I'd buy National Australia Bank Ltd. (ASX: NAB) shares before Commonwealth Bank of Australia (ASX: CBA) shares, but I'm not in a rush to own either of them at today's prices.
NAB & CBA share prices
As can be seen above, NAB shares have handily outperformed the broader market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), while CBA shares have lagged those of their smaller peer.
NAB
NAB is a leader in Australian and Kiwi business and retail banking, but it has a lesser exposure to the mortgage market compared to some of its peers like Commbank and Westpac.
After a few years of underperformance (to put it gently), NAB divested its non-core business units. Its decision to sell Great Western Bancorp, Clydesdale & Yorkshire Bank and most of its insurance business may boost its profitability over time.
At current prices, I think NAB shares are fairly valued. That is, they are not a standout buy or sell in my book.
Commbank
CBA is Australia's largest and most profitable bank. Despite two decades of growing dividends and profit, investors recently sold down CBA shares over fears of a large penalty from the regulator. Although the bank may be fined for its alleged breaches of money laundering laws, over the long-run I expect CBA to continue growing modestly.
However, CBA shares are not in the buy zone in my opinion. And if your entire investment portfolio is overexposed to the banking sector — which I define as 30% or more — it may be time to consider investment options outside the finance and property industries.
Foolish Takeaway
In investing, as in life, there is a difference between price and value — and it's important to know the difference. Over the long run, that's the only way I think everyday investors can make sustainable returns from the share market.
