By Chris Becker
Interesting news just before the open this morning from Bloomberg and the AFR reporting that the Commonwealth Bank (CBA) and National Australia Bank (NAB) divisions of Megabank have been downgraded from “buy” to “hold”, by Deutsche Bank and Citibank respectively.
No wonder on CBA – check out the most recent price action, looking very bubblicious indeed:
On the weekly chart the price has surpaassed the February 2011 false breakout and the consensus price target of $53.38 (Deutsche had $55): 
For NAB, the current price has not yet reached the consensus target of $26.43 (note, Macro Investor has been long NAB in its trading portfolio since July 19):
On the longer term charts, the picture is less ebullient than CBA, as it approaches overhead resistance at $26 and the descending triangle pattern formed from the highs in 2009:
FARM, Macro Investor’s proprietary valuation/allocation and signalling database, has a FY12 estimate of value of $30.18 on NAB, and $57.44 for CBA, possibly showing a valuation divergence between this pair. Earnings forecasts beyond next year from analysts are very rosy indeed, strange in a period of abnormal credit growth (at 5% annualised), although they are in line with our own expectations for FY13 at around 3-4%
These downgrades are not unusual given the rapid rise in price recently, which have likely been due to the twin “torque” of lower interest rates vz. higher house prices meme and on the back of CBA going ex-dividend around 15th August. Investors need to get in 45 days before the ex-dividend date to be eligible for the franking credits (which boosts the nominal yield enormously).
With a grossed up dividend yield of 8.11%, as interest rates continue to fall – and thus almost all yield products we follow at Macro Investor (here’s a full list of term deposits and savings accounts which we track weekly – the trend is down, down and down) its no wonder the chase for yield is on in equities and spurring these price rises.
This yield is surpassed by NAB at over 10% (but not paying a dividend until October) – but is this wide spread to a term deposit enough to offset the risk of capital loss? A question to answer another day.
Chris Becker is an investment strategist at Macro Investor, Australia’s leading independent investment newsletter covering stocks, trades, property and fixed interest. Each week Macro Investor publishes tables on the top ten most undervalued and overvalued stocks on the ASX. A free 21-day trial is available at the site.
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