3 Things That Say Barclays PLC Is A Buy

BarclaysIs Barclays (LSE: BARC) (NYSE: BCS.US) still tainted with the pariah status that the whole of the banking sector attracted, or is it a solid company now with a great future ahead of it.

Both, I’d say.

On the one hand, accusations that Barclays has been misleading trading clients who use its private equity platform (known as a “dark pool”) make up the latest in the alleged-dodgy-dealing saga. But on the other hand, there are good reasons why Barclays looks cheap now. Here are three of them:

1. Share price

Barclays’ share price has tumbled nearly 30% over the past 12 months, to 210p as I write, reversing a fair bit of its post-crash recovery. Some of that is deserved. But looking at forecasts, it suggests a very low P/E.

The City is currently predicting a 40% rise in earnings per share this year followed by a further 23% next, and that suggests P/E values of only 9 this year, dropping as low as 7 for 2015. That’s only around half the FTSE 100’s long-term average, and it just has to be too low. Especially when we consider…

2. Dividends

Dividends have been steadily recovering at Barclays, culminating in a 6.5p full-year payment for 2013 that yielded 2.4%. That’s nothing special, but forecasts for the next two dividends are.

Analysts are expecting a 20% hike in this year’s handout to 7.8p, followed by another 40% next year to 10.8p. On today’s share price, that would provide yields of 3.7% followed by 5.2%. And what’s more, that 2014 cash would be covered three times by earnings, with cover dropping a little to 2.7 times by 2015. A very well covered high yield like that screams Buy to me.

3. Capital strength

Liquidity is what counts, and at the end of 2013 Barclays reported a fully loaded Common Equity Tier 1 (CET1) ratio of 9.3%, and that’s about the most stringent capital requirement there is right now — Core tier 1 came in at an impressive 13.2%, from 10.8% a year previously and up there with the best. And at Q1 time this year, CET1 was up to 9.6% — Core tier 1 was not stated, but the rise in CET1 suggests it should be around 13.6%.

Maximum pessimism

It’s surely fears of further punishments that’s holding back the Barclays share price and presenting us with such low valuations.

But such fears are almost always overdone (as is bubbly ebullience when things are going well), and I think we’re presented with a tempting opportunity right now — be greedy when others are fearful!

If you're looking for more great long-term investments for your portfolio, you should have a read of "The Fool’s Five Shares To Retire On" report. They're all similarly big and safe companies, and between them provide a nicely balanced selection.

The report is completely free, so click here to get your copy today!

Alan Oscroft has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.