Should you sell Barclays plc and buy Aldermore Group plc or OneSavings Bank plc?

Fed up with the performance of Barclays plc (LON: BARC)? Check out Aldermore Group plc (LON: ALD) and OneSavings Bank plc (LON: OSB) for two fast-growing banking stocks.

| 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.

There’s no doubt it’s been a torrid few years for Barclays(LSE: BARC) shareholders. The bank’s share price is down almost 17% year-to-date and has halved in the last three years.

First-quarter results in March were disappointing, with a 25% drop in pre-tax profits on the back of huge PPI claims, fines in relation to forex rigging and underperformance from the investment banking division.

To make matters worse, Barclays announced that it would be slashing its dividend to just 3p per share for the next two years, in order to conserve capital and absorb losses from toxic assets. That takes the forecast yield to a low 1.64% for next year’s dividend payout.

Should you invest £1,000 in Powershares Global Funds Ireland Public Limited Company - Powershares Eqqq Nasdaq-100 Ucits Etf 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 Powershares Global Funds Ireland Public Limited Company - Powershares Eqqq Nasdaq-100 Ucits Etf made the list?

See the 6 stocks

All in all, it’s not a pretty picture at Barclays, and while there’s a chance that the new CEO may be able to turn things around down the track, there certainly doesn’t seem to be much short-term momentum at the bank.

Challenger banks

If you’re looking for a bank that does have some positive momentum, it might be worth checking out challenger banks Aldermore (LSE: ALD) and OneSavings Bank (LSE: OSB).

Not that you’d know from their share prices, which have both also struggled in the last 12 months.

But to my mind, there’s a clear disconnect between the performance of these banks and their share prices.

Because whereas Barclays is clearly struggling to increase its earnings, both of these challenger banks are enjoying strong earnings growth.

For example, Aldermore reported adjusted earnings per share of 24p for FY2015, up from 18p in FY2014, a rise of 33%. And with city analysts pencilling-in earnings of 26p and 30p for the next two years, this bank definitely appears to be heading in the right direction.

Similarly, OneSavings Bank reported FY2015 earnings of 35p per share, up from 25p in FY2014, a year-on-year increase of 40%. Analysts have earnings per share estimates of 40p and 43p for the next two years.

Yet despite this stellar growth, both of these challenger banks appear to be trading cheaply.

Aldermore trades on a current P/E ratio of 9.5, which drops to just 8.3 on next year’s earnings. And OneSavings Bank’s current P/E ratio is 9.7, dropping to 8.4 on next year’s earnings.

Given that Barclays trades on a P/E ratio of 13.3 times next year’s earnings, the challenger banks certainly appear to offer relative value.

Income investors will be interested to know that while Aldermore doesn’t yet pay a dividend, OneSavings Bank paid out 9p per share in dividends last year, a yield of 2.7% at the current share price. Analysts have forecast dividends of 10p and 12p for the next two years, so there’s potential for dividend growth here.

Of course, the challenger banks aren’t without their own risks.

Both Aldermore and OneSavings Bank specialise in mortgage lending, and with the UK government cracking down on ‘buy-to-let’ mortgages, there’s an element of uncertainty here. Brexit fears are also almost certainly contributing to the recent share price weakness of the challengers.

And given that they’re smaller companies, it’s likely that their shares will be more volatile.

But in my opinion, the challenger banks offer a great risk-to-reward ratio right now. My advice would be to diversify between a handful of challenger banks, in order to reduce company-specific risk.

Should you buy Powershares Global Funds Ireland Public Limited Company - Powershares Eqqq Nasdaq-100 Ucits Etf now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

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.

Edward Sheldon owns shares in Aldermore Group. 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

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With value investing back in vogue, I’m taking a leaf out of Warren Buffett’s playbook

With tariffs and trade wars resulting in heightened market volatility, Andrew Mackie takes comfort in Warren Buffett’s words of wisdom.

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »