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Broker calls Westpac a buy, but should investors jump in?

Stockbroking firm Bell Potter has today upgraded its rating on Westpac (ASX: WBC) from Hold to Buy, following the bank’s 21% share-price fall since the beginning of May.

Westpac, along with its main competitors NAB (ASX: NAB), ANZ (ASX: ANZ) and Commonwealth Bank (ASX: CBA), have played a key role in driving the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) between 2012 and 2013, but these banks’ shares have fallen back significantly in recent weeks.

Many investors and analysts have argued that the falls have simply been caused by investors wanting to take their profits and run, and that now is a good time to buy as the yields on offer are much higher following the recent setbacks. Whilst this may be the case, it is also very fair to argue that the price of the banks became extremely unreasonable and unsustainable when taking into account their future potential… and a correction was only inevitable.

Foolish Takeaway

The large Australian banks still look to be overpriced. It’s true that Westpac is a quality company that is focused on cutting costs and increasing profitability, but at today’s price, it’s doubtful to deliver market beating returns in the long run.

Still, The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” You can get “3 Stocks for the Great Dividend Boom” in our special FREE report right now. Click here to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Ryan Newman does not own shares out of any of the companies mentioned in this article.

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