2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett’s one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool explores.

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If there’s one man to turn to for inspiration when it comes to investing, it’s Warren Buffett. He started out with just a few dollars and turned it into a 12-figure net worth.

His track record with Berkshire Hathaway is incredible. He averages returns of 20% a year. That’s double the S&P 500.

But what might he make of UK-based international bank Barclays (LSE: BARC)? Its shares have soared 18.95% in the last 12 months, far outpacing the FTSE 100.

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?

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Here are two reasons I reckon a mega-investor like him might love the stalwart bank, and one obvious reason he might not.

Created with Highcharts 11.4.3Barclays Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Reason #1

Buffett says investors should only buy companies when they understand the business and how it makes money. That’s the first reason I reckon he’d be keen on the stock.

With banks, it’s easy to comprehend how they generate revenue. I suspect that’s why Buffett owns over $3.2bn in Citigroup stock.

Barclays makes money through earning interest on loans. Last year, it was able to charge customers more when lending due to higher interest rates. As such, its net interest income rose 20% year on year to £12.7bn. It also specialises in areas such as investment banking and wealth management.

What’s more, the business has streamlined its operations in recent times. Going forward, it will operate under five divisions: UK Consumer, US Consumer, UK Corporate, Investment, and Private & Wealth.

This will help make the company more accountable and “provide an enhanced and more granular disclosure of performance”.

Reason #2

The second reason is because he likes to buy stocks with cheap valuations. He focuses on companies that he believes are undervalued compared to what they could be worth in a decade or more.

Barclays ticks that box with a price-to-earnings ratio of just 6.8. That’s comfortably below the benchmark for value of 10. It’s also less than the Footsie average of around 11.5.

To go alongside its cheap valuation, it’s also implemented a major cost-cutting initiative that aims to deliver annual savings of £2bn by 2026. That should provide a boost to profits.

But its progress could be hindered by a few things. Firstly, falling interest rates will impact the bank’s earnings and squeeze its margins. More widely, I’m expecting further short-term volatility for UK banks in 2024 as economic uncertainty rumbles on.

Nevertheless, at its current price, I see long-term value in Barclays and reckon Buffett might too.

A sticking point

Of course, there’s one reason Buffett would probably never buy Barclays shares is that it’s a UK-listed company.

In true fashion of sticking to what he knows best, Buffett largely tends to steer away from buying companies listed outside the US. He’s reminded investors on numerous occasions to never bet against America.

Value out there

But for UK investors, I don’t see this as an issue. Granted, the domestic economy has lagged in recent years. But I see sentiment picking up in the years ahead. What’s more, as Barclays stock shows, there’s plenty of value out there at the moment that investors can capitalise on.

Whether Buffett would approve of Barclays stock is unknown. What I do know however, is that if I had the cash I’d buy its shares today.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

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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.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in Barclays Plc. The Motley Fool UK has recommended Barclays Plc. 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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