If I’d invested £1,000 in Barclays shares a year ago, here’s how much I’d have now!

Barclays (LSE:BARC) shares among the lowest in the FTSE 100. The company currently trades at just 4.5 times earnings. Normally, a price-to-earnings ratio like this would indicate something is wrong. So let’s take a closer look at this banking giant and find out why investors should be bullish on the stock.

One more year

If I had invested in Barclays a year ago, my return would not have been so great. In fact, I would be down 17%. So if I invested £1,000, today I would have £830 plus around £40 in dividends.

Interestingly, the share price has been on the rise for the year and peaked at around 190p in February before the failure of Silicon Valley Bank. This situation is largely exacerbated by the implosion of Credit Suisse and its takeover UBS.

The stock is actually down 18% over the past month. It is one of the UK’s biggest victims of the SVB crisis.

loss of Bond

The main concern is unrealized bond losses. As central bank interest rates rise, the value of bonds – with lower yields, which banks already own – falls. This is because bond prices and bond yields are correlated.

Like SVB, European banks also have large bond portfolios. And, as we know, the paper value of these bonds has fallen due to successive rate hikes.

However, the big difference with European banks is that, compared to SVB, a smaller proportion is defined as “available for sale” in his book. However, many are retained until adulthood and these values ​​should not be regulated.

Of course, the higher and longer the BoE and Fed rates remain, the situation could be challenging.

Should we be worried about Barclays?

With the above, I believe the stock price correction is overdone. Risks remain, but it should be noted that Barclays is a fairly average bank in terms of leverage, tier one equity, and liquidity.

Analysts at ABN Amro Note that on average European banks have around 6% of their assets invested in “available for sale“district portfolio. By comparison, SVB has about 14% in “available for sale“portfolio kab.

The differences don’t stop there. Investments make up 18% of the total balance sheet of European banks. Meanwhile, in SVB, investment as a share of assets is 57%.

It is also worth noting that European banks are pressure tested where unrealized losses arising from changes in the value of bonds are taken into account in the calculation of capital requirements. However, in the US, this requirement was canceled under the leadership of Donald Trump. SVB is exempt from these stress tests.

It’s a buy for me

For me, the bank remains an attractive investment proposition. Barclays is one of the best options, with DCF calculations showing it could be undervalued by up to 76%. That is why I continue to increase my position in the stock.