Why NAB shares are this leading broker’s top big four pick

Time to buy NAB shares?

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A female broker in a red jacket whispers in the ear of a man who has a surprised look on his face as she explains which two ASX 200 shares should do well in today's volatile climate

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If you’re looking to gain exposure to the banking sector, then National Australia Bank Ltd (ASX: NAB) shares could be worth considering.

That’s the view of one of Australia’s leading brokers, which has just reiterated its bullish view on the bank.

Why NAB shares?

According to a note out of Goldman Sachs, its analysts have retained their conviction buy rating and $34.03 price target on the bank’s shares.

Based on the current NAB share price of $32.04, this implies potential upside of 6.2% for investors over the next 12 months.

But it gets better. Goldman Sachs is forecasting a fully franked dividend yield of ~4.5% in FY 2022. If we add this into the equation, the total potential return stretches to almost 11%.

What did the broker say?

Goldman likes NAB due to its strong position in business banking, cost management initiatives progress, and its balance sheet momentum.

The broker explained:

“Our preference for NAB (Buy, on CL) is premised on:

i) NAB’s position as the largest business bank means we believe it will benefit more from the continued economic recovery (management at the FY21 result saw all segments in its Business & Private Bank exhibiting solid growth without sacrificing margin, and asset quality remains pristine as at 1Q22),

ii) good balance sheet momentum, with NAB highlighting at the 1Q22 update that market share was gained across core lending and deposit products,

iii) NAB’s cost-management initiatives, which seem further progressed relative to most of its peers, have freed up investment spend to be more directed towards customer experience (targeting 50% in FY22 from 39% in FY21) as opposed to infrastructure.”

As for the rest of the big four, Goldman has a buy rating on Australia and New Zealand Banking GrpLtd (ASX: ANZ) shares, a neutral rating on Westpac Banking Corp (ASX: WBC) shares, and a sell rating on Commonwealth Bank of Australia (ASX: CBA) shares.

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. 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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