When it comes to ASX financial stocks, most investors turn to Commonwealth Bank of Australia (ASX: CBA) shares.
And while this has been a successful move in recent years, there are concerns that the bank's current valuation could limit returns in the medium term.
In light of this, investors might be better off turning to other ASX financial stocks for potential market-beating returns.
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Which ASX financial stock?
Bell Potter thinks that COG Financial Services Ltd (ASX: COG) could be a top stock to buy now.
It is diversified conglomerate of distribution businesses across Australia, providing access to credit providers for yellow commercial goods (construction and earth-moving equipment).
In addition, Bell Potter notes that the company has some balance sheet funded direct originations, with a focus on capturing some of the overflow for non-prime chattel mortgages.
Why is it a buy?
The broker believes that the company is well-positioned for growth in the coming years. It said:
We provide building blocks for earnings growth from FY26-27 and incorporate revised interest rate expectations. Acquisitions should contribute +13% accretion, meaning we need to find +17% growth to hit +30% FY26. We think this is possible. Things continue to improve for COG, and now all three divisions are placed to have a positive impact.
FY25 NPATA had an implied -$0.5m headwind despite the broker footprint being unchanged. A rebound in volumes should be supportive, especially with Board experience. Normalisation alone would translate to +2% earnings uplift.
Big potential returns
According to the note, the broker has retained its buy rating and $2.70 price target on the ASX financial stock.
Based on its current share price of $2.09, this implies potential upside of 29% for investors over the next 12 months.
In addition, Bell Potter is expecting COG to pay a fully franked 7.9 cents per share dividend in FY 2026 and a 9.3 cents per share dividend in FY 2027. This represents dividend yields of 3.8% and 4.5%, respectively.
Overall, the broker feels that its shares are too cheap given its positive earnings growth outlook. Speaking about its buy recommendation, Bell Potter said:
We expect +20% EPSA growth from FY26-28. However, the forward multiple of 13x would indicate low appreciation for acquisition integrations, cyclical improvement for the divisions and further consolidation activity. To that end COG screens well in our opinion.
Overall, this could potentially make this ASX financial stock a better option than CBA shares in the current environment.
