The FTSE 100 is packed with exceptional value stocks. The UK’s leading share index is up 3% since 1 January. But ongoing fears over the macroeconomic and geopolitical landscape mean many top-quality shares continue to trade on rock-bottom valuations.
Shares in banking giant Barclays (LSE:BARC) have slid 5% during 2023. This means that — on paper at least — it offers exceptional all-round value at current prices of 149.1p per share.
This cheap share currently carries a price-to-earnings (P/E) ratios of below 10 times for the new year. It also boasts a dividend yield well above the 3.9% Footsie average, suggesting it could be great stock to buy for passive income.
But is the embattled bank too cheap to miss this Christmas? Or could it end up costing me a fortune?
Bad loans rising
Banking giant Barclays has some big advantages over UK-focused rivals like NatWest and Lloyds. Its significant exposure to the US means it could outperform its FTSE 100 peers next year should economic conditions there remain robust.
Yet rising impairments on both sides of the Atlantic are a worrying sign for the business heading into 2024. Indeed, group loans are actually picking up momentum due to mounting delinquencies at its US card business. Group impairments exceeded £1.3bn in the nine months to September, up from £722m a year earlier.
They could continue marching northwards too if interest rates remain at elevated levels.
NIMs under pressure
Retail banks also face an uncertain future as central banks have likely ended their rate-hiking cycles. This means their net interest margins (NIMs) — which measure the difference between the interest they offer savers and charge borrowers — might fall sharply from this year’s levels.
This key measure of banks’ performance are also under threat as competition in the savings market intensifies. In a troubling omen Barclays actually reduced its NIM forecasts for 2023 in October. The FTSE 100 firm cut its full-year estimate to 3.05-3.1% from 3.15-3.2% previously.
Qatar signals trouble?
The Qatari wealth fund’s decision this month to halve its stake in the bank is a further sign that Barclays faces trouble next year. As Hargreaves Lansdown analysts have commented:
with an upcoming strategy report due from Barclays, many in the markets found the timing of the deal a little odd, and suggested the Qataris are not optimistic about the bank’s plans.
Barclays is reportedly cooking up fresh plans to protect its profits during this difficult times. These are said to involve cutting of up to 2,000 jobs to save it £1bn, Reuters journalists wrote last month. But this isn’t a gamechanger for the bank’s investment case given the other problems it faces.
The verdict
Right now, Barclays shares trade on a P/E ratio of just 4.7 times for 2024. It also carries a meaty 6.5% dividend yield.
I think this low valuation is a fair reflection of the colossal headwinds the company faces next year and potentially beyond. This is why I’m searching for other FTSE 100 value stocks to buy today.
