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Why I've Just Invested 23 Thousand Pounds in Barclays

By David O’Hara - Apr 4, 2013 at 9:27AM

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After turning 4.6 thousand pounds into 15 thousand pounds in just one year, Barclays is my latest big investment.

LONDON -- Barclays (BARC -0.36%) (BCS -0.64%) is my biggest ever shareholding. If I have done my sums correctly, the bank could bring me big profits.

Like the rest of the banks, Barclays has had a mixed 2013 so far. The shares soared at the start of the year, rising 23% to their peak in the middle of February.

Since the Cyprus scare, the shares have lost some of that momentum and are now down 10% from their peak.

Worryingly, the banks have been told by their regulator that they need to raise more capital. Add in a recent internal report that was highly critical of the bank's culture, and the shares are now back near their lowest point since the first few days of the year.

However, I believe there are three big reasons to expect the shares to rally significantly.

Sentiment cannot get much worse
Bad vibes are the friend of value investors. They create the valuation anomalies we need to be able to buy shares cheaply.

Sentiment toward Barclays is at a low. If the mood improves, shares will rally, giving investors an opportunity to exit at a profit.

While yesterday's report may be news today, I expect that the market will soon be focusing on something else. Instead of criticizing the bank's past, investors will be looking to its future. The future looks bright at Barclays.

Banks do well in bull markets
Today, the S&P 500 and the Dow are both at all-time highs. Over here, the FTSE 100 is within 5% of a 10-year high.

Big corporate deals are back, and there is increasing speculation that more will follow.

This environment is near perfect for a bank like Barclays to operate in.

20% upside potential
Finally, Barclays shares are cheap today. Consensus is for the bank to make 36.9 pence of earnings per share for 2013, rising to 43.9 pence the year after. By my calculations, only two shares in the FTSE 100 are cheaper on both an earnings and forecast growth measure.

If Barclays can demonstrate that it is on track to meet those earnings forecasts, I expect the shares would soon progress to 350 pence.

Buying beaten-up shares like Barclays ahead of a change in sentiment is one way you could make big gains with shares. For more profit-producing strategies, check out the free Motley Fool report "10 Steps to Making a Million in the Market." This report is entirely free and could change the way you invest, forever. Just click here to get the report today.

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Stocks Mentioned

Barclays PLC Stock Quote
Barclays PLC
BCS
$7.79 (-0.64%) $0.05
Barclays PLC Stock Quote
Barclays PLC
BARC
$152.72 (-0.36%) $0.56

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