Investment bank Macquarie Group Ltd (ASX: MQG) has had a stellar 24 months on the ASX. Its share price has climbed from just $40 to over $65, representing a gain of 56% before dividends. This compares with a return of just 18% from the S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO).
By now the question on everyone's mind is: Can it continue?
Personally I doubt it'll continue on its current trajectory in the near-term, but it may hold significant value for investors focused on the long term. Specifically, those who want exposure to world markets and a regular dividend payment.
Here are three reasons why Macquarie is worth holding through the next market cycle.
- Rising confidence in global markets. Macquarie draws 65% of its income from international markets and it relies on rising investor confidence.
- Ample growth opportunities. Macquarie has a total of six different business units, with all performing well in recent times. From Asian markets, where its funds management business has huge infrastructure investments, to expert commodities research, mortgages or mergers & acquisitions. Macquarie's management can grow the business in many different directions over the long term.
- Conservative balance sheets. Following some tough lessons learned in the fallout of the GFC, Macquarie now prides itself on its conservative balance sheet and minimal reliance on short term wholesale funding markets. Combined with its push into annuity style businesses, this bodes well for long-term shareholders.
To buy, or not?
Macquarie Group currently trades on a forward price-earnings ratio of 14.8, dividend yield of 4.6% and price-book ratio of 1.8. Whilst its strong share price performance over the past five years may not continue in the near-term, long-term shareholders can look forward to a more profitable – albeit volatile – future.
A better stock idea than Macquarie Group…
