In the past five years, while the S&P/ASX 200 Index (ASX: XJO) (^AXJO) climbed 44%, Macquarie Group Ltd (ASX: MQG) gained 54%, Rio Tinto Limited (ASX: RIO) went down 18% and shares in Santos Ltd (ASX: STO) stayed relatively flat.
It’s fair to say, the returns from the resources sector have been underwhelming but the financial sector, which includes companies such as Macquarie, have performed exceptionally well. So does that mean we can expect more of the same in coming years, or is it time for the tables to turn? Here’s what I think you can expect from these stocks in coming years.
Rio is Australia’s biggest iron ore miner and second largest resources company by market capitalisation. Despite experiencing what was commonly referred to as the mining and resources “boom”, Rio shareholders have experienced quite the opposite. With billions of dollars of write-offs and a number of struggling business units such as energy and aluminium, shareholders would have been much better off keeping their money in a bank account over the past five years. Now with iron ore (Rio’s number one commodity) falling in price, the shares look destined to trend even lower in the near-term. As such, until the effects of the falling iron ore price are evident, I suggest investors err on the side of caution and steer clear of the company’s stock.
Despite climbing strongly in the past year, our biggest investment bank could be headed higher in the near future. With management forecasting modest growth in FY14 (subject to improving confidence in markets), Macquarie’s cyclical growth appears as though it can continue. Its 4.9% partly franked dividend is the icing on the cake.
Shares in Australia’s second largest oil and gas company command a hefty premium. With the company’s long awaited GLNG and PNG LNG projects starting to add to its full-year production in the next two years, it’s easy to see why. Despite this earnings are expected to nearly double in coming years and dividends are also likely to increase. Although there’s value to be found in its shares, particularly as demand for gas and energy production rises throughout Asia, you’ll have to be prepared to buy and hold for the long-term.