Bank stocks have been falling this week, as uncertainty around banks caused investors to look for safety elsewhere. In the UK, one of the banks hit hardest has been Barclays (LSE:BARC).
The banking sector is no stranger to crisis, though, and investors who were brave during the pandemic would have earned a decent return on Barclays shares. So is it time to be brave again?
Pandemic buying
April 2020 was when fear around the Covid-19 pandemic was just taking off. As a result, share prices fell sharply and bank stocks were hit by a combination of low interest rates and the possibility of loan defaults.
Around this time, the Barclays share price reached 80.24p. That means that a £1,000 investment at the time would have bought 1,246 shares.
At today’s prices, that would have a market value of £1,758. By itself, that’s a more than decent return over the last three years, but there’s also the dividend to consider.
Since April 2020, Barclays has distributed 14.25p per share in dividends to its shareholders. With 1,426 shares, I’ve have received an additional £203.
That means that my total return over the last three years if I’d invested £1,000 in Barclays shares would have been close to £2,000. Being greedy when others were fearful would have paid off handsomely.
The 2023 banking crisis
So is it time to be greedy again? There’s a lot to like about Barclays shares at the moment, with the price having fallen by more than 10% over the last week.
The stock trades at a price-to-earnings (P/E) ratio of around five, which makes the stock look cheap. There’s also dividend yield that’s over 5% for investors looking for passive income.
In other words, the stock looks like great value if – and it might be a big ‘if’ – the underlying business is going to emerge from the current banking situation unscathed. I think that it might well do this.
The issues in the banking sector have come from liquidity problems. Shortages of cash have left some US banks unable to meet withdrawal requests from their depositors.
Governments have stepped in to bail out customers. But this hasn’t been much good for the banks themselves – or their shareholders.
The question then, is whether Barclays is likely to face similar problems. If it is, then it’s best to stay away, but if not, the stock looks undervalued.
A stock to buy
In my view, there are important differences between Barclays and the banks that have failed in the US. The main reason for this is that I think its customers are unlikely to cause a liquidity crisis.
The bank’s size means that its customers are likely to receive government support in a crisis. While this doesn’t directly help shareholders, it removes the incentive for the bank’s depositors to with draw their funds in a hurry.
If customers are confident that their money will still be there in the future, they have less reason to rush to withdraw it. That’s why I think Barclays is unlikely to get caught up in an imminent crisis.
All of this means that I think that Barclays shares look like a great investment at the moment. I’m looking at making an investment in the near future for my own portfolio.
