Recent Price Falls Make Barclays PLC A Buy Again

barclaysThe Barclays (LSE: BARC) (NYSE: BCS.US) share price chart for the past 12 months looks like a broken city skyline, all skyscraper highs and slum landlord lows. If you bought at one of those highs, when the share price nudged 300p in May, July and January, you will be feeling down in the dumps at today’s 250p. With further share price volatility to come, the trick is to buy when Barclays is down, rather than up. Today, Barclays is down. So…

Barclays has been falling for the last couple of months, and its recent full-year results extended the slide, thanks to a 32% drop in its adjusted pre-tax profit to £5.16 billion. As I suspected, the £1.2 billion it has poured into Project Transform, in a bid to clean up its ethical performance and public image, has so far produced more costs than benefits. Barclays is still having to make massive provision for regulatory penalties and litigation, £220 million in 2013, and you never know where the next banking scandal is coming from. So there are good reasons to be down.

Death defying balancing acts

Yet as an investor with a long-term outlook, last year’s disappointments don’t worry me too much. All the big banks are in the process of a multi-year clean-up operation, and there is still plenty of mucking out to do. There are some signs of light, however, with PPI mis-selling claims now in decline. Better still, Barclays now boasts a robust core tier 1 ratio of 13.2%, which has risen sharply from 10.8% at the end of 2013.

Investors are right to be feeling low. Barclays’ investment banking arm, which delivered £2.2 billion of income last year, may struggle to retain the staff it needs to compete in the US, due the EU bonus cap. Without those bonuses, the division could face a “death spiral”, chief executive Antony Jenkins recently warned. With no rise in the yearly dividend payment, held at 6.5p a share, investors will grumble that Jenkins is reacting by prioritising staff awards over shareholder returns.

Time for a dip

Dividend seekers will have less to grumble about in future. Barclays may yield a humdrum 2.6% today, but that is forecast to hit 3.8% by the end of this year, and 5.2% by December 2015. Earnings per share are forecast to grow a mighty 72% this year, and 21% in 2015. I wouldn’t say Barclays is cheap at today’s price, it trades at just over 15 times earnings. But it is on a forecast p/e of 8.8 times earnings for December, which looks a lot more promising. Five years after the financial crisis, Barclays is still a recovery play. This is a stock to buy on the dips, and today, ladies and gentlemen, we have one of those dips.

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> Harvey doesn't own shares in Barclays or any other company mentioned in this article