Commonwealth Bank of Australia (ASX: CBA) shares are among the most popular on the Australian share market.
But one leading broker is urging investors to stay away from them right now and put their money elsewhere.
Let's see what Shaw and Partners is saying about Australia's largest bank, courtesy of The Bull.
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What is the broker saying about CBA shares?
Shaw and Partners concedes that CBA is a high-quality ASX bank share. However, it has concerns over its valuation. The broker notes that given the premium CBA shares trade on, there is little room for error.
In light of this, its analysts think investors should be selling the bank's shares at present and focus on better value options elsewhere in the sector. The broker explains:
The CBA remains a high quality banking operation, but its valuation is increasingly difficult to justify. The stock trades at a significant premium to global peers despite a mature domestic banking market and limited growth potential, in my view.
While earnings remain stable, we see better value elsewhere in the sector. We believe the current share price leaves little margin for error, supporting a sell recommendation on valuation grounds. The shares have risen from $158.74 on February 10 to trade at $181.65 on April 9.
What should you buy instead of CBA?
One ASX share that Shaw and Partners is tipping as a buy this week is Sims Ltd (ASX: SGM). It is a global leader in metal recycling and the provision of circular solutions for technology.
The broker believes that Sims provides investors with long term stronger and sustainable commodity themes. It highlights that demand for recycled inputs, such as lithium, copper and gold, is growing strongly amid the electrification and decarbonisation megatrends.
And while it acknowledges that Sims' shares can be volatile, it thinks it is worth sticking with them over the long term. It said:
Sims offers exposure to long term stronger and sustainable commodity themes through its global metals recycling operations, particularly in Europe. Demand for recycled inputs, such as lithium, copper and gold, continue to grow as electrification and decarbonisation trends advance.
The business provides leverage to improving industrial activity, although earnings can be volatile given commodity price swings and cyclical end markets. In our view, the strategic positioning justifies a buy despite near term volatility.
