While some writers use headlines to deliberately shock their readers — the Daily Mail effect, I’ve heard it called — I can put my hand on my heart and say that’s not what I’ve intended to do here: I genuinely believe that Barclays (LSE: BARC) (NYSE: BCS.US) has the right qualities to make it the first thing I’m buying for my self-select stocks and shares ISA before the looming deadline of 5 April.
Yes, banks have come in for a hard time, what with the LIBOR scandal, PPI misselling, public revulsion at the size of executive bonuses being thrown about, and Barclays has admittedly found itself at the heart of all that. Just when you think it’s getting over one shockwave, another hits it soon after.
Value
And yes, there’s no escaping the fact that last year’s profits were down by a third to £5.2bn after a poor performance from its investment bank, lauded by many — including myself — as the jewel in its crown. However, I believe that a return to former glories is just around the corner, after a difficult year during which companies with exposure to emerging markets took a hit; I firmly believe that this is a near-term problem, and when choosing an ISA investment I’m looking at least three to five years ahead.
To state the obvious momentarily, all of this has hit the share price and, at the time of writing, Barclays is hovering close to its two-year low of 249p, and sits on a price-to-earnings ratio of 10, which could fall as low as 8 next year. Now, I like to go bargain-hunting when shares are depressed as long as I believe that the company’s long-term prospects are better.
Future prospects
You look to those in charge in times like this, and I’m impressed with how CEO Anthony Jenkins has come in and started cleaning up operations. He took forceful, but necessary, measures by trimming 1,700 roles from the workforce last year, while a further 2,000 jobs could still be up for the chop as Jenkins continues to implement his strategic review of the bank.
When he took charge, Jenkins revealed the bank would be shoring up its UK operations and providing more transparency for its shareholders — as an investor, this speaks favourably to me, as I don’t want to be hit with any shocks out of the blue.
Dividend
Jenkins has also declared his intention to eventually pay shareholders 30% of earnings, and a return on equity above 11.5%. What’s more, while shareholders of Lloyds and RBS are still waiting for dividend payments to resume, Barclays has continued to pay a dividend throughout this troublesome time. Indeed, forecasts are for the yield to lift to 5% in 2015, well above the FTSE 100 average of 3.5%.
I believe that a continued economic recovery will see Barclays’ share price motor and, led by a strong management team with Jenkins at the helm and the shareholder transparency that’s been promised, it’s currently trading at a discount, making it my top ISA pick this year.
