Should investors look to buy banks?
The banks could be a compelling buy as they have been falling heavily for the last five years and the upside potential growth long-term is there, according to Wealth Within.
Wealth Within chief analyst, Dale Gillham, said while banks were most likely trading below their intrinsic value the market was very nervous as to whether the worst was over.
Banks, like most sectors, have not been immune to the current global sell-off brought on by the COVID-19 pandemic.
Gillham said jumping into stocks too early was a risk but the dividend yield increased as prices fall, so some investors were beginning to view banks as an attractive investment.
“We also know that interest rates have fallen and there is little to no benefit in holding cash,” he said.
“Right now, the argument for buying banks is increasing because unlike other stocks, banks have been falling for several years and eventually what goes down must go up, especially good quality stocks.”
Gillham noted that while there might be further downside for bank stocks, downside risk was low given how far and how long they had fallen.
“The upside potential for growth long term is certainly there, especially when you add in an attractive dividend. My pick of the big four banks is CBA, followed by Westpac,” he said.
Big four banks stocks since COVID-19 from 1 January, 2020 to 20 March 2020
On other sectors, Gillham said the best performing sector this week was consumer staples, up 4%, followed by utilities which was just in the green, while the materials sector was down 4%.
Energy had been the worst performer for several weeks now and was down over 27%, followed by consumer discretionary, down 20%, and informationa technology was down 18%.
“This week the market has fallen to the lows of four years ago and is still looking weak. That said, and I reiterate again, it is normal for the market to bounce and retest prior highs, therefore, we should see this occur any day now and for this to last over one or more weeks,” Gillham said.
“Again, investors are better off protecting their capital by not trying to bottom pick perceived cheap stocks and to wait for the dust to settle before making any decision to enter the market.”
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