Throughout 2014, shares in Australia and New Zealand Banking Group (ASX: ANZ) have fallen 4% and underperformed both the S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO) and key rivals like Commonwealth Bank of Australia (ASX: CBA).
That's despite a record profit of $7.1 billion posted earlier in the year and the announcement of a 14% hike to its annual dividend payout.
So why has it performed so poorly?
Throughout 2013 shares of ANZ climbed around 27% as investors reacted to falling interest rates by buying bank stocks which paid reliable dividends.
ANZ shares went so high that much of its future growth was already baked into the market's price. So when expected record profits finally came around, it wasn't enough to make analysts re-rate the stock at significantly higher prices.
Unfortunately shares are still slightly pricey and don't represent compelling value for buyers.
At $31.00 per share, it trades on a price to tangible book value of 2.2, which is too high to make it a standout buy.
However it does have good profitability and is likely to grow earnings from Asian markets in coming years. Currently 24% of revenues come from Asia, the Pacific, Europe and Americas markets; substantially higher than any of its key rivals.
Buy, Hold, or Sell?
I think ANZ is the closest to fair value of any the big banks because I'm most bullish on its long-term growth prospects. So if I held shares in the bank, I wouldn't sell. I'd simply hold and wait for its 5.7% fully franked dividend to roll in.
But since I don't hold any ANZ shares, it'll remain on my watchlist until I get a better buying opportunity. Long-term investors don't want to buy stocks at fair value, we want to buy them at a discount to what we think they're worth, in order to maximise our margin of safety and potential for capital gains.
