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The results are in and the best performance this year. FTSE 100 stocks are street giants NatWest Group (LSE: NWG).
Its shares are up 88% so far in 2024 and once dividends are included, the total return is a fabulous 101%.
Unfortunately, I chose to gain exposure to the banking sector through Lloyds Banking Groupand for a while it went well for me too. Lloyds was then hit by the car finance mis-selling scandal, while NatWest soldiered on.
Susanna Streeter in Hargreaves Lansdownwhich compiled the data, said that as the year draws to a close, NatWest's share price remains “on a roll, with third-quarter operations exceeding expectations”.
NatWest shares are one in a hundred this year
She added: “Non-performing loans rates remained at low and stable levels and, despite the pessimism surrounding the UK budget, an improvement in the UK's growth outlook for 2025 bodes well for banks sensitive to the economic temperature. general”.
Personally, I am more concerned about the UK's growth prospects. Especially after data from the Office for National Statistics this morning, which showed the UK economy contracted 0.1% in October, matching September's 0.1% fall.
Streeter said NatWest's revenue guidance has been rising and interest rates are expected to stay high for longer. “This helps improve underlying performance by keeping net income margins stronger.”
Higher interest rates should support NatWest's net interest margins, the difference between what it pays to savers and what it charges to borrowers. However, there is a danger that mortgage deterioration will increase as long-term fixes and homeowners are forced to remortgage at higher rates. Two-year corrections are back above 5%.
Streeter says NatWest has achieved “Continuous progress to keep costs under control” and it is also “a great beneficiary of its great structural coverage”designed to smooth out net interest income.
She said: “The way the coverage has been designed means that over the next few years there will be better rates from some of the lowest in the sector, it will be another tailwind for the sector that we will enjoy.”
I love the positive trends in the sector and hope they sweep my Lloyds shares too. But should I raise some cash and diversify into NatWest?
Can this FTSE 100 stock more than double its return?
I am instinctively cautious about buying a stock after having had great success. My concern is overpaying and ending up suffering an immediate loss. NatWest shares don't exactly look expensive, trading at 8.47 times 2024 earnings. However, low P/Es are common for big banks, so I'm not sure how much I can trust it.
The price-to-book ratio may be a better guide. A year ago, most FTSE 100 banks had P/Bs of around 0.4 or 0.5 times. Today, NatWest has risen to 0.97. That's just one step away from the figure of 1 that is considered a reasonable value.
The 18 analysts offering one-year share price forecasts have produced an average target of 463.3p. If correct, that would be a 14.07% increase from today (not 88%, unfortunately). Combined with a forecast return of 5.08%, suggesting a potential total return of almost 20%.
But I won't buy NatWest. We've had fun. Instead, I will hold on to my Lloyds shares and expect them to recover lost ground in 2025.
