Motley Fool Australia

Better buy: Commonwealth Bank of Australia or National Australia Bank Ltd.

NAB bank share price
Credit: NAB

At the right price I’d consider owning both Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB) shares.

CBA & NAB shares in 2017

CBA share price

Source: Google Finance

As can be seen above, shares of NAB, Australia’s fourth-largest bank, have outperformed their largest rival CBA by around 10% in 2017.

NAB

NAB shares would be my preferred exposure to the Aussie banking sector if I had to choose one bank to buy today.

The company’s track record has been marred by its underperforming overseas assets, like those in the UK and USA. However, following the divestment of its ‘non-core’ businesses, it is a leaner and more efficient bank.

NAB also has a commanding stake in the Australian and New Zealand business banking market. On the balance sheet, NAB is forecast to pay a hefty dividend to shareholders, as it has the required amount of regulatory capital in place. However, no company is without risk and rising unemployment and bad debts would severely hinder NAB’s growth prospects.

Commbank

Australia’s largest bank has an enviable track record for both dividends and share price growth. Commbank is a leader in credit cards, mortgages and many other lucrative areas of banking.

This year, Commbank’s share price has taken a tumble amid rising concerns of slowing house price growth. However, the biggest concern for investors appears to be the AUSTRAC allegations of money laundering. Potential damages from any breaches are difficult to estimate, given the largely unprecedented nature of the allegations.

Fortunately, in the long run CBA has a licence to print profits.

Foolish Takeaway

Of the two banks, I think NAB is better value today. However, I’m not buying shares in either bank at today’s prices today because I would like a more compelling valuation prior to committing my capital. Fortunately, there are plenty of other great opportunities available on the market.

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Returns As of 6th October 2020

Motley Fool contributor Owen Raszkiewicz has no position in any of the stocks mentioned.

You can follow Owen on Twitter @OwenRask.

The Motley Fool Australia owns shares of National Australia Bank Limited. 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.

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