The Barclays (LSE: BARC) share price climbed 11% in March, in a good month for FTSE 100 banks. Both Lloyds Banking Group and NatWest Group shares enjoyed similar gains.
We’ve seen another 3% added since then, up to the close on 9 April. And Barclays is even in positive territory over the past five years now.
But what does April and beyond hold? I think we could be in for a few exciting months for bank stocks.
Interest rates
There’s one clear big thing hanging over the banks right now, and that’s Bank of England interest rates.
And with the next decision set to take place in March, I reckon a lot of investors are already anticipating news of a cut.
In fact, a few pundits have predicted one before the first half of the year is out, which is more optimistic than we saw just a couple of months ago.
But even with inflation and interest rates as they are today, I still think Barclays shares are cheap. And I think the same about Lloyds and NatWest.
Valuation
Forecasts put the Barclays price-to-earnings (P/E) ratio as low as 6.4 for the current year. And if earnings predictions come good, that could drop to only about 4.3 by 2026.
Does that sound crazily cheap? Well, add a forecast 4.4% dividend yield to the mix, rising to 5.5% in 2026. And that just reinforces the silliness, in my view.
But, silliness can last a long time on the stock market. Or rather, perhaps I should say fundamental undervaluation due to stubborn sentiment… not silliness!
FTSE 100 shares just look perpetually undervalued to me, when we compare the Footsie to other global indexes like the S&P 500.
Frustration
We’ve even had Shell CEO Wael Sawan expressing frustration on that score.
Puzzled by what he sees as an irrational undervaluation for his own company, he’s even talked of the possibility of moving the firm’s listing from the UK.
Speaking to Bloomberg, he said that while the price is low he will “keep buying back those shares, and buying back those shares at a discount.“
While sentiment is like this, I suspect Barclays shares could stay in the doldrums for the rest of the year. And maybe beyond. It might take a seriously brighter economic outlook to shift the UK investor mood.
I don’t care
But you know what? I don’t care. I can understand company CEOs being frustrated at low stock valuations. That can lead to takeover attempts, for one thing.
But I buy stocks for the dividends. And that means I’m happy for share prices to stay low.
It means I can bag some bigger dividend yields, and keep getting more for my money.
Keep buying
The government’s big share in NatWest is probably holding back bank stocks too. It’s expected to sell it off before too long, and that could also keep prices down.
So I think I expect a volatile six months for bank stocks like Barclays. But as I plan to buy this year, I’ll hope to get in on any dips.
