My Top Stock For 2016: Barclays PLC

UK banking is in good health and uying Barclays PLC (LON: BARC) looks like a wise move in 2016.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Banking is hardly the most loved industry in the UK at the moment. In fact, for many investors the painful memories of the credit crunch prevent them from looking at the banks in an objective manner. While this is understandable, since many investors lost a considerable amount of capital from holding bank shares during that period, today the sector has a very different outlook.

The recent stress tests showed that the UK banking scene is in good health and should be able to survive a number of macroeconomic shocks.  Furthermore, profitability at a number of banks is on the up and following this, dividend rises are somewhat inevitable as the banks gradually begin to return to their former status as strong income payers offering upbeat capital growth prospects.

Leader of the pack

Of course, it may take some time for investors to catch on to the opportunities within the banking space, but one bank that could lead the charge in 2016 is Barclays (LSE: BARC). Unlike a number of its sector peers, it has remained firmly in the black in recent years and hasn’t been required to seek a government shareholding. With the bank’s already relatively impressive bottom line forecast to rise by 24% in the current year and a further 24% in 2016, it’s set to offer stronger growth than the majority of its FTSE 100 peers.

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?

See the 6 stocks

Despite such strong growth potential, Barclays still trades on a price-to-earnings (P/E) ratio of just 10 and it has a price-to-book value (P/B) ratio of only 0.58. Both of these figures indicate that an upward rerating is on the cards – especially since Barclays is not only highly profitable, but is set to increase its earnings in each of the next two financial years.

Aside from rising profitability, a potential catalyst for Barclays is a change in management. Jes Staley started work as Barclays’ new CEO just two weeks ago and it seems likely that a refreshed strategy will be put in place at some point during 2016. As has been the case with other companies that have changed their management teams, investors can quickly change their minds on a stock with a new face, new message and new overall strategy. This could be a major reason for improved share price performance from Barclays next year.

Clearly, Barclays’ dividend lacks appeal at the moment while the FTSE 100 yields almost 4%. However, the bank’s 3.1% yield is due to rise to 3.9% in 2016. Further rises are very likely since Barclays pays out only 30% of profit as a dividend and earnings are set to rapidly rise. So it could quickly become an income favourite.

Undoubtedly, there are still risks ahead. Barclays could be subject to further regulatory action. And while the UK and global economy have performed well in recent years, interest rate rises could act as a brake moving forward. But these potential problems appear to be more-than-adequately priced in, with Barclays having a very wide margin of safety.

Although the banking sector may have had a disastrous period, it now appears to be very much back on its feet. As a highly profitable business trading on a low valuation and offering growth potential, Barclays seems to be an obvious buy for 2016.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p 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 10%, 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

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.

Peter Stephens owns shares of Barclays. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Here’s my plan to survive and thrive in a stock market correction

A falling stock market can be an opportunity, but investors need a plan. Stephen Wright shares his strategy for taking…

Read more »