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Up 6% in a month: is it too late to buy Westpac Banking Corp, National Australia Bank Ltd. and Commonwealth Bank of Australia?

The last month has been something of a rollercoaster ride for Aussie investors. That’s because the ASX has been down by as much as 3% before making strong gains in recent days so that it’s now up 2.5% over the period.

While its performance has been impressive (and very welcome!), it has been eclipsed by the strong showing of three of our biggest finance stocks. Indeed, shares in Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) have all risen by more than 6% during the same time period.

As a result, is it now too late to buy them? Or, could their strong recent run continue into 2015 and beyond?


Despite rising by over 8% in the last month, shares in Westpac could still have much further to go. That’s partly because they still trade at a discount to the wider index, with them having a P/E ratio of 14.2 versus 15.6 for the ASX.

Furthermore, Westpac still yields a fully franked 5.3% and, although dividends may not be set to increase rapidly over the next couple of years as the bank seeks to shift to a more stable financial footing, such a strong yield should still prove popular with income-hungry investors.

As such, improving sentiment and further gains could be on the cards for Westpac, which means it could still be worth buying right now.

National Australia Bank

It’s a slightly different story at National Australia Bank, since although its shares have risen by less than Westpac’s in the last month (6% versus 8%), it trades at a premium to the wider index. Indeed, NAB’s P/E ratio is 15.9, versus 15.6 for the ASX.

In addition, NAB has a price to book ratio of 1.9, which is well ahead of that of the wider banking sector (1.4) and the wider index (1.2). As such, its share price may struggle to outperform the ASX to the same extent as that of Westpac.

Despite this, NAB still offers a fully franked yield of 5.6% and, with dividends per share set to grow by 4.4% per annum over the next two years, sentiment is likely to remain strong – especially if the RBA keeps rates low over the medium term.

Commonwealth Bank of Australia

The track record of earnings growth at Commonwealth Bank of Australia is hugely impressive. Even though there have been countless ups and downs during the GFC, CBA has been able to grow its bottom line at an annualised rate of 6.4% over the last ten years.

Furthermore, this growth record has been passed on to shareholders in the form of dividend per share increases of 8.2% per annum over the same time period. As such, shares in the bank yield a very enticing 5.1% (fully franked), with dividends per share forecast to increase by 5.2% per annum over the next two years.

Despite this, shares in CBA continue to trade at a discount to the wider index, with them having a P/E ratio of 14.8 (versus 15.6 for the ASX). As such, they could continue their strong recent growth into 2015 and beyond.

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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.

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