Westpac and Macquarie stock investors are winning as the market looks for another CBA

Australian investors switching out of newly crowned top stock Commonwealth Bank are getting better returns at Westpac and a rising Macquarie.

Westpac is the top performing bank stock so far in 2024, despite the elevation of CBA to top stock in the market. Picture: Getty Images

Australian investors switching out of newly crowned top stock Commonwealth Bank are getting better returns at rivals Westpac and Macquarie.

Despite CBA’s elevation last week to become the biggest stock on the ASX (now comfortably exceeding BHP’s market capitalisation by about $4bn) bank investors are already on the hunt to replace what has become one of the most expensive banks in the world.

Westpac is the bank stock that has made the most money for investors this year – the Sydney bank is up by 22 per cent over the year to date – with CBA well behind with a rise of 15 per cent.

What’s more, investors may be surprised to hear that over a longer period, the bank stock that is the biggest winner for investors is not CBA but Macquarie, which has outperformed on every measure – though it has been a more volatile performance over the last three decades.

Ashley Owen of Owen Analytics has been running numbers on the relative performance of Australian bank stocks and found that over the year to date, both Westpac and close rival NAB had performed better than CBA with only ANZ underperforming in recent months.

Owen’s deep dive into the performance of bank stocks also revealed that Macquarie is now close to replacing ANZ as the fourth biggest bank in Australia. “It’s time we started thinking in terms of the big five banks,” he explains.

The ASX-listed Macquarie Group is up around 14 per cent this year. After dropping as low as $80 during the pandemic, the diversified investment bank is now trading above $200.

According to Owen, an outstanding issue for investors is that despite the dividend yield from the major bank stocks, they have generally been very modest performers over a long period.

“If you look at it long term CBA is now seen as the top bank by far – and yet it has only just passed a price it had reached back in 2015.”

Macquarie Group is up around 14 per cent this year. Picture: Britta Campion

The issue is common to all of the major banks. NAB – which has been a strong performer in the last year – remains below its pre-GFC peak of more than $40.

The broker Ord Minnett suggests that: “Since 2017, the bank’s dividend yield has compressed to around 3.4 per cent from circa 6.0 per cent with no dividend growth forecast by Ord Minnett for 2025 and 2026. Also, earnings per share have been broadly flat in that period, and the Price/Earnings ratio has expanded to 24.5 times from 13.8 times.”

At these levels, bank analysts are uncomfortable with CBA’s valuation with the majority of brokers, including Ord Minnett, having sell or underweight notes on the stock.

Trading at $130, CBA is about one-third higher than its average since 2019. Analysts now suggest the bank is “priced beyond perfection” – CBA is on a price-earnings ratio of 23 times.

The consensus estimate target for CBA is $95.19 – in other words, bank analysts believe the bank’s stock could fall by more than a quarter of its current price to reach fair value under current conditions.

A key test of the current share price will come when CBA reports if full year results on August 14, with a profit for the year to June of about $9.7bn expected – a drop of about 4 per cent.