It?s been a tough year for investors in Barclays (LSE: BARC) (NYSE: BCS.US). That?s because shares in the UK-focused bank have fallen by 14% since the start of the year and have shown little sign of life. Indeed, allegations of fraud in its dark pool trading division have left sentiment at a very low ebb. However, Barclays has the potential to turn things around and could turn out to be the best performing bank in 2015. Here?s why.
Although the Scottish…
It’s been a tough year for investors in Barclays (LSE: BARC) (NYSE: BCS.US). That’s because shares in the UK-focused bank have fallen by 14% since the start of the year and have shown little sign of life. Indeed, allegations of fraud in its dark pool trading division have left sentiment at a very low ebb. However, Barclays has the potential to turn things around and could turn out to be the best performing bank in 2015. Here’s why.
Although the Scottish referendum did not matter as much to Barclays as it did to many of its rivals, such as Lloyds and RBS that are Scottish-registered banks, the uncertainty of the vote dampened sentiment in the banking sector to a fairly large degree.
That’s because banks are hugely reliant on the macroeconomic outlook of the UK and, with there being huge uncertainty over how the UK would perform in the case of a ‘yes’ vote, their future prospects were very cloudy.
However, now that the UK will remain in its current form (albeit with Scotland having a number of new powers), it provides a much clearer earnings profile for Barclays moving forward. In turn, this should aid sentiment and provide support to the bank’s share price.
On the topic of future prospects, Barclays has very enticing growth potential. For instance, in the current year it is expected to increase earnings by 26% and this is due to be followed by growth of 27% next year. Together, this means that Barclays’ profit in 2015 could be 60% higher than it was in 2013.
Certainly, that’s impressive. However, what makes it even more impressive is the fact that Barclays remained profitable throughout the credit crunch. So, unlike Lloyds and RBS, it is not starting from a low base, from where it is perhaps easier to deliver strong growth moving forward.
Despite its share price performing dismally in recent months, Barclays is executing a sound strategy that aims to reduce capital required and increase profitability. Certainly, it has a long way to go before it is delivering the profit numbers that it is seeking, but it is making excellent progress nonetheless.
In spite of this, shares in the bank continue to trade at a very low price. For example, Barclays has a price to earnings (P/E) ratio of just 11.1 and a price to book ratio of only 0.7. At such a low valuation, and with such enticing growth prospects, shares in Barclays offer huge potential. As such, 2015 could finally be the year where Barclays beats the opposition and delivers the highest share price gains of its sector.
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Peter Stephens owns shares of Barclays, RBS and Lloyds Banking Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.