Stock market

A cheap FTSE 100 growth share that I wouldn’t touch with a barge pool!

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gave FTSE 100 Full of growth shares. Some even trade at rock-bottom price-to-earnings (P/E) multiples.

But that doesn’t mean I’ll buy all of them for my portfolio. Many, while looking cheap on paper, can cost investors like me in the long term.

Barclays (LSE:BARC) is a stock I want to avoid at all costs.

Economic pressure

Barclays A big advantage over UK high street rivals. Lloyd’s And Nat West. Its significant exposure to the US gives it additional growth opportunities, and reduces risk by eliminating any dependence on one region.

But I’m still not buying. The company still makes a lot of profit from its home market. And this could compromise its ability to deliver healthy returns to the shareholder in the years to come.

The UK economy remains stagnant and grew by just 0.1% in February. Markets celebrated signs that Britain could be heading straight out of recession. But this means that the trend of weak economic growth is continuing.

And it’s hard to see how the economy gets out of this pattern. It will take years and tons of political action to address major structural issues like weak productivity, labor shortages, skills gaps, and Brexit turmoil.

NIM risk

Retail banks such as Barclays may struggle to grow revenue this season. The task already looks like a challenge as the Bank of England is likely to cut interest rates soon. This will put the net interest margin (NIM) in a tailspin across the sector.

NIMs measure the difference between interest-bearing bank borrowers and salary savers, and are an important indicator of profitability. At Barclays, it rose to 3.13 percent in 2023 from 2.86 percent a year ago, thanks to a rise in interest rates.

However, it fell to 3.07% during the fourth quarter, and was down from 3.10% a year ago. This is a metric that is at risk of continuing to deteriorate in the short to medium term.

Underestimated

City analysts expect Barclays to grow earnings by 14% in 2024. Moreover, growth of over 20% is predicted for each of the next two years.

The bank is hoping a restructuring drive to cut costs worth £2bn will help profits. But the dangers of these impressive predictions are high. This is why Barclays shares trade at a low P/E ratio of just 5.9 times.

Increase in dividend

On a brighter note, I expect Barclays shares to maintain their reputation as a solid passive income provider.

This is largely thanks to the bank’s strong balance sheet: its CET1 capital ratio (a measure of solvency) stood at 13.8 percent at the end of 2023.

I’m also optimistic because forecasted dividends cover between 3.5 times and 3.9 times expected earnings over the next two years. These figures provide a wide margin of safety if profits are eliminated altogether.

But Barclays’ reasonable dividend yields of 4.8% and 5.3% for 2024 and 2025 are not enough to motivate me to invest.

For me, the prospect of sustained weakness in the share price makes FTSE shares unattractive to buy. Right now I’d rather spend my money on other cheap passive income stocks.


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