Last year was one to forget for the big four banks. The combination of the cooling housing market and the Royal Commission led to the banks losing a significant amount of their market value.
The Australia and New Zealand Banking Group (ASX: ANZ) share price fell 15%, the Commonwealth Bank of Australia (ASX: CBA) share price dropped 10%, the National Australia Bank Ltd (ASX: NAB) share price tumbled 19%, and the Westpac Banking Corp (ASX: WBC) share price plunged 20% to make it the worst performing big four bank in 2018.
Is it time to buy the banks?
I believe these declines have left all four banks at very attractive levels for investors and I’m not alone in thinking this way. One leading one broker that appears to believe that the banks have been oversold is Citi.
According to a note out of the investment bank, it feels the selloff has created an opportunity for Australian investors in 2019.
It has suggested that investors focus on the commercial side of banking and restructuring opportunities.
Which means that National Australia is the broker’s number one pick in the sector right now.
Citi has a buy rating and sizeable $31.00 price target on the banking giant’s shares, implying potential upside of over 27% excluding dividends over the next 12 months.
If you include its dividend, which Citi estimates will remain at $1.98 per share, then this potential return in excess of 35%.
What about the other banks?
Although National Australia is Citi’s top pick, it is still positive on the prospects of the other banks as well in 2019.
Its next preferred bank is ANZ Bank, followed by Westpac, and then finally Commonwealth Bank.
While I agree with Citi that all the big four banks are in the buy zone now, my preference remains Westpac and then ANZ Bank for valuation and yield reasons.
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.