Which ASX bank shares should you buy?

One area of the market which is certainly out of favour with investors right now is the banking sector.

You only need to look at the performance of the VanEck Vectors Australian Banks ETF (ASX: MVB) to see this.

This ETF gives investors exposure to the big four banks, the regionals, and Macquarie Group Ltd (ASX: MQG). During the last 12 months the ETF is down 10.7% excluding dividends.

While I think that this ETF is a great option for investors that are not sure which banks to buy, you may achieve better results by picking just one bank share.

But which bank share should you buy?

According to Goldman Sachs, the best bank share to buy is Australia and New Zealand Banking Group (ASX: ANZ).

Although the broker believes that Bendigo and Adelaide Bank Ltd (ASX: BEN) and Westpac Banking Corp (ASX: WBC) delivered the best results during the recent bank earnings season, it still sees the most value in the shares of ANZ Bank.

In fact, the broker has the bank on its conviction buy list with a price target of $31.52. This price target implies potential upside of over 24% without dividends and almost 30% including dividends.

According to a note out of the investment bank, ANZ Bank remains its preferred major bank exposure due to its belief that it is the best positioned bank to face into the sector’s slowing revenue environment.

This is because of further absolute cost reduction opportunities, a reduction in its share count through potential buybacks, and lower bad and doubtful debt charges.

However, the broker has warned that the recent bank earnings season was probably not strong enough to drive an immediate re-rating in bank shares.

It suspects a re-rating is now unlikely until after the release of the Royal Commission final report in February, the Federal election, updates on customer remediation expenses, and a slowdown in the rate of decline in Sydney and Melbourne house prices.

While this may mean that ANZ Bank and Westpac shares remain at current levels for a little while longer, I do think it could be worth considering picking them up and being patient.

But if you're not keen on the banks then take a look at this growing dividend share which was named as a buy this month.

The best dividend share to buy in 2019

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 Scott Phillips.

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