What You Were Buying Last Week: Barclays PLC (ADR) (BCS)

LONDON — One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful” — or, in other words, sell when others are buying, and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.

Trading at a discount
The major U.K. banks have turned in some fantastic gains in share price over the past 18 months. Lloyds leads the pack by some considerable distance, with a 150% rise. But the 68%, 60%, and 42% rises recorded by Barclays PLC (ADR) (NYSE:BCS), Royal Bank of Scotland Group plc (ADR) (NYSE:RBS), and HSBC Holdings plc (ADR) (NYSE:HBC) respectively are also pretty impressive.

With those sorts of gains, there’s always the temptation to take a profit, especially if you think there may be a market correction (as seem to be currently happening in Australia). But while some people were selling Lloyds last week, others were buying Barclays PLC (ADR) (NYSE:BCS). Or perhaps they were the same people, swapping one company that may have peaked for another with more yet to offer. Whoever they were, they put Barclays in the No. 6 spot in the latest “Top Ten Buys” list*.

One thing that might have made Barclays PLC (ADR) (NYSE:BCS) attractive is the fact that it’s currently trading at a discount of over 26% to its net asset value (NAV) as of 31 March. Even its net tangible asset value — a more conservative measure of a company’s worth — is around 13% higher than its current share price of 297 pence. A bank should trade above its NAV, so the discount may suggest that Barclays PLC (ADR) (NYSE:BCS) share price has some way yet to go.

Of course, the discount may also be because the market is pricing in perceived risks to Barclay’s growth. But a return to profit was announced in its Q1 results earlier this year, with pre-tax profit up to £1,535 million from a £525 million loss in Q1 2012. Analyst forecasts are for significant earnings-per-share growth over the next two years — 688% in 2013 (34.3 pence, compared with 2012’s 4.36 pence) followed by a more modest 25% in 2014 (42.8 pence). And Barclay’s forward P/E of under 9 also makes it seem like a better value than its main rivals — theirs are all well into double-digits, with Royal Bank of Scotland Group plc (ADR) (NYSE:RBS)’s almost double that of Barclays PLC (ADR) (NYSE:BCS). So those risks may not be as great as current market sentiment would have you believe.

There’s also Barclay’s dividend. Under 2% last year, it’s expected to rise by around 20%, to 2.4%, in 2013, and by a further 36%, to around 3.2%, in 2014. Whilst that would still leave it below the current FTSE 100 average yield of 3.6%, it’d be a pleasant bonus on top of any capital growth.

But of course, no matter what other people were doing last week, only you can decide if Barclays PLC (ADR) (NYSE:BCS) really is a buy right now.