Stock of the day: is it time to short Barclays?

Its fair to say that Barclays has had a pretty horrible year. The stock is down around 11% since January and is still trading a good 14% lower than where it was 5 years ago.

What: 

Its fair to say that Barclays has had a pretty horrible year. The stock is down around 11% since January and is still trading a good 14% lower than where it was 5 years ago. Any hopes of a meaningful sustained turnaround from this bank have been dashed time and time again through the year. 

Furthermore, there isn’t even a high dividend yield to compensate investors for the disappointments. Barclays is the least loved of the UK banks right now, HSBC is seemingly going from strength to strength, optimism is returning to Lloyds and Royal Bank of Scotland has rallied over 25% through the course of the year. Global banking stocks (not just the UK) have rallied in 2017 and Barclays hasn’t. 

Making matters worse, Goldman Sachs have confirmed their sell rating on the stock and have even included it on their “List of sell ideas for 2018”. Goldman’s highlighted Barclays lower margins on mortgages and increased competition on deposits, which were reflected in their third quarter results, as the reason for the bearishness. Furthermore, they see those same pressures remaining in 2018. 

The there is the small matter of the dividend or perhaps better put, the matter of the small dividend. Barclays dividend yield is just 1.5% which compares poorly to Lloyds, which has a yield of 2.5% and HSBC, which has a yield of an inflation busting 5.4%. Adding to the dividend woes was Barclay’s weak performance in the Bank of England Stress test. 

The stress test showed that Barclays had the lowest margin of error. There are some concerns that they may see increased pressure to increase capital, which could impact on the banks ability to raise its dividend. Finally, looking at the bank’s results, earning per share has fallen in three of the last 5 years. 

This included a headline grabbing drop of 60% in 2013 and another heavy 22% drop last year as a slew of one-off adjustments, write-down and charges have played havoc with the banks profitability. 

How: Barclays is trading down 11% on the year although, the price has picked up in recent weeks. The share price is up 4% this month, lifted in line with a broad rise in the FTSE 100 which could present a good entry point. Barclays continues to trade below its 200 sma confirming a bearish trend.

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