After years of disappointment Barclays (LSE: BARC) investors are finally enjoying themselves as shares of the bank have rocketed over 35% in value in just the past three months. But, is this recent run of success set to continue into 2017 or will shares resume their long downward trend?
Personally, I reckon the recent rally is overdone, mainly because its been driven by events outside of Barclays control rather than any improvements in the banks underlying business. The main force behind the upward movement in share prices has been Trumps election victory, which has sent shares of all US-centric banks upwards due to analysts expectations that post-Financial Crisis banking reforms will be rolled back and a major infrastructure investment programme will spur economic growth.
This would be beneficial for Barclays as it has a large presence Stateside through its Barclaycard credit card operations as well as owning the remnants of Lehman Brothers investment bank it bought in the middle of the Crisis. However, pinning a revival in Barclays fortunes on the potential policies of Trump isnt a wise move, in my opinion.
For one, sildenafil nausea the American political system is designed to stop dramatic legislation quickly entering force. This means Democrats, fiscal conservatives and legal challenges will almost certainly halt or water down potential changes to Dodd Frank and the implementation of a 21st century New Deal.
Furthermore, Barclays itself isnt as healthy as American competitors. The bank is saddled with 44bn of bad assets its attempting to dispose of, group return on equity was a miserable 4.4% in the latest quarter and returns from the outsized investment bank continue to lag behind the cost of capital. While Barclays is making progress, its slow going and the bank remains tied to the fate of the UK domestic economy. Should Trumps reforms run into trouble in 2017 cialiscoupon-freetrialrx.com I wouldnt be surprised to see shares of Barclays give back much of their recent gains.
Another global giant I expect could suffer a poor 2017 is construction materials manufacturer CRH (LSE: CRH). CRH is a well-run business with strong competitive advantages, but I suspect 2017 could be a rough year for shares simply because after rising 43% in the past year alone they now change hands at a very pricey 27 times trailing earnings.
This means shares trade well above the average FTSE 100 valuation, which would be fine if CRH were a high growth, high margin business. Unfortunately, there isnt significant organic growth to be found in the sector, particularly in Europe, which accounts for half of CRHs sales.
The Americas have been a solid source of growth in recent quarters, but this will need to continue for some time to come if the shares are to live up to their lofty valuation. If high expectations for a Trump-led infrastructure investment plan dont come to fruition and growth in Europe remains low, 2017 could see CRH shares retreat from their current highs.
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Ian Pierce has no position in any shares mentioned. 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.