Barclays PLC: My First-Choice Stock For An ISA

If I were to pick one stock to buy in an ISA, Barclays PLC (LON: BARC) would be it

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The performance of shares in Barclays (LSE: BARC) (NYSE: BCS.US) during the last five years has been awful to say the least. In fact, they are down by 27% during the period and have underperformed the FTSE 100 by an incredible 47%. A key reason for that, of course, has been negative investor sentiment towards the bank, which is somewhat surprising since its performance as a business has been much better than the majority of its peers.

Growing Profitability

In fact, Barclays has remained profitable during the last five years and has been able to increase its profit (on an adjusted basis) at an average rate of 4% per annum. While this may not sound like a particularly stunning rate of growth, it is much more impressive than the likes of Lloyds and RBS, which have been unprofitable for most of the same period and yet have seen their share prices outperform Barclays’ by 65% and 12% respectively.

Regulatory Issues

Of course, the key reason for investor sentiment towards Barclays being weak is regulatory challenges. For example, Barclays has been accused of wrongdoing regarding its dark pool trading platform, LIBOR, the foreign exchange market, as well as PPI. All of this has apparently stacked up against the bank and caused the market to snub its shares in favour of its index peers.

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A Bright Future

This, then, presents the perfect time to buy a slice of Barclays. That’s because, as all investors know, the best time to buy any stock is when it is trading at a low ebb and, in this regard, Barclays certainly fits the bill. For example, despite being forecast to grow its net profit by 47% this year and by a further 17% next year, Barclays trades on a price to earnings (P/E) ratio of just 10. This equates to a price to earnings growth (PEG) ratio of just 0.2, which means that Barclays screams ‘growth at a reasonable price’. As such, its share price should move considerably higher over the medium to long term.

Potential Catalyst

Clearly, Barclays’ share price will not soar without a catalyst and, besides the aforementioned earnings growth, the bank’s dividend could be the missing piece of the jigsaw regarding investor sentiment. For example, Barclays is expected to yield 4.7% next year from a payout ratio of just 40%. This shows that there is more to come in terms of dividend growth as a result of a very modest payout ratio and the bright future prospects for the bank’s bottom line. As such, investor sentiment could pick up strongly and push Barclays’ share price much, much higher, which is why it is my top pick for ISAs this year.

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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.

Peter Stephens owns shares of Barclays, Lloyds Banking Group, and Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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