3 reasons why I think the Barclays share price is set to climb

The Barclays (LON: BARC) share price has crashed 40% in 2020. But the balance sheet looks good, and I see big dividends coming soon.

| 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.

If you’d invested in Barclays (LSE: BARC) at the start of 2020, you’d be 40% down now, as the banks have been battered by the Covid-19 crisis. The longer term is not much better, with the Barclays share price down 55% in five years. But I think the current short-term market view of the FTSE 100‘s banks is a mistake. I reckon the whole sector, and Barclays in particular, should look a lot better this time next year. Here are three reasons why I’d buy now.

Liquidity is as healthy than ever

The Barclays share price suggest the bank is struggling. But if it is, it’s not showing in the balance sheet. The Bank of England’s annual stress tests have been suspended for the current year. Who needs to put the banks through simulated stress when they’re in the middle of the real thing, right?

But at Q3 time, things looked just fine to me. Barclays’ CET1 ratio, which is its key stress test measure, had actually improved since before Covid-19 arrived. At 14.6% at 30 September, it’s up on December’s figure of 13.8%.

Should you invest £1,000 in Barclays 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 Barclays made the list?

See the 6 stocks

Credit impairment charges did rise to £4.3bn (from £1.4bn a year previously), but the banks seems to have that covered well enough. And we’re looking at a tangible net asset value per share or 275p. That’s approximately 2.6 times the current share price, and up on last year.

2021 forecasts are strong and improving

You might not guess it from the recent Barclays share price performance, but forecasts are pretty upbeat right now. Well, for 2021 at least. In the current year, analysts expect EPS to fall around 60%, which isn’t great. But that would still represent a pre-tax profit of more than £2bn, which I think would be a good result in an allegedly disastrous year for banks.

On that alone, a forward P/E of 21 might not make Barclays a screaming buy. But forecasts suggest EPS in 2021 will return very close to 2019 levels, which would drop the P/E to only around nine.

I know forecasts are far from certain, especially this year. But analysts have been gradually raising their predictions as the year progresses. The consensus looks convincingly positive to me.

Dividend should boost the Barclays share price

The Prudential Regulation Authority stepped in this year to bring a halt to bank dividends. It’s arguable whether the regulatory body should have interfered in a free market — though the free market did lead to the banking crisis not so long ago. But anyway, whatever else happened, the suspension of 2020 dividends will surely have contributed to the fall in the Barclays share price.

Dividends will resume, for sure. The question is when and how much? Again, analysts have a recovery to pre-pandemic levels penciled in for 2021. And, on the current Barclays share price, we’d be looking at a yield of 4.4%. It would be more than 2.5 times covered by earnings too.

The 2020 dividend cut will surely have no adverse long-term effect. And I reckon it’s helped provide investors with an even better buying opportunity this year.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

After collapsing 28% today, are Bunzl shares too cheap to ignore?

A poor trading statement has sent Bunzl shares to multi-year lows. Could now be a good time to consider investing…

Read more »

Investing Articles

These 5 stocks could earn £1,600 of annual passive income in a £20,000 ISA

Harvey Jones shows how to generate a high and rising passive income by buying a balanced mix of high-yielding FTSE…

Read more »

Young woman holding up three fingers
Investing Articles

3 things I like about Greggs shares

Greggs shares have tumbled by more than a third over the past year. But this writer has no plan to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Nvidia stock: beware the bear market rally

Andrew Mackie argues that investors should tread carefully before investing in Nvidia stock, as the worst of the sell-off could…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Up 73% in one year, is this the best value stock in the FTSE 100?

A brilliant run of form suggests this FTSE 100 giant should no longer make the cut as a value stock.…

Read more »

Investing Articles

The best could yet be to come for UK shares! I’m buying these ones

Amid ongoing stock market turbulence, this writer's been adding selected UK shares to his portfolio. Here's why and what he…

Read more »

Top Stocks

4 UK stocks trading well below book value to consider buying

Sometimes, it pays to be contrarian: who says the UK market has priced a stock precisely right, anyway?

Read more »

Investing Articles

The S&P 500’s 12% off its highs. Is now a good time to buy US shares for an ISA?

Right now, a lot of British investors are wondering whether it’s a good time to buy US shares. Here, Edward…

Read more »