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Over the past month, the FTSE 100 has encountered a 2.5% decrease. On the other hand, the share price of barclays (LSE:BARC) has plummeted by nearly 10% during the same period, positioning it as one of the weakest performers within the index.
The stock has been enduring a challenging phase lately. However, I’m closely monitoring it as its current price is approaching a level that might catch my interest for potential purchase.
Diverse from your counterparts
Overall, the UK banking sector has been under strain recently. I believe it presents a favorable opportunity for stock acquisition, and Barclays stands out to me for various reasons.
The company stands out from its FTSE 100 competitors. While lloyds and natwest derive the majority of their earnings from consumer lending, this accounts for only 25% of Barclays’ total income.
In addition to a robust credit card business, the company also possesses a substantial investment banking operation. This sets it apart significantly from other UK banks.
The lower risk associated with consumer lending has resulted in the company not benefitting as much from high interest rates as its peers. Also, the global investment banking sector has been experiencing a cyclical downturn.
Consequently, Barclays is confronting challenges that its peers have not had to withstand. This makes it an unfavorable option for prospective investors in the short term, but I believe the long-term outlook is more promising.
There are indications that a revival in investment banking activity may not be far off. Notably, interest rates have ceased to rise in both the UK and the US.
Furthermore, companies are beginning to re-enter the public markets, with some occurrences in 2023, indicating a potential resumption in IPO activity.
I’m content to see the company performing well, but I prefer the price not to surge too rapidly. Barclays is among the stocks I’m vigilantly tracking and I aim to purchase it at a more favorable price.
As a long-term investor, purchasing at lower prices should result in superior long-term returns.
A reduced share price also translates to a higher dividend yield. This is another reason to anticipate a decline in Barclays’ share price.
Potential stock options?
I believe Barclays holds a distinctive position among the FTSE 100 banks. Although its earnings are currently influenced by its investment banking operations, it could prove beneficial in the future.
Successful investing often involves purchasing stocks when they are out of favor, and this holds true for Barclays at present.
The company has not reaped the benefits from the interest rate surge like other UK banks. Nonetheless, the potential for long-term returns should not be underestimated.
Post This FTSE 100 Share Is Down 10%. This is why I’m expecting it to drop further first appeared on The Motley Fool UK.
Stephen Wright has no position in any stocks mentioned. The Motley Fool UK recommends Barclays PLC and Lloyds Banking Group PLC. The views expressed on the companies mentioned in this article are those of the author and therefore may 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 wide variety of insights can make us better investors.
Motley Fool UK 2023