The Barclays (LSE: BARC) share price is flying today, as investors recover some of their confidence on US stimulus hopes.
Today’s jump of more than 12% shows us what a V-shaped coronavirus recovery might look like, once new cases peak. Bargain seekers are likely to rush in, sending hard-hit FTSE 100 companies to the skies. We aren’t there yet. But today’s leap in the Barclays share price gives us a much-needed taste of a brighter future.
You still have to be brave to buy FTE 100 stocks right now, although not as brave as you think. If you plan to hold on for five, 10, 20 years, or longer, at some point today’s Covid-19 worries will hopefully be just a bad memory, as markets plough on.
Barclays share price is back
The recovery might be spectacular, given the wall of global stimulus that’s about to hit the stock market. The US has struck a deal on its $2trn stimulus package, and other countries will do whatever it takes to save their economies.
We aren’t there yet. And the Barclays share price will inevitably remain bumpy in the weeks ahead. There’ll be further shocks, especially as the number of deaths looks set to rise sharply. Especially in major financial centres London and New York.
The bank still looks like a buying opportunity though. Even after today’s rebound, Barclays stock is down nearly 40% since its January high of around 178p.
Chancellor Rishi Sunak and the Bank of England are pulling out all the stops to keep the economy going, which should reduce company and personal bankruptcies, and bad debts. The BoE’s Financial Policy Committee has helped by cutting the countercyclical capital buffer rate to 0% of banks’ exposure to UK borrowers. That means they can continue lending to households and businesses.
Yesterday, the FPC said UK banks are well positioned to withstand severe coronavirus disruption.It also said it would take further action to underpin financial stability, if needed. A decade of building up capital buffers and other defences appears to have paid off.
Naturally there’ll still be loan impairments, as some will slip through the safety net, or fail to recover when the crisis is over. Also, slashing interest rates to 0.1% will squeeze bank net lending margins and profits.
The Barclays share price now trades at an incredibly low valuation of just 3.9 times forecast earnings. Its price-to-book ratio is also a meagre 0.3. You have to be careful with traditional metrics like these as we enter a new and dangerous territory, but it does suggest a bargain buy.
Barclays’ forecast yield of 10.9% is mind-boggling, and covered exactly twice earnings. But remember, dividends are not guaranteed, and plenty of FTSE 100 companies have cut theirs.
With these provisos, I still think the low Barclays share price makes it a buy, if you can hold on for at least five years, and preferably much longer. Banks may take a hit when the global economy is under siege, but should also lead the recovery.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.