Which will double the quickest, Barclays plc, Old Mutual plc or Barratt Developments plc?

How quickly can Barclays plc (LON: BARC), Old Mutual plc (LON: OML) and Barratt Developments plc (LON: BDEV) double your money?

| 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.

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.

We’d love to see our investments double in as short a time as possible, wouldn’t we? Would you believe that an annual rate of return of 8% per year would double an investment in just 10 years? Which shares might do that for us?

Doing the right thing

Barclays (LSE: BARC) surprised many by slashing its dividend by more than 50%, and it’s set to yield only around 2% this year and next with the shares priced at 174p. But after a bit more thought, it seems like just the right thing to do — with new boss Jes Staley having just taken over, he can sweep much cleaner with his new broom than an incumbent could.

Barclays has now reduced its liquidity risk to pretty much zero, I’d say, and with its aim of getting cash rewards back on track as soon as possible, I can see a glowing future for income investors with Barclays.

In the meantime, while the 9% EPS drop expected this year would put Barclays shares on a P/E of only a little over 11, the 49% recovery pencilled in for 2017 would drop that to just 7.5 — only around half the long-term FTSE 100 average. To me that says the shares are undervalued by around 50% right now, so what might it take for a doubling? I reckon any results that suggest those 2017 forecasts might be on the money could trigger an upwards re-rating.

Dirt cheap insurance

Old Mutual (LSE: OML) has been plodding along nicely, paying out almost half of its earnings per share in dividends, and provided shareholders with a 5% yield in 2015. Forecasts suggest the dividend will drop a little to 4.5% this year before perking back up to 5% next as EPS looks set to yo-yo slightly.

But despite the company’s decent performance, Old Mutual shares have gained only 13% over the past five years (albeit with a further 25% from dividends). That leaves the shares on a forward P/E for this year of only 9.5, dropping to 8.7 based on 2017 forecasts. Old Mutual’s home in South Africa and its exposure to emerging markets have no doubt exacerbated the share price fall, but I see the fear as greatly overdone.

I don’t think Old Mutual shares are on quite a 50% undervaluation right now, but we might only need a modest improvement in the world’s economic outlook for a price hike — and I can see a doubling within the next few years as a realistic hope.

More from housing?

Am I really suggesting a share that has gained 380% in the past four years is set for another doubling? The recovery in housebuilder shares boosted the sector magnificently, but since September last year it’s gone off the boil, and Barratt Developments (LSE: BDEV) is down 16% to 561p. That puts Barratt shares on a P/E of only around 9 based on forecasts for the year to June 2017 — and that’s with the company’s cash-return plans predicted to provide a total yield of 6.7% that year.

Fear of a slowdown, or even a downturn, in house prices has tempered investors’ appetite for Barratt, but it looks seriously overdone to me. Barratt spent a lot of its cash during the slump buying up land at knock-down prices and is set very nicely for profitable trading for a good few years no matter what happens to property prices.

If Barratt shares doubled again in another five years, I wouldn’t be at all surprised.

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.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mixed-race female couple enjoying themselves on a walk
Investing Articles

A once-in-a-decade chance to get rich buying growth stocks?

We haven't seen a good spell for growth stocks for quite a few years now. But I reckon the signs…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

The FTSE 100 is full of bargains! Here’s 1 stock I’m eyeing up

A weak economic outlook has hurt the FTSE 100. This Fool explains why she likes the look of this consumer…

Read more »

Investing Articles

2 no-brainer beginner FTSE 100 stocks to buy for my portfolio

Getting started with investing can be daunting. Here are two stocks for beginners to consider buying to build their first…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 recession-resistant UK shares investors should consider buying

Our writer details two UK shares she feels could withstand some of the ill-effects of the current malaise to provide…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Glencore share price drops on results. Time to buy?

The Glencore share price wobbled a bit after a weak set of 2023 results. Here's why I have the stock…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Big trouble in China sinks HSBC shares. Should I invest after record FY results?

HSBC shares have slumped following a disappointing end to 2023 for the FTSE stock. Royston Wild explains why this may…

Read more »

View of Tower Bridge in Autumn
Investing Articles

3 dirt cheap FTSE 100 shares to snap up today?

The FTSE 100 is rallying, but many shares still look super cheap on fundamentals. Is our writer buying these three…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

FTSE 100 earnings: what can we expect from Rolls-Royce in 2024?

The Rolls-Royce share price tripled in 2023. Roland Head wonders whether this FTSE 100 stock could continue that impressive trajectory…

Read more »