The results are in and this year’s best performing FTSE 100 stock is high street giant NatWest Group (LSE: NWG).
Its shares have climbed 88% so far in 2024 and once dividends are included, the total return is a fabulous 101%.
Sadly, I chose to gain my exposure to the banking sector via Lloyds Banking Group, and for a while, I was doing nicely too. Then Lloyds was sideswiped by the motor finance mis-selling scandal, while NatWest powered on.
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Susannah Streeter at Hargreaves Lansdown, which compiled the data, said as the year draws to a close the NatWest share price is still “on a roll, with third-quarter trading beating expectations”.
NatWest shares are one in a hundred this year
She added: “Default rates remained at stable and low levels, and despite pessimism surrounding the UK Budget, an upgrade in the UK’s growth prospects for 2025 bodes well for banks sensitive to the broader economic temperature.”
Personally, I’m more concerned about UK growth prospects. Especially after this morning’s Office for National Statistics data, which showed the UK economy shrinking by 0.1% in October, matching September’s 0.1% drop.
Streeter said NatWest’s income guidance has been coming in higher with interest rates expected to stay higher for longer. “That’s building in improved underlying performance as it keeps net income margins more robust.”
Higher interest rates should support NatWest’s net interest margins, the difference between what it pays savers and charges borrowers. There’s a danger it will increase mortgage impairments, though, as long-term fixes and homeowners are forced to remortgage at higher rates. Two-year fixes are back above 5%.
Streeter says NatWest has made “continued progress in keeping costs under control” and is also “a big beneficiary of its large structural hedge”, designed to smooth out net interest income.
She said: “The way the hedge has been designed means it’s going to be rolling onto better rates in the coming years from some of the lowest rates in the sector, it’ll be another sector tailwind to enjoy.”
I do love a positive sector trend and hopes it sweeps my Lloyds shares along, too. But should I scrape together some cash and diversify into NatWest?
Can this FTSE 100 stock outperform twice?
I’m instinctively wary of buying a stock after it’s had a blockbuster run. My worry is I overpay and end up suffering an immediate loss. NatWest shares don’t exactly look expensive, trading at 8.47 times 2024 earnings. However, low P/Es are routine across the big banks, so I’m not sure how much I can rely on it.
The price-to-book ratio may be a better guide. A year ago most FTSE 100 banks had a P/B of around 0.4 or 0.5 times. Today, NatWest is up to 0.97. That’s only a whisker away from the figure of 1 that is seen as fair value.
The 18 analysts offering one-year share price forecasts have produced a median target of 463.3p. If correct, that would be an increase of 14.07% from today (not 88% sadly). Combined with a forecast yield of 5.08% that suggests a potential total return of nearly 20%.
But I won’t buy NatWest though. We’ve had our fun. Instead, I’ll hold onto my Lloyds shares, and hope they make up lost ground in 2025
