The S&P/ASX 200 Index (Index:^AXJO) is surging higher on encouraging news of a possible vaccine for COVID-19 and comments from US Federal Reserve head Jerome Powell on more stimulus.
It seems the Fed is not running out of juice to liquor-up financial markets, while Boston-based biotech Moderna announced better than expected early trial results.
If the bulls are right about the worst being over, it will have implications for the performance of the big four ASX banks.
Passing the baton
During the meltdown, it's the Commonwealth Bank of Australia (ASX: CBA) share price that held up better than its peers. That's understandable as investors are willing to cough up a premium during a crisis to hold the highest quality and safest domestic bank.
But if animal spirits are running wild, the tide will turn. Investors will be more aggressively turning to value buys and this means beloved CBA is likely to be left behind in the rebound.
The question then is which of the other three big banks will take the crown? There isn't much difference in valuations of Australia and New Zealand Banking GrpLtd (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX:NAB).
Best bank for the COVID-19 rebound
But NAB seems to be a hot favourite among some leading brokers. For instance, Goldman Sachs put the stock in its "conviction" buy list as NAB is its top pick in the sector.
The broker is bullish on the bank due to its dramatic improvement in operational performance in recent years and it sees better revenue potential given NAB's bigger exposure to small and medium sized business lending.
Meanwhile, JP Morgan is also backing NAB in the four-horse race. While the bank reported a disappointing first half profit result recently, the broker believes it displayed the most resilient top-line if you excluded the bank's underperforming Markets division.
Don't discount CBA just yet
Coincidentally, both brokers rate CBA a "sell" due to its lofty valuation. I own shares in all the big four banks but remain overweight on CBA as I don't believe we have seen the last of the coronavirus volatility.
Let's not forget that CBA also continues to win market share for home loans despite its dominance in the sector.
Just as importantly, my experience tells me that its seldom premium valuations that really hurt my share portfolio performance. The real culprits are balance sheet and governance issues – factors that weigh more heavily on the other three.
Buy into NAB's SPP
But I agree that NAB is likely to pull ahead of its peers if the skies are as blue as it appears today. If you share my belief that we have seen the worst of the coronavirus market meltdown and are happy to stomach the volatility, NAB looks enticing.
This is why I plan to participate in NAB's share purchase plan, which closes this Friday. I doubt you can buy NAB shares lower than the $14.15 a share offer price again for a long time.
Just remember not to put all your eggs into one basket. It's better to hold a few bank stocks for diversification.
