Macquarie and Telstra: 2 stocks you should own

After the S&P/ASX 200’s (ASX: XJO) (^AXJO) spectacular run in 2012 and 2013, many investors’ favourite blue-chips have appreciated well beyond fair value. The banks and two supermarket giants are examples of companies which I feel are not priced for buyers.

However, two stocks which I believe have further to run are Telstra Corporation Ltd (ASX: TLS) and Macquarie Group Ltd (ASX: MQG).

Telstra has gone from strength to strength in recent years and its share price has followed, rising over 70%. In addition to a stellar dividend payout, Telstra’s Network Application Services (NAS) and International divisions are strong growth areas, and are continually pushing revenues higher. In the most recent half-year they increased their contribution to group sales to nearly 15%.

Closer to home Telstra’s mobiles and fixed internet businesses continue to dominate the market and provide it with huge cash flows. It is estimated the telco will generate over $5 billion in free cash flow this year and could look to increase the dividend or invest in Asia. At current prices it trades on a price-to-earnings ratio of 16.5 and yields 5.4% fully franked.

Fellow ASX20 member, Macquarie Group is Australia’s premier investment bank. However with 68% of FY14 income derived outside Australia and New Zealand, it should be considered our premier global bank. Thanks to improving markets around the world and a focus on costs, Macquarie was able to generate 49% profit growth in FY14.

Looking ahead Macquarie’s Funds, Securities and Banking and Financial Services divisions can be expected to benefit from improving confidence in worldwide markets. Despite growing strongly in recent years, Macquarie maintains a conservative balance sheet, and has a number of significant niche market areas in which it’ll grow into in the long-term. Management previously said the dividend payout ratio will be maintained at between 60% and 80% of earnings. In the coming year, analysts are expecting a dividend of just under 5%.

An even better stock to BUY NOW 

It's not too late! The Motley Fool has issued a firm "BUY" rating on this small but ultra promising ASX company... and you can get the name and code FREE right now. Click here for your free copy of "The Motley Fool's Top Stock for 2014."

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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.