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%.
