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NAB the favorite amongst analysts

Despite playing a major role behind the rapid climb of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the last 12 months, analysts are still loving what National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) have to offer.

Recent data showed that the big four banks were all within the top five companies that delivered the most points to the index over the past 12 months, with Commonwealth Bank (ASX: CBA) and Westpac Banking  (ASX: WBC) leading the way. Following just behind Telstra (ASX: TLS) were NAB and ANZ.

According to The Australian however, 9 out of 18 analysts polled still recommended NAB as a buy, whilst eight also had a buy recommendation on ANZ.

Despite having outperformed the index over the past 12 months, the gains of the two companies haven’t been quite as substantial as those realised by the other banks, making them still appealing.

Having gained 28.5% since this time last year, NAB shareholders have also been treated to two fully-franked dividends worth 90c each – giving a 5% yield (or, on a grossed-up basis, roughly 8.4%). Meanwhile, ANZ’s two most recent dividends have been valued at 66c and 79c per share – giving a yield of over 5%.

Fewer analysts were willing to rate Commonwealth Bank or Westpac as a buy however, with their share prices soaring by 36.5% and 43.7% for the year, respectively, stating that it may be a good idea to sell shares in these companies. Many believed that the two banks relied too heavily upon the housing market which is still sluggish – with fears that this could constrain future growth prospects.

The Australian quoted John Abernethy – chairman of Clime Asset Management – as saying “I would caution investors about aggressively chasing shares that have risen 30% in six months”, explaining that a market correction would likely occur. Abernethy then advised investors against falling into the trap of presuming that the current economic environment will not change.

Foolish takeaway

Whilst many analysts have made up their minds about the banks, some still have their reserves. Due to rising house prices, market share and mortgage levels, the banks’ shares have soared. However, these elements could struggle for growth in the future, which would, in turn, likely result in less than market-beating returns (if not losses) for investors.

The market’s dramatic rally means many of our Aussie “blue chips” are trading for truly eye-popping prices. That’s why savvy investors are now seeking opportunity in smaller companies. Discover two fantastic small-cap opportunities now, in the The Motley Fool’s brand-new research report, “2 Small Cap Superstars — including names, codes, and all the details. Simply click here to download your FREE copy.

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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