The Barclays share price is dirt cheap, but what’s the best banking stock for 2024?

The Barclays share price fell 6% in 2023, and it’s among the cheapest banking stocks out there. Dr James Fox explores which bank is best for 2024.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Close-up of British bank notes

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Barclays (LSE:BARC) share price has largely underperformed its peers in recent years. This can be traced to various issues. They include net interest margin (NIM) downgrades, and SEC fines related to securities sold in error.

However, downward pressure on the stock has arguably created some attractive buying conditions. Barclays trades at 6.96 times forward earnings, representing a 35.79% discount to the sector average.

Moreover, for a stock that pays a significant dividend, it possess an appealing price/earnings-to-growth (PEG) ratio of 1.39. Normally a PEG ratio above one suggests a stock is overvalued when adjusted for growth. But factoring in the 4.8% dividend yield, it looks good value.

So, is there better value in the banking sector than Barclays in 2024?

UK lender

Lloyds (LSE:LLOY) is the UK’s largest mortgage lender. And as it doesn’t have an investment arm, it’s more interest-rate-sensitive than its peers.

So, with interest rates rising over the last two years, and interest rates set to fall over the next three, Lloyds has likely been impacted more than its peers.

The impact of changing interest rates on banks is multi-faceted. Higher rates means higher net interest income. But they also lead to higher impairment charges as customers struggle with their repayments.

Lloyds has some deal of insulation from these impairment charges as its average mortgage customer boasts an income of £75,000 — far ahead of average.

However, it could certainly benefit from falling rates, especially if the bank’s hedging strategy is as effective as analysts expect it to be. And this is why the bank trades with a PEG ratio of 0.56. That’s a 60.59% discount versus the sector average.

Lloyds is also cheaper than Barclays on a forward earnings ratio at 6.8 — that’s a 37.01% discount to the sector.

Better value overseas?

One reason UK banks look so cheap versus the sector average is that the sector average is dragged upwards by US-based banking institutions. They trade at much higher multiples.

And this is because banks are cyclical stocks that tend to reflect the health and potential of the economy. The US is still seen as a much safe economy. And it’s one with much stronger growth potential versus the UK and Europe.

To that end, European banks certainly aren’t expensive either.

Intesa Sanpaolo is one of Europe’s top banking groups, with a significant presence in Italy and beyond. It’s Italy’s largest bank and has produced some its most successful quarters ever over the past 12 months.

As the chart shows, Intesa has delivered three consecutive earnings beats, partially due to the impact of higher interest rates on income. Despite this, the stock has been volatile, rocked by a windfall tax in Italy.

Intesa Sanpaolo: Earnings per share

However, this uncertainty has contributed to attractive buying conditions. Intesa Sanpaolo trades at 5.8 times forward earnings — a 46.26% discount to the sector, and has a forward PEG ratio of just 0.22.

So, personally, my top banking stocks for 2024 are Lloyds and Intesa Sanpaolo. But Barclays certainly looks good value too.

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.

James Fox has positions in Barclays Plc, Intesa Sanpaolo S.p.A. and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group 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.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

3 top FTSE 100 value shares I’d buy before August!

These FTSE 100 heavyweight shares have considerable long-term potential. And at current prices, I think they are too cheap to…

Read more »

Investing Articles

Here’s why I’m selling my Lloyds shares to double down on this FTSE 100 stock

Our writer digs into why he prefers HSBC over Lloyds shares right now, despite both performing really strongly in recent…

Read more »

Investing Articles

I’d invest £12,500 in this 1 stock to bag £1K of passive income!

Building a passive income stream through dividends is one of this writer’s biggest ambitions. Here’s how one stock could help.

Read more »

Investing Articles

3 cheap stocks to consider buying for the AI revolution

Investors looking for AI stocks to buy might be worried about high valuations amid current market euphoria, but these three…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Earnings up 20%! But this UK small-cap stock may just be getting started

Are we about to see enduring growth from this UK small-cap business with a rising stock price ahead over the…

Read more »

Investing Articles

1 FTSE 250 stock I’d give a wide berth… for now

One of the worst performers on the FTSE 250 index is a stock that Sumayya Mansoor has decided she won’t…

Read more »

Investing Articles

The FTSE 250 is brimming with potential, especially in stocks like this one

The main Footsie index gets all the attention but its little brother, the FTSE 250, is full of growth potential.…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

What on earth happened to the Premier African Minerals (LSE:PREM) share price?

The Premier African Minerals (LSE:PREM) share price is down a whopping 85% in the last year, so what happened? Gordon…

Read more »