The FTSE 100 has staged a bit of a recovery since the end of September, but at 6,338 it’s still more than 10% down from its April high of 7,100. As such, there continues to be an opportunity to snap up some blue-chip stocks at tasty prices.
Shares of Barclays (LSE: BARC), for instance, made a year-high of 289p as recently as the end of July, but are trading at 253p, as I write.
Here are three reasons why investors might want to consider loading up on Barclays right now.
The Main McMan
John McFarlane joined the board of Barclays at the start of this year. He was made executive chairman in July, pending the appointment of a new chief executive to replace the ousted Antony Jenkins.
Mr McFarlane is a 40-year veteran of global banking and financial services. He turned around the performance of the Australia and New Zealand Banking Group, where he was chief executive until retiring in 2007. More recently, as chairman of Aviva, he oversaw the transformation of the struggling insurer, its board and management.
Mr McFarlane is just what Barclays needs right now. And with a new chief executive apparently waiting in the wings, we could be set to see the kind of accelerated turnaround that the canny Scotsman ushered in at Aviva.
The longer term
Of course, Barclays continues to be dogged by financial penalties and customer redress for past misdeeds. A $325m settlement announced this week is just the latest hit, and won’t be the last. However, as Barclays puts more of these legacy costs behind it, the market should start looking forward to what the bank has to offer without the baggage.
Mr McFarlane has set out the vision clearly enough. Effort and investment will focus on the key core franchises: UK personal and commercial banking, investment banking in Europe and the US, Barclaycard and Africa. A faster run-down of the internal ‘bad bank’ is planned, with a targeted reintegration in 2017, and “we will also act quickly to curtail activity which is marginal or which will not deliver the return on equity we require”.
One of the appeals of Barclays I see right now is that it has far more scope to improve on many of its ratios — cost:income and return on equity, for example — than, say, Lloyds. And, if the past is anything to go by, Mr McFarlane’s commitment to “accelerate the delivery of shareholder value” is no idle promise.
The price is right
Barclays currently trades on a price-to-tangible-book ratio of just 0.9, compared with Lloyds at 1.4. Barclays’ underlying earnings are forecast to rise 35% this year and 20% next year; Lloyds’ earnings are forecast to rise 5% this year and fall 6% next year. Price-to-earnings ratio readouts for 2016 are: Barclays 9.1 and Lloyds 9.4.
While Lloyds’ business is in better shape than Barclays’ right now, and so merits a higher rating, the asset and underlying earnings valuations show how much potential there is for Barclays to re-rate, if it gets its house in order.
Looking to the longer term, Lloyds can only make so much hay with its UK focus, which is working well for it at the moment. However, I believe a Barclays firing on all cylinders — and particularly with its enviable position in Africa — could be a markedly stronger earnings performer on a 10-, 20-, 30-year view. As such, while I see Lloyds as an attractive traditional-bank proposition, Barclays looks an exciting long-term prospect for investors buying today.
