Should you buy Macquarie Group Ltd or Commonwealth Bank of Australia shares?

Macquarie Group Ltd (ASX:MQG) shares are a superior growth option to Commonwealth Bank of Australia (ASX:CBA) shares at today's prices.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you and I were in a Peruvian forest and you put a gun to my head asking me to choose between Macquarie Group Ltd (ASX: MQG) shares and Commonwealth Bank of Australia (ASX: CBA) shares, I'd go with Macquarie shares.

Thank heavens we're not in Peruvian forest!

Growth or Income?

In the sharemarket, investors often believe they need to pitch a tent in one of two camps: growth or (dividend) income.

One or the other.

However, over the long run, I think you can have both. You can have growth if you pay a good price for your investment. And you can have income if you buy into a profitable, high-quality company.

Macquarie Group

Macquarie is Australia's leading investment bank, all $30 billion of it. Macquarie does everything from stock market analysis to car financing and mergers. Macquarie is a globally diversified business, too, giving it scale, growth potential and risk benefits.

Macquarie shares are tipped to pay a dividend of 5.5% with franking, which is very impressive for a business that is expected to grow its per-share profits by 5% this year – on top of 75% growth over the past three years.

However, Macquarie's business is leveraged to the economic cycle. Meaning, its profits will rise and fall in-line with financial markets and the economy, more so than other businesses. While some experts might say that makes it a riskier investment it also means that patient long-term investors are often afforded compelling investment opportunities.

I'm waiting for a lower price before buying Macquarie shares.

Commbank

Commonwealth Bank of Australia is our country's largest company and a heavyweight on the ASX. Commbank has powered ahead over the past two-and-a-bit decades of non-stop economic growth.

Indeed, a recession-less Australia, coupled with plummeting interest rates and acquisition opportunities, have paved the way for exceptional returns for CBA shareholders. In the form of both dividends and capital gains, the investment has been very rewarding. 

Unfortunately, I find it difficult to see Commbank growing materially faster than the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the next few years. While I think it can grow profits in coming years, it shares appear priced reflect that growth.

Foolish Takeaway

If I were held up for the next 10 years in a humid South American forest with only one bank share to keep me company, I would choose Macquarie over Commbank. Although it is a higher risk option — and I'm not a buyer of its shares today — I reckon it can outperform its larger peer given its growth potential domestically and abroad.

Fortunately, no-one is putting a gun to my head to buy anything. (see below)

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. You can follow him on Twitter @OwenRask. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »