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

Happy young woman saving money in a piggy bank.
Bank Shares

Are ANZ shares still in the buy zone near 6-month highs

Bank stocks have rallied hard in 2024.

Read more »

Bank building in a financial district.
Bank Shares

Is this the $350 million reason the Big Four bank shares are falling today?

It’s another challenging day for banks.

Read more »

Young professional person providing advise to older couple.
Bank Shares

NAB shares sink on ASIC legal action

The banking giant failed 345 of its most vulnerable customers.

Read more »

Nervous customer in discussions at a bank.
Bank Shares

Is the NAB share price actually expensive?

Should investors be looking at NAB stock as a bargain?

Read more »

CBA share price represented by branch welcome sign
Bank Shares

Own CBA shares? Here's a major milestone you may have missed this week

CBA shares marked a groundbreaking achievement this week.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Bank Shares

Up 52% in a year! Is this rocketing ASX bank stock the perfect pick for my retirement portfolio?

Are CBA shares right for retirees?

Read more »

A businessman slips and spills his coffee.
Bank Shares

Why is the CBA share price taking a tumble on Wednesday?

CBA shares are taking a fall today. Let’s find out why.

Read more »

A woman puts up her hands and looks confused while sitting at her computer.
Bank Shares

Why are ANZ shares tumbling 4% on Wednesday?

What’s going on with the big four bank’s shares today? Let’s find out why they are falling.

Read more »