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Top broker tips Commonwealth Bank of Australia shares to sink lower

Since peaking at $87.74 in April of last year, the Commonwealth Bank of Australia (ASX: CBA) share price has fallen over 9% and currently trades at $79.65.

Whilst this is already very disappointing for shareholders, unfortunately there could be further declines to come in 2018 according to one leading broker.

According to a note out of Morgan Stanley, the broker has retained its underweight rating and $71.00 price target on the banking giant’s shares. This price target implies potential downside of almost 11% for its shares over the next 12 months.

Although Morgan Stanley’s analysts believe that the appointment of Matt Comyn as CEO reduces uncertainty and indicates that there won’t be major changes to the bank’s strategy and operating policy, it does have concerns on its future growth prospects.

This is mainly down to the broker’s view that Commonwealth Bank’s growth and return profile has begun to moderate.

Furthermore, its analysts feel there is potential downside risk from the banking sector inquiries. It is worth noting that an update is due next week from APRA relating to its own inquiry.

Should you sell your shares?

Whilst I’m nowhere near as bearish on Commonwealth Bank as Morgan Stanley is, I’m not overly bullish on it either. At the current share price I think it is about fair value and ought to be classed as a hold.

I agree that there is downside risk from inquiries being made into the banking sector, but I think the majority of this has been reflected in its share price now. Therefore, if the bank comes out of it unscathed, its shares could be free to run higher again.

Investors that are looking to gain exposure to the banks might want to consider Westpac Banking Corp (ASX: WBC) and then National Australia Bank Ltd. (ASX: NAB).

But if you already have exposure to the banks then I would skip them and look at this top dividend share instead.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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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