With the Royal Commission returning for round three this week, the big four banks have seen their respective shares come under pressure.
One leading broker that thinks investors should seize on this weakness to buy Australia and New Zealand Banking Group (ASX: ANZ) shares is Goldman Sachs.
According to a note out of the broker, it has retained its conviction buy rating and $32.92 price target on the bank's shares.
Based on its last close price this price target implies potential upside of over 18% excluding dividends. This expands to over 23% if you factor in its generous dividend as well.
Why is the broker bullish on ANZ Bank?
Goldman has named ANZ Bank as its top pick in the banking sector due to its belief that the market underappreciates the potential for the bank to improve its return on equity at a greater rate than its peers.
The broker has pointed to the bank's recent half-year result as proof of this, believing that its strategy to improve group returns is working. Furthermore, Goldman expects things to accelerate from here thanks to the bank redeploying capital from offloaded assets into either higher returning parts of the business or share buybacks.
In addition to this, further cost reductions are also likely to support its improving returns.
Despite this potential to outperform the return on equity improvements of its banking peers such as Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB), Goldman points out that ANZ Bank remains cheap on a price to book basis and offers compelling value.
Should you invest?
I think that all the banks look to be good value right now. While ANZ Bank wouldn't necessarily be my first pick, it isn't far behind.
However, the banks are certainly not the low risk investment that they used to be. The Royal Commission and a cooling housing market could weigh on their shares in the medium term. So it is worth bearing that in mind before investing.
