Are Barclays shares the best banking pick for 2026?

The banking sector in general has done very well in 2025. Stocks such as HSBC, Lloyds and Barclays (LSE:BARC) have rocketed to multi-year highs. Looking ahead, some investors might want to increase their allocation to this sector. With Barclays shares leading peers, up 80% over the past year, some might decide to buy now. However, I’m not sure it’s the best pick.

Reasons for outperformance

Don’t get me wrong, Barclays has done very well over the past year. Some of the gains have been more fairly valued. Entering the year, the price-to-earnings ratio was very low, meaning it was undervalued. Over the course of the year, investors have seen solid profit growth and broad-based revenue gains from quarterly results.

This is especially true of the performance from its investment banking and trading divisions. As a result, people had greater confidence in buying the stock, which naturally helped lift its share price.

At a sector level, UK banks have benefited from interest rates staying higher for longer. This has meant that net interest income has been higher than anticipated, resulting in better profitability. Further, the banks have been relatively unaffected by some of the most significant market wobbles, such as those from the US tariff announcements in April.

In fact, I think some have seen the sector as a defensive play, with more people buying when times are uncertain.

Competing scorecards

Looking ahead, I’d prefer to own HSBC stock rather than Barclays in 2026. For a start, even though Barclays does have international operations, HSBC is a much more diversified bank globally. This means HSBC can benefit from potential growth in key markets such as China and other Asian outposts, in a way that Barclays can’t.

Even when compared to Lloyds, Barclays doesn’t stack up that well. For example, income investors will see the 1.81% dividend yield for Barclays and contrast it to the 3.42% yield from Lloyds. So if someone wants banking exposure for dividends, it makes more sense to go with Lloyds. In fact, Barclays is even below the FTSE 100 average yield of 3.02%.

Earlier, we spoke about the price-to-earnings ratio, which can offer insight into valuation. Right now, the Barclays ratio sits at 12.97, HSBC is 12.3,2 and Lloyds sits at 15.29. Barclays isn’t the cheapest option using this metric, which again would draw investors’ focus to HSBC instead.

Positive but not buzzing

I could go on, but across more and more metrics, Barclays shares don’t come out on top as the best banking pick for 2026. Of course, this doesn’t mean it can’t do well next year. If interest rates stay higher for longer and the UK economy does well, the Barclays share price could keep rallying.

But when I compare it specifically with sector peers, I don’t think the stock’s the best place for investors to consider putting their hard-earned money,

The post Are Barclays shares the best banking pick for 2026? appeared first on The Motley Fool UK.

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HSBC Holdings is an advertising partner of Motley Fool Money. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Lloyds Banking Group Plc. 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.