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Should you buy Westpac Banking Corp shares?

So far in 2018 the Westpac Banking Corp (ASX: WBC) share price has been one of the worst performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) with a decline of 8%.

Similar declines have been seen across the whole banking sector with the likes of National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) also tumbling lower as the Royal Commission continues to weigh on investor sentiment.

Is this a buying opportunity?

I think it could be. In my opinion Westpac’s shares are now priced as though something untoward will be uncovered during the Royal Commission. I think this de-risks an investment somewhat, providing investors with a more compelling risk/reward.

Especially when its shares are changing hands at just 12x trailing earnings and 1.6x book value, which is a meaningful discount to its average over the past few years.

A further bonus is the dividend that its shares provide. Based on its last close price, the banking giant’s shares provide a trailing fully franked 6.4% yield. This is significantly better than the market average and my next favourite banking share, Commonwealth Bank of Australia (ASX: CBA).

Commonwealth Bank of Australia’s shares offer investors a trailing fully franked 5.9% dividend at present.

I’m not alone in thinking Westpac is in the buy zone. Both Deutsche Bank and Macquarie have the equivalent of buy ratings on the bank’s shares with price targets of $34.50 and $35.00, respectively.

The mid-point of these price targets implies potential upside of almost 21% for the Westpac share price over the next 12 months. Add in the dividend and this stretches to approximately 27.5%.

I feel this potential return makes it worth putting aside the negative sentiment brought about by the Royal Commission and considering a patient investment in the banking giant’s shares today.

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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 Scott Phillips.

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