As 2021 moved into its second half, I repeatedly warned that US stocks looked highly priced and were heading for steep falls in 2022. This duly happened: the S&P 500 index crashed by almost a quarter, plunging as much as 24.5% from its 3 January 2022 high. I also warned of raised levels of market volatility and sensitivity, lower liquidity, and wider spreads. And yet I’ve been aggressively buying cheap UK stocks recently. For example, Barclays (LSE: BARC) shares looked too cheap to me at the end of June, so my wife bought some for our family portfolio.
Barclays shares have a tough 2022
As a veteran value investor, I’m always on the lookout for ‘fallen angels’ — solid companies whose share prices have taken big knocks. In my 35 years of experience, many of these stocks — especially those in the FTSE 100 index — have often rebounded as businesses get turned around. And that’s what drew me to Barclays shares, which have fallen a long way since their 2022 highs of early January.
Here’s how the Barclays share price has performed over six different timescales:
| Five days | 4.1% |
| One month | 4.5% |
| Six months | -20.5% |
| 2022 YTD | -13.0% |
| One year | -7.9% |
| Five years | -22.8% |
Although Barclays shares have rebounded a little over the past month, they are down more than a fifth over six months and almost 23% over five years. However, all figures exclude cash dividends, which would boost shareholders’ returns by a few percentage points a year. Even so, owning Barclays stock over the past half-decade has been a fairly thankless task.
This FTSE 100 stock looks undervalued to me
So what prompted us to add Barclays to our family portfolio? Frankly, based on these fundamentals, the Blue Eagle bank’s shares look too darn cheap to me:
| Share price | 162.74p |
| 52-week high | 219.6p |
| 52-week low | 140.06p |
| Market value | £26.5bn |
| Price-to-earnings ratio | 5.6 |
| Earnings yield | 18.0% |
| Dividend yield | 3.8% |
| Dividend cover | 4.7 |
Not only is Barclays a leading UK retail bank, but it also has a presence in global investment banking (where profits are much more unpredictable). Perhaps this goes some way to explain why the bank’s price-to-earnings ratio is among the lowest in the FTSE 100?
For the record, I fully expect 2022/23 to be a much more difficult period for British banks than 2021 was. Indeed, red-hot inflation (driven by soaring energy prices), rising interest rates, and a global economic slowdown combined may take big bites out of lenders’ margins. But given how lowly rated Barclays stock is at present, I see much of this downside as already being baked into its share price.
In summary, we intend to hold our new Barclays shares for the long term, collecting cash dividends while waiting for the share price to return to former levels. And if the stock keeps on falling, then we may even buy more shares!
