I’m shopping for shares right now, should I pop Barclays (LSE: BARC) (NYSE: BCS.US) into my basket?
There have been some great opportunities to buy Barclays in the past five years. You could have bought it in March 2009 at a sale price of 65p, and found yourself with a six-bagger by October, when it topped £3.60. You could have bought it for around £1.50 in autumn of 2011 and again in summer 2012. Today you pay £2.81. Should I buy Barclays at that price?
If you like buying big companies on weakness, this stock could be for you. Barclays is down nearly 14% since late May, when it traded at £3.25. It should be powering ahead as the UK approaches escape velocity, but the return to normality was always going to be bumpy. Markets are still hooked on QE, and interest rate hikes could spark a wave of repossessions among indebted homeowners. Ultra-loose monetary policy basically saved the banks in March 2009, they banks still aren’t ready to save themselves.
Qatar in its throat
Barclays has been working hard to transform its culture, fluff up its capital cushion, cut impairments, restructure its operations, and, importantly for investors, revive that dividend. Project Transform still has some way to go, as the PPI omnishambles and other mis-selling scandals keep popping up. The Serious Fraud Office is currently investigating the injection of private Qatari capital in 2008, which may have been borrowed from, um, Barclays.
Lehman may be a dirty word, but it isn’t at Barclays, which bought the stricken investment bank in September 2008. Recent first-quarter results showed investment bank profits rising 11% to £1.32 billion, although current volatility could prevent a quick repeat. Some analysts worry that new CEO Antony Jenkins lacks investment banking experience, although his predecessor Bob Diamond was probably too full of it.
Every time a banker trousers a £1 billion bonus, or is forced to give it back, the press and public remembers why it still hates them. That hasn’t stopped the Barclays share price leaping 60% in the past 12 months, despite recent slippage. As a universal bank, it remains integral to the UK economy, and too big to fail. Its current yield of 2.3% is below the FTSE 100 average of 3.6%, but that will recover, given time.
Barclays is still risky. S&P has just trimmed its credit rating due to “tighter regulation, fragile global markets, stagnant European economies and rising litigation risk stemming from the financial crisis”. But at 8.1 times earnings, most of the risk is in the price. Forecast earnings per share (EPS) growth is an anaemic 3% in 2013, but hits a protein-rich 19% in 2014. By then, the forecast yield is 3.4%. You don’t have to like Barclays, but you do probably have to buy it. Now could prove a good time.
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> Harvey doesn’t own shares in Barclays.