The majority of Australia’s big four banks have seen their shares return to form in 2019.
Since the start of the year, three of the big four banking giants have carved out impressive gains despite the tough trading conditions they face.
Here is the state of play year to date:
- The Australia and New Zealand Banking Group (ASX: ANZ) share price has gained 8.2% in 2019.
- The Commonwealth Bank of Australia (ASX: CBA) share price is down 1.4% since the start of the year.
- The National Australia Bank Ltd (ASX: NAB) share price has risen 5.6% so far this year.
- The Westpac Banking Corp (ASX: WBC) share price is up 5% since the turn of the year.
Is it too late to buy the big four banks?
Although the majority of the banks’ shares have performed well this year, I don’t believe it is too late to consider an investment if you don’t already have meaningful exposure to the sector.
And while I think all four banks are arguably buys at current levels, my preference remains ANZ and then NAB.
ANZ is my top pick due to its strong capital position, the quality of its assets, and exposure to commercial lending.
In respect to its capital position, at the end of the first quarter the bank’s CET1 ratio stood at 11.3%. This doesn’t include asset sales that have been announced but not completed or the remaining tranche of its share buy back program.
According to a note out of Goldman Sachs, it estimates that this implies $4.3 billion of surplus capital above APRA‘s unquestionably strong level of 10.5%.
In light of this, the broker believes that further capital management from ANZ remains likely. This could include a special dividend or a ramp up in its share buy back program.
Incidentally, Goldman has a conviction buy rating and $29.35 price target on the bank’s shares. This implies potential upside of 11% for its shares excluding dividends. If you include them, this potential return stretches to around 17%.
Overall, I think this offers investors a compelling risk/reward and makes ANZ a great option 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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