Is it time to buy banks like Australia and New Zealand Banking Group (ASX: ANZ)?
ANZ has seen a share price fall of 43%.
The Commonwealth Bank of Australia (ASX: CBA) share price has dropped 33% since 21 February 2020.
Westpac Banking Corp (ASX: WBC) has seen its share price fall 41%.
The National Australia Bank Ltd (ASX: NAB) share price has dropped 43%.
Banks are obviously going to suffer a lot of pain during the coronavirus crisis, that’s why they have already provisioned a few billion dollars between them for bad debts.
But some assumptions investors are making about the banks may not turn out to be as bad if the economy doesn’t slump as much as expected. Perhaps a vaccine will be available for the public sooner than expected, which could open up travel and education sectors sooner than thought. In that scenario banks may actually end up cheap at today’s prices.
A selloff of around 40% is a huge selloff. That’s not far off the GFC and don’t forget that interest rates are now incredibly low. Whilst that obviously reduces the profit of banks, it also improves the attractiveness of the cashflows that they generate each year.
Which ASX bank to buy?
If I had to buy one ASX bank other that Macquarie Group Ltd (ASX: MQG), my pick would be Commonwealth Bank because of its higher quality and good balance sheet.
However, I would prefer to buy Macquarie over other ASX banks. It has global earnings which are more diversified, so I think there’s a lot more to like about Macquarie than the domestic banks. I believe Macquarie has much more growth potential at this stage.
But I’m avoiding banks right now, even if they do seem cheaper now.
I’d much rather buy shares in different industries with better short term and long term prospects.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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.