Barclays‘ (LSE:BARC) shares are up 33% over the past 12 months. As such, £10,000 invested a year ago would now be worth £13,300. That’s a great return over a relatively short period.
However, the stock’s now down around 25% from its highs reached in late January and early February. I hadn’t forecast the slide, but I did start trimming my Barclays position around that time — and exited Lloyds entirely. Both had been long-term holds, with much of the position built during pullbacks like the Silicon Valley Bank crisis.
My sell-off
So why did I start selling? It was a valuation issue and an artificial intelligence (AI) issue. UK banking stocks have received several re-ratings in recent years and the multiples commanded simply started looking a little punchy for me. And it’s all relative. Banks reflect the health of the local economies and, let’s face it, the UK economy’s suffering.
For context, on 1 February, Barclays’ shares were trading around 9.1 times forward earnings. That’s double where they were during the Silicon Valley Bank fiasco. Earnings have improved considerably, and that was still a discount to American peers, but investors have to consider how much the market is really willing to pay for a British bank — that could have been the top end.
Today, the bank trades around 6.9 times forward earnings. As an entry point, that looks a lot more attractive. Even the dividend yield is now pushing 3.8%. In short, from a valuation perspective, much of the excess has been squeezed out. The stock now sits some 40% below its average share price target.
The second part, as I mentioned, was AI. As a well-circulated memo suggests, AI “has the capacity to revolutionise the world of business, and that probably will mean widespread white-collar layoffs”.
White collar workers represent a considerable proportion of discretionary spending in the UK and US, and therefore job losses in this part of the economy could have a considerable impact on the rest of the economy — from mortgage defaults to spending in pubs. All of these secondary effects will impact banks.
What about now?
As noted above, plenty of the froth has been taken out of the valuation. And that will undoubtedly make it more appealing to value investors. And despite my concerns about the economy and AI risk, some investors will find cause to be optimistic from here.
For one, 2026 has been billed as the year of mega IPOs. This, coupled with the volatility created by the war in Iran, should deliver a particularly good year for Barclays’ investment banking operations.
Personally, I’m holding what’s left of my position — but I’m in no rush to rebuild it. The valuation case is certainly worth considering. I just think there are more compelling opportunities elsewhere right now.
