1 under-the-radar value stock I’m watching for its yield and growth

In some cases, finding a value stock is easy. I’ve done it before by finding a cheap valuation and, more importantly, a breakthrough product or service with great future prospects.

However, not all stocks fall into this category. In this sense, an established company that I believe falls into the “value” category is Barclays (LSE:BARC).

For this reason, I would be willing to buy some of its shares at the next opportunity to increase my holdings.

On the right track

As one of the so-called “big four” banks in the United Kingdom, the company really needs no introduction.

The financial services sector as a whole has had mixed fortunes over the past 18 months. Rising inflation and higher interest rates are a double-edged sword like I’ve never seen before. The potential to make more money through higher interest rates is great and Barclays has capitalised on this. However, the risk of defaults and credit impairments has also increased, which could negatively impact earnings and returns.

Over a 12-month period, the share price has risen 33%, from 153 pence at the same time last year to the current level of 205 pence.

Value stock or value trap?

It must be pointed out that the FTSE100 has increased slightly in recent months, which may also have helped stocks like Barclays to rise. Inflation has fallen and rumors of interest rate cuts have boosted investor confidence.

It is worth noting that inflation could still rise and there is no guarantee that the Bank of England (BoE) will cut interest rates. In addition, we have a general election coming up soon, which could also affect investor sentiment towards banks and other stocks. I will keep an eye on these risks.

From a valuation perspective, Barclays shares seem like a bargain to me, with a price-to-earnings ratio of almost 9. If forecasts come to fruition, this should fall to almost 5 in the next financial year. However, I realise there is no guarantee and things could change. It is worth noting that the average P/E of the FTSE 100 is almost 12.

The story goes on

In addition, the company has undergone some transformation. A big part of that is cost cutting and efficiency improvements, as well as rewarding shareholders. The former should make Barclays a leaner, more focused business. The latter always sounds like music to my ears as a potential investor looking to build wealth. Specifically, the company has committed to returning £10 billion to shareholders between 2024 and 2026.

A dividend yield of currently just under 4% is also tempting. However, I realize that dividends are never guaranteed.

Risks and final considerations

The biggest issue that could hurt Barclays from a sentiment and returns perspective is the economic outlook. Again, to be more specific, if interest rates do indeed fall, earnings and margins could fall. This could have a significant impact on how much the company can return to shareholders in the future. I will be keeping an eye on this.

Despite the potential pitfalls mentioned above, Barclays appears to be a smart buy for my holdings. An attractive valuation, an exciting yield policy and the important position in the British banking ecosystem shape my conclusion.

The post An under-the-radar value stock I’m watching for its yield and growth appeared first on The Motley Fool UK.

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Sumayya Mansoor does not own any of the stocks mentioned. The Motley Fool UK has recommended Barclays Plc. The views expressed on companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a broad range of insights makes us better investors.

Motley Fool UK 2024