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Why I Love Owning Shares in Royal Bank of Scotland Group

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LONDON -- Since the beginning of the year, shares in Royal Bank of Scotland  (LSE: RBS  )   (NYSE: RBS  )  have risen 13%. In the last three months, the shares are up 32%. Go back six months, and RBS shares have increased 72%.

Royal Bank of Scotland (RBS) is majority-owned by the U.K. taxpayer. As everyone knows by now, the bank was bailed out during the financial crisis when it was on the brink of ruin.

Government officials will have welcomed RBS' share price surge to nearly 370 pence today. If shares in the bank can advance past 500 pence, then the taxpayer will be in profit on their stake in RBS. And I think that could happen in the not-too-distant future.

I bought my shares in RBS in 2011. I believed at the time that if RBS did not need to raise more capital then the shares were cheap.

Then along came the eurozone crisis. Panic about the solvency of banks in Greece and Spain sent RBS shares into a tailspin. I continued to hold, in the belief that eurozone politicians would find a solution to salve the markets.

RBS executives have also received some pretty dumb criticism from politicians and the media in recent years. In my opinion, RBS executives are doing an excellent job in whipping the bank back into shape.

The bank is clearly making excellent progress. For example, in its last trading statement, RBS confirmed that its own short-term borrowings from other financial institutions had more than halved in just nine months. The bank is being turned around, and I am proud to be backing its chief executive, Stephen Hester.

More importantly, I think that the shares are still significantly undervalued. Provided that there are no nasty surprises in the economy or the bank's forthcoming final results, I expect RBS shares to be trading over 400 pence by March.

Of all the shares in the FTSE 100, RBS is one of the best recovery plays available. If the bank can win back investors' confidence, it might just start to trade on the kind of rating normally enjoyed by a bank. That means higher than 500 pence.

Sure, holding onto my RBS shares throughout the eurozone crisis was a tough slog. If you are going to make big gains on shares, you have to be prepared to go against the herd and sometimes sit on big losses. If you want to learn more about what is required to make big profitsby investing in shares, then get the free Motley Fool report "10 Steps to Making a Million in the Market." The report is totally free and will be delivered to your inbox immediately. Just click here to start reading today.

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9/29/2016 11:32 AM
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