The pros and cons of buying ANZ shares right now

Is this the right time to invest in a banking giant?

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ANZ Group Holdings Ltd (ASX: ANZ) shares have gone on an impressive run in the last month, rising by 7%. In the same time period, the S&P/ASX 200 Index (ASX: XJO) has lifted 2%.

It seems that 2024 has been kind to ASX bank shares so far. Is this a good time to invest in ANZ?

Positives about investing in ANZ shares

Inflation in Australia is heading in the right direction, which could lead to benefits in a number of ways.

Lower inflation typically reduces the spending burden of other expense categories for household and business borrowers, making it more likely they can afford their repayments.

If inflation continues to fall, it will hopefully prompt the Reserve Bank of Australia (RBA) to cut interest rates. If that happens, it could reduce the risk of borrowers defaulting on their mortgage payments.

Lower interest rates could also have the positive impact of boosting the price/earnings (P/E) ratio at which investors are willing to buy ASX shares, including ANZ stock. Interest rates are meant to act like gravity on asset prices, so if rates go lower, asset prices could generally go higher.

ANZ shares could still pay an impressive dividend yield because the P/E ratio is still quite low compared to other sectors. According to Commsec, the ANZ share price is valued at 13x FY24's estimated earnings. And it could pay a grossed-up dividend yield of 8.4%.

And the negatives

The ANZ share price has jumped despite a projection that net profit after tax (NPAT) is going to fall in FY24.

It's still facing a lot of competition from non-bank lenders and other ASX bank shares, including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Macquarie Group Ltd (ASX: MQG). Heightened competition could continue to push down on margins.

Banks are also having to compete hard for customer funds with appealing savings accounts for households. They are having to pay back the cheap COVID-era funding that was prompted by the RBA.

Due to its size and the nature of the industry, I'm not sure how quickly ANZ may be able to grow its profit from here.

Income-seekers may like the bank, but it's not the sort of company I'm looking to buy for strong growth returns in my portfolio.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. 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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