It’s hardly unheard of to see a stock go up several times in value, but I was not expecting it so quickly from Barclays (LSE: BARC) shares. It’s been a real trip watching the value in my brokerage account over the last couple of years. From bottom to top, I saw the share price rise nearly four times.
From a 129p low in late 2023, the share price climbed to a high of 489p (although has retreated since). This makes it the best performing FTSE 100 bank over the period. And guess what? I think the stock is still in pretty good shape and might hit the 1,000p, or £10, mark sooner rather than later. Here’s why.
Why did I buy?
To start with, let me quickly explain why I bought in the first place a little while before that 2023 low. The simplified version: bargain basement valuations; rapidly rising inflation and interest rates; and the bank’s exposure to the US economy.
I had reservations too. The 2010s were something of a lost decade for the banking sector. The ghosts of 2008 were around every corner and Barclays shares dropped 59% over a 10-year period. There were no guarantees that the turnaround was coming soon, if ever.
So why am I bullish today? For one, valuations are still very reasonable. A price-to-earnings ratio of around 10 looks cheap as chips, and well below the FTSE 100 average. The price-to-book ratio of 0.79 looks like a 21% discount on the theoretical minimum of one. The runup of the last couple of years has not made banks look overpriced, in my view.
The impact of inflation and interest rates is similar to what it was a couple of years ago as well. Higher rates help banks to increase margins. More earnings could mean more share buybacks to help lift the share price. With inflation proving sticky – and the impact of an Iran war not helping matters – I see the Bank of England keeping rates elevated in the medium-term.
Cold water
The last factor of the US economy is perhaps even truer today than it was a while back. The country is leading the world on artificial intelligence, and its GDP growth figures put the rest of the developed world to shame. As Warren Buffett puts it: “Never bet against America.” All this is good for Barclays because of its high US exposure compared to other FTSE 100 banks.
I’ve been extremely positive so far, so allow me to pour a little cold water on the excitement here. It’s impossible to say whether a stock is a clear slam dunk ahead of time. And the exposure to the US could be a double-edged sword if the artificial intelligence trend proves to be a bubble and pops.
To sum up? The average stock doubles in value every seven or eight years. Will Barclays be one of those stocks that does it faster on the way to the £10 mark? Only time will tell for sure, but I think the stock is worth considering.
