"Underweight", "neutral", "conviction buy", "overweight", "speculative"…
These are some of the terms used to describe a group of analysts' outlook for a particular stock.
They are confusing to say the least.
Personally, I prefer to keep it a little simpler:
- A buy rating means I think it will outperform the market.
- A hold means I'm not so sure.
- And a sell means I don't think it will.
I assume the market is going to rise — on average — by between 5% and 10% per year.
And when I say, "keep it on your watchlist", I mean it's probably not worth adding to your portfolio — for now, at least — but it has some traits which render it worth keeping an eye on.
This is important to keep in mind when reading the next part of this article…
3 reasons why National Australia Bank Ltd (ASX: NAB) should be on your watchlist
NAB, the Big Four banks' serial underperformer, is currently not a buy in my opinion.
However, before I call it a sell, there are a few reasons why it probably deserves a spot on your watchlist…
- Dividend yield. In this low-interest rate environment, a large number of investors seeking income in the form of dividends will be attracted to NAB's 5.8% fully franked yield.
- UK divestment. Following its decision to divest subsidiaries in both the UK and USA, NAB's medium-term future now appears much more promising. However, it's far too early to tell if the strategy will work out in shareholders' best interests.
- Valuation. If NAB shares were a bargain, investors could probably overlook some of the challenges it faces. However, at today's prices of around $33.55 NAB shares do not offer compelling value.
If I had to put a rating on NAB shares, it'd probably be a hold.
Due the challenges it faces and the current valuation of its shares, I'm not completely confident it can outperform the market over the next three to five years.
