3 reasons why National Australia Bank Ltd shares should be on your watchlist

National Australia Bank Ltd (ASX:NAB) is going through the a meaningful transition, but the success of its strategy remains unknown.

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"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…

  1. 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.
  2. 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.
  3. 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.

Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned. Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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