Why Barclays PLC Should Be A Candidate For Your 2014 ISA

barclaysIt’s ISA time soon, and that means a whole new allowance of £11,760 to use up — you can invest up to that amount in shares and your profits will be tax-exempt.

And, of course, you might well still have some of your 2013-14 allowance to use up before April 2014 arrives, so what should you consider?

Buy banks?

I reckon Barclays (LSE: BARC) (NYSE: BCS.US) is a good candidate, despite its recent short-term problems — they were big problems, sure, but we need to put them in the context of a decades-long investing horizon.

Here’s what the past five years looked like, together with forecasts for the next two:

Dec EPS Change P/E Dividend Change Yield Cover
2009 22.32p -53% 11.4 2.31p 0.9% 9.7x
2010 28.15p +26% 8.6 5.09p +120% 2.1% 5.5x
2011 25.65p -9% 6.3 5.56p +9.2% 3.4% 4.6x
2012 35.50p +38% 6.8 6.00p +7.9% 2.5% 5.9x
2013 16.70p -53% 16.3 6.50p +8.3% 2.4% 2.6x
2014* 28.65p +72% 9.0 9.46p +46% 3.7% 3.0x
2015* 34.60p +21% 7.5 12.98p +37% 5.0% 2.7x

* forecast

Bad though that is, it’s a much better track record than some others, notably the bailed-out pair of Royal Bank of Scotland and Lloyds Banking Group — but it’s my contention that all of our big banks should get some serious consideration when it comes to ISA time.

Tough results

Barclays’ last set of full-year results were pretty rough, with so much cash having to be set aside to cover the costs of the bank’s various misdeeds — PPI mis-selling, fiddling LIBOR rates, and its mass of toxic assets.

But even so, over the 20-years plus that I’d recommend as the appropriate horizon for an ISA investment, those things will surely just become historic blips in an otherwise steadily-rising investment.

But what a low valuation!

_ISA2In fact, although Barclays shares are down 10% over the past 12 months to 258p, the current valuation puts them on a forward P/E for this year of only 9, falling a slow as 7.5 based on 2015 forecasts — and with the dividend set to come back strongly and be yielding around 5% by 2105, I couldn’t resist adding Barclays to the Fool’s Beginners Portfolio.

What might a £1,000 investment in Barclays today be worth in 20 years’ time? Well, a dividend yield of 5%, if reinvested in shares every year, would take that thousand up to £2,600, even if the share price doesn’t budge — a 5%-per-year gain in the share price on top would take your total up to £6,700!

Shares beat cash

Barclays is currently offering just 1.3% on a cash ISA, which would turn your £1,000 into a measly £1,300 after two decades. So don’t save with Barclays — buy the shares instead!

Investments like Barclays could even help you reach millionaire status by the time you retire, and an ISA is a good way to protect a chunk of your investments every year. The Motley Fool report Ten Steps To Making A Million In The Market can help you too -- you might be surprised to learn that the steps are really not complicated. The report is free, so it will cost you nothing to check it out.

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> Alan does not own any shares mentioned in this article.