Rick
Will there be a BIG SELL DOWN on Banks Today?
The Credit Suisse news has the market panicking.
Pre-open bids are not always a reliable indicator on how trading will start, but it is looking like there are some BIG players wanting to get out of the BIG four in a BIG hurry!
Rick
How does Goldman Sachs Value Banks?
Today I came across an interesting article by James Mickleboro from the Motley Fool on how Goldman Sachs values banks. As an example it explains how they came up with the valuation for Westpac using a “DCF & P/NTA vs. ROTE” valuation methodology. Read the article here: https://www.fool.com.au/2023/03/15/heres-how-to-value-the-westpac-share-price/
Anyone who holds or trades in banks might be interested to read this, but I feel like it might be wasted on @Strawmanwho seems to like banks even less than real estate agents! :)
To be honest, I’m not a huge fan of banks either. I see banks as stocks you can trade on valuation. I like to buy banks when they are undervalued and sell when they are overvalued. There have been lots of opportunities to do that over the last decade. If you are unlucky with the trades in between, you might snag a few nice dividends to keep you interested!
I could see value is Westpac under $21.00 (yesterday) so I bought some. but I’m not counting on the share price getting to $27.74 (the Goldman Sachs valuation). At $21.00 I am hoping to get a total return of 13% per year by holding them, which is not outstanding. However, I might decide to trade the stock after it goes ex-dividend in June if the market gets excited and pushes the share price higher. So I’m in and out of banks depending on valuation, expected returns, dividend dates, and the market sentiment. I don’t see banks as ‘forever stocks’.
Cheers,
Rick
Rick
Thanks for sharing the Ray Dalio “The Economic Cycle” Video @markeewan, That’s a must view in my opinion. Probably the best 30 minutes I’ve invested into education on the global economy.
I think central banks have a few levers to pull now to rebalance the economy (with interest rates higher), including reducing interest rates once again and printing more money. Let’s hope central bankers get the balance right and it turns out to be a “Beautiful” deflation!
Bear77
07-June-2020: https://www.livewiremarkets.com/wires/buy-hold-sell-5-stocks-to-ride-the-financials-rebound
That was posted on Livewiremarkets.com on Friday (05-June-2020) and they kick off with MQG (Macquarie Bank) and then move on to ASX, MPL, ANZ and finish with SUN. Matt Williams is from Airlie Funds Management, which is owned by Hamish Douglass' MFG (Magellan Financial Group), and Matt says that MQG is a Hold and SUN is a Buy. Catherine Allfrey from WaveStone says that both Macquarie and ANZ are Buys. I'm still avoiding CBA, WBC, ANZ & NAB, and I'm still looking to buy MQG below $90 (which is around 24% below the $118/share level they closed at on Friday).
Bear77
30 May 2020: Marcus Padley had this to say about the banks today:
BANKS TOOK OFF
The banks took off on the government’s economic optimism – we are coming out of lockdowns three months earlier than the original over-cautious (but in hindsight very prudent) medical advice that forecast we would be in lockdowns until September. The government and the banks took that on board, provided accordingly, and look to have over-done it. The medical advice is being revised and economic forecasts with it. A number of brokers upgraded GDP forecasts this week.
The suggestion is that because of the medical advice the banks have over-provided for bad loans, which means they can add back provisions in future results, flattered earnings numbers. In which the case current earnings forecasts are too low. The super-bull case suggests that they could possibly even reinstate their deferred dividends. Imagine what would happen if they suddenly paid them. If there has been no dividend dip. They would take off again.
Sentiment to the banks was also helped by a huge response to the NAB’s SPP capital raise which was upped from $500m to $1.25bn meaning their new CEO has raised $4.25bn that they may not have needed. The other banks didn’t raise capital but did take provisions. A number of brokers (UBS and Morgan Stanley) turned positive on the banks this week. There are more earnings upgrades on the way from other brokers no doubt as they play catch up on the story.
I don’t imagine this is a re-framing of the bank sector’s long term prospects so much as a sentiment bounce that will have a limited timeframe. UBS’s analyst, Johnathan Mott, who is a perma-bear and went positive this week, calls it a ‘catch-up rally’ and I think that’s probably right. No need to turn this into any more than it is, a short term sentiment rally.
We are overweight banks in the Income SMA and neutral in the Growth SMA having been slightly underweight this time last week. We got back up to weight as they took off. Short sharp ‘pops’ like this can start trends and with the sector still 32.37% off the pre-CV-19 highs we can’t afford to be underweight 25% of the benchmark when its on the move.
For those of you who are not benchmarked fund managers, do not feel obliged to buy the banks. This is not the tech sector. You may see another 10-20% on the sector, but not 100%, it is not a ‘hot trade’. For stock pickers there are probably better recovery plays than dull old banks. It’s important to fund managers, but not so much to traders.
For long-term income-focused retirees, this week has told you that the banks are not dead forever, that there is life in the sector yet. In which case this could prove to be a once in a decade buying opportunity for income investors. Especially if their dividends come back and that is what was driving them this week.