'Rather stick pins in my eyes': Simon Mawhinney slams CBA share price
One fund manager warns CBA investors may face the five years of dismal returns that CSL investors have worn.
One of Australia's top stock pickers is warning today's Commonwealth Bank (ASX: CBA) investors are set for poor returns as the bank's extreme valuation means the stock will travel sideways or lower for years in a repeat of CSL's (ASX: CSL) dismal five-year performance.
Simon Mawhinney the chief investment officer of funds manager Allan Gray added that he'd "rather put pins in his eyes" than buy CBA shares today, given it trades on 28 times annualised earnings per share of $6.15, with minimal profit growth.
"Coming to the CBA share price soon, I suspect," Mawhinney said of CSL's five years of underperformance after the crowd bid it up too high and forgot about valuation that's key to blue-chip returns.
On Friday, CBA's curious bull run saw it hit $175.12 near another record high as its trailing dividend yield equalled 2.7%, which is less than the risk-free 3.7% it offers on a standard 12-month term deposit for amounts up to $1,999,999.
“The Australian index is now extremely concentrated," Mawhinney said.
"Passive, index investors are currently knowingly or unknowingly allocating a huge part of their exposure to banks, which are trading at eye-watering valuations.
“A purely passive approach may leave you exposed to heightened valuation risks at the moment.”
The fund manager reckons investors are better off in his Allan Gray Australian Equity Fund, which trades on an average price to earnings multiple of 14.7 times, versus more than 19 times for the S&P/ASX 300.
Backing Ramsay Healthcare
Mawhinney is also backing market laggard Ramsay Healthcare (ASX: RHC) to offer investors big returns as a contrarian pick in true Allan Gray style.
"Worst case scenario, we think you get a 4% yield on Ramsay and fully franked, we think the return profile skews very heavily to the upside," said Mawhinney.
The fund recently made the private hospital operator about 4% of its portfolio after shares sunk on the sprawling group's struggles in France, alongside the board's inability to restructure or find buyers for its European operations.
Mawhinney also has some gold exposure in the fund and suggested he's optimistic the traditional store of value can push higher. One of the fund's top holdings at around 6% of the net asset value is Newmont (ASX: NEM), with rubber glove maker Ansell (ASX: ANN) and energy giant Woodside (ASX: WDS) among other holdings.
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Tom covered markets as a Markets Reporter & Commentator at the Australian Financial Review for nearly five years. Prior to that he was the Managing Editor of The Motley Fool Australia leading a team of around 20 investment writers during a five-year period of massive online growth. Before that Tom worked in equities management at the Bank of New York Mellon in London and as a holder of professional investment qualification the Investment Management Certificate is eligible for membership of the CFA Society of the UK.
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Tom covered markets as a Markets Reporter & Commentator at the Australian Financial Review for nearly five years. Prior to that he was the Managing Editor of The Motley Fool Australia leading a team of around 20 investment writers during a...
Tom covered markets as a Markets Reporter & Commentator at the Australian Financial Review for nearly five years. Prior to that he was the Managing Editor of The Motley Fool Australia leading a team of around 20 investment writers during a...
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