The Westpac Banking Corp (ASX: WBC) share price is down 7% since the start of 2017, is it a buy?
Over the past two decades it has been one of the best blue chips to own. It has made vast profits thanks to the growing Australian economy and booming property market.
Here is my bull and bear case for Westpac:
Bull case
The Australian economy hasn't had a recession for over 25 years and the government aren't predicting that streak to end any time soon. In-fact, Scott Morrison and his financial advisors have pencilled in that GDP and wage growth will be quickening in a couple of years. This would give Westpac a big boost if it came to pass.
The amount of properties in Australia is expected to keep increasing over the long-term with the growth of the population. This gives Westpac a growing mortgage pie to grab a piece of.
The dividend has given investors a strong return over the years, even through the GFC. It currently has a grossed-up dividend yield of 8.9%, which could be a great source of income and support the share price.
Bear case
All good things (usually) come to an end. There are signs that the Australian economy is slowing and may seriously stutter over the next two or three years.
Household debt is at all-time highs, discretionary spending is falling and Amazon could be about to disrupt a number of businesses. Each of these elements could hurt Westpac indirectly and dent profits.
The recent Federal and South Australian bank tax levies are going to be hits to earnings over the next few years.
All the big four banks are reporting cyclically low bad debts, which suggests they could soon see an upswing of bad debts. If you're going to invest in a semi-cyclical company, investing at the best part of the cycle is the worst time to invest.
Foolish takeaway
Westpac is a great company and any current shareholder can be fairly confident in their long-term position, as long as they don't have too much exposure to the other banks.
However, I'm not too confident that the next two years will be plain sailing for the Australian economy and therefore the banks. I'd rather try to buy the banks at knock down prices, which might be 20% to 33% lower than the current levels.
