Investors in Barclays (LSE: BARC) (NYSE: BCS.US) have endured yet another disappointing year in 2014, with shares in the bank falling by 11% since the turn of the year. This follows gains of just 4% last year and is a long way from 2012s superb performance that saw shares in Barclays soar by 49%.
However, 2015 could prove to be a whole lot more like the stunning returns of 2012 than the last couple of years have been. Heres why.
Growth Potential
Barclays has stunning growth potential. For example, in the current year it is forecast to increase earnings by 23%, followed by a further rise of 27% next year. This means that its bottom line could be as much as 56% higher in 2015 than it was in 2013, which is a rapid rate of progress and appeals to an even greater extent because Barclays has remained profitable throughout the credit crunch. Certainly, its profit has been hugely volatile, but Barclays has stayed in the black while many of its peers havent, which makes its stunning growth prospects for the immediate future even more appealing.
Margin Of Safety
Even if Barclays misses its current forecasts, its valuation indicates that there is a considerable margin of safety built into its share price. For example, while the FTSE 100 has a price to earnings (P/E) ratio of 15.5, Barclays trades on a P/E ratio of just 11.8. This indicates that there is significant scope for an upward rerating in 2015, which would be great news for investors in the bank. And, with a price to earnings growth (PEG) ratio of just 0.5, it provides further evidence that Barclays offers strong growth prospects at a very reasonable price.
Income Prospects
With interest rates set to be held at 0.5% for the immediate future, dividends are due to remain of great importance to investors. On this front, Barclays also impresses, since it is expected to pay 9.5p per share in dividends next year, which works out at a yield of 3.9% at its current share price. Furthermore, with such rapid profit growth, Barclays has room to expand its dividend payout ratio over the medium term, which could mean that there is even greater demand from income investors for its shares moving forward.
Changing Sentiment
Of course, Barclays main problem is poor sentiment. This results from continued allegations of wrongdoing, fines, and PPI claims. The market also appears to be rather cautious on bank stocks such as Barclays for fear of further challenges in the Eurozone, which is still flirting with a recession and deflation. As a result, sentiment in Barclays may remain relatively weak in the short run.
However, with such an attractive valuation, much of the fallout from these potential negatives appears to already be priced in. And, with Barclays offering a top notch yield next year as well as stunning growth prospects, it seems to firmly tick the value, growth and income boxes. Certainly, it may not be the most popular of stocks but, for investors looking to buy low and sell high, Barclays could present a superb opportunity to follow that ideal.
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Peter Stephens owns shares of Barclays. 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.
