Why is Barclays (LSE: BARC) on a slide? By midday Monday, the Barclays share price was down 4%, among the index’s biggest morning fallers.
The Footsie itself has been having a bad day, dipping 1.6% to its lowest level since July. It’s all on the back of energy market fears, it appears. And Barclays isn’t the only bank that’s suffering. Lloyds Banking Group and HSBC Holdings are down there too, though suffering lesser falls.
I reckon any fresh economic fears will impact on the financial sector, and the banks traditionally perform poorly when times are tough. The bigger fall at Barclays than others probably doesn’t mean a lot. I reckon it’s most likely just down to Barclays having done better in recent months.
Over the past two years, the Barclays share price has gained 16%, even with the Covid crisis factored in. By comparison, Lloyds shareholders are nursing a loss of 19%, while HSBC investors have suffered a 39% crunch.
Is Barclays the best?
Barclays is arguably the strongest bank in the sector. Heading out of a recession, it’s often the strongest companies that lead the way in the recovery stakes. Unlike Lloyds, Barclays still has its international outlook and its investment banking arm. And that business structure does seem to have attracted investor cash.
Many will see Lloyds’ inwards-looking UK focus as risky. And more than a few are unenthusiastic about its venture into the rental property business. Against that, HSBC’s growing dependence on the Chinese sphere of influence has rattled a lot of nerves in the City.
Overall, on a business basis, I do think Barclays is probably the best bank we have. But from an investment perspective, it’s valuation that counts. So do I think the current Barclays share price presents us with a buying opportunity?
Solid first half
Barclays put in an impressive first half, recording a pre-tax profit of almost £5bn. The bank announced a first-half dividend of 2p per share. The interim payment is “expected to represent, under normal circumstances, around one-third of the total dividend for the year.” That would suggest a full-year yield of around 3.4%. Hopefully, it’s just the start of renewed long-term dividend progress.
In fact, Barclays spoke optimistically about its returns policy, saying it “incorporates a progressive ordinary dividend, supplemented by additional cash returns, including share buybacks as and when appropriate.“
Barclays share price valuation
There is a danger that it might take a couple more years to get back to pre-pandemic levels of profits. Even though we’re getting past the pandemic and its effect, our economic outlook still looks fragile. The lockdowns had an effect of hiding the longer-term fallout from Brexit, and that’s starting to become clearer now.
I can’t help feel that the Barclays share price could be in for a spell of going nowhere as a result. Or we might even see further falls in the coming months. To avoid shorter-term risks, I might look elsewhere to invest my money.
But by the time Barclays gets back to 2019 earnings (which I’m convinced it will), the current price would suggest a P/E of around 12. I think that’s good long-term value.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.