Why I Love Barclays PLC

There is a thin line between love and hate. But today, let’s focus on the love. Here are five reasons why I’ve fallen for a banker, Barclays (LSE: BARC) (NYSE: BCS.US).

It’s naughty, but a nice investment

There is plenty to dislike about Barclays, but don’t let that put you off. The share price is still up 50% in the past two years, against 21% growth on the FTSE 100, and that’s what really counts to investors. It is never going to win ethical investment of the year, but this is a key player in the UK economy, a UK-listed bank with global clout, and simply too big to fail/ignore/snub/dismiss/stagnate. It’s time you fell for the bad boy.

The price is nicer than it was

I hate buying stocks after they have been on a blistering run, but a recent pullback in the Barclays share price could present a buying opportunity. It is down 18% in the last three months to £2.66, which has lifted the yield to 2.3%. That’s a long way from the dividend glory days, but give it time. That dividend is nicely covered 5.7 times, by the way.

It is relatively cheap

Barclays now trades at just 8.3 times earnings. That makes it much cheaper than Standard Chartered at 10.9 times earnings, Lloyds Banking (11x), HSBC (14.8x) and Royal Bank of Scotland (20x). A projected 22% drop in earnings per share in 2013 partly explains that lowly valuation, but that is forecast to flip into a 22% rise next year, lifting pre-tax profits from around £6 billion to £8 billion. Unlike Lloyds and RBS, there will be no sell-off of a taxpayer stake, yet it may still benefit from the publicity.

Bad news is good news, if you’re patient

Barclays didn’t become cheap by accident. It has been forced to beg for capital, through its £5.8 billion rights issue. Recent interim results showed a small profits miss. The expensive Project Transform is driving a massive cultural upheaval. It is still making provision for umpteen investigations, including PPI, interest-rate swaps, the Qatari bailout, energy fines, personal loans, etc. This sea of troubles presents a swell buying opportunity. You will have to be patient, but that is the virtue of being a private investor. You can afford to be.

Barclays is slowly getting stronger

Behind these nasty headlines, management has been beavering away at making Barclays stronger. Its group core tier ratio is now 11.1%, up from 10.8% last year. Credit impairment charges fell 5% to £1.63 billion in the first half of 2013, costs were down £640 million. Total assets rose 3% to £1.53 billion, while liabilities fell. Investors will get a second interim dividend of 1p per share. Hardly riches, but another small step in the right direction. Barclays will get there in the end. If you want to own a piece of the bad bank, you should jump on board sooner rather than later.

Not everyone agrees. Ace investor Neil Woodford, for example, wouldn't touch Barclays. Invesco-Perpetual's dividend dazzler is moving on, but before he goes, find out which stocks he does like by downloading our special in-depth report Eight Top Blue Chips Held by Britain's Super Investor. This updated report is completely free and shows where Woodford believes the best high yield stocks are to be found. It won't cost you a penny, so download it now.

> Harvey owns shares in RBS. The Motley Fool owns shares in Standard Chartered.