Why this FTSE 100 bank stock is my best value pick right now

Ken Hall takes a deep dive into the world of FTSE 100 bank stocks. Which lender does he see as the best value buy right now?

| 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.

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 FTSE 100 is fully of well-known companies, including the top UK banks. With uncertainty around interest rates and increasing market volatility, it’s time I did a deep dive to find my favourite value pick.

Assessing FTSE 100 bank stocks

First on the list is Barclays (LSE:BARC). The bank released its half-year results on 1 August and I noticed several things.

One was the strong investment banking performance. Barclays reported a 10% increase in second-quarter divisional income, driven by a 24% rise in its equities income — better than Wall Street rivals like JP Morgan and Goldman Sachs.

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

That comes as Barclays plans to reduce its investment banking unit towards 50% of its risk-weighted assets (RWAs) by 2026. However, the bank expects return on tangible equity (ROTE) to be greater than 12% by 2026, up from more than 10% in 2024.

Increased long-term earnings forecasts, execution of its £2bn cost-cutting plan and a focus on growing core UK lending have boosted the FTSE 100 bank stock by more than 40% this year.

Created with Highcharts 11.4.3Barclays Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

A look at the banking rivals

The next bank I looked at was NatWest (LSE:NWG). The share price climbed 17% in July following the bank’s earnings report.

Created with Highcharts 11.4.3NatWest Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The UK lender reported a higher net interest margin — a key measure of profitability — from 2.05% in the first quarter to 2.1% in the second.

A £2.5bn acquisition of Metro Bank‘s prime loan book also caught my eye. More assets creates more earnings potential, which could be a boost if it keeps bad debts to a minimum.

Elsewhere in the market, Lloyds and HSBC are perennial banking favourites and strong dividend payers. They’re always in the discussion for top FTSE 100 bank stocks given their size and market position.

A look at the numbers

Let’s start with some relative value metrics. The broader Footsie has an average dividend yield of 3.6% right now.

HSBC (7.3%) and Lloyds (3.7%) are currently above that, while NatWest (3.5%) and Barclays (2.6%) are lower.

It’s not all about dividends though. Barclays has the lowest price-to-book (P/B) ratio, with a 0.45 ratio of its market cap versus the value of its net assets held on the balance sheet. HSBC (0.65) follows, with NatWest and Lloyds both sitting at 0.75.

Finally, I looked at the price-to-earnings (P/E) ratios. NatWest (6.4 times) was the winner there with HSBC and Barclays (both 7.2 times) ahead of Lloyds (8 times).

My verdict

On balance, Barclays is my preferred FTSE 100 bank stock pick. With higher expected returns for shareholders, a clear strategy shift and favourable P/B ratio, I place it slightly ahead of its peers.

Will I be buying?

I won’t buy at the moment though. Bank stocks have benefitted from rising interest rates allowing them to earn more from deposits.

With rate cuts on the horizon, I think that could change. I’ve also seen how quickly profitability can turn when competing for market share in the UK mortgages market, such as with Santander last year.

With some green shoots in the economy, I think some out-of-favour companies in the consumer and leisure sectors could be better value than the FTSE 100 banks right now.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Ken Hall has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Are Tesco shares a screaming buy after sinking to 9-month lows?

Tesco shares continue to experience price weakness as signs of mounting competition grow. But is it now too cheap to…

Read more »

Investing Articles

Down 31%! 1 top growth stock to consider at $10 for a Stocks and Shares ISA

This high-quality stock has pulled back sharply since November, making it a possible candidate for a growth-oriented Stocks and Shares…

Read more »