Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and Macquarie Group Ltd (ASX: MQG) are world recognised banks which have a lot to offer investors. With big dividend yields in a low interest rate environment and huge market shares, each could easily find its way into savvy investors' portfolios.
However, in the last two years, their share prices have rocketed higher, up 49%, 57% and 115% respectively, versus a return of 32% from the S&P/ASX 200 Index (ASX: XJO) (INDEX: ^AXJO). So now mightn't be the right time to be adding them to your portfolio. Here's what I think you can expect from these three banking titans in coming years.
ANZ
Thanks to its Super Regional Strategy which CEO Mike Smith launched in 2007, ANZ offers a point of differentiation from the other big banks. Aimed at catching trade flows, foreign exchange, institutional banking as well as traditional retail services, ANZ hopes to draw between 25% and 30% of earnings from APEA markets (Asia Pacific, Europe and Americas) by 2017. In the most recent half year, FX-adjusted cash profit from APEA markets accounted for over 19% of the group's total.
With the once criticised Super Regional Strategy now into its seventh year, investors have begun to catch-on to ANZ's growth prospects and bought up the stock. This has resulted in its stock price trading over two times book value. As such, I'm waiting for a better entry point before committing to a purchase of ANZ stock.
Westpac
Unlike ANZ, Westpac has very little in the way of a significant growth strategy. This has been reflected in the group's decreasing interest income, but only small increases in non-interest income and net operating income over the past 18 months. However with a reduction in interest expense and impairments, Westpac has been able to post increased profits over the past couple of years.
Investors should be aware however that cost cutting and reductions in provisions for bad and doubtful debts can only go on for so long. Trading on a price to book ratio of 2.30, trailing P/E ratio of 15.2 and PEG ratio of 3.4, Westpac is far from a Buy.
Macquarie Group
As Australia's premier investment bank, Macquarie is unique amongst the ranks of ASX-listed banks. It derives the greatest proportion of its earnings from funds management and corporate finance. In FY14, the bank notched-up a profit of $1.265 billion, 49% higher than the previous corresponding period. In coming years, management believe Macquarie's conservative balance sheet and expertise in niche market areas will help it expand its global presence.
At nearly $60 per share, Macquarie trades on a P/E ratio of 16, price to book ratio of 1.7 and PEG ratio of 1.86, which is a reasonable price to pay given its long-term potential. However when you compare it to its global peers, one might argue it's somewhat overvalued.
The BEST dividend stock on the ASX
Macquarie Group and ANZ are two bank stocks which should be at the top of your watchlist, but you should be aware that they don't come cheap, which is one reason you won't find either of them in my portfolio. If you too think they're not cheap, your money could probably be put to better use in some of the other 2,000 stocks listed on the ASX.
