My Barclays shares are up 21%. Do I buy more?

So far, 2023 has given shareholders a good start Barclays (LSE: BARC). Since December 30, Barclays shares are up more than six (+17.6%). In addition, they have risen by more than two-fifths (+41.3%) since the October 12 lows.

Barclays shares are showing renewed strength

As I write, Barclays shares are hovering around 186.56p, valuing the Blue Eagle bank at £29.6bn. Looking at the one-year chart, they have zig-zagged like the teeth of a saw.

My husband bought Barclays shares in early July 2022 with 154.5pa shares for our new portfolio. They rose until mid-September, but fell over the next four weeks. Despite this, a strong recent rally has given us a paper gain of more than five times (+20.8%).

Here’s how these popular stocks have performed over various time scales:

While my table shows a 10% rise for Barclays shares over six months, they are down more than 10% over 12 months. Over five years, they fell by almost 7%, versus up 7.9.% for FTSE 100 index. However, that figure does not include cash dividends, which would add three to four percentage points annually to that yield.

Barclays stock still looks cheap to me

Despite the recent rise in share prices, Barclays shares look very cheap to me. On that basis, the stock appears to be slightly undervalued and may be out of favor:

At a price-to-earnings ratio of just over six and an earnings yield of over 16%, Barclays shares are one of the cheapest in FTSE 100. But it is a London heavyweight, with a market capitalization of close to £30bn.

Also, its dividend yield of 3.4% is slightly lower than the wider Footsie, which offers a cash yield of around 3.7% a year. But Barclays’ dividend looks rock-solid to me, which is guaranteed almost five times by trailing earnings. For me, this is a huge margin of safety, being one of the top listed companies in the UK.

2023 could be tough for Barclays

While I am quite bullish (positive) on Barclays today, I am also very bearish (negative) on the outlook for the UK economy this year. Most economic forecasters expect the UK to experience the worst recession of any major economy in 2023. Even if we avoid a downturn in the last quarter of 2022, I believe it will start quickly.

Of course, slow, non-existent or negative growth is bad for UK companies as a whole. And rising inflation (higher consumer prices), sky-high energy and fuel bills, and rising interest rates are weighing on consumer spending. As a result, UK consumer confidence is close to a record.

As a result of this toxic combination, I expect bank debt and loan losses to rise in 2023. This is bad news for Barclays and our banking peers. But the increase in interest rates has widened the bank’s margin, sending billions of pounds in net additional income interest.

In short, it’s not all bad news for Barclays and its shareholders. And I’d buy more Barclays shares today – if I had any spare cash, that is!