Commonwealth Bank of Australia (ASX: CBA) has returned to the leader board over the last week, having played a key role in turning the Australian stock market's misfortunes around. Since bottoming out at $73.57, the shares have jumped more than 5% to be trading at $77.25, putting them just 8% below their all-time high price.
With investors now regaining some of their confidence, some are wondering whether now is the time to buy Commonwealth Bank of Australia shares again. After all, interest rates are set to remain low for some time and CBA shares still offer a solid yield – made even more attractive by the discount the shares are trading at compared to their price in July this year.
Despite these positives however, there are still a number of reasons why investors should avoid the bank's lure. As it stands, the bank's stock is still well and truly overpriced considering its limited growth opportunities over the coming years. In addition, there are strong reasons to believe the Australian dollar has further to fall which would indicate foreign investors could sell the stock down even further in the near future.
I'm also very conscious of Commonwealth Bank's exposure to Australia's red-hot property sector. Commonwealth Bank and Westpac Banking Corp (ASX: WBC) control the biggest portion of Australia's mortgage market, which has helped drive the banks to periods of record profitability in recent times. But should cracks start to appear in the sector, or borrowers prove unable to repay their loans when interest rates inevitably rise, these two banks are likely to be the hardest hit.
Should you buy?
Commonwealth Bank is one of Australia's strongest businesses and offers both safety, given its 'too-big-to-fail' status, as well as a lucrative fully franked dividend. And given the high level of returns the stock has delivered in recent years, it's no wonder why investors are still so attracted to the bank.
But while that might be the case, it is also vital that investors remain sensible with how much they are willing to pay for the right to hold those shares over the coming years. Despite how strong the company might be, there's good reason to believe that investors who buy the shares today could be committing themselves to years of underperformance – even when the bank's dividends are taken into account.
Instead of Commonwealth Bank of Australia, investors ought to look towards other high-yielding dividend stocks, like the one recently identified by The Motley Fool's top investment advisor, Scott Phillips.
