over the next few years.
Whilst Barclay’s yield for 2013 will be just 2.5%, some analysts are forecasting a 15p per share payout in 2015, on the basis of the bank’s commitment to pay out 40%−50% of earnings each year as a dividend. Based on today’s price, that’s a forward yield of over 5% – well above the FTSE 100 average.
So, with a current P/E of around 8 (less than half the financial sector average of almost 18), a price to tangible book value of around 0.8, and the prospect of a doubling dividend over the next two years, maybe last week’s buyers are onto a winner.
But of course, no matter what other people were doing last week, only you can decide if Barclays really is a ‘buy’ right now.
> Jon doesn’t own shares in Barclays.
* based on aggregate data from The Motley Fool ShareDealing Service.