It’s ISA time soon, and that means a whole new allowance of £11,760 to use up — you can invest up to that amount in shares and your profits will be tax-exempt.
And, of course, you might well still have some of your 2013-14 allowance to use up before April 2014 arrives, so what should you consider?
Buy banks?
I reckon Barclays (LSE: BARC) (NYSE: BCS.US) is a good candidate, despite its recent short-term problems — they were big problems, sure, but we need to put them in the context of a decades-long investing horizon.
Here’s what the past five years looked like, together with forecasts for the next two:
| Dec | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2009 | 22.32p | -53% | 11.4 | 2.31p | — | 0.9% | 9.7x |
| 2010 | 28.15p | +26% | 8.6 | 5.09p | +120% | 2.1% | 5.5x |
| 2011 | 25.65p | -9% | 6.3 | 5.56p | +9.2% | 3.4% | 4.6x |
| 2012 | 35.50p | +38% | 6.8 | 6.00p | +7.9% | 2.5% | 5.9x |
| 2013 | 16.70p | -53% | 16.3 | 6.50p | +8.3% | 2.4% | 2.6x |
| 2014* | 28.65p | +72% | 9.0 | 9.46p | +46% | 3.7% | 3.0x |
| 2015* | 34.60p | +21% | 7.5 | 12.98p | +37% | 5.0% | 2.7x |
* forecast
Bad though that is, it’s a much better track record than some others, notably the bailed-out pair of Royal Bank of Scotland and Lloyds Banking Group — but it’s my contention that all of our big banks should get some serious consideration when it comes to ISA time.
Tough results
Barclays’ last set of full-year results were pretty rough, with so much cash having to be set aside to cover the costs of the bank’s various misdeeds — PPI mis-selling, fiddling LIBOR rates, and its mass of toxic assets.
But even so, over the 20-years plus that I’d recommend as the appropriate horizon for an ISA investment, those things will surely just become historic blips in an otherwise steadily-rising investment.
But what a low valuation!
In fact, although Barclays shares are down 10% over the past 12 months to 258p, the current valuation puts them on a forward P/E for this year of only 9, falling a slow as 7.5 based on 2015 forecasts — and with the dividend set to come back strongly and be yielding around 5% by 2105, I couldn’t resist adding Barclays to the Fool’s Beginners Portfolio.
What might a £1,000 investment in Barclays today be worth in 20 years’ time? Well, a dividend yield of 5%, if reinvested in shares every year, would take that thousand up to £2,600, even if the share price doesn’t budge — a 5%-per-year gain in the share price on top would take your total up to £6,700!
Shares beat cash
Barclays is currently offering just 1.3% on a cash ISA, which would turn your £1,000 into a measly £1,300 after two decades. So don’t save with Barclays — buy the shares instead!