This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.
The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.
Barclays (LSE: BARC) (NYSE: BCS.US) was the last entrant to our portfolio, taking its place only in February this year.
At 248p today the shares are a little down on our purchase price of 254p, and with all costs and spreads accounted for we’re 7% down overall.
Against our best performers so far — Persimmon and Blinkx have both more than doubled and Aviva is up 60% — Barclays has some way to go to compete. But I reckon Barclays could easily turn out to be our best performer over 10 or 20 years. I’ll tell you why.
Cheap
Firstly, on basic fundamentals it’s cheap. With a 50% rise in earnings per share forecast for the year to December 2014, the shares are valued on a forward P/E of only 10, and that’s way cheaper than the FTSE’s long-term average of 14.
The bank’s profits are rapidly heading back to sustainable healthy growth again too, and there’s a further 24% gain in EPS predicted for 2015.
What’s more, there’s a resurgence in dividends happening again — the pundits are suggesting a 27% rise this year to give us a yield of 3.3% on the current share price, and if they’re right then it should be followed by a 4.7% yield in 2015.
But aren’t all banks lowly valued right now, you might ask? Yes, they are. Lloyds is on a forward P/E valuation of 10.5, with RBS on 14 — they’re more highly valued than Barclays, but with poorer earnings and dividends, and we still have uncertainties over their return to full private ownership.
Standard Chartered and HSBC are both on higher valuations, too, of about 10.5 and 11.5 respectively. But both of those are heavily exposed to China, and with overheating credit and property markets, there is some significant risk of a crunch there, too.
Little downside left
We mustn’t forget there’s still a lot of dirtiness in the banking business, but what struck me most about last week’s gold-manipulation fine for Barclays is that it had no effect on the share price.
Sure, the £26m was a paltry sum to a bank making billions a year, but it makes me think that the Barclays price is becoming immune to downside shocks these days — all of the pessimism related to the bank’s various misbehaviours, and more, is already built into a severely-depressed share price.
The City seems to share my bullishness too, with Barclays attracting a very strong Buy consensus from the analysts.
What could it be worth?
A fair price for Barclays, for me, would be about 50% more than today’s valuation — and after that I’d expect to see at least a couple of decades of solid growth.
Will Barclays make its way to the top of our list of winners? It’ll be interesting to see.
