A Lucky Dip For Barclays
For the last three months, I’ve been bigging up the investment case for Barclays (LSE: BARC) (NYSE: BCS.US), which has slipped deeper and deeper into bargain territory. Right now, it trades at just 241p, more than 25% off its 12-month high of 327p. Barclays’ share price has been volatile ever since the financial crisis, so this is definitely one to buy on the dips. Well, here’s your dip.
Barclays is on a forecast valuation of just 9.7 times earnings for December. Earnings per share (EPS) are predicted to grow a whopping 48% this calendar year. The dividend is still in recovery mode, but tipped to hit 4.6% by December 2015 (after another 22% annual EPS growth). All these numbers scream to me: “Open your wallet!” If you don’t buy Barclays now, there can only be one rational reason. You don’t want to. Ever.
Nay, Nay And Thrice Nay
And frankly, there are good, rational reasons NOT to buy Barclays. Perhaps you have concluded that ever-stiffening regulation has killed the investment case for banks. You certainly have a point. Every time the big bad banking sector shows sign of life, politicians step in to slap it back down, with yet more capital demands, stress tests, leverage ratio targets and bonus caps.
Here’s another reason to say no. When chief executive Antony Jenkins tries to prevent a “death spiral” by lavishing its investment bankers with barely-earned bonuses, he sparked a shareholder revolt. The result: downsized ambitions and the death of Barclays as a global investment banking force. Goodbye Wall Street, hello domestic retail banking. This certainly makes the stock less exciting to hold, if a little safer.
The Incredible Shrinking Bank
Maybe you are shunning Barclays on moral grounds, as it continues to attract a string of scandalous headlines. In the last fortnight alone, we’ve had allegations of underpaying compensation for mis-sold PPI and a £26 million fine for failing to prevent manipulation of the gold price. These kind of claims are so routine that the share price no longer notices them. But ethical investors will.
Here are more reasons not to invest. While the market has admired Barclays’ cost-cutting plans, I think it reveals a further failure in confidence, in what is a tough trading environment. And although I admire Jenkins’ claim that Barclays will become “stronger, leaner” by ditching £116 billion of non-core operations, it confirms my impression that this big bank is thinking small.
These are all good reasons not to buy Barclays today. You can probably list several more. Turning this big old beast around will certainly take time. But most of these problems are now in the price. And it’s a very tempting price.
If you want a bit of Barclays in your portfolio, now is the time to buy it, rather than hanging on in the hope that it will get even cheaper. If you don’t buy Barclays now, when will you? The answer is probably never.
