I’m a veteran value investor, so I like hunting down the stock market’s hidden gems. Ideally, I look to buy into solid businesses at bargain prices. And right now, Barclays (LSE: BARC) shares look to be among the most unloved and undervalued UK stocks.
Barclays got battered
Looking at the five-year chart for the Blue Eagle bank’s stock, it’s been a waste of time for shareholders.
Over the past half-decade, the share price has essentially gone nowhere, losing 0.2%. Over 12 months, the stock is down 5.3%, while the FTSE 100 index is up 2%.
However, the above figures exclude dividends, regular cash payouts made by some companies to their shareholders. And Barclays is returning close to £1.2bn a year in cash to its owners.
For the record, my wife and I bought Barclays for 154.5p a share in July 2022. As I write, the shares trade at 154.86p, delivering a negligible paper profit of 0.3% on this trade.
That said, this FTSE 100 stock had a great start to 2023, peaking at 198.86p on 8 March. Then a US banking crisis collapsed the shares, which plunged 35% over the next 12 days.
At its 2023 low, the share price bottomed out at 128.12p on 30 October. At that time, I viewed this stock as an incredible bargain, but lacked cash to back my hunch. It has since leapt by 20.9%.
This share looks cheap
At the current share price, Barclays is valued at £23.4bn, making it one of the largest firms in the Footsie. To be honest, if I had this sum to hand, I’d gladly buy the entire group to take it private.
Why? Because the shares trade on a lowly multiple of 4.6 times earnings, producing an earnings yield of 21.6%. In my 37 years of experience, FTSE 100 shares are rarely valued more cheaply than this.
In addition, the market-beating dividend yield of 5% a year is covered a powerful 4.4 times by earnings, perhaps among the most well-covered high yields in the London market. Also, Barclays is expected to lift its next dividend when delivering its 2024 results.
Another value indicator is that tangible net asset value (TNAV) per share was reported as 316p in Barclays’ third-quarter results. That’s more than double the current share price. Hence, it’s like paying 49p for £1 of underlying assets — mostly solid loans and mortgages.
So what’s not to like?
Perhaps the biggest problem with Barclays stock is that it has looked cheap for many, many years. And just when the share price seems to be making headway, back down it goes. For example, on 15 January 2022, it closed at 215.5p. It has since declined by 28.1% over nearly two years.
In other words, these shares resemble a perpetual ‘value trap’, luring in investors only to disappoint them later. But maybe, just maybe, this might change? Or perhaps the bank’s management will commit yet more blunders, as has happened too often in recent years?
Finally, if the economy weakens in 2024, then this could spell more weakness for banks’ revenues, earnings and cash flow. This might leave this stock a loser in 2024. Nevertheless, I’m hoping for better things from Barclays shares over the next five to 10 years!
