Why CBA and Macquarie shares could be in the buy zone

Why I'm starting to become more bullish on ASX bank shares like Macquarie Group Ltd (ASX: MQG) in 2020.

| More on:

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

I'm starting to become bullish on ASX bank shares in 2020.

Everyone knows that ASX bank shares have been under the pump this year as the coronavirus pandemic has spooked investors.

Commonwealth Bank of Australia (ASX: CBA) and Macquarie Group Ltd (ASX: MQG) shares fell from 52-week highs to 52-week lows in the March bear market

But I think the two Aussie majors could be back in the buy zone before the year is out.

Why Macquarie shares could climb this year

The reason I'm bullish on Macquarie shares is actually thanks to US investment bank, Goldman Sachs. More specifically, Goldman's strong first-half earnings and what that means about what could be in store for Macquarie.

Goldman posted net revenues of US$22.04 billion and net earnings of US$3.64 billion for the 1H FY20. That's a solid result at a time when investment banking income could have easily dried up.

Much of that result was driven by strong trading income amid the recent market volatility. A big portion was also due to Goldman's run of recent capital raisings in Australia and around the world.

That could bode well for Macquarie as a fellow (albeit smaller) investment bank.

If Macquarie's traders can generate similarly strong earnings, it could help offset some losses from the economic slowdown. A series of recent capital raisings could also help support the bank's half-year earnings result in November.

What about the CBA share price?

That's not an easy question to answer. What I think the Goldman Sachs result shows is that hope is not lost for bank shares.

Commonwealth Bank is much more of a retail and business bank compared to Macquarie. That means the fundamental drivers are different and rely on strong corporate earnings and the Aussie housing market.

However, this leading fundie is starting to see a bullish recovery for ASX bank shares. If the economy bounces back quicker than expected, the CBA share price may be cheap at $72.60.

That's because investors are pricing in the expected future impact of the pandemic and subsequent recession. If the recovery beats expectations, you'd expect Commonwealth Bank shares to outperform.

Foolish takeaway

There's a lot of uncertainty in the economy and share market right now. Commonwealth Bank shares could be headed higher, but that relies on a quicker than expected economic recovery.

Macquarie shares may benefit from continued market volatility, but further declines could force the ASX bank share lower in 2020.

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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 Bank Shares

Lines of codes and graphs in the background with woman looking at laptop trying to understand the data.
Bank Shares

Why this ASX bank stock is tumbling today after earnings

A 20% profit drop seems to unsettle investors.

Read more »

Bank building in a financial district.
Bank Shares

Bank of Queensland half-year 2026: profit falls, dividend steady as revenue rises

Bank of Queensland half-year 2026 results: profit down 20%, revenue up 4%, dividend steady at 20 cents.

Read more »

View of a business man's hand passing a $100 note to another with a bank in the background.
Bank Shares

3 reasons to buy Westpac shares today

Westpac shares have faced several ups and downs already this year, but I still think the ASX bank stock has…

Read more »

A man in his 30s with a clipped beard sits at his laptop on a desk with one finger to the side of his face and his chin resting on his thumb as he looks concerned while staring at his computer screen.
Bank Shares

Forget CBA shares — here are 2 ASX bank shares I'd rather own right now

CBA shares are trading in the green again today, but I'd still pick these two ASX bank shares instead.

Read more »

Nervous customer in discussions at a bank.
Bank Shares

Why are NAB shares sinking 4% on Monday?

Let's see what NAB has announced on Monday.

Read more »

A woman wearing a yellow and white striped top and headphones plays excitedly with her phone.
Bank Shares

5 reasons to invest $500 in CBA shares

For long-term investors, reliability and scale can matter more than short-term valuation.

Read more »

Australian dollar notes and coins in a till.
Dividend Investing

How many ANZ shares do I need to buy for $10,000 a year in passive income?

ANZ shares have a lengthy track record of paying two dividends a year.

Read more »

View of a business man's hand passing a $100 note to another with a bank in the background.
Bank Shares

In the midst of economic turmoil, what does Morgan Stanley say the ASX banks are worth?

The economic headwinds are building.

Read more »