Over the past five years, shares of National Australia Bank Ltd (ASX: NAB) and Wesfarmers Ltd (ASX: WES) have delivered healthy returns for shareholders.
Excluding dividends (which are significant) they're up 38% and 35%, respectively. Each company has outperformed the broader S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by around 10%.
But after such a strong run-up in price, are NAB and Wesfarmers' shares still a good buy today?
National Australia Bank
Despite already being Australia's largest bank by assets and dealing with a number of overseas headaches, NAB has been able to grow its loan portfolio strongly over the past decade on the back of lower interest rates and a robust property market.
However, NAB continues to remain the least profitable big bank, with a return on assets of just 0.71% and net interest margin of 1.92% in its 2014 financial year.
Further, with unemployment tipped to rise and housing set to come off a hot streak, there's a chance the bank won't be able to maintain its current growth rates, and share price valuation. Indeed, in my opinion NAB must better its historical annual loan growth moving forward, or risk being sold off by investors.
Wesfarmers
As the owner of Coles supermarkets, Bunnings Warehouse, Kmart, Officeworks and more, Wesfarmers has grown into Australia's premier diversified retailer. Its recent divestment of its Insurance division has also been well-received by the market.
However, cracks are now starting to appear in the bullish outlook for Coles, and to a lesser extent, Target, following the recent drop of Woolworths Limited (ASX: WOW).
Unfortunately, these potential headwinds come at a time when Wesfarmers shares are richly priced, arguably trading at a valuation significantly above their theoretical worth. Like NAB, unless Wesfarmers' management team can shake off intense competition in the supermarkets division and revive the outlook for some underperforming business lines, it could be heavily sold off.
At today's prices, NAB and Wesfarmers shares are probably best left on your watchlists, until their valuations become more compelling.
A better dividend stock idea than Wesfarmers and NAB…
