The 2020 stock market crash has left large numbers of FTSE 100 shares looking mightily undervalued. Our view here at The Motley Fool is that this collapse provides an excellent buying opportunity for investors to buy top-quality UK shares at bargain prices. Is the Barclays share price (LSE: BARC) one of these blue-chips that’s too good to miss?
The FTSE 100 bank’s collapsed 40% in value since the beginning of the year. But it’s attracted some modest buyer interest from those hoping its share price will rocket higher as the economic recovery takes hold. There’s certainly good reason to be excited, and be nervous, about buying Barclays shares today.
The Barclays share price is cheap!
Fans of the Barclays share price will suggest that it looks too good to miss based on current forecasts.
2020 will be a washout for the FTSE 100 bank and City analysts reckon annual earnings will tank by almost 90%. However, broker expectations for next year provide plenty to get excited about. Barclays’ earnings are expected to jump five-fold in 2021, leaving the bank trading on a forward price-to-earnings (P/E) ratio of below 9 times.
What’s more, broker hopes that Barclays’ dividend will more than double result in a chunky 3.8% yield for 2021.
In the real world, though, is the Barclays share price really that attractive right now? Those formulas are pinned on expectations of a V-shaped UK economic recovery. Yet the chances of this happening seem to be receding.
Leading forecaster EY Club predicted on Monday that British GDP will have contracted 20% in Q2. This is worse than the 15% it had estimated in June. And what’s more, the organisation reckons that the domestic economy won’t recover to pre-coronavirus levels until 2024.
CIB is A-OK
On the plus side, though, it looks like volatility in financial markets will be here to stay for some time yet. And this should continue to benefit trading at Barclays’ Corporate and Investment Bank (CIB).
Income here rocketed 44% year-on-year in the first quarter to record levels. There’s an ocean of social, macroeconomic and geopolitical-related tensions that should keep markets volatile and therefore profits at CIB rocketing. Covid-19, Brexit, US-Chinese trade wars, November’s Presidential election Stateside — these are just a handful of issues that will prey on investors’ minds for months, perhaps years, to come.
Barclays = too much risk?
However, the prospect of success at Barclays’ CIB is likely to remain overshadowed by the failings of its core retail operations. The FTSE 100 bank swallowed a monstrous £2.1bn worth of impairments for the first quarter. And brokers expect billions of pounds more of charges when half-year results come out on Wednesday (July 29).
The Barclays share price is cheap, sure. But its ultra-low valuations reflects its sky-high risk profile. I for one don’t fancy buying the bank for my own ISA given the threat of ballooning bad loans and a collapse in revenues. And why would I? After all, there are plenty of better UK shares that also trade at dirt-cheap prices right now.
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Royston Wild 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.