Market Wobbles Plunge Barclays PLC Into Bargain Territory!

Barclays (LSE: BARC) (NYSE: BCS.US) didn’t really need the recent correction for its share price to look wobbly. It has been doing well enough on that front, without any outside assistance. But every little helps.

Barclays is down 18% over the past 12 months, while the FTSE 100 has fallen just 5%. Clearly, its wounds have largely been self-inflicted.

At today’s price of 223p, Barclays is now almost 25% off its 52-week high. For me, it’s been a screaming buy for months, but only if you recognise what the UK banking sector is turning into.

Really Useful Bank

The years of death and glory are over. Barclays will no longer be strutting proudly on the world stage. This year’s shareholder revolt over banker bonuses effectively put a stop to its global ambitions. Politically, casino investment banking is just too poisonous.

Brokers Brewin Dolphin reckon the same. In fact, it thinks the big banks are starting to look like utilities, and should appeal to investors looking for steady growth and consistent returns on capital.

The banks are also bound by ever-tightening regulation, rather like the utilities. But at least this should keep them on the straight and narrow.

Forecast of Fun

That might deter some investors, but others will welcome the opportunity to lock into a steady, progressive yield at today’s lower share price.

Barclays’ yield isn’t what it was. It is on a forecast yield of just 3.1% for December, some way below the current FTSE 100 average of 3.6%, but that won’t last. 

With management planning further steps to restore the dividend, the yield is forecast to hit 4.5% by December 2015.

Please Forgive Me

That isn’t the only number heading in the right direction. Barclays’ earnings per share are forecast to rise 23% this calendar year, and 31% next year, which is pretty juicy for a wannabe utility.

The bank still has a long way to go to repair the reputational damage of recent years. It also has to cope with the rise of the challenger banks (although I question whether the new boys will achieve manage the economies of scale to really challenge the big boys).

Some of you will want to avoid the banking sector altogether and I understand why. The bumpy ride is set to continue for a while yet. 

But if you reckon it’s time to forgive and forget, Barclays’ forecast valuation of 10.9 times earnings for December doesn’t look too demanding at all.