The local banks have shrugged off countless negative reports on valuation grounds. It’s hard to imagine, but Australia’s number one bank, Commonwealth Bank (CBA), has no analysts labelling it a Buy. Instead, we have 2 Holds, 9 Sells, and 2 Strong Sells. This in itself is one of the reasons the stock remains so close to its all-time high, i.e., who is left to sell? Note that CBA is the only major not reporting and trading ex-dividend this month.
- We are in a market that rewards quality pushing valuations higher, and momentum traders/investors keep pushing “the winners”, surprising many in the process.
Commonwealth Bank has been trading “expensively” for the majority of 2024, and it is currently ~30% above its average valuation of the last 5 years. At a glance, it is as rich today as it was cheap in 2020, during COVID, hence we couldn’t buy the stock here (though we do own it in the Active Growth Portfolio) but stocks/indices can stay expensive for years – we are always conscious of that dangerous mantra “its different this time” because it rarely is.
This morning, we examined three main banking regions and their respective stocks to assess whether the ASX names have embarked on a dangerous high valuation journey alone.
