The headlines in Fairfax media yesterday said it all 'Gloom returns as NAB drags ASX lower'.
With the big banks making up a large part of our S&P/ASX 200 (INDEXASX: XJO) index, it's no surprise that the market has been heading lower – despite an unusually large number of companies hitting 52-week highs.
Here's why these three companies lead the market lower this week:
National Australia Bank Ltd. (ASX: NAB) – last traded at $28.50, down 16% for the year
Shares in NAB have taken a dive in the past week or two after its full-year results which were impressive but nevertheless disappointed the market. The stock subsequently traded ex-dividend, which further hurt share prices.
The upcoming divestment of its troubled UK Clydesdale bank looks like a plus for NAB's share price not to mention a further strengthening of its capital position.
However, declining net interest margins – a key measure of profitability – and a slowing economy are likely to have an impact on profits in the future. While I feel NAB's position is improving, I would be waiting for further falls before diving in.
Cabcharge Australia Limited (ASX: CAB) – last traded at $2.68, down 44% for the year
Cabcharge certainly looks cheap, trading as it does on a Price to Earnings (P/E) ratio of 6 and offering a trailing 6.3% fully-franked dividend yield. I also believe that the market is likely to overcorrect on the stock at some point, selling it for a substantial bargain, at which point shrewd – or lucky – investors could make a profit.
With earnings falling and considerable uncertainty about the future of its payments business – bearing in mind the rise of alternative payment methods and upstart ride-sharing service Uber – it looks like a highly risky bet for buyers at the moment.
Management has forecast declining profits again this year, and I expect that shares will fall further in the next twelve months.
Australia and New Zealand Banking Group (ASX: ANZ) – last traded at $25.66, down 21% for the year
Last but not least, ANZ shares have also taken a hit in recent weeks after a lacklustre annual report, where the bank declared a 1% increase in cash profit after tax for the twelve months to 30 September, 2015.
ANZ reported declining net interest margins and bad debts rose by 20%. With the economy slowing and this latest set of results, ANZ definitely looks to have reached an earnings peak. While the stock is down already 21% in the past year I expect it could fall further in the year ahead, and would not be buying at today's prices.
