The only bank stock worth buying ahead of next week’s reporting season

The share prices of big bank stocks are charging higher ahead of the upcoming reporting season that kicks off next week.

Shares in Australia and New Zealand Banking Group (ASX: ANZ) are leading its peers higher with a 1.1% jump this morning to $25.56 as Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB) adding between 0.5% and 0.9%.

In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is struggling to hold its head above breakeven no thanks to poor leads from Wall Street in overnight trade.

The outperformance of the embattled bank sector may reflect anticipation of a big dividend payout (click here to find out more) and hope that the banks will issue a reassuring outlook that will spark a renewed rally in their share prices.

It won’t take much to trigger a bounce given how badly beaten bank stocks are from the Hayne Royal Commission, slumping house prices and rising funding costs.

The hurdle for a bounce is low and the banks only need to say things aren’t getting worse to spark renewed buying interest.

But I wouldn’t bank on this outcome. The fact is, the bottoming of the housing market is a 2019 or 2020 story, and until we can see the light at the end of the tunnel, any forecasts are nothing more than guesses.

This doesn’t mean you shouldn’t be paying close attention to what ANZ Bank, NAB and Westpac have to say when the three hand in their full-year report cards.

ANZ is the first cab off the rank. It will unveil its results next Wednesday and Citigroup thinks there’s a chance it could announce a higher than expected dividend to appease jittery shareholders.

Cost cutting and a normalisation of bad and doubtful debts could contribute to a 4% increase in underlying cash profit although group revenue is forecast to drop 2% based on Citi’s estimates.

NAB will hand in its report card the next day but its underlying cash profit is likely to contract by around 2% due to higher costs.

That runs against management’s guidance for flat costs in FY19 but analysts just don’t quite believe management.

Westpac reports on November 5 and the focus will be on its falling net interest margin (NIM) that was highlighted in its third-quarter update.

Foolish Takeaway

I wouldn’t be buying any of these banks ahead of their results as there are just too many questions and uncertainty over their FY19 and FY20 outlook.

However, there is one bank that will also report results next week (November 2 to be exact) that I think is a buy.

This is Macquarie Group Ltd (ASX: MQG) and management is expected to submit a good half-year earnings report thanks in part to the waning Australian dollar.

The stock has fallen around 12% since the end of August and it’s back in my “buy zone”. I am counting on Macquarie to rally through to the end of the year or early 2019.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Macquarie Group Limited, National Australia Bank Limited, and 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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