Barclays (LSE: BARC) (NYSE: BCS.US) has had a rough time of it lately, but don?t let that put you off. Here are five ways it could make you rich.
1) By recouping its lost value
Before the financial crisis, Barclays traded at a peak price of 790p. Today, you pay 272p, one-third of the price. And rightly so, given the events of the past five years. But Barclays has been steadily recovering its…
Barclays (LSE: BARC) (NYSE: BCS.US) has had a rough time of it lately, but don’t let that put you off. Here are five ways it could make you rich.
1) By recouping its lost value
Before the financial crisis, Barclays traded at a peak price of 790p. Today, you pay 272p, one-third of the price. And rightly so, given the events of the past five years. But Barclays has been steadily recovering its lost value, rewarding investors who took a chance on this stock in the dark days. It will have nearly doubled your money over the last 18 months, after trading on a low of 144p in the summer of 2012. The share price recovery will be a slow, erratic process, and it could be years and years before it recaptures its former glories. But it should get there in the end.
2) Because you are buying it cheap
Barclays trades at a tempting valuation of just 8.6 times earnings. Again, there’s a good reason for that, given its tarnished reputation, the endless string of mis-selling scandals, and the hundreds of millions it is pouring into Project Transform in a bid to clean up its ethical performance and public image. But there is hope for the future, with the stock trading on a forecast price-to-earnings ratio of 11.8 times earnings. Barclays also looks cheap compared to rivals such as HSBC Holdings, which trades at more than 14 times earnings.
3) By delivering double-digit growth
Barclays has seen its earnings per share (EPS) plummet since the crisis, as it was forced to issue large amounts of stock to sustain its balance sheet. EPS dropped a whopping 53% in 2009, and after recovering slightly, dropped a crunching 27% in 2012. But again, things are looking up, with forecast EPS growth of 26% this year and 20% in 2015. This is a business on the mend. If you want to get rich from investing in Barclays, you have to part with your money before it retains respectability, with all the risks that entails.
4) Cutting costs will help
Barclays has always been hard-nosed with its customers. Now it is taking an equally hard look at its own business, and slashing costs where possible. It has just fired 400 people in its investment banking division. Reports suggest 40,000 global employees could go, cutting the total to 100,000. It may also shed 400 UK branches in the next six years, leaving just 1,200. As in so many industries, technology will replace jobs, and become the new customer interface. Its £40 million-a-year Premier League sponsorship could be next for the chop, with senior figures saying it has “zero value” in the UK. It is also pulling out of sponsoring ‘Boris Bikes’ in London. Barclays is showing some focus, and that should sustain the bottom line.
5) The income will return
Investors mourned the loss of the Barclays dividend, but it has since risen from the dead. Right now, it already yields 2.2%. That is set to rapidly increase to a forecast 3.8% by December, and a meaty 5.2% by December 2015. If you’re buying Barclays, you should be looking to hold it for the long term. Lock into that rising yield today, and the money will pump into your portfolio year after year after year. In the long term, it is the dividend that will make you rich.
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> Harvey doesn't own shares in Barclays or any other company mentioned in this article.