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He NatWest Group (LSE:NWG) share price has risen. Since November 2023, it has increased by 85%. And it shows no signs of stopping.
Do I think it's still too cheap? You bet I do. NatWest is high on my list of 2024 stocks and Shares ISA candidates, and I want to tell you why.
resurgent bank
We have come a long way since the days of the banking crisis. At the time, NatWest was known as Royal Bank of Scotland and was the biggest victim of all.
I wouldn't be here today without a taxpayer bailout. And even now, the government still owns about 28% of the shares. But he is selling them, which will see the bank finally return to full free market ownership. That has to be good.
Before I get too excited about what I consider a cheap stock, there are risks ahead that potential buyers should be aware of.
Earnings drop in 2024
Bank profits will fall in 2024 as high interest rates keep borrowing under pressure. It is still debatable how the Bank of England's rate cuts, scheduled for the end of the year, will affect banks. They should relax the mortgage market, but also cut banks' interest margins.
NatWest itself saw pre-tax profit fall by 27% in the first quarter.
On top of that, global economists are predicting more suffering for longer, and UK growth forecasts look slim.
Still, in the first quarter, NatWest stuck to its outlook guidance. We could therefore see a return on tangible equity (RoTE) of 12%, topping 13% in 2026. And revenue in 2024, excluding one-offs, of between £13bn and £13.5bn. I'd be happy with that.
Wonderful company, fair price?
So is NatWest what top investor Warren Buffett would call a wonderful company at a fair price? Looking at the current valuation, I think it could be.
Broker forecasts put NatWest shares at a price-to-earnings (P/E) ratio of only around 8.4. And with profits expected to return to growth in the coming years, that figure could fall below seven by 2026.
On top of that, the anticipated dividend yield of 5.3% for 2024 could reach 5.7% at the same time.
Yes, the financial outlook remains tight and the sector is risky. But isn't fear already built into that low stock valuation? I think it is.
Cash returns
In addition to the dividend, NatWest announced a new share buyback with its fiscal 2023 results in February. It should reach up to £300 million. And it would mean total distributions of around 40p per share throughout the year.
For the stock priced at 326p (at the time of writing), I rate it as pretty good. And that's even after the price increase in recent months.
So will I buy NatWest shares for my ISA? I'll make that decision when I have the money. But right now it's firmly among the favorites.
