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Should I Sell Barclays PLC And WM Morrison Supermarkets PLC?

Knowing when to sell a share is often tougher than choosing when to buy.

Take Barclays (LSE: BARC) (NYSE: BCS.US) and Wm Morrison Supermarkets (LSE: MRW), for example.

I hold shares in both these companies, but I have wondered recently whether my money could be put to more profitable use elsewhere.

In this article, I’ll take a look at both companies and explain whether I’ve decided to sell.

Should I bank on Barclays?

Shares in Barclays have done quite well over the last month, climbing more than 5%. The latest move higher came last week, after the bank announced it had reached a settlement relating to foreign exchange rate fixing allegations.

For investors who have been frustrated by the slow pace of Barclays’ recovery, it was a good opportunity to sell. The current share price of 270p is a 52-week high and will allow many sellers to breakeven or make a small profit.

As a Barclays shareholder, I’ve been asking myself whether the bank remains an attractive value play. Should I reinvest the money elsewhere, in a business that might offer higher returns?

I’ve decided to hold. So far, I’m up more than 10% in 14 months, and expect an increased dividend payout this year, which should add to my returns.

At the core of my decision is that fact that Barclays’ share price remains 25% below the bank’s net asset value. The value picture is completed with a modest 2015 forecast P/E of 11 and prospective yield of 3.4%.

In my view, further gains are much more likely than not. If Barclays shares eventually re-rate to their book value, as I’d expect, then a 30%+ gain from today’s share price could be possible.

Shopping at Morrisons?

My decision to hold on to Barclays was relatively easy. It hasn’t been so simple to decide about Morrisons.

The original value case which attracted me to the shares is gone. Morrisons no longer trades below book value and doesn’t offer a high yield. The 2015/16 forecast P/E of 15 is hardly a bargain, either.

What’s more, the UK supermarket sector is undergoing big changes, and no-one really knows how things will turn out. I suspect that many Morrisons shareholders are regretting their decision not to sell when the shares were trading above 200p in March.

On the other hand, Morrisons’ recovery plan does seem to be working, albeit slowly. The supermarket has a highly rated new chief executive, David Potts. Costs are being cut and the IT modernisation started by Mr Potts’ predecessor is nearing completion.

On a financial level, Morrisons still seems to be generating enough free cash flow to reduce its net debt, which fell by £150m during the first quarter of the year.

All of this should support Morrisons’ shares in the short term, but what about the future? Does the current valuation reflect the firm’s future profit potential, or will sales and profits recover as the supermarket sector shake-out continues?

I don’t know the answer to this, but I think there’s a good chance things will improve, one way or the other.

I'm keeping hold of my Morrison shares for now.

However, neither Barclays nor Morrison were chosen by the Motley Fool's dividend experts for their latest income growth portfolio, "5 Shares To Retire On".

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Roland Head owns shares of Barclays and Wm Morrison Supermarkets. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.