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Why this fundie favours NAB and Westpac shares out of the big four

Two of the big ASX banks are preferred over the others.
The post Why this fundie favours NAB and Westpac shares out of the big four appeared first on The Motley Fool Australia. –

One investment professional has named Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) as preferred picks among the big ASX banks.

The ‘big four’ S&P/ASX 200 Index (ASX: XJO) banks are NAB, Westpac, Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA).

It has been a pretty rough time for banks lately as investors come to grips with the impacts of inflation and rising interest rates.

At the time of writing, the CBA share price has fallen 13% over the past month, while shares in NAB and ANZ are both down around 12%.

Westpac shares have plunged more than 18% in the same period.

While there are a lot of similarities between the banks, there are also some key differences. Valuations, dividend yields, management teams, the percentage of its loan book exposed to residential mortgages and so on.

David Clark, of wealth management company Cameron Harrison, has picked out two of the big four ASX banks as preferred opportunities, as reported in the Australian Financial Review.

Preferred big four ASX banks

Clark advises investors not to allocate too much of their portfolio to ASX 200 banks because the “returns are unlikely to reach the heady levels of the past decade”.

More than 28% of the ASX 200 is made up of financial businesses. That’s too high, according to the investment consultancy.

Out of the big four ASX banks, Cameron Harrison preferred NAB and Westpac, amid challenges facing the others.

With the world becoming increasingly digital, a good digital offering is likely to improve efficiencies, customer service and costs. However, Clark said that ANZ was “struggling” with its digital transformation.

ANZ recently built a banking platform called ANZ Plus, its new digital banking service.

ANZ’s Australia Retail group executive Maile Carnegie wrote in a recent blog post that the rebuild of the underlying technology was now complete. He said the bank was starting to see the rebuild of the customer applications that sat on top, starting with ANZ Plus savings and transaction accounts.

The big four bank plans to have beta testing for loans in late 2022, so the solution for ANZ’s tech troubles could still be some months away.

Why not CBA?

CBA is the biggest bank in market capitalisation terms. However, Clark thinks that it’s trading at “too high a premium” compared to the others.

Let’s have a look at the valuation in relation to price/earnings (p/e) ratios for FY22 using data on CMC.

The CBA share price is valued at 16x FY23’s estimated earnings.

Shares in Westpac are valued at 10x FY23’s estimated earnings, while ANZ shares come in just under 10x FY23’s estimated earnings. The NAB share price is valued at 12x FY23’s estimated earnings.

Time will tell if CBA shares fall, the other three rise or the valuations stay this separate.

The post Why this fundie favours NAB and Westpac shares out of the big four appeared first on The Motley Fool Australia.

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More reading

Westpac tips another big RBA rate hike next week
ANZ rewards shareholders with its latest dividend. Here are the details
2 excellent ASX dividend shares that analysts rate as buys in July
Why the CBA share price is slipping lower today
Can investors bank on the NAB share price in July?

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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. 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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