While constructing a new portfolio of stocks, my wife bought shares in Barclays (LSE: BARC) in July last year. She paid 154.5p a share, which I believed to be a bargain back then. But it has surprised me how volatile they have been in over nine months of owning them.
Barclays stock soars, then slumps
At its 52-week high, the Barclays share price peaked at 198.86p on 8 March. But then a US-centred banking crisis sent financial stocks nosediving worldwide.
With 12 days, Barclays stock had collapsed to a 52-week low of 128.1p on 20 March. In other words, it crashed by more than a third (-35.6%) in under two weeks. Wow.
However, the Blue Eagle bank’s shares have since rebounded. As I write on Friday afternoon, they stand at 159.94p. This values the Big Four bank at £24.9bn.
Here’s how Barclays share have performed over seven timescales:
One day
-1.3%
Five days
+5.0%
One month
+16.6%
Year to date
+1.0%
Six months
+9.2%
One year
+9.3%
Five years
-22.2%
Barclays shares have risen over periods ranging from five days to one year. However, they’ve lost close to a quarter of their value in five years. Note that these figures excluded cash dividends, which would add several percentage points a year to these returns.
Five reasons I’d buy Barclays shares now
Despite leaping by almost a quarter (+24.8%) from its March low, Barclays stock still looks a steal to me today. Here’s why:
1. Barclays shares have one of the lowest price-to-earnings ratio in the entire FTSE 100 index. It’s a lowly 5.4, which translates into a bumper earnings yield of 18.6%.
2. Their dividend yield of 4.5% a year is comfortably ahead of the Footsie’s yearly cash yield of around 3.7%.
3. Even better, this payout is covered a whopping 4.1 times by earnings, which seems a huge margin of safety to me.
4. Barclays’ Common Equity Tier 1 (CET1) ratio — one key measure of its financial strength — is 13.6%, well above its statutory minimum.
5. In its latest results (released yesterday), Barclays unveiled a quarterly net profit of £1.8bn, up 27% on Q1 2022’s £1.4bn. Also, its UK bank and credit-cards business are both performing better than expected.
A bumpy ride ahead for Barclays?
While things look rosy for the bank now, looking in the rear-view mirror doesn’t help to see the road ahead. And I suspect 2023 will be a much tougher year for UK banks than 2022.
First, I expect banks’ net interest margins — the spreads between lending rates and savings rates — to fall in 2023-24. This will reduce banks’ net interest income — one key source of profits.
Second, with disposable incomes squeezed hard by rising interest rates and soaring household bills, I predict much higher bad debts and loan losses for banks this year.
Conversely, what might give the Barclays share price a boost? I expect shareholders would respond favourably to higher dividends. Also, a further share buyback to replace the recently completed £500m programme should lift earnings per share over time.
Weighing up these various pros and cons, I’m still very bullish on Barclays shares today. Now if I only I had some spare cash to invest…
The post 5 reasons to buy dirt-cheap Barclays shares appeared first on The Motley Fool UK.
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Cliff D’Arcy has an economic interest in Barclays shares. The Motley Fool UK has recommended Barclays Plc. 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.