26 February 2021
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Could CBA soon be a $100 stock?

Peter Switzer
11 February 2021

The country’s biggest bank, the CBA, has done a Houdini, escaping the clutches of the Coronavirus to see only a small fall in cash profit, down 11% to $3.89 billion. And it raises this question: could the bank soon be a $100 stock?

OK, with yesterday’s show-and-tell to the stock market fraternity, its share price fell $1.30 to $86.12, but that’s hardly a slap in the face.

To understand its current share price and to work out if $100 is a believable possibility, in March last year as the Coronavirus took grip, the expected profit slide for CBA was expected to be much, much bigger.

That’s why its share price fell from $90 to a low of around $54, which was huge!

But going into yesterday’s profit report, the stock had surged to over $88, so a slip to $86.12 (which is only a small fall) indicates that the smarties in the stock market think the profit result was damn applaudable.

So why did it fall? Well, there was an expectation that CEO Matt Comyn would announce a share buyback, which is good for raising share prices because it takes stock off the market, but that will be a story for another day.

Some of the price fall could’ve been because the dividend was pumped up to $1.50. This was 53% better than the last one announced but some experts were hoping for a $1.60 dividend.

But this dividend spike is one reason why I think a $100 CBA share before year’s end is a possibility.

You see, this dividend rebound parallels the improving Aussie economy and the nation’s biggest bank on the comeback trail.

A few months ago in our stock picking newsletter The Switzer Report, we tipped the bank’s share price would go from $63 to $80, but we didn’t expect it would happen so fast. But the economy’s rebound has been faster than most expected. And the spike to $88 was cream on the cake and unexpected, so it makes me more confident that $100 could be the next big leap up for the bank’s stock.

Why? Try these arguments:

  • The dividend, though up 53% on the previous one, is still 25% below its pre-Coronavirus one. The bank will be keen to get back to that old dividend level. And rising dividends help share prices.
  • The bank’s capital position is one of the strongest in the world.
  • The US yield curve is rising and bank profits do better as interest rates or yields go higher.
  • In the early phase of a global economic cycle recovery, as the SMH’s very smart Steve Bartholomeusz, reminded us “… sectors like banks, oil producers and producers of commodities more generally and smaller capitalisation stocks that generally perform well in periods of economic growth.”
  • As vaccination rates rise and economies move towards greater normalcy over this year, “international travel, airlines, cruise lines, travel companies and the other sectors most adversely affected by the pandemic will also make a comeback,” Bartholomeusz points out. And less businesses in trouble and hiring staff again will be another plus for all of our banks.
  • The outlook for the Australian economy is stronger than was expected six months ago.
  • Maersk, the world’s largest container shipping firm, posted an upbeat outlook for 2021 despite its CEO saying that there was an “exceptional while challenging quarter.” This is great news for an export trading economy like Australia and therefore the country’s biggest bank, which also happens to be in the top 50 banks of the world!
  • The loan situation for the bank is looking good. “From having repayments on 145,000 home loans worth $51 billion on hold as at June 30, deferrals now number just 25,000 on mortgages worth $9 billion as at January 31.” (abc.net.au)
  • The fall in small and medium business loan deferrals has been even sharper, down from 67,000 on loans worth $15.7 billion to around 2,000 on loans worth $300 million.

I could go on, but it’s clear that CBA at $100 is a good chance of happening, as the world and the Australian economies make a substantial economic rebound. I do need to point out that expert company analysts think the stock price could fall to $76, but I wouldn’t be surprised if these smarties might end up being proved wrong. That said, gambling on CBA making $100 this year will be a punt, not a definite winner of an investment. But on that point, I do prefer betting on top notch performers that often prove the ‘experts’ wrong. Maybe ‘wait for a drop in share price and then pounce’ might be the smart play. Then sit and wait for the $100 price to show up.

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