With the S&P/ASX 200 (INDEXASX: XJO) down 7.66% since the beginning of September, cashed-up investors will likely be on the hunt for discounted stocks.
No doubt, in the current low interest rate environment, they are searching for the fully-franked dividend variety. Naturally the big banks are caught in the crosshairs of income-hungry investors.
Westpac Banking Corp (ASX: WBC) and Macquarie Group Ltd (ASX: MQG) are both trading at significantly lower prices than they were six weeks ago. Down 7.5% and 4%, respectively.
So which is the better buy right now?
It could be a tough decision for some and will likely depend on what you want from your investment.
Westpac, our second-largest bank by market capitalisation, is a dominant force in the Australian mortgage and household deposit markets, with a 23% share of both. It also has a strong presence in New Zealand, with 20% market share of consumer lending and a 21% share of household deposits.
Ultimately, this enables Westpac to have excellent defensive qualities. Given the tight regulation over liquidity, it's also considered a 'safe' investment, by some.
However, nothing is ever guaranteed in the stock market and Westpac has a number of weaknesses too. Including minimal forecast growth and, despite the recent selloff, an expensive share price. So despite boasting a forecast 5.8% fully franked dividend yield, it's probably too expensive to justify a buy rating.
Macquarie, on the other hand, is more leveraged to growth. Our largest investment bank learnt a strong lesson during the fallout of the GFC (its share price dropped from over $100 to less than $20). In response, the bank is focused on growing its annuity-style business lines.
Whilst the share prices of investment banks are typically cyclical, depending on global market conditions, Macquarie's push into corporate lending, asset finance and mortgages somewhat counteracts this.
In addition stronger US and European economies, combined with increased exposure to Asian markets, bodes well for the bank in the near-term. As a result, analysts are forecasting earnings and (ordinary) dividends per share to rise strongly in coming years.
Buy, Hold, or sell?
I think Macquarie Group is a much better buy than Westpac at today's prices. On the grounds of both growth and valuation. However its share price is cyclical and makes me question if now is the right time to buy into the bank.
