How contrarian are you feeling today? Hopefully at least a little, as it’s fair to say not many people like Barclays (LSE: BARC) (NYSE: BCS.US) right now. My own take, however, is a little more favourable.
Results — released in February — were poor. More to the point, and this is where the contrarian part comes in, Barclays’ performance wasn’t even surprising. Nonetheless, investors bolted at a clip. Fancy that.
Now, given you’re here reading this, I’m fairly sure that a market whim isn’t what drives your investment decisions. Rather, the goal is to be as well informed as possible and then make your own judgement.
Here are a few reasons I feel Barclays could make you wealthy.
1. There’s a lot for a low price
It’s safe to say that Barclays has something of a wretched reputation. From being the poster boy for the Libor scandal, to more recent allegations over currency fixing, new chief executive Antony Jenkins has a job on his hands to turn things around.
Moreover, the costs have been enormous. In order to put things right, £1.2bn was spent on restructuring in 2013; while this hurt profits, over the long term earnings generation should become much more efficient.
That’s why — if Barclays meets analyst forecasts of 26p earnings per share — a forward P/E ratio of below 9 appears cheap.
Look at it as a value investment.
2. Profits will get better soon
Secondly, Barclays is well positioned to reap rewards from an upswing in the UK economy, riding the wave of retail stock flotations. Last year Barclays was the number-one bank for flotations ahead of illustrious international competition. Of the 15 companies that came to market in 2013, Barclays worked on seven.
The convenience store McColls and online electricals retailer AO have just floated, while Pets At Home and Poundland will be debuting on the stock market next month, to be followed by a host of other retailers.
Being such a sought after deal maker has big financial rewards — already in 2014 Barclays has earned £344m as an adviser for IPOs in the US.
Barclays’ profits should therefore rise on the improving UK economy and booming equity markets.
3. Market-busting dividends
Of course, one of the main advantages of investing in Barclays is that, unlike some other UK banks, Barclays pays out a dividend. In 2014 analysts are projecting a dividend yield of 5% (for context the FTSE average is 3.5%).
So what we have in Barclays is a banking giant on track for growth, with a dividend that trounces the market, not to mention its world-class investment bank…
