On Tuesday a note out of Citi revealed that its analysts believe the big four banks have been oversold and this may have created an opportunity for investors in 2019.
I agree with this view and think all four banks are in the buy zone right now.
While Citi’s top pick is National Australia Bank Ltd (ASX: NAB) due partly to its commercial banking business, my preference remains Westpac Banking Corp (ASX: WBC) at this stage, followed by Australia and New Zealand Banking Group (ASX: ANZ).
The reason for this is that Westpac’s shares are currently trading at under 11x earnings and approximately 1.3x book value.
This is notably lower than their historical average and at a level that I think is very attractive.
In addition to this, Westpac’s shares offer a very generous dividend yield at present.
If the banking giant maintains its $1.88 per share fully franked dividend in FY 2019, its shares will provide investors with a dividend yield of almost 7.4%. This compares favourably to the market average of 4.6%.
What’s next for Westpac?
The next major event on Westpac’s calendar is the release of the Royal Commission final report at the start of next month.
The final report is due to be submitted to the Governor-General by February 1, after which its recommendations will be made public.
I’m confident that there will be no nasty surprises included in the report and that the worst case scenario has already been built into bank share prices. This could mean that investors return to the banks in their droves once the report is released and drive their shares higher again.
Incidentally, Citi has a $31.00 price target on Westpac’s shares, which implies potential upside of over 21% excluding dividends and almost 29% including them. I feel this risk/reward makes an investment in Westpac compelling.
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.