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FTSE 100 bank shares have pulled back sharply in recent months amid the global bond sell-off. In the blink of an eye, share prices have fallen up to almost 20%.
I believe there’s an opportunity here after this drop. With that in mind, here’s a comparison of the large-cap bank stocks in the Footsie and my top pick across the sector.
I’ve put some key metrics for the five large-cap bank stocks in the FTSE 100 in the table below. Looking at the data, we can see all five are relatively cheap at present, and all offer decent dividends yields.
| Stock | Price | P/E ratio | P/B ratio | Fall from 52-week high | Average price target | Dividend yield |
| HSBA | 1,413p | 11 | 1.7 | 11% | 1,636p | 4.5% |
| Lloyds | 104p | 10.3 | 1.3 | 12% | 126p | 4.4% |
| Barclays (LSE: BARC) | 432p | 8.3 | 0.7 | 19% | 574p | 3.5% |
| Natwest | 667p | 9 | 1.3 | 8% | 805p | 5.6% |
| Standard Chartered | 2,110p | 11.6 | 1.2 | 8% | 2,435p | 2.8% |
To me, one thing stands out from that table is that Barclays’ shares look really cheap. They’ve been hammered more than the other names and they now sport a price-to-earnings (P/E) ratio of just 8.3 and a price-to-book (P/B) ratio of 0.7.
It’s worth pointing out that Barclays is the only name with a P/B ratio under one. A ratio under one means that the market’s pricing the company for less than what its assets would be worth if it were liquidated today (after paying off all liabilities).
My top pick
Given this super-low valuation, Barclays is my top pick of five stocks right now. To my mind, it’s significantly undervalued. And it seems analysts agree with me: currently, the average analyst 12-month price target is about 33% above the current share price.
Looking beyond the numbers, one thing I like about Barclays is that it’s a diversified organisation with operations across retail and commercial banking, wealth management, investment banking and trading. This broad nature of its operations means it has multiple growth drivers.
I also like the fact that the bank has significant exposure to the US. Today, the US economy is stronger than the UK’s, and the US is also home to a larger number of affluent individuals and families.
On the downside, the fact that it operates in areas such as trading and investment banking introduces some risks that other more simpler banks – like Lloyds – don’t face. For example, if capital markets activity (eg IPOs) slows, revenues here could slump.
The bank also offers a lower dividend yield than some of its peers. I don’t see this as a deal breaker as I reckon capital gains should offset the lower yield, but dividend investors might prefer the higher-yielding banks.
Worth considering for an ISA or SIPP?
Of course, all five of these stocks could be worth considering. While rising bond yields are a risk, they’ve all been beaten-up in recent months.
I see the most potential in Barclays though. I think it’s worth a closer look right now.
Should you invest £5,000 in Barclays Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays Plc made the list?
Edward Sheldon does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
