I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market has been overheating.
So right now I’m analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today’s uncertain economy.
Today I’m looking at international banking giant Barclays (LSE: BARC) (NYSE: BCS.US) to determine whether the shares are still safe to buy at 292p.
So, how’s business going?
Over the last few months, Barclays has been struggling with the Herculean task of reinventing itself, after several years of scandals and damning accusations that have haunted the bank and its reputation.
Barclays estimates that the task will cost around £1 billion but the plan is already well underway and £500 million of restructuring was completed in the first quarter of this year.
Indeed, during the first quarter, the bank improved its core tier one capital ratio by 20 basis points to 11% and reduced its exposure to Europe’s weak economy by cutting 3,800 jobs on the continent.
Additionally, the bank continues to expand in other areas. In particular, Barclays’ investment-banking division registered pre-tax profit growth of 11% in the first quarter.
Although the bank has made progress in re-structuring and improving its public image, Barclays has in the last few weeks been hit with fresh accusations of unfair practices in the derivatives market, which could set the bank back once again, if proven to be true.
Even after reporting a 25% fall in profits for the first half of this year, many City analysts are pleased with the bank’s overall strategy and expect Barclays’ earnings to move slightly higher this year, before taking off in 2014.
City forecasts currently predict earnings of 36p per share for this year (4% growth) and 42p for 2014.
Currently, Barclays offers a dividend yield of only 2.4% — lower than that of its peers in the banks sector, which currently offer an average dividend yield of 3.3%.
Still, City analysts expect this payout to rise 11% this year, followed by a 30% rise in 2014, in line with the company’s earnings growth.
Surprisingly, despite the bank’s positive outlook, Barclays still trades at a discount to its peers. Barclays currently trades at a historic P/E of 8, while its peers trade at an average historic P/E of around 18.
Although, Barclays is currently facing more accusations of improper conduct, the bank remains well capitalised, highly profitable and undervalued compared to its peers.
So, all in all, I believe that Barclays still lookssafe to buy at 292p.
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In the meantime, please stay tuned for my next FTSE 100 verdict
> Rupert does not own any share mentioned in this article.
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