The ASX financial sector has much to offer investors of all backgrounds. Risk adverse investors with long term horizons have only to look at Australia’s globally renowned “Big Four” banks, along with a smattering of smaller regional banks and an internationally acclaimed investment bank. The Big Four are considered the best in the world based on the difference between the bank’s assets and its liabilities — capitalisation.
Although some younger investors may find banks supremely boring, they hold an unparalleled advantage – the demand for the services both traditional and investment banks provide will never fade away.
The insurance companies within the best ASX banking and financial stocks share the same advantage of virtually guaranteed demand over time. The public cannot go without home, auto, and health insurance. Both banks and insurance companies take in cash that can be held by the financial institution for decades before payout. Yet many investors find insurance stocks equally boring.
The newer subsector in financials – the financial technology providers — had earned the admiration and loyalty of risk tolerant investors looking for outsized returns from financial companies using technology to disrupt traditional ways of conducting financial business.
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The BNPL (buy now pay later sector) achieved red hot market darling status with the rise of a member of the group of ASX tech stocks known as WAAAX stocks – Afterpay – in what seemed to be never-ending upward movement until it stopped. The BNPL sector has fallen into disfavor, spurred on by collapse of Openpay Group (ASX: OPY, and others.
Given the current economic uncertainty it seems the best ASX financial and banking stocks to buy remain financially stable and low risk.
5 Best ASX Financial and Banking Stocks
- ANZ Group Holdings (ASX: ANZ)
- Westpac Banking Corporation (ASX: WBC)
- Macquarie Group Limited (ASX: MQG)
- Medibank Private Limited (ASX: MPL)
- ASX Limited (ASX: ASX)
ANZ Group Holdings (ASX: ANZ)
Over a decade or more Commonwealth Bank had the best track record but for the best ASX financial and banking stocks to buy now many analysts favor ANZ and Westpac.
For investors looking for bargain stocks ANZ is a surprising target. The P/E ratio of 12.16 is well below the index average of 19.17. The P/EG ratio – which adds forecasted growth to the calculation – is 0.56. Stocks with P/EG ratios well under 1.0 are considered undervalued. The ANZ P/B ratio of 1.10 converts to shares valued at $23.17, about $6.65 below the 8 March closing price.
Year over year, the share price is up 21.67%, accelerated by a year to date rise of 15%. From the ASX website:
Source: ASX
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ANZ has introduced a fully digital banking platform that includes a mobile app called ANZ Plus and has acquired Sunciorp Group.
Although ANZ’s financials were impacted in the early stages of the COVID 19 Pandemic – falling to $3.57 billion in net profit from $5.95 billion — by FY 2021 the bank had returned to pre-COVID levels, with modest changes in FY 2023. From the ASX website:
Australia and New Zealand Bank Financials.
In some t ways ANZ and Westpac are mirror images of each other, although analysts prefer ANZ with Yahoo Finance Australia reporting a BUY rating on ANZ with a HOLD on Westpac. Goldman Sachs lists ANZ as the best Aussie bank to buy now, with a neutral outlook on Westpac.
Westpac Banking Corporation (ASX: WBC)
Westpac’s valuation metrics places the bank behind ANZ with a a forward P/E of 14.93. Westpac also has an attractive P/EG ratio – 0.53. The price to book ratio is 1.14, which comes to $20.69 per share, aout seven dollars below the current share price as of 8 March.
Year over year the share price is up 23.8%, with an impressive year to date rise of 20.96%.
Source: ASX
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Full Year 2022 Financial Results for Westpac were solid but remained slightly below pre-COVID performance. By FY 2023 Westpac’s net profit after tax more than tripled pre-COVID levels. From the ASX website:
Financials Westpac Banking
Westpac also trails Australia and New Zealand Bank in dividend yields, with a five year average of 4.28% compared to ANZ’s 4.96%.
Macquarie Group Limited (ASX: MQG)
Macquarie Group has the distinction of being Australia’s sole investment bank with an international presence, operating in 34markets. Macquarie has four operating business units – banking and financial services, asset management, commodities and global markets, and Macquarie capital. Macquarie targets the infrastructure, energy, technology, and commodities sectors. oOne of Macquarie’s principal reasons for considering the company as a potential best financial and banking stock to buy is the company’s geographical and operational diversification.
Troubles in the banking sector are a thing of the past as Macquarie joins ANZ and WBC with an improving share price. Year over year the share price is up slightly – 6.72 % — but the company’s climb began in December and is now up 16.3% over three months. From the ASX website:
Source: ASX
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The company’s financial performance has been steady in the midst of the COVID crisis, with FY 2022 Full Year Financial Results comfortably exceeding pre-COVD levels in both revenue and net profit after tax. The company increased both revenue and profit again in FY 2023.
Macquarie Group Financials
Analysts are positive on the stock, with three at STRONG BUY four at BUY, and six at HOLD.
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Medibank Private Limited (ASX: MPL)
The federal government privatized Medibank in 2014 and the share price of the now publicly traded health insurance and treatment provider is up 79.7% since listing. From the ASX website:
Source: ASX
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In addition to its insurance for hospitalisations and ancillary medical issues from dental to optical to physical therapy, the company offers a variety of healthcare treatments and healthcare management services.as well as temporary insurance for overseas students and visitors.
Medibank has two operating segments – Health Insurance and Medibank Health. The company adds pet, travel, and life insurance to its range of offerings.
By the end of October of 2022, a series of announcements from the company regarding a hack of its data bases ended in the unwelcome news that hackers had accessed all of the personal data of Medibank Private health insurance customers and “significant” amounts of health claims data.
The stock price plunged, but despite the company’s warning of the potential negative impact on upcoming financial performance, by mid-April of 2023 MQG shares had returned to pre-announcement levels. From the ASX website:
Source: ASX
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FY 2023’s financials were the company’s best performance over the last four fiscal years. From the ASX website.
Medibank Private Financial Performance
Half Year 2024 results showed group revenues increased 4.2% while underlying net proft after tax rose 16.3%.
ASX Limited (ASX: ASX)
Given the volatility in markets for more than year, how could ASX stock possibly be seen as a potentially best financial stock to buy?
The ASX operates and manages the only major stock exchange in Australia, with an international reputation. ResMed Inc (ASX: RMD) Is one of man yblue-chip US companies who have chosen to list on the ASX. Demand for stock trading has never and never will evaporate during the hardest of economic times. Investors may sell more than they buy, but trading goes on.
The ASX has minimal competition and the massive “barriers to entry” virtually assure it never will, but the ASX is at moderate risk from regulators seeking to break its virtual monopoly on the clearing and settlement functions. . ASX manages all aspects of equites, debt securities, derivatives, and investment funds.
The operator of the Australian Stock Exchange (ASX) saw declines in both revenue and net profit after tax between FY 2020 and FY 20221 but by FY 2022 revenues and profit exceeded pre-COVID levels. FY 2023 net profit suffered from one-off charges related to the CHESS (Clearing House Electronic Subregister System) replacement program. From the ASX website:
ASX Financial Performance
Half Year 2024 results showed a 2.4% increase in operating revenue and a 7.8% slide in underlying net profit. The share price began a gradual climb at the end of November of 2023 on the news the company had a vendor in place to restart work on the revised CHESS system. From the ASX website:
Source: ASX
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For traders looking to invest in Australian financial and banking stocks the ASX offers four of the largest and safest banks in the world, along with major international and domestic insurance companies and a host of financial technology companies.
Both the banks and the insurance companies have a major advantage over many stocks in other sectors – the demand for banking services and home, auto, health, and other forms of insurance will never go away.
This is not the case with the financial technology sub-sector making these stocks less suitable to buy in challenging economic conditions.. Stick with the financially stable, low risk big banks and insurance companies.
FAQs
What Are Financial Stocks?
Financial stocks are shares in companies that offer financial services such as banking, insurance, loans, credit cards, payment services and more. The financial sector is a core part of the global economy so financial stocks should play a key part in any portfolio.
How Do I Buy Financial Stocks?
To buy financial stocks you will first need to open an account with a regulated australian broker . The majority will offer a wide range of financial stocks. You will then need to do your own research to determine which are the best for you to invest in.
Are Financial Stocks a Good Investment?
Any investment involves some degree of risk – prices can go down as well as up. However the financial sector is at the core of the global economy and is seen by many as a safer investment that other sectors. The financial sector is heavily regulated and has performed well over the past 30 years.
