I noticed that the Barclays (LSE: BARC) share price is down 20% in 2023 so far. Should I buy or avoid the shares?
What’s been happening to the Barclays share price?
Barclays shares have been on a downward trajectory in recent months. Soaring inflation, rising interest rates, and other issues have hampered the shares.
A prime example of one of these other issues I refer to is the US banking crisis. This wobble across the pond earlier in the year sent seismic shocks across the banking industry globally. Here in the UK, Barclays and its big four counterparts HSBC, Lloyds, and Natwest have all suffered too.
As I write, Barclays shares are trading for 130p, compared to 163p at this time last year, the 20% drop I referred to. Since volatility began to gain a stranglehold on markets, the Barclays share price has dropped 31% from early February to current levels.
The bull and bear case
Macroeconomic volatility is rarely good news for banks. However, rising interest rates are a double-edged sword for Barclays and its banking peers. Rising interest rates mean more income for the business but the same rising rates can be bad as they increase the chances that its customers default too. The recent rise has seen Barclays and others post decent results and reward investors too.
The biggest bull aspect for me buying Barclays shares right now is its passive income opportunity as well as its enticing valuation. I’m experienced enough to understand that dividends are never guaranteed. However, a dividend yield of just under 6% is enticing. Plus, Barclays has increased dividends since it cancelled them back in 2020/21 due to the pandemic. Of course, past performance is not a guarantee of the future.
Based on the current Barclays share price, its valuation looks attractive on a price-to-earnings ratio of just under four. The FTSE 100 average is 14, and many of its peers mentioned earlier are trading at slightly higher valuations.
Persistent inflation and higher interest rates are a major threat to Barclays investment viability. Any continued economic downturn could hinder the bank’s performance which would hurt investor payouts and sentiment.
Barclays could find it is consistently writing off hefty amounts in credit impairment charges and demand for its products is weakening due to these higher interest rates. There’s already a cost-of-living crisis in the UK with soaring food and energy prices. Credit cards could help consumers pay for things, but if they’re unable to repay them, Barclays will lose out. This is just one example the business could encounter.
My verdict
Warren Buffett once said “Be greedy when others are fearful.” I’m following his advice and I plan to add some Barclays shares to my holdings the next time I have some spare cash.
Based on the current Barclays share price, I think there’s a great opportunity to buy dirt-cheap shares with a view to long-term returns and growth. Barclays’ passive income opportunity looks particularly enticing right now and one of the big drivers behind my conclusion. However, I’m going to strap in tight, as I think it will be a bumpy ride, at least in the short term.
