Have £1,000 to invest? Why I’d go for Barclays held in a Stocks and Shares ISA

The near-term outlook for shares such as Barclays(LSE: BARC) appears to be challenging. Internationally, fears surrounding rising US interest rates and further tariffs could lead to challenging trading conditions. Domestically, Brexit is likely to dominate the political and economic arenas over the coming months, with risks being significant in both areas.

This, therefore, could be a buying opportunity for shares such as Barclays. It seems to have an improving business model after making major changes, while its valuation suggests that the risks it faces may already be priced in. Alongside another share which reported interim results on Tuesday, it could offer investment potential for the long run.

Solid performance

The company in question is value retailer B&M(LSE: BME). It released first-half results that showed a rise in revenue of 16.1% to £1,563m. In the UK, like-for-like (LFL) revenues were up 0.9% on an underlying basis. Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) increased by 13.5% to £131.8m, with cash flow from operations increasing from £44.2m in the first half of last year to £67m in the first half of the current year.

The company opened 22 new B&M stores in the first half of the year. It is on track to open at least 58 new stores this year. In Germany, its revenue growth was 4.1%, although margin was affected by clearance activity. It expects to open 10 new stores in Germany this year.

Looking ahead, B&M is forecast to post a 13% rise in earnings this year, followed by further growth of 14% next year. It trades on a price-to-earnings growth (PEG) ratio of 1.4, which suggests that it could offer a wide margin of safety. As such, it could deliver share price growth over the medium term.

Uncertain prospects?

As mentioned, Barclays and a number of its sector peers face uncertain outlooks due to Brexit and the prospects for the world economy. While this may hold back the stock’s share price performance in the short run, its long-term outlook appears to be positive. In fact, its 20% decline in the last six months may have created a buying opportunity.

The stock is forecast to post a rise in earnings of 13% in the next financial year. Despite this bright outlook, it has a PEG ratio of just 0.7. This suggests that it may be trading significantly below its intrinsic value, which could provide an investment opportunity for the long term. And with dividends expected to grow from 3p per share in 2017 to as much as 8p per share in 2019, its forward yield of 4.6% could increase its total returns yet further. Meanwhile, dividend cover of 2.8 times which is forecast for 2019 suggests that additional dividend growth could be ahead.

Therefore, while today may seem to be the wrong time to buy Barclays as a result of its uncertain outlook, it could offer improving total returns in the long run. Within a Stocks and Shares ISA that limits the tax paid by an investor, it may deliver impressive levels of profitability.

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Peter Stephens owns shares of Barclays. The Motley Fool UK owns shares of B&M European Value. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer 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 diverse range of insights makes us better investors.

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