Barclays shares have been a disaster, but I’m not selling

Barclays shares have been a rubbish investment, losing almost 18% of their value in the past 12 months. But maybe hope is coming on 20 February?

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During the global financial crisis (GFC) of 2007-09, Barclays (LSE: BARC) came close to collapse. As the bank struggled to shore up its balance sheet, its shares plunged as low as 45p.

Refusing to take a government/taxpayer-funded bailout, the Blue Eagle bank made some extremely tough decisions, the repercussions of which still affect the group today.

In order to survive the GFC, Barclays sold off several profitable businesses, including its ‘crown jewel’: hugely successful investment manager Barclays Global Investors (BGI). Today, the group is mostly built on its ‘boring’ UK clearing bank, plus its ‘exciting’ investment bank.

Barclays stock slides

One of the firm’s biggest problems is that its largely US-based investment bank requires a huge amount of assets and capital, yet produces volatile annual returns. For some shareholders, this is the albatross around the group’s neck, holding back the whole.

Meanwhile, the Barclays share price has gone nowhere for years. As I write, it stands at 142p, valuing the business at a modest £21.5bn. This stock is down 1.1% over six months, 17.7% over one year, and 11% over five years.

Even considering the weakness of the wider FTSE 100 index, these are rubbish returns. No wonder the shares are well below their 52-week high of 198.86p, hit on 8 March last year.

But what about dividends?

For the record, my wife and I bought Barclays shares for our family portfolio in July 2022, paying 154.5p a share. To date, we are nursing a paper loss of 8.1% on our purchase price.

Then again, all returns mentioned above exclude cash dividends — the main reason why we invested in Barclays in 2022. To date, we have also received 9.95p per share in cash, yet this still leaves us with a small loss.

This share looks cheap

Right now, Barclays looks a cut-price, bargain-basement stock to me. It trades on a lowly multiple of 4.2 times earnings, delivering a bumper earnings yield of 23.6%.

This means that the market-beating dividend yield of 5.4% a year is covered a solid 4.4 times by earnings. To me, this payout looks safe as houses — many of which Barclays finances through its UK mortgage arm.

However, these fundamentals are based on backward-looking figures, with 2024 shaping up to be a tough year. I fully expect banks’ bad debts and loan losses to rise this year, while credit growth could be minimal or even negative. Thus, Barclays’ revenues, earnings, and cash flow could suffer.

What could change?

In its third-quarter results, Barclays revealed a tangible net asset value (TNAV) of 316p a share. Thus, its shares currently trade on a discount of over 55% to this level. How can this stock be so undervalued?

For me, the answer is about trust and narratives. Management have made some howlers in recent years, costing the bank billions of pounds in fines. Likewise, some folks just don’t like that investment bank.

That said, CEO CS Venkatakrishnan is set to unveil the outcome of his wide-ranging strategic review on 20 February. If investors like what they see, then this could boost the share price. Alas, previous re-evaluations have clearly failed.

Finally, I await this event with optimism, so we shall hang onto our stake for now. But I hope for some welcome relief for Barclays’ long-suffering shareholders!

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.

Cliff D’Arcy has an economic interest in Barclays shares. The Motley Fool UK has recommended Barclays. 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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