MENU

Is it too late to buy Macquarie Group?

Macquarie Group (ASX: MQG) forecast yesterday that its profits for 2014 would be 40-45% higher than those recorded in FY13. This should be a pleasant surprise for shareholders, who already enjoyed a fruitful 14.4% rise in net profit (to $872 million) last year, and analysts, who were left a little underwhelmed by Macquarie’s operational briefing in February.

I’ve been watching Macquarie for about six years, and I also expected that this year’s results would provide more of the same solid, steady (though 14.4% is far from anaemic!) growth for which the investment bank is famous. Instead it seems that Macquarie was simply displaying its trademark cautious approach during its operational briefing and analysts and Foolish contributors underestimated the profit potential.

Macquarie is only up 3% on the news (which should see its profit jump from $872 million to at least ~$1.2 billion), which leaves investors with a window of golden opportunity. Macquarie pays a dividend of 4.2% at its current price, which is reasonable, and higher than competitors Magellan Financial Group (ASX: MFG), Challenger Limited (ASX: CGF) and Perpetual Limited (ASX: PPT), who each pay around 3.6%. Macquarie also has the advantage of size, experience and brand power over these smaller, equally successful fund managers.

Sharemarket analyst Morningstar estimates fair value for the investment bank to be around $57, which is roughly the price that Macquarie closed on yesterday. I would expect to see a meaningful increase in dividends this year however, which could leave investors with a higher yield than 4.2% at today’s price.

Foolish takeaway

Macquarie is a share that belongs in every investor’s portfolio, for the trifecta of security, regular and reliable income, and earnings growth. Often investors like myself forget that slim years for banks lead to productivity, ‘right-sizing’, marketing and various other improvements, which then allow the company to massively boost its profits once various segments of the market start to move again. Macquarie looks to have done just that, and in a few years could well be headed back to its all-time high of above $80 – there’s a reason it got there in the first place.

Get it now: "2 Hot Stocks for the Next Australian Tech Boom"!

The smart money is already on the move... and savvy investors will want to add these two ASX tech stocks to their portfolios sooner, not later! You can get all the details - including names and codes - in The Motley Fool's brand-new FREE report,
"2 Hot Stocks for the Next Australian Tech Boom." Simply click this link now to claim your FREE copy.

Motley Fool contributor Sean O’Neill owns shares in Challenger Limited.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.