The Motley Fool

Why I think the Barclays share price could double in 2021

Image source: Getty Images

I think UK financial stocks are deeply undervalued and, as a result, could rise significantly in 2021. I believe the Barclays (LSE: BARC) share price has more potential than most. That’s mostly thanks to its international diversification and investment banking arm, which has reaped enormous profits for the business over the past 12 months.

Barclays share price: return to growth

At the beginning of the coronavirus pandemic, it looked as if the world was standing at the edge of another financial crisis. To that end, regulators in the UK, Europe and the United States pressed financial institutions to suspend dividend payments to investors and make plans to raise additional capital.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Luckily, quick thinking by central bankers controlled the financial fallout. The impact on the economy has been nowhere near as bad as expected.

However, investors have been slow to return to the sector. After dumping financial stocks at the beginning of the crisis, investors have continued to stay away from holdings such as the Barclays share price.

I think this is a mistake. Not only has the sector avoided the worst, but by suspending dividend payments, banks are also healthier than they were at the beginning of 2020.

Barclays, in particular, is in a much better position than it was 12 months ago. During the crisis, the investment banking part of the organisation reported a surge in demand for its services. The group’s bankers worked flat out to help clients raise new capital. At the same time, the frantic pace of trading assets in the first half saw Barclays’ trading commissions boom.

These were only temporary tailwinds, but they helped offset losses elsewhere. So, overall, the bank has been able to pull through the crisis in one piece

Therefore, it seems to me as if the lender has been able to navigate the crisis. Going forward, it should be able to benefit from the general economic recovery that analysts believe will begin in 2021. This should help elevate the firm’s bottom line. And that may translate into a positive performance for the Barclays share price.

A 100% return

I think there’s a chance the stock could double in value in the near term. Indeed, at the time of writing, the Barclays share price is trading at a price-to-tangible-book ratio of 0.4. That’s around half of the UK financial services sector average and significantly below the market average of 1.8.

As such, I reckon the stock could rise substantially over the next 12 months as investor confidence returns. If Barclays can restart its dividend payout and rekindle earnings growth, I believe investor sentiment will improve dramatically.

In the meantime, City analysts expect the lender to offer investors a dividend yield of around 3.5% next year. That projection implies investors will be paid to wait for the company’s recovery to take hold.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Rupert Hargreaves owns no share 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.