Share tips: big bank still a “sell” despite latest weakness

Was it a hiccup or worse? Bank shares slumped last week but the nation’s number one lender is still seen as too expensive to buy.

CommBank shares have had a big year. Picture: Dan Peled

Shares in Australia’s banks took a tumble last week, with several falling in value for five consecutive days.

However, many of our weekly Share Tips specialists still see the nation’s biggest company, Commonwealth Bank of Australia, as a “sell” recommendation because of its surging share price over the past year – still up more than 30 per cent

CBA shares slumped 7 per cent last week, as did NAB, while ANZ dropped 4.5 per cent and Westpac 5.4 per cent.

CBA has earned another “sell” tip this week, along with investment bank Macquarie Group, which has had an even better 12-month period, up 40 per cent.

Buy recommendations this week include a couple of resources stocks, following a period of underperformance by that sector, and gaming/gambling company Light & Wonder.

Morgans Financial senior investment adviser Andrew Eddy:

BUY

Light & Wonder (LNW)

Recent news of litigation over L&W’s Dragon Train game, leading to a stock sell off this week, provides an opportunity to buy a growing gaming business which is taking market share.

Siobhan Lane is chief executive of gaming operations for Light & Wonder. Picture: Supplied

Regis Resources (RRL)

With a very strong gold price, mid-cap gold equities have decoupled from the price of gold, and Regis has excellent upside potential if the gap is narrowed.

HOLD

Johns Lyng (JLG)

It is well-placed to benefit from a growing share of insurance, building repair and restoration activity in Australia and the US, further gains across its five key growth pillars, and ongoing market consolidation.

Computershare (CPU)

While interest rate leverage is reducing, this is a quality business that has delivered excellent returns and consistent growth over time. Its spare balance sheet capacity will help with growth.

SELL

Commonwealth Bank of Australia (CBA)

Despite having the best financial metrics among its peers, CBA continues to be the most expensive, and the medium-term returns look really compressed.

Macquarie Group (MQG)

This is a quality franchise, but the recent strength in its share price is arguably unjustified given the earnings outlook hasn’t significantly increased and market deals remain patchy.

Catapult Wealth general manager Dylan Evans:

BUY

Steadfast Group (SDF)

The company received poor press recently amid allegations it misled strata customers by not disclosing cheaper insurance options. This is an issue, but it represents a fraction of the overall business, so the impact should be limited.

Lynas (LYC)

Its annual result included a major fall in earnings. Looking past this initial headline shows a positive story with increased reserves, completion of the Mt Weld mine expansion, and delivery of planned plant upgrades.

HOLD

Wesfarmers (WES)

Retail has been a challenging environment, but Bunnings is one of the most reliable in this space with little meaningful competition. Valuation is the only concern.

Stockland (SGP)

Stockland’s residential development arm is attractive, with potential for expansion to meet the need for increased housing and the government’s national housing goal.

SELL

Metcash (MTS)

The business has improved over the last few years but is still a risky proposition compared with peers. Relatively slim margins are under constant pressure from Bunnings, Coles and Woolworths.

Mineral Resources (MIN)

Falling lithium and iron ore prices are combining with high debt levels to squeeze cash flow and create a risky situation.

Originally published as Share tips: big bank still a “sell” despite latest weakness