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The NatWest (LSE: NWG) share price had a stellar year, rising 113% in 12 months. Yet that followed years of stagnation, as the FTSE 100 bank struggled under the weight of past scandals and government ownership.
That’s often the case with recovery stocks. Buying them can be lucrative, but turnarounds take time. Investors often have to sit back and watch their holdings drift lower before any rebound materialises.
Yet, when the recovery comes, the rewards can be spectacular. For NatWest shares, the turning point came almost overnight last February, as earnings and margins picked up, impairments fell, and investors celebrated handsome stock buybacks.
Is Croda the next big FTSE 100 recovery play?
Investors who bought in early and waited were handsomely rewarded. Even better, dividends helped them accumulate more shares while prices were low.
Today, NatWest still looks decent value with a price-to-earnings (P/E) ratio of less than 12, and the shares could continue to climb. But I can’t see them doubling again.
Investors who fancy investing in recovery stocks need to find them before they take off rather than afterwards. These two FTSE 100 firms are still down in the dumps. Could they do a NatWest?
Shares in specialist chemicals firm Croda (LSE: CRDA) and gaming giant Entain (LSE: ENT) have plunged 56% and 59%, respectively, over three years. Over the last year, they’re down 33% and 28%. That’s a dire run.
Croda was once a FTSE 100 darling, producing high-performance chemicals for industries ranging from cosmetics to pharmaceuticals. However, slowing demand, rising costs, and post-pandemic stocking issues have hammered its share price.
The stock still isn’t cheap, trading at 19 times earnings, well above the average FTSE 100 P/E of 15. I expected it to be lower, but earnings have taken a beating too.
With 27 years of consecutive dividend hikes, Croda is a true Dividend Aristocrat. Yet today’s 3.4% yield is relatively modest. So can it deliver some growth?
With inflation easing and economic conditions stabilising, demand for Croda’s products could rebound. But the recovery is in the balance. As inflation and trade worries hit sentiment, demand in key markets may remain weak.
Or does Entain offer better value?
Entain, owner of betting brands like Ladbrokes and Coral, has been hit by concerns over tightening regulations in key markets, alongside intense competition. An acquisition made for growth hasn’t paid off yet. Give it time.
Entain shares trade at 15.8 times earnings, roughly in line with the FTSE 100 average. Its 2.5% dividend yield isn’t exactly to die for. Like Croda, investors need to believe in future growth rather than banking on income.
Entain is looking to expand into new markets and strengthen its digital offerings, but progress has been slow. The industry remains highly competitive. Stricter gambling laws, affordability checks, and increased compliance costs could hit profit growth, and the Entain share price could remain bumpy.
Croda and Entain have potential for recovery. Both stocks require catalysts to reignite growth. NatWest shows how quickly a turnaround can happen – but only after years of underperformance.
For now, neither Croda nor Entain looks like a screaming buy to me. Brave investors might consider them though. If they’re willing to hold through the turbulence, the rewards could suddenly be worth it. As NatWest was.
