If I’d invested £5k in Barclays shares 10 years ago here’s what I’d have now

I keep expecting Barclays shares to recover but instead they have carried on falling. Yet I still find them far too cheap to resist.

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Barclays (LSE: BARC) shares have been on my buy list for the last six months and only two things have stopped me from investing in them.

The first is that I don’t have enough cash to buy all the shares I want. The second is that I hold shares in Lloyds Banking Group, which means I already have exposure to the FTSE 100 banks and have been targeting other sectors instead.

As it turns out, I’ve dodged a bullet. Barclays shares have only gone from bad to worse this year. They’ve fallen 6.82% today alone, after the board cut guidance for UK net interest margins, which measure the difference between what banks pay savers and charge borrowers. It’s a key profitability metric.

It’s down yet again

Previous guidance suggested they’d range between 3.15% and 3.2%. That’s now been lowered to between 3.05% and 3.1%. This overshadowed positive news elsewhere, as third-quarter pre-tax profits of £1.89bn comfortably beat consensus forecasts of £1.77bn, despite falling 2%.

The Barclays share price has climbed just 0.69% in the last year, during a period when the FTSE 100 grew 5.4%. It’s fallen 12% over the last three months.

I love targeting stocks that have been sold off and are out of favour. I think it’s a great opportunity to buy at a bargain price, then sit back and wait for the recovery.

It’s not a foolproof strategy, though. The danger is that the shares are falling because the company or its sector simply isn’t what it was. That is definitely the case with the banks. They’ve never been the same since the financial crisis, as they’ve been forced to retreat from high-risk, high-reward activities.

Barclays should have put the financial crisis behind it yonks ago, and be booming today. Yet it continues to struggle.

Potential value trap

If I’d bought Barclays shares 10 years ago, in October 2013, I’d have paid 277p per share. At today’s price of 135p, I’d have lost 52% of my money. If I’d invested £10,000 then I’d only have around £4,800 today.

Even after dividends, I’d still be well down on the deal. When I see Barclays shares trading at just 4.68 times earnings, I have to remind myself that it has looked cheap for ages, without recouping its lost value. The same goes for my Lloyds shares.

Perhaps I’m naive, but I still think now that is a great time to buy Barclays. Market sentiment is down in the dumps today, as interest rates look set to stay higher for longer and the Israel-Hamas conflict spreads misery. Yet I still think the FTSE 100 banks are a terrific recovery play, for when markets finally get their mojo back.

While I wait, I’d get plenty of dividends. Barclays is now forecast to yield 6.03% in 2023 and 6.97% in 2024, and I would expect that to carry on climbing thereafter. I don’t care if I already hold Lloyds. The only thing stopping me from buying Barclays shares today is my own lack of cash flow. Once I get some more money to invest, I’ll buy them. I hope they’re still cheap.

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 assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc. 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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