Everybody loves to buy at a discount. Investors are no different. We all aim to buy when prices are low and sell when they’re high. But the problem many of us have is that shares generally only trade at bargain prices when there is either uncertainty surrounding the company in question, or problems in the wider economy.
So, the allegations of wrongdoing surrounding Barclays’ (LSE: BARC) (NYSE: BCS.US) ‘dark pool’ trading system create an uncertainty. We simply do not know what the outcome will be. However, the allegations also present a fantastic opportunity to buy shares in a highly profitable, high-yielding bank that could be a great long term play.
It’s Profitable!
Unlike many of its banking peers, Barclays has remained profitable throughout the last five years. Indeed, it’s so profitable that dividends have been paid in each of the last five years and the best bit is that Barclays is forecast to pay 11p per share as a dividend in 2015. That equates to a yield of just over 5% at current prices.
Furthermore, Barclays is expected to increase profit at a fast pace. For example, earnings per share (EPS) are set to increase by 43% this year and by 23% next year — a pace of growth that few companies in the FTSE 100 can match.
Valuation
Of course, the allegations of wrongdoing have meant that Barclays’ share price has fallen to its lowest point since September 2012. However, this means that shares in the bank are an absolute steal and trade on a price to earnings (P/E) ratio of just 9.2. That’s around one-third lower than the FTSE 100’s P/E of 14 and compares favourably to what are considered good value financial stocks such as Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) and Old Mutual (LSE: OML)
Indeed, Standard Chartered trades on a P/E of 10.3 after releasing a disappointing set of first-half results, where profit was down on the first half of 2013. Meanwhile, Old Mutual’s P/E of 11.1, while also great value, is 20% higher than that of Barclays. In addition, both Standard Chartered and Old Mutual are struggling to deliver any meaningful bottom-line growth, while Barclays (as mentioned) is forecast to increase profit at a rapid rate.
Looking Ahead
So, Barclays appears to offer superb value – even when compared to two other financial stocks that themselves are great value plays in their own right. Certainly, there may be more bad news ahead for Barclays, equally there may not. However, the current share price appears to adequately reflect future disappointment and, with a 5% yield, vast EPS growth forecasts and a low valuation, Barclays looks like the bargain of the century!
