Commonwealth Bank of Australia (ASX: CBA) shares are one of the most popular investments on the ASX. But does this mean that investors should automatically put CBA shares in their share portfolios? Probably not, at least not without some further analysis.
Today, the CBA share price is sitting at $104.89 at the time of writing. That's only a few dollars off of this ASX 200 bank's all-time high share price.
So let's talk about two reasons why you might want to buy CBA shares before 2023, and two reasons why you might not want to.
2 reasons to buy CBA shares right now
Quality
Commonwealth Bank is a business of unquestionable quality. Not only is it the largest bank in Australia by market capitalisation, it is also the most popular financial institution that Australians bank with. CBA has an unrivalled pedigree.
It used to be a government-owned bank before it was privatised in the 1990s, which probably lends it some goodwill from customers. This brand strength can only be a good thing for a long-term investment.
Banks are inflation-resistant investments
ASX bank shares like CBA are often touted as some of the best investments during periods of high inflation. That's because banks can easily adapt to changing interest rates by almost instantly passing on cash rate changes to their loan products like mortgages.
Rising interest rates also tend to attract more customer deposits as investors put cash in the bank to take advantage of the higher yields on offer from savings accounts and term deposits.
All of this is good news for banks like CBA. And given right now we have some of the highest inflation figures that the economy has seen for decades as we start 2023, a bank like CBA could prove to be a prudent choice. Especially considering the hefty, fully-franked dividends that investors also tend to enjoy from bank shares, which also helps offset the effects of inflation.
2 reasons not to buy CBA shares today
The shares aren't cheap
By most conventional metrics, CBA shares are not looking cheap right now. The bank has long been able to command a share pricing premium over the other ASX 200 banks. That's arguably thanks to its quality (see above) and its past share price performance:
But past returns don't guarantee future profits. Right now, Commonwealth Bank has a price-to-earnings (P/E) ratio of 19.57.
Compare that to National Australia Bank Ltd (ASX: NAB) on 14.45, Westpac Banking Corp (ASX: WBC) on 15.29 and Australia and New Zealand Banking Group Ltd (ASX: ANZ) on 10.1. We can see that CBA is certainly priced more richly than the other banks. A higher P/E ratio can give a share more room to fall in a downturn, so keep that in mind today.
Brokers rate CBA as a sell right now
It's quite hard to find an ASX broker who is wildly bullish on the CBA share price today. As my Fool colleague James covered earlier this month, Goldman Sachs has recently rated CBA as a sell, with a 12-month share price target of $90.98.
If that turns out to be accurate (not guaranteed, of course) it would certainly not be a prudent move to buy CommBank before 2023.
Brokers at Macquarie agree. Macquarie analysts excised CBA from their model portfolios last month in favour of ANZ. Fellow broker Wilsons has also recently reduced its exposure to all ASX bank shares, including CBA.
