3 reasons why I’d buy the Barclays share price today

Bank shares remain a no-go area for some investors. But I believe these bombed-out stocks offer some of the best opportunities in the FTSE 100.

Today, I want to take a look at the latest figures from Barclays (LSE: BARC) and explain why Im bullish about the outlook for this 329 year-old bank.

Profits +20%

Barclays underlying pre-tax profit rose by 20% to 5.7bn last year. It cut operating costs by 2%, while bad debt charges fell by an impressive 37% to 1.5bn.

Shareholders were rewarded with a dividend of 6.5p per share for the full year more than double last years payout of 3p per share. The outlook was clouded by certain one-off costs relating to past misdeeds. But, as Ill explain, this cloud may have a silver lining.

Indeed, I think Barclays offers investors a classic value investing opportunity its cheap, improving and has the potential to deliver a step-change in profits in the near future.

1. Too cheap to ignore?

Barclays shares look cheap to me on three key value metrics.

Assets: With a last-seen share price of 165p, the stock trades at a 37% discount to the banks tangible net asset value of 262p per share.

Income: Last years dividend hike means that the shares also offer an appealing level of income, in my view. The 2018 dividend of 6.5p per share gives the stock a dividend yield of 4%.

Looking ahead, chief executive Jes Staley is expected to increase the dividend by 23% to 8p per share this year. Based on these City forecasts, the stock offers a 2019 forecast yield of 4.9%.

Earnings: The banks stock currently trades on just 7.1 times 2019 forecast earnings. That looks decent value to me.

2. Increasingly profitable

Of course, sometimes a stock is cheap for a reason. Banks tend to trade at a discount to their book value when investors think that their assets, such as loans, wont generate attractive returns.

This has been a big problem for Barclays and other banks in recent years. But things are changing. On an underlying basis, Barclays return on tangible equity rose to 8.5% last year. In 2017, the bank reported a figure of -1.2%.

This performance brings the bank close to its 2019 target of 9%+ return on tangible equity. The only problem is that this is an underlying figure including all one-off costs, Barclays return on tangible equity was just 3.6% last year. Let me explain what this means.

3. A big step forward

Barclays past misdeeds are no secret. Last year, settlements and charges relating to litigation and conduct cost the bank 2.2bn. But this nightmare should nearly be over.

When this shadow is removed from profits, the amount of real surplus cash available for shareholder returns should improve markedly. Staley has already indicated plans to maintain dividend growth and carry out share buybacks as and when appropriate.

When the bank starts to report clean profits that are free of major misconduct charges, I think the stock will start to trade closer to its tangible book value of 262p per share. If Im right, the shares could rise by 50% from current levels over the next couple of years. Id buy.