There are few companies in the FTSE 100 that look as cheap as Barclays (LSE: BARC). The stock is trading at a forward P/E of seven and a price-to-tangible book ratio of 0.5.
These numbers suggest the shares could rise more than 100% from current levels. Indeed, the bank’s international peers, such as Morgan Stanley and JPMorgan, trade at a valuation of more than 10 times forward earnings, and more importantly, a price-to-tangible book ratio of between one and 1.9. At a ratio of 1.9, the Barclays share price could hit 450p+.
Realistically, I don’t think the stock will hit this level any time soon. A ratio of 1 might be more appropriate. Even at this level, the Barclays share price could still be worth more than 300p, an increase of around 100% from current levels.
Time is running out
I think time is running out for investors to snap up the Barclays share price bargain.
You see, over the past five years the bank has really struggled to grow, and despite shedding thousands of jobs, profitability has remained depressed. As a result, investors have stayed away. Barclays needs to prove that it has put its mistakes behind it and to return to growth before market confidence returns.
It looks as if it is set to do just that in 2019. Analysts have pencilled in earnings growth of 72% for 2018 and if it hits this, then the bank should not have too much trouble achieving the City’s targeted growth rate of 5% for 2019.
At present, analysts are expecting the group to generate around £8bn in profit for 2018 and 2019. If it meets the analyst goal, I reckon it won’t be long before the Barclays share price perks up.
With this being the case, I reckon now could be the time to buy.
Recovery play
As well as Barclays, Just Group (LSE: JUST) is another recovery play I think could double in value in the near term.
Last year, regulators decided that providers of so-called lifetime mortgage products, which includes Just, will need to hold more capital on a balance sheet. They set a deadline of the end of 2018 to meet the new capital rules meaning Just was facing the prospect of having to raise hundreds of millions of pounds in extra capital in just a few months. This prospect that created “a material uncertainty that may cast significant doubt on the group’s ability to continue as a going concern,” according to auditors, KPMG.
Luckily, regulators decided to postpone the implementation of the rule to the end of 2019, giving Just some much-needed breathing space.
The group issued some further good news today. Business sales in the 12 months to the end of 2018 increased 15% year-on-year. As well as growing the business, management is also working flat out to optimise its capital structure, and we should get an update on this soon.
In the meantime, the stock is trading at just 5.7 times forward earnings and a price-to-tangible book ratio of 0.6, implying a potential upside of 100%+ when the uncertainty is lifted (the rest of the sector is trading at a forward P/E of just under 12 and a ratio of 2). This potential reward is worth the risk in my opinion.
