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When I axed shares of Bank of America (BAC) from my portfolio, I bought shares of Barclays PLC (BCS) as a foreign banking substitute. After watching the stock for a couple weeks, I entered my position at $50.88 back on September 12, 2006.

Now that I’m up over 20% since my initial purchase, it’s time to take another look at Barclays and find out if I should continue to hold the stock.

4.70% interest in Infrastructure Development Finance Company limited [IDFC]

This is a great investment opportunity for Barclays, which will further diversify their investment banking operations. Taking a quick glance at IDFC’s latest annual report (.pdf), IDFC plans to profit from India’s robust infrastructure growth, predicted to be around 10% in 2007. IDFC also posted a 38% gain in net operating income.

Ugandan Bank Nile Acquisition

The Nile Bank purchase was a positive one because Uganda has room for GDP and per capita growth. The Ugandan economy is experiencing a recession, which is why the Barclays acquisition makes perfect sense. The 100% stake in the African bank will provide a unique opportunity for Barclays to reach the Ugandan banking consumer. Barclay’s interest in Uganda looks like a wise decision.

Along with the newly purchased stake in IDFC, these are two nice additions to the Barclays foreign investment portfolio.

Fundamental Outlook: Strong PEG ratio, Low P/E Ratio

  • PEG Ratio is around 1.00 - The $100 billion English bank has managed to keep EPS growth stable and profitable. Projected at 12% for the next 5 years, Barclay’s must continue to increase net deposits, interest in their iShares investment options, and stakes in profitable foreign banks, particularly in developing countries.
  • Shares trade at 14 times trailing twelve months earnings. BCS stock still looks cheap to me, even though BCS shares recently broke a new 52-week high. I’ve adjusted my new price target to $65. I think BCS still has room to run.
  • 2.61% dividend yield - Not a bad yield for a growth stock in the banking sector.
  • Decision: Hold.

    The outlook is bright for Barclays. This is one of my long-term stock plays. If shares spike in the next few weeks, I’ll add to my position.

    BCS 1-yr chart
    BCS

    Disclosure: Author is long BCS.

    Source: The Long Case for Barclays