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Why Are The Recoveries At Barclays PLC, AstraZeneca plc & Banco Santander SA Faltering?

Just when will our FTSE 100 banks finally make it back from the dead?

Look at Barclays (LSE: BARC), the one that famously didn’t need a government bailout during the crisis as it was still desirable enough to attract private capital. Barclays has faced its share of misbehaviour, with its part in the Libor-fixing scandal especially shameful. But the bank’s liquidity ratios have been improving and it looks set to easily satisfy regulatory requirements over the long term. And with earnings growth forecast this year and next, we’re looking at forward P/E ratios of only 10, dropping to 8.5 — and that’s with dividends set to yield 3% and growing.

But though the share price put in a good first half in 2015, since the end of July there’s been a 23% slump to 225p. The faltering economic outlook will surely have something to do with that, but this is surely an oversold share now, isn’t it?

Magic wearing off?

It’s not just banks. AstraZeneca (LSE: AZN) has been one of the hottest tipped companies in the recovery stakes for some time, and the shares were doing well. But since late April we’ve seen a 7% fall to 4,510p, and that’s even after an upward spike in the past couple of weeks. So what gives?

It may well be partly because Soriot fever has abated — new boss Pascal Soriot was the new broom that the pharmaceuticals giant desperately needed, and expectations were pushed high. But a return to sustainable growth was never on the cards before 2017, though you always get those who expect results to turn out better than expected.

With a flat year predicted this year followed by a 5% EPS fall in 2016, things are going as well as expected, but nothing more. The P/E is a little high at 16 to 17, but with dividends set to yield 4.1% we could be seeing a nice upwards re-rating when that growth does appear.

Eurozone misery

Banco Santander (LSE: BNC) has always seem a bit of a weird one to UK bank watchers, with its mad-looking dividend policy of paying out far more than it took in. It got away with that because the bulk of the bank’s Spanish shareholders would take scrip instead of cash — but you get nothing for nothing, and that increasingly dilutes each subsequent year’s earnings.

Still, up until the middle of 2014, the share price was recovering nicely — but since then there’s been a 40% reversal and the price is now down at 363p. Since Ana Botín assumed the chair after the death of her father Emilio, Santander has switched to a more standard dividend policy and this year’s payment has been slashed — so there’s some adjustment happening.

But Europe’s continuing woes are weighing heavily on the eurozone’s largest bank, and while the zone is still looking this sick I can see Santander shares remaining depressed.

Even with short-term woes, buying solid recovery stocks as part of a diversified portfolio can bring investors great long-term rewards.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca and Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.