Woolworths Group Ltd (ASX: WOW) and Commonwealth Bank of Australia (ASX: CBA) shares have delivered markedly different returns over the past year.
On Tuesday, CBA shares were trading for $152.45 apiece. That sees the S&P/ASX 200 Index (ASX: XJO) bank stock down 9.7% in 12 months. Though those losses will have been modestly eased by the two fully franked dividends CommBank paid out over this period.
CBA stock trades on a 3.3% fully franked dividend yield.
Woolworths shareholders have enjoyed a much more profitable year.
Trading for $38.91 apiece on Tuesday, shares in the ASX 200 supermarket giant have gained 38.6% in 12 months. And that's not including the passive income Woolies doled out to shareholders over the year.
Woolworths stock trades on a 2.5% fully franked dividend yield.
Looking ahead, however, Shaw and Partners' James Bills believes that shareholders would do well to exit both ASX 200 stocks (courtesy of The Bull).
Here's why.
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CBA shares still trading at a premium
"In our view, the stock trades at a significant premium to domestic peers and on historical valuations," Bills said.
CBA trades at a price to earnings (P/E) ratio of around 23.5 times, the highest of the big four ASX 200 bank stocks.
Bills added:
While the bank maintains a high-quality franchise and strong market position, earnings growth is expected to remain modest amid competitive lending conditions and regulatory pressures.
Summarising his sell recommendation on CBA shares, Bills said:
Recent Federal government initiatives aimed at increasing housing supply and improving affordability is likely to lead to intensifying competition across the mortgage market and place pressure on lending margins.
Current valuations leave limited scope for further earnings driven upside. Investors may wish to take profits and re-deploy capital into opportunities offering stronger risk-adjusted return potential.
Woolworths share price rally may have run out of puff
Along with CBA shares, Bills also expects that Woolworths shares will struggle to outperform over the coming months.
"The supermarket group has experienced a strong recovery in the past year, with the share price recently trading near the upper end of its historical range," he noted.
"While the company remains high quality with a leading position in Australian food retailing, much of the recent improvement appears to be reflected in the WOW share price," Bills said.
Summarising his sell recommendation on Woolworths shares, Bills concluded:
Earnings growth is expected to remain relatively steady rather than exceptional, limiting scope for further share price appreciation from current levels.
Following the recent rally, investors may consider taking profits before re-allocating capital to opportunities with stronger growth potential and a more attractive risk-reward profile.
