Westpac’s (ASX: WBC) recent results have failed to impress investors despite beating analyst and market expectations. So is it worth your money or not?
Australia’s big four banks are on track for another record reporting season but this year, it seems, ANZ (ASX: ANZ) and Macquarie Group (ASX: MGR) may have trumped Westpac’s impressive profit. ANZ, which reported a profit of increase of 1%, saw its share price up over 5% on the day it released its results and Macquarie’s shares ended up over 10%.
Westpac’s cash profit, which is the preferred method by many analysts, rose 10% to $3.53 billion but the share price ended down 1.03%, signalling that many investors expected more. Recently, many investors have shifted their focus to short-term analyst expectations rather than solid long-term growth prospects.
In a bullish market, it is often the well-known ‘blue chip’ stocks that are first to produce healthy share price rises. As ‘mum and dad’ investors flock to stock markets in search of higher returns than their term deposits and housing markets that appear to be stagnant, people invest in companies that they know and trust. In Australia this means the big four banks, Woolworths (ASX: WOW) and Wesfarmers (ASX: WES), Telstra (ASX: TLS) and, until recently, Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP). While this flight to safety is understandable, when everyone else has the same idea, it gets harder to make a profit in a crowded market.
As for Westpac, I’m not purchasing stocks in the company myself. Sure, its healthy yield and reputation as the second largest individually listed company on the S&P/ASX 200 (Index: ^AXJO)(ASX: XJO) proves that it must be doing something right. But if the ‘second largest’ company has gone up 59.7% this past year, how much further can it go?
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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 Owen Raszkiewicz owns shares in ANZ and Rio Tinto.