Here are my 3 favourite finance shares

These are my top 3 finance stocks.

| 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

The finance industry is one sector that has a couple of good tailwinds behind it. The amount of money in the overall Australian and global monetary systems continues to grow, which helps. However, the best tailwind for most finance shares is the growth of the total superannuation pool.

Here are my favourite three finance shares:

Challenger Ltd (ASX: CGF)

Challenger is Australia's leading annuity provider with a dominant market share. The company turns people's capital into a guaranteed source of income.

The superannuation pool is getting each bigger each year with the mandatory 9.5% contribution for employees, but Challenger is benefiting in-particular from the rising number of retirees. The number of people older than 65 is expected to be 75% higher in 20 years.

Challenger is currently trading at 18x FY18's estimated earnings.

Magellan Financial Group Ltd (ASX: MFG)

Magellan is a fund manager with a focus on global shares. The investment team have outperformed the global index very effectively, which is why it has attracted so much funds under management (FUM). The latest FUM update showed that Magellan now has $65.36 billion at the end of February 2018.

I believe that the fund manager will be able to continue attracting funds at a strong rate due to Aussie investors looking to increase their exposure to overseas investments.

Magellan is trading at 23x FY17's earnings.

Macquarie Group Ltd (ASX: MQG)

Macquarie is Australia's fifth largest bank, but it is very different to the other big four banks. Commonwealth Bank of Australia (ASX: CBA) and its peers rely on Australian mortgages for most of their earnings, whereas Macquarie earns a majority of its money overseas.

Not only that, Macquarie has shifted to less-cyclical operations like asset management. Macquarie sees a big future for infrastructure and renewable energy expenditure, so it is working hard in those areas. I think this is a clever move, which is why it's my favourite bank.

Macquarie is currently trading at 15x FY18's estimated earnings.

Foolish takeaway

I think all three businesses are likely to beat the market over the coming years. I believe that Challenger will be the best performer as the amount of money flowing into retirement will be a very strong tailwind for the annuity king.

Motley Fool contributor Tristan Harrison owns shares of Challenger Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. 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 Scott Phillips.

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 »