With the Aussie economy showing signs of difficulty and the ASX's performance in recent months hardly being reassuring, it may seem rather surprising to focus on two finance stocks. After all, investment bank, Macquarie Group Ltd (ASX: MQG), is relatively dependent upon the performance of the economy, as well as the performance of the ASX for its wealth management arm. Meanwhile, Australia and New Zealand Banking Group (ASX: ANZ) is also correlated with the outlook for the economy, even though its super regional strategy has shifted its focus to include Asia.
However, it is this super regional strategy that holds great appeal over the medium term, with ANZ being the leader among the major Aussie banks in terms of attempting to diversity its geographic exposure. Certainly, the Chinese economy may appear to be rather risky at the present time and, as such, the outlook for the wider region is uncertain. However, as China transitions towards a consumer-led economy and away from a capital expenditure-led economy, opportunities for growth across the region are likely to increase.
So, while ANZ is forecast to post an annualised rise of just 2.4% in its bottom line during the next two years, its longer term growth prospects are much brighter – especially if the Aussie dollar continues to weaken. Furthermore, ANZ's current price to earnings (P/E) ratio of 12.2 is considerably lower than both the wider banking sector's P/E ratio of 13.5, as well as the ASX's P/E ratio of 15.7, which indicates upside potential moving forward.
In addition, ANZ remains a top notch income play. In fact, alongside Macquarie, the two stocks are likely to see investor sentiment improve as the RBA adopts an increasingly loose monetary policy in the coming years. So, their yields of 4.3% (Macquarie) and 5.6% (ANZ) should appeal to investors, while their respective dividend growth rates of 8.7% and 4.3% per annum over the next two years should mean that shareholder payouts beat inflation in 2015 and beyond.
Of course, Macquarie is able to grow dividends at such a brisk pace due to its strong earnings growth outlook, with its bottom line forecast to rise by 8% per annum over the next two years. This means that, trading on a P/E ratio of 16.1 (which represents a premium to the ASX), Macquarie's shares do not appear to be hugely overvalued and, with the stock having a beta of 2, it could react very positively to further cuts to the interest rate over the medium term.
In addition, with the majority of Macquarie's earnings being derived from outside of Australia, it could also benefit from a weakening Aussie dollar. And, with it having a track record of increasing its bottom line at an annualised rate of 9.2% during the last five years, it appears to be a relatively reliable performer when it comes to earnings performance, too. As such, it seems to be worth buying right now, alongside ANZ, and while the short term may be volatile for both stocks, their long-term total returns could prove to be impressive.
