Commonwealth Bank of Australia (ASX: CBA) shares have been top performers in recent times, with strong outperformance compared to National Australia Bank Ltd (ASX: NAB) shares. An expert his given their view on which ASX bank share could be the better option and why.
In the past year, the CBA share price has risen 36%, while NAB shares have only climbed by 8%, as the chart above shows.
This has led to the CBA share price now trading at a very high price-earnings (P/E) ratio. According to the (independent) forecast on Commsec, the CBA share price is valued at 28x FY25's estimated earnings and the NAB share price is valued at less than 17x FY25's estimated earnings.
Of course, a growing business can be worthy of a higher valuation if it's growing faster than its peer.
According to The Australian, Jun Bei Liu from Ten Cap recently highlighted why NAB shares look like a better buy than CBA shares.
Image source: Getty Images
Why NAB is rated as the better ASX bank share to buy
Jun Bei Liu explained why she prefers NAB shares over CBA shares with the following:
I think CBA is the best (Australian) bank, but the most expensive in the world.
Things look relatively cheaper. NAB still looks expensive for a bank on historical terms, but it's a whole lot cheaper than what CBA is offering. I would hold NAB instead of CBA. But nothing will stop CBA from rallying away.
You keep it (CBA). Six months ago the share price was moving higher because its earnings were doing a bit better and a buyback and all these great things. But the last three months is all because international investors want to put money in Australia.
So, she's not suggesting the CBA share price is about to sink, but at the current valuations, it's NAB shares that are the more attractive choice to her.
What makes a good investor?
Choosing which bank to buy was not the only investment advice that Jun Bei Liu spoke to The Australian about.
She also gave some very interesting thoughts about the skills needed to beat the market, which is much more about understanding behaviour than being skilled at numbers. The Ten Cap fund manager said:
Many people think investing is about numbers and to get the numbers right.
I actually think getting the numbers right is almost a basic (skill). That's a small component of ultimately what the share price will do. It's actually getting your numbers right and what the share price will do. Short term is all about sentiment. Sentiment is behavioural bias. It is all about what would other people pay for those numbers that you just put together.
So it's actually incredibly important because if you can understand that, then you can sometimes go against the herd, then you make a lot more of a return. There's your treasure. It's with this attitude that Jun Bei Liu called NAB shares a better buy than CBA shares.
