Buy Australian. Buy CBA shares

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Looks like I was wrong about the Commonwealth Bank of Australia (ASX:CBA) share price.

Despite facing headwinds on multiple fronts — including fines, falling house prices, highly indebted consumers and low wage growth — CBA still managed to report full year underlying cash profit growth of 3.7 per cent to just over $10 billion.

As has been widely reported, Commonwealth Bank results were messy.

Media love to report bad news, with many outlets focusing on the $700 million AUSTRAC fine, and one-off regulatory costs of $155 million mostly relating to the royal commission. Inclusive of all costs and discontinued operations, CBA’s full year cash profit fell 4.7 per cent.

But at the underlying level, these were strong results, something the stock market recognises, sending the CBA share price up $1.91 or 2.6 per cent to $74.80.

There was even something for income seekers, with the final dividend raised by 1 cent to $2.31, bringing the full year dividend to $4.31, up 2 cents over the previous year.

In percentage terms, the increase is tiny, less than half of one per cent. But that’s not important. Analysts were expecting profits and dividends to be flat, year on year. With these results, Commonwealth Bank are sending a message that the fundamentals of the business remains strong, and they are confident about future prospects.

Absent a full blown house price crash — which would only be brought on by sharply increased unemployment — this year was about as bad as it could get for CBA.

Yet, in this annus horribilis, CBA still generated underlying cash profits after tax of $10 billion.

Looking forward, new CEO Matt Comyn said the bank remains very optimistic about the long term prospects of Australia. GDP growth. Falling unemployment. Low inflation. Infrastructure spend. Population growth. Our Asian neighbours.

During the GFC, Warren Buffett famously wrote a New York Times op-ed titled “Buy American. I am.”

Matt Comyn might have been taking a leaf out of Buffett’s book when he concluded by saying “an Australia that performs well is good for the Commonwealth Bank.”

A local version of Buffett might have said, “Buy Australian. Buy CBA shares.” 

Here’s how you can strike it rich in the share market

The best way to strike it rich in the share market is to buy shares that are not only cheap, but growing quickly.

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Finally, the report names one of the cheapest retailers trading on the ASX, a company that just picked up the assets of a distressed competitor on the cheap, paying just 2 times earnings. No wonder one top fund manager thinks its share price could at least double.

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See the 3 stocks

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au