Should You Buy Barclays PLC Or Rising Challenger OneSavings Bank PLC Today?

Harvey Jones examines whether you should you bet on a return to form at troubled Barclays PLC (LON: BARC) or continuing growth from buoyant OneSavings Bank PLC.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Small is beautiful they say. Investors in FTSE 250 stock OneSavings Bank (LSE: OSB) certainly think so, with the stock leaping 18% yesterday, and another 6% this morning. By comparison, Barclays (LSE: BARC) looks big, bad and ugly. Looks aren’t everything, however, so which bank makes the better investment today?

Eight in one

Challenger bank OneSavings is a specialist lender offering residential, buy-to-let and commercial mortgages, secured loans and development finance. It is actually made up of eight different brands, including Kent Reliance, InterBay Commercial, Prestige Finance and Heritable Development Finance.

The beauty of being small is that you have plenty of room to grow — plus you avoid the toxic legacy issues dogging Barclays, et al. OneSaving’s preliminary 2015 results show a whopping 52% rise in underlying profit before taxation to £105.9m, up from £69.7m in 2014. Loans and advances grew 31% to £5.1bn, helped by organic growth and a second charge mortgage portfolio acquisition, while earnings per share leapt 43%. Barclays can never produce figures like these. 

Should you invest £1,000 in Blackrock World Mining Trust Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Blackrock World Mining Trust Plc made the list?

See the 6 stocks

Good as Golding

Chief executive Andy Golding said the bank also strengthened its capital ratio, and boosted both its net interest margin and cost-to-income ratio. It is a pleasant change to write about a clean and transparent bank, after years are squinting at the big banks’ murky balance sheets, but it’s also shocking to see how tiny OneSavings really is. Its £758m market cap is dwarfed by Barclays’ £27.4 bn cap — that’s roughly 36 times bigger.

Small may be beautiful but it can also be volatile. Despite this week’s growth, OneSavings trades at 311p which is well below its year high of 412p. My big concern is what happens to buy-to-let from April, when Chancellor George Osborne’s new 3% surcharge on second property purchases kicks in. The deadline has sparked a buying frenzy today but OneSavings is rightly positioning itself for tougher times ahead.

Last year buy-to-let accounted for 15% of new mortgage lending but the Chancellor’s tax crackdown, which also sees higher rate tax relief on mortgage interest phased out from April next year, could put paid to that. It would only take a small rise in interest rates to turn many landlords’ buy-to-let profits into losses. OneSavings has its charms, trading at 8.66 times earnings and yielding 2.97%, but also carries risks.

Bad as Barclays

Barclays has fallen a down-and-dirty 38% over the past year and, in contrast to OneSavings, is looking to shrink its operations to offer investors a tidier proposition. It still has to offload an incredible £50bn of non-core assets as the road to recovery only seems to get longer and windier eight years after the financial crisis. It recently announced plans to dispose of its African operations, but dispensing with its underperforming investment bank is proving a psychological step too far for a bank that once dreamed being a Master of the Universe.

I have warned of volatility at OneSavings, but Barclays’ vastly greater size has clearly been no defence against share price turbulence, and it will also suffer if the economic storm clouds burst. Trading at 9.67 times earnings and yielding 3.98%, some of the problems are in the price, but others may be lurking below the surface. The challenging question is: do you want to invest in the past or the future?

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 passive income techniques of stock market millionaires

Christopher Ruane details a handful of approaches many successful stock market investors use to grow their passive income streams.

Read more »

Aston Martin DBX - rear pic of trunk
Investing Articles

Down 42% in a year, here’s why Aston Martin shares could keep falling

Aston Martin shares have destroyed vast amounts of shareholder value since the company listed in 2018. Are they now a…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: a once in a blue moon chance to get rich?

Christopher Ruane explains why he thinks hunting for blue-chip FTSE bargains in the current market could help an investor build…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

4 stocks Fools have bought for growth and dividends

Sometimes, an investor doesn’t have to make the choice between buying a growth stock or dividend shares! Some investments offer…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Is there no limit to how high Rolls-Royce shares might go?

Christopher Ruane sees some reasons Rolls-Royce shares could continue pushing upwards. But is he persuaded enough about the potential value…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

How much could £20k in a Stocks and Shares ISA be worth in 2030?

UK investors have enjoyed spectacular returns in their Stocks and Shares ISA's over the past five years. Would could the…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

Is the FTSE 100 good for passive income?

Our writer considers whether investing in the UK’s largest listed companies could help generate generous levels of passive income.

Read more »

piggy bank, searching with binoculars
Investing Articles

Here’s the growth forecasts for International Consolidated Airlines (IAG) shares through to 2028!

Shares of International Consolidated Airlines (LSE: IAG) have risen following a strong set of first-quarter financials last week. Is the…

Read more »