Shares in high street giant NatWest (LSE: NWG) enjoyed a prosperous July. Across the month, the stock rose 16.9%. The FTSE 100, rose just 2.5%.
That brings the bank’s total gain for 2024 up to 44.1%. In the last 12 months, it’s climbed 32.1%. NatWest has been flying and it’s tough to imagine it slowing down.
But the stock market is unpredictable. While it may feel like the NatWest share price can’t fall, we all know stocks go through peaks and troughs. It’s inevitable.
With that in mind, what could August have in store for the FTSE 100 constituent?
A strong July
Before we delve into that, I want to take a closer look at what boosted its share price last month. The main driver was its earnings report.
There were a few positives that had investors excited. The first was the fact that its margins expanded, despite the trend in recent quarters of banks’ margins falling. Net interest margins went from 2.05% during the first quarter to 2.1% in the second.
On top of that, the bank also announced a deal to acquire a £2.5bn portfolio of prime UK residential mortgages from Metro Bank. The move will add around 10,000 customer accounts.
A shaky August?
Despite that positive news, I reckon August could be choppy. Across the pond, there’s some anxiety about a potential stock market crash. While the general consensus about the UK market is actually rather positive at the moment, any downturn in the US will likely drag on the Footsie. We’ve seen that in action today (5 August). The NatWest share price is down 2.6% in morning trading.
One to consider
But even if August has the potential to provide spells of volatility, I still think NatWest should be a stock for investors to consider buying today.
I certainly like its valuation. As my chart shows below, it trades on 6.8 times earnings. That’s nearly half of the FTSE 100 average.
Created with TradingView
That screams value to me. If that wasn’t enough, as seen below, it also sports a 5.2% yield, covered comfortably by earnings.
For the first half, it upped its interim dividend by 9% to 6p. Alongside that, it completed £1.2bn of share buybacks. That’s the sort of action I like to see.
Created with TradingView
That said, the Bank of England made its first interest rate cut since 2020 earlier this month, reducing the base rate by 0.25% to 5%. If inflation stays under control, we could see more cuts this year. And will most certainly see more next year. That will squeeze the bank’s margins.
On top of that, if inflation rises from the 2% government target, that would have a number of negative implications, such as denting investor confidence. While it may feel like we’re out of the woods with inflation, we’re not.
I’d buy
But if I had the cash, I’d happily snap up NatWest today. The stock has good momentum and despite its impressive rise, I still see room for growth in its share price. That’s especially given its cheap valuation.
