Goodman Group (ASX: GMG) and National Australia Bank Ltd (ASX: NAB) shares have delivered strong returns in 2024. As shown on the chart below, this year, Goodman shares are up 44%, and NAB shares are up around 20%, compared to a rise of just 4% for the S&P/ASX 200 Index (ASX: XJO).
NAB is one of the largest ASX bank shares in Australia, while Goodman is a major industrial property owner and developer. Goodman may be best known for its large warehouses, but it is also growing focused on data centres.
But I'm not expecting either of them to deliver share price growth of more than 10% over the rest of the year because their shares have already risen so much.
Let's consider some of the most promising aspects of each business.
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Potential interest rate cuts
Any changes in the interest rate could have major implications for the profit or valuation of the business. As Warren Buffett, one of the world's greatest investors, once said about interest rates:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.
As a global real estate company, Goodman could significantly benefit from lower rates. Reduced rates might raise the value of commercial properties and lower the cost of debt.
Arrears at NAB may benefit from a lower interest rate if it means businesses and households can better afford their debt. A higher level of borrowers making repayments could mean better cash flow, profits and dividends.
However, a rate cut could also have a slightly negative impact on NAB's earnings because it may result in lower earnings from cash held in transaction accounts that NAB is lending out, without paying interest to the transaction account holders.
Dividends
Payouts can make up an important part of the overall shareholder return, particularly if some businesses have a higher dividend yield.
Goodman isn't known for its passive income because it's focused on investing in growth. At the current Goodman share price, its distribution yield is 0.8%, which is very low.
However, NAB has a solid dividend yield, and the passive income could play an important part in the overall picture. The ASX bank share's last two dividends amount to a fully franked dividend yield of 4.55% and a grossed-up dividend yield of around 6.5% at the current NAB share price.
NAB is an option for income-seeking investors, though it's not the biggest yield around.
Earnings growth plans
NAB makes most of its profit from lending to households and businesses, so growth is dependent on lending more, being efficient with costs, and hoping that borrowers make repayments.
In the first half of FY24, NAB reported its gross loan and advances (GLAs) increased by 3.5%, and deposits rose by 3.8%.
In such a competitive industry, it's tricky for lenders to grow their loan books profitably because the banks are mostly competing for the same customers. Price is often a key differentiator, and a lower loan rate hurts profitability. The HY24 result saw NAB's overall cash earnings drop 12.8% year over year due to competitive margin pressures.
Goodman shares are benefiting from the strong tailwinds of demand for logistics and distribution properties in metropolitan locations around the world. The business is also investing in data centres, which is seeing strong demand from AI and general digitalisation around the world.
The property business has $12.9 billion of development work in progress (WIP) across 82 projects. Its global power bank for data centres has reached 4.3 GW across 12 major global cities.
Despite the headwinds facing commercial property due to higher interest rates, Goodman is expecting to grow its operating earnings per security (EPS) by 13% in FY24.
While I think NAB is a great ASX bank share, I think Goodman shares could be a better long-term pick because of the prospect of lower rates and the ongoing industrial tailwinds it's experiencing. Growing businesses tend to outperform over time.
