In my search for bargain stocks, I repeatedly screen the FTSE 100 index, looking for value. Right now, there is no shortage of undervalued London-listed shares. But some stocks look so cheap that they appear absolute no-brainer buys to me. Here’s one.
The flagging FTSE 100
As I write, the Footsie hovers around 7,462.7 points, down 7.3% from its lifetime high of 8,047.06 on 16 February. The index has also lost 2.3% of its value over the last five years. This is hardly good news for long-term UK shareholders, including me.
However, these figures exclude cash dividends, which are a major contributor to the FTSE 100’s long-run returns. Indeed, the Footsie’s forward dividend yield currently stands at 4.2% a year — an attractive income stream to me.
Barclays shares keep sliding
One share that keeps drawing my attention is the stock of Big Four bank Barclays (LSE: BARC). Despite appearing remarkably cheap on fundamentals, the Blue Eagle bank’s share price can’t seem to find a floor lately.
At present, Barclays shares trade at 145.12p, valuing the business at £22.6bn. Frankly, if I could buy the entire bank for this price, I would immediately snap it up.
By doing so, I would own a company that includes Barclaycard (the UK’s biggest credit card) and a US investment bank, plus operations in corporate and private banking, wealth management, mortgage, and business lending, and so on.
However, Barclays stock keeps sliding, as my table below shows:
| One day | -0.1% |
| Five days | -5.5% |
| One month | -7.8% |
| Year to date | -8.7% |
| Six months | -8.7% |
| One year | -8.5% |
| Five years | -23.2% |
This FTSE 100 stalwart’s shares are down over all seven periods, ranging from one day to five years. But such sustained falls pique my interest as a value/income/dividend investor. Is Barclays a beautiful bargain or a brutal value trap?
A Footsie dividend dynamo
At current price levels, the group’s shares trade on a historic price-to-earnings ratio of 4.4, for an earnings yield of 22.6%. This is an incredibly low rating, on par with troubled companies that are really struggling.
What’s more, this bank stock offer a market-beating dividend yield of 5%, covered a whopping 4.5 times by earnings. In other words, Barclays could triple this cash payout and still afford to meet it from trailing earnings.
In addition, Barclays has a rock-solid balance sheet packed with high quality, liquid assets. Also, its Common Equity Tier One (CET1) ratio, a measure of solvency, was 13.9% at the end of March, another positive indicator of its financial strength.
I’d bet the farm on Barclays
My wife bought Barclays shares at 154.5p in early July 2022, so we already own part of this FTSE 100 firm. To date, we are sitting on a paper loss of 6%, but this doesn’t bother me. Indeed, if I had cash to spare to ‘bet the farm’ today, it would be on Barclays.
Then again, I expect 2023 to be a much tougher year for UK banks than 2022. Sky-high energy bills and stubborn inflation are squeezing household incomes. Meanwhile, rapidly rising interest rates are pushing up mortgage repayments and dragging down the UK housing market.
Nevertheless, as a long-term buy and hold, Barclays is my pick of the FTSE 100 today, so I will buy more share as soon as I can!
