Warning to reduce exposure

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After a “stellar run on the bourse”, the time has come to lock in some handsome gains and reduce exposure to Commonwealth Bank stocks.

Investment specialists Fat Prophets have issued a Sell Half recommendation on CBA, citing that with the rotation out of yield stocks occurring in the market – and given the bank is the most expensive on the market – it is time to take some solid profits off the table and reduce exposure.

Commonwealth Bank was introduced into the Fat Prophets portfolio in August 2011 at a price of $46.99, and has appreciated by 42% as of yesterday’s closing price. Australian banks generate a return on equity that exceeds most other large banks in developed nations, so it is not recommended that clients completely pull out of the sector.

But sentiment towards the sector has become more cautious over the past few weeks, causing Fat Prophets to make the recommendation: “Commonwealth Bank trades at a well-deserved premium to the broader sector in our view, but this does make the stock at risk with sentiments cooling. Thus, we recommend members sell-half of Commonwealth Bank around current prices.”

AMP on the other hand, was given a hold status, thanks to a successful merger with AXA and the star performance of the North wrap platform.

“We were encouraged by the recent March quarter update on cash flows from its financial services arm, showing a large turnaround from a year ago, while the company also steadily grew assets under management in its wealth management business,” said Fat Prophets.

“AMP has not been able to entirely escape the pressure on high-yielding stocks with its share price having corrected somewhat over the past couple of weeks but we remain positive on the company’s prospects, expecting investment markets to provide a modest tailwind.”