Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE 100 bank’s a top candidate after a brilliant year.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m looking to top up my Stocks and Shares ISA and NatWest Group‘s (LSE: NWG) riding high on my shopping list.

The NatWest share price has more than doubled over the last 12 months, rising 105.19%. Across the FTSE 100, only Rolls-Royce has done better over the period, climbing 149.11%. Yet NatWest hasn’t attracted the same level of attention.

The excitement began back in February, when it posted a 22% jump in 2023 pre-tax profits to £6.2bn. That lit a fire under rival banks too, as investors decided almost overnight that they were due a re-rating.

Can it repeat its stellar year?

Barclays has jumped 78.6% over the last year, while Lloyds Banking Group was rattling along until it got embroiled in the motor finance mis-selling scandal. Over 12 months, Lloyds is up a modest 29.19%. Naturally, that’s the one I own. :(

One reason for NatWest’s February bounce was that markets overestimated the threat of customer impairments, as homeowners withstood higher inflation and interest rates. With inflation down to 1.7% in September and interests expected to slide further, impairments have continued to slide in the 2024 financial year.

Another shadow hanging over NatWest was the prospect of a ‘Tell Sid’ style share sell campaign, with former Tory chancellor Jeremy Hunt drawing up plans to sell the remaining 19.97% government stake in the bank at a discounted price. Labour’s Rachel Reeves quickly ruled that out, lifting the stock.

NatWest has powered on despite posting 15.6% drop in first-half profits to £3.03bn on 26 July. Markets decided to look on the bright side after the board hiked the interim dividend payment by 9%. The forecast yield’s now 4.79%, rising to 5.13% in 2025.

That will look more attractive as falling interest rates drag down yields on cash and bonds. The downside of lower rates is that they may also squeeze net interest margins, the difference between what banks pay savers and charge borrowers. The process has already started. NatWest’s first-half margins fell by 16 basis points to 2.07%, although picked up slightly in Q2 to 2.1%.

There may be better value on the FTSE 100

The obvious risk to buying NatWest is that it will struggle to match recent growth, or even retreat as investors bank profits. It doesn’t look over-priced, with a price-to-earnings ratio of 7.83. However, the big banks have looked undervalued for years on that measure. That said, a price-to-book ratio of 0.81 isn’t exactly daunting.

Much now depends on whether interest rates revive the housing market and lift the UK economy. Office for Responsibility forecasts, prepared for the budget, make it clear the UK isn’t about to go gangbusters though.

The 18 analysts offering one-year share price forecasts for NatWest have set a median target of 429.8p. If correct, that would mark rise of 11.6% from today’s price. This confirms my suspicion that the next year won’t be quite as good as the last one. Frankly, how could it be?

I prefer to buy stocks before they have a good run, rather than afterwards (not easy, of course). On those grounds alone, I’ll hold fire on NatWest and I’ll hunt for my first Stocks and Shares ISA pick elsewhere.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc 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.

More on Investing Articles

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »

Investing Articles

The JD Sports Fashion share price has just plunged another 16%! Buy or sell?

Harvey Jones is reeling after another sharp drop in the JD Sports Fashion share price. Should he seize the chance…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

This once-great FTSE 250 UK fashion retailer is down 47%, so is it time for me to buy?

A formerly iconic UK fashion brand, this FTSE 250 firm has fallen out of favour. But it has a new…

Read more »