Fund manager says banks look on cheaper side

Credit: Mighty Travels

Many Australian SMSF or retail investors will directly hold shares in the big banks like Westpac Banking Corp (ASX: CBA) or National Australia Bank Ltd. (ASX: NAB) in their investment portfolios. If they don’t own them directly most Australians will probably have indirect exposure to them through their superannuation funds having some ownership interest in at least one of the big banks.

In fact the big banks make up around 29% of the entire S&P/ASX 200 (Index: ^AJXO) (ASX: XJO).

It’s not surprising then that whether they represent good value or not is topic of hot debate for the media and share market analysts.

Today The Australian Financial Review is reporting that a fund manager named Ben Clark at TMS Capital thinks the banks look good value after recent price falls.

Mr. Clark is quoted as saying: “Banks look on the cheaper side of fair value but they are heading into a tougher time. However, now is the wrong time to get bearish. They don’t look expensive, the dividend yields look sustainable and are attractive. What they do lack is a catalyst to get them going.” 

This is something of a mixed message describing banks as on the cheaper side, but “heading into a tougher time”.

However, what’s not in doubt is that the fully franked dividends in the region of 5% to 6% plus tax credits remain attractive to income-seeking investors, with my preferred pick being Commonwealth Bank of Australia (ASX: CBA).


Research by funds management group Aurora showed that Commonwealth Bank performed the best among the big four on a number of metrics for the banks’ most recent reporting periods:

  • Commonwealth Bank had the highest revenue growth achieving 5%
  • Commonwealth Bank had the highest cash earnings growth reporting a 6.4% increase
  • Commonwealth Bank’s return on equity was the highest at 17%

The CBA does trade on a slightly higher price to book ratio and multiple of earnings than all of its big 4 peers, but given the superior quality I believe it will outperform its rivals over the next three to five years.

Interested in growing dividends for your SMSF?

Discover the 'new breed' of blue chips that could lift dividends long into the future....

These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.