As my current favourite FTSE 100 stock, I’m buying Barclays shares

Barclays shares have dropped in recent months, due to concerns over the state of the UK economy. It remains my favourite FTSE 100 stock though.

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If I was forced to buy just one FTSE 100 stock right now, I’d choose Barclays (LSE: BARC). The bank has been consistently delivering an enviable set of profits yet is also down around 20% from its recent highs. This is mainly due to the economic ramifications arising from the dreadful Russia-Ukraine conflict. But at its current price, I think that the Barclays share price is far too low. Here’s why it’s my current favourite FTSE 100 stock.

Recent results

Barclays’ full-year results were pretty incredible. In fact, profits before tax soared to £8.4bn, a 170% year-on-year increase. This was partially due to a net credit impairment release, rather than large impairment charges the previous year. Yet the diversified business model of the bank also proved extremely beneficial. For example, the Corporate and Investment Bank Segment saw profits before tax of £5.8bn. Some of its peers, such as Lloyds, do not have an investment bank. Barclays’ diversification also bodes extremely well for the future.

The strong results have resulted in a very healthy capital return programme. In fact, it expects to return around £1bn to shareholders through a share buyback programme, a factor which should help boost the share price, and the final dividend (which went ‘ex’ a couple of weeks ago so if I bought today, I wouldn’t qualify for that payment), totalled 4p per share. There’s scope for this generous capital return programme to continue, or even improve, in the future. This is a factor I feel can have an extremely positive effect on Barclays shares.

The issues facing the bank

There are several obstacles that the bank must overcome though, and these are reasons for the recent share price decline.

Firstly, due to connections with Jeffrey Epstein, the former CEO, Jes Staley, left in November. It was Staley who was a driver of the bank’s excellent recent performance, and it’s likely that his presence will be missed. Even so, his successor CS Venkatakrishnan has been involved with the company for a long time, and although he is unlikely to bring much change to the bank, he seems a very adequate replacement.

There are also several worries around the UK economy. This is due to the current conflict in Eastern Europe, which has pushed the price of oil above $100 and seen the cost of living soar. This is not good for the Barclays share price, which has a heavy reliance on the economy being in a good state.

Is the Barclays share price too cheap?

At the moment, Barclays shares trade on a price-to-earnings ratio of around 4.5. This is incredibly cheap and indicates that investors believe profits will fall next year. While this is likely, especially as the Investment bank will be operating in a more difficult macroeconomic environment, there are other factors that can make up for the lost profitability. For instance, rising interest rates should make the lending business more profitable. As such, I feel that at 170p, the Barclays share price is a bargain, and this is why it’s my current favourite FTSE 100 stock.

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 considered so you should consider taking independent financial advice.

Stuart Blair owns shares in Barclays. The Motley Fool UK has recommended Barclays 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.

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