The National Australia Bank Ltd (ASX:NAB) share price is heading higher today and could be going further according to one leading broker…
The post This top broker thinks the NAB (ASX:NAB) share price is a strong buy appeared first on The Motley Fool Australia. –
The National Australia Bank Ltd (ASX: NAB) share price is pushing higher on Tuesday.
In afternoon trade the banking giant’s shares are up 1.5% to $24.02.
Why is the NAB share price pushing higher?
Investors have been buying NAB’s shares on Tuesday after analysts at Goldman Sachs took another look at the banking sector and became more positive on its outlook.
According to the note, the broker is expecting housing loan growth to rise towards 5% in the second half of 2021 from the current level of ~3%.
Goldman explained: “Our forecast is for a growth rate of 3.1% through to Mar-21 (flat yoy vs. 2H20) after which we see a gradual rise to 4.9% in Sep-21 and then 5% by CY year end. These expectations are supported by: i) recent mortgage approvals having trended strongly in recent months; ii) the four RBA cash rate cuts since Jun-19; and iii) amortisation of the books remaining broadly unchanged despite expectations of it rising.”
Another positive is that its lead indicator is suggesting that the banks have reached an inflection point for loan impairment expense and this metric is now trending lower. It believes this supports its view that the credit cycle is gradually reverting to long-run levels.
And finally, the broker sees potential for net interest margin (NIM) upside in the short-term.
It commented: “Overall, our expectation is for a negative margin trajectory into FY21E as we currently forecast the majors’ NIM to contract by 5-9bp vs. FY20. However, with the recent deposit pricing trends in mind, we see potential for some upside risk in the shorter-term.”
What does this mean for investors?
After taking all this into account, the broker has reiterated its conviction buy rating on NAB’s shares and lifted the price target on them to $24.72.
Goldman explained: “NAB remains our preferred bank exposure based on: i) our view of better-than-peer revenue growth, supported by superior management of the volume/margin trade-off; ii) investment spend which appears further progressed vs. peers allowing for more selective distribution of resources (contributing to a broadly flat FY21 cost target (c.0-2%)); and iii) when combined, drives our forecast for NAB to deliver top of peer PPOP per share growth. relative NIM performance versus peers.”
And for those interested in dividends, Goldman Sachs estimates that its shares offer a 3.8% FY 2021 yield and a 5.1% FY 2022 yield.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
- 5 things to watch on the ASX 200 on Tuesday
- ASX dividends: Are miners the new bank shares?
- ASX 200 Weekly Wrap: ASX drops despite promises of more US stimulus
- ASX banks to steal the dividend crown from mining stocks by next year
- Brokers name 3 ASX shares to buy right now
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.