Buy NAB
With the local market now down about 500 points from last weeks Fed reserve meeting we wanted to highlight a stock that we feel looks cheap and should bounce when markets return to a more normal pattern – NAB!
NAB is currently trading at $29.30 & is expected to deliver a cash profit just over $7B when it reports in November. The stock will be trading on close to 13 times earnings if the results come in as expected.
Earnings per share will have grown by close to 12% from last year and the total yearly dividend is expect to be close to $1.50, which will see the stock on a yield of 5.2% fully franked.
With the recent RBA interest rate rises, we have seen banks lifting their rates more than the RBA have, which will help to increase the banks net interest margin (one of the key indicators we look at when valuing banks).
The home loan market is also going through a huge adjustment with billions of $ worth of loans coming off very low fixed rates (offered during the Covid period). These mortgagees will need to refinance at much higher rates, which may hurt the property market if home owners start selling but it will see the banks return per loan improve in some cases by 3+% over the same property for those who do refinance.
While we can’t ignore that there are some risks in holding bank shares and the local property market has run far higher than it should have, we still believe most Australian’s will fight to keep their home rather than sell up due to rising costs, so feel any property price drop will only be in the 5 – 10% range in most areas.
Recommended action : We feel that buying NAB under $29.30 is great value for medium to long-term investors & for more short-term investors, buying the November $29.50 calls will give you exposure out to the NAB’s company results & dividend announcement.
If you would like to discuss NAB or any other stock please give our office a call.
