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Westpac, Macquarie, Rio: Buy, hold, sell?

In total, Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG) and Rio Tinto Limited (ASX: RIO) have around 5.3 billion shares available on the market and account for 11.23% of the S&P/ASX 200 (ASX: XJO) (^AXJO). But being the biggest doesn’t make them the best and I only consider one of these to be a standout buy at current prices. Here’s what each have to offer investors today.

Westpac

As Australia’s second biggest bank Westpac made an enviable $3.7 billion cash profit in 1H 2014. The result was 8% ahead of the prior corresponding period (pcp), but wasn’t enough to impress the market, who allowed its share price to retreat from an all-time high of $35.99.

Westpac derives most of its earnings from Australia, with over 23% of the mortgage market, 22.5% of credit cards and 27.3% of personal loans. However, despite a recent focus on Asian markets, analysts are tipping Westpac’s earnings to average just 2% growth between 2014 and 2016. For a stock which trades on high earnings multiples, it’s definitely not a buy at current prices.

Macquarie Group

Macquarie recently boosted its yearly profit 49% and sales 22%, with exceptional performances from its funds business and smaller Capital and Securities divisions. While much of its cyclical growth could have already been achieved, Macquarie has a global reach and, in the short and medium terms, will benefit from rising confidence in global markets.

In addition, its expertise in key finance areas should enable it to continue growing into profitable niche markets such as M&A, and into other lucrative markets such as mortgages. For long-term investors, there is value to be found in Macquarie Group shares.

Rio Tinto

As Australia’s largest iron ore miner (currently producing at a rate of 290 million tonnes per annum from the Pilbara), Rio has a reputation of getting the job done. Unfortunately for Rio shareholders however, the iron ore price is in the doldrums, having fallen from above $US130 per tonne to below $US100 per tonne since the beginning of the year. This has been reflected by a very poor share price performance.

Although Rio won’t go broke with the current iron ore price, the company has in recent times given shareholders and investors little reason to stay faithful. This is because it has managed to write-off tens of billions of dollars in just the past seven years. Although the price falls in iron ore may already be priced into its shares, I believe there’s too much risk/uncertainty and not enough potential reward. My advice would be to adopt a wait-and-see approach.

The BEST buy of all

Although I believe Macquarie Group could outperform the rest of market from here, its growth will be more modest than in the past year. However, investors shouldn’t feel pressured into buying any of these stocks, especially when there are other high-yielding growth stocks available at better prices.

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