Despite having handily outperformed the S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO) in 2014, there's still many reasons to be bullish on our leading investment bank, Macquarie Group Ltd (ASX: MQG), in 2015.
Here's three reasons why I think it could continue outperforming the market in the coming 12 months.
- Foreign Exposure. Macquarie earns a majority (65%) of its revenues from overseas markets. Some of those markets, such as the USA, continue to fire on all cylinders, allowing Macquarie to leverage off the stronger investor confidence.
- Valuation. Despite a strong performance in the first half of financial year 2015, which seen profits jump 35%, and the likelihood of a solid result in the full year, Macquarie's shares trade on a respective valuation. At 15 times profits and 1.6 times net assets.
- Dividends. In the next 12 months, Macquarie is tipped to pay $3.00 in dividends. At today's price of $57.42, that's equivalent to a 5.2% partially franked yield, or 6.1% grossed-up. Given interest rates are likely to remain low for some time, investors seeking income will be compelled to take a second look at Macquarie.
Foolish Takeaway
The short-term outlook for Macquarie appears very positive. Indeed 37% of its operating income is derived from its capital markets facing businesses, which will leverage off increasing investor sentiment. However to counteract the cyclical effect of capital markets on Macquarie's earnings, it maintains a conservative balance sheet and is pushing into annuity-style businesses, which bode well for shareholders in the long-term.
