Barclays shares look like a real bargain to me

Barclays (LSE: BARC) shares have just had a rough week. On Valentine’s Day, the stock was all in favour, peaking below 189p. But then mixed results in the bank’s full-year results sent shares spiraling sharply south on Wednesday.

The stock price was battered by the results

After reaching 189p on Tuesday, the shares closed on Friday at 173.5p, valuing the bank at £27.6bn. The damage in the stock was on Wednesday, as Barclays 2022 results looked like a mixed bag.

Barclays disclosed a 14% fall in pre-tax profit for the last year, but generally denied this came from known events. For example, Blue Eagle bank has set aside up to £1.9bn to deal with the fallout from its accidental securities issuance in the US over several years.

Even so, the bank’s performance has declined slightly. As expected, the trade and investment-banking arms are not doing well. This is not surprising, as the financial market is already exhausted in 2022. But the UK’s core domestic banking business is in good health, driven by the rise in interest rates.

Two good news for shareholders

On the earnings front, something is looking up for Barclays shareholders (my husband included). The next dividend payment on Bank BTN shares has already paid 7.25 €. This cash return is more than five times (+20.8%) higher than the 6p paid for 2021 – and ahead of 2020’s 1p.

In addition, the bank has pledged to buy back £500m of its shares. This will reduce the stock basis by more than 1.8%. Over time, this should boost the group’s earnings per share, thus supporting the stock in the long term.

Barclays still looks great

To me, Wednesday’s price action looks very negative. Looking at Barclays shares today, I found a good deal for a patient, long-term investor like myself.

The first point I would like to make is that Barclays shares look very cheap compared to the wider market. The stock trades in a low price-to-earnings ratio of 5.8, for a bumper earnings yield of 17.2%. This stock ranks among the lowest in the FTSE 100 index.

In addition, the stock offers a dividend yield of 4.3% per annum – about 0.6 percentage points above the Footsie’s 3.7%. But this cash yield is covered four times by the back profit. To me, this shows that it is the safest place in the London market.

But the outlook is not good for banks

When I look at the deep value in Barclays shares, the immediate future looks bleak for UK banks. Rising inflation, sky-high energy bills and rising interest rates have eroded consumer confidence. With the UK economy poised to go into recession by 2023, bad debt and loan losses will increase.

But with Barclays shares looking so cheap on fundamentals, I see most of this bad news being priced into the stock. And that’s why I’d love to buy more shares at current levels – if I had the money, that is!