Why I think CBA shares are a blue-chip buy in June

Commonwealth Bank of Australia (ASX: CBA) shares have pulled back almost 14% from their 52-week and record high.

A good portion of that weakness has come since the bank released its latest quarterly update earlier this month.

I think that pullback has created a more interesting buying opportunity for patient investors as June approaches. 

CBA is still trading at a premium valuation, so I would not call it a bargain. But I think it remains one of the highest-quality blue-chip shares on the ASX.

A stronger entry point

CBA shares have had an incredible run over the past few years.

That has been great for existing shareholders, but it has also made the stock harder to buy for new investors. The valuation has often looked stretched compared with the other major banks, and many investors have understandably questioned whether too much good news was already priced in.

That is why the recent pullback looks useful to me.

A 14% fall does not suddenly make CBA cheap. But it does improve the risk/reward for investors who like the business and have been waiting for a better entry point.

I think this is important because CBA is the kind of business that rarely looks obviously cheap. The market usually gives it a premium because of its scale, customer base, deposit strength, and track record.

For me, the recent weakness makes the price a little more reasonable without changing the core investment case.

Why I rate CBA highly

CBA is Australia’s largest bank and, in my view, the highest-quality of the major banks.

Its advantages are not complicated. It has a huge customer base, a powerful deposit franchise, leading digital capabilities, and deep relationships across households and businesses.

Those strengths can be especially valuable in a more uncertain environment.

Many households are still dealing with cost-of-living pressure, higher energy prices, and elevated interest rates. Businesses are also navigating a more complicated backdrop, including global uncertainty and supply chain disruption.

CBA is not immune to those pressures. No bank is. Bad debts can rise, competition can squeeze margins, and credit growth can slow.

But I think CBA is better placed than most to manage those risks. Its latest quarterly update showed a resilient balance sheet, strong deposit funding, sound portfolio credit quality, and capital above regulatory minimums.

That does not mean investors should ignore the risks. But it does support the view that CBA remains a very strong bank.

Income and quality

Another reason I like CBA is its dividend profile.

The bank has long been popular with income investors because of its fully-franked dividends. That income stream can be particularly useful for Australian investors who value reliable passive income and franking credits.

I also like that CBA is not just an income story.

The bank continues to invest in digital banking, productivity, AI capabilities, customer relationships, and business banking. These areas may not produce dramatic growth overnight, but they can help CBA defend its position and improve efficiency over time.

That is what I want from a blue-chip bank holding. I do not need CBA to reinvent itself. I want it to keep executing well, protect its balance sheet, grow carefully, and return capital to shareholders through dividends.

Foolish Takeaway

CBA shares have pulled back meaningfully from their record high, and I think that has made them more attractive heading into June.

The stock is still not cheap. Investors need to be comfortable paying a premium valuation for what I see as the best major bank on the ASX.

But I think the recent weakness is a buying opportunity rather than a reason to walk away. For investors looking for a blue-chip share with quality, resilience, fully-franked dividends, and long-term staying power, CBA remains one I would be happy to buy and hold.

The post Why I think CBA shares are a blue-chip buy in June appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in Commonwealth Bank Of Australia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.