Over the last five years, the FTSE 100 has recovered well from the low points of the credit crunch to post gains of 30%. Compare this to the share price performance of Barclays (LSE: BARC) (NYSE: BCS.US) over the same time period and it’s clear why investors in the stock are feeling rather disappointed.
Indeed, Barclays’ share price has fallen by a staggering 37% over the last five years. This is clearly a dismal performance and reflects the poor market sentiment that has been a feature of the stock over the period.
However, much better performance could be ahead over the next five years and, perhaps more importantly, Barclays could help you retire rich. Here’s how.
An Improving Outlook
Clearly, there is a long way to go before the UK economy can be given a clean bill of health. While it is making progress, the UK economy remains reliant upon an ultra-loose monetary policy to ensure debt interest payments are met after a borrowing binge in the earlier part of the 21st century.
However, the outlook is most certainly very positive. For example, the UK economy is currently one of the fastest growing economies in the developed world and recently had its GDP growth forecast for 2015 increased to 2.7% by the IMF. This is good news for Barclays, since its fate is largely dependent upon the state of the UK economy and a growing economy means higher demand for new loans as well as fewer asset write downs.
Strategy Changes
Under current CEO Anthony Jenkins, Barclays has adopted a new strategy that centres around being responsible citizens and behaving in an ethical manner. However, the new strategy also involves shrinking the size of Barclays’ balance sheet, disposing of (or at least reducing in size) operations that are viewed as being too risky and, ultimately, creating a more stable and more profitable bank in the long run.
This strategy seems to be bearing fruit, as Barclays is set to grow its bottom line by 27% in the current year and by 28% next year. For a bank that remained profitable throughout the credit crunch and which did not require part-nationalisation, this would be a very strong performance and show that, while sentiment has been weak for too long, it could pick up in response to strong earnings growth.
Looking Ahead
While changes in sentiment are notoriously difficult to predict, Barclays seems to be doing all of the right things as a business. Certainly, the outcome of the fraud allegations with regard to its dark pool trading system are likely to have a major impact on the bank’s share price in the short run. However, the profitability of the bank, which seems to be moving in the right direction at a fast pace, is likely to be the biggest influence on Barclays’ share price in the long run. As a result, Barclays could prove to be a winning investment that could help you to retire rich.
