Why Morgans added CBA shares to its best ideas list

Commonwealth Bank of Australia (ASX: CBA) shares are on course to end the week in the red.

In afternoon trade, the banking giant’s shares are down 1.5% to $102.98.

This is despite Australia’s largest bank getting some love from analysts at Morgans this month.

What is Morgans saying about the CBA share price?

Morgans has just released its best ideas for November and has added CBA to the list.

The broker explains that its best ideas are those that it thinks offer the highest risk-adjusted returns over a 12-month timeframe. They are supported by a higher-than-average level of confidence and are its most preferred sector exposures.

Interestingly, CBA makes the list despite Morgans only currently having a hold rating and $94.57 price target on its shares.

The broker revealed that it added CBA to its list due to its position as the highest quality bank in the country at a time of rising rates. It appears to believe that this offsets the premium valuation of the CBA share price and the lower than average dividend yield on offer compared to peers. It explained:

The second largest stock on the ASX by market capitalisation. We view CBA as the highest quality bank and a core portfolio holding for the long term, but the trade-off is it is the most expensive on key valuation metrics (including the lowest dividend yield). Amongst the major banks, CBA has the highest return on equity, lowest cost of equity (reflecting asset and funding mix), and strongest technology. It is currently benefitting from the sugar hit of both the rising rate environment and relatively benign credit environment.

The post Why Morgans added CBA shares to its best ideas list appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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.

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