It’s been a rough and rocky ride recently for shareholders in Barclays (LSE: BARC). Four weeks ago, the Barclays share price was riding high, hitting its 2023 peak. Then global banking stocks tanked as a crisis at US banks spread to Switzerland.
Banks topple like dominoes
My wife bought Barclays shares for our family portfolio in early July 2022, paying an all-in price of 154.5p.
Back then, I saw the Blue Eagle bank’s stock as very cheap. But by mid-October, global stock markets had dived, with Barclays shares following suit.
However, as stocks rebounded strongly, the Barclays price hit a 52-week high of 198.86p on 8 March. But then three mid-sized US banks — Silvergate Bank (8 March), Silicon Valley Bank (10 March) and Signature Bank (12 March) — collapsed.
As panic swept financial markets, this contagion spread to Switzerland, where #2 bank Credit Suisse underwent a bank run as deposits fled. This led to an emergency takeover on 19 March by its biggest rival, UBS Group.
Barclays plunges
On 20 March, these shares hit a 52-week low of 128.12p. In the following days, I repeatedly argued that this stock was crazily cheap.
By then, the shares had dropped by 17% from our buy price. At that time, if I had, say, £100,000, I would happily have ploughed every penny into Barclays shares. To me, they offered an almost matchless opportunity for future income and capital gains.
The stock bounces back
On Wednesday, this FTSE 100 share closed at 147.72p — up 19.6p from 20 March’s rock-bottom. That’s a gain of 15.3% in 16 days — a fairly powerful return for a large-cap stock.
But while this stock now has a positive one-year gain of 0.5%, it’s down 29.4% over the past five years.
However, these figures exclude cash dividends — and Barclays’ payout is among the highest in the FTSE 100.
This share is still a steal today
After this latest rebound, Barclays is valued at £23bn. To me, that’s a modest price tag for a leading lender to British individuals and companies that also operates an international investment bank.
Based on their current fundamentals, Barclays shares still seem like bargains to me. They trade on a price-to-earnings ratio of 4.9, for an earnings yield of 20.3%. That’s roughly 2.5 times the Footsie’s earnings yield.
In addition, the dividend yield of 5% a year is covered a comfortable 4.1 times by historic earnings. That said, analysts expect UK bank earnings to fall this year, pulled down by higher bad debts and loan losses.
On top of that, the UK economy is weakening and could enter a full-blown recession this year. Again, this would spell bad news for leading lenders.
Summing up, I see Barclays shares as having two core attractions. First, a market-beating dividend yield. Second, good potential for a strong price recovery as our economy returns to growth.
That’s why we won’t be selling our stock at anywhere near the current share price. Indeed, if I had some spare cash, I’d buy even more today!
