2 Reasons I Can’t Fall In Love With Macquarie Group Ltd (ASX:MQG) Shares

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ASX-listed Macquarie Group Ltd (ASX: MQG) shares were trading higher today as the broader market or ASX 200 (^AXJO) was up 1.4%.

Who is Macquarie?

Macquarie Group is Australia’s largest investment bank with operations spread throughout North America, Europe, Middle East, Asia and Australia. Unlike a traditional ‘retail’ bank, like most investment banks Macquarie makes a large chunk of its profit by operating in the investment markets and managing ‘assets’ for individuals and organisations.

Macquarie also has a very large asset leasing business (e.g. aeroplanes, cars. etc.). As of 2018, the bank had reported a profit for 49 years in a row.

2 Reasons I Can’t Fall in Love With Macquarie

Macquarie has proven itself to be a tremendously profitable bank over many years. Since the Global Financial Crisis (GFC) of 2008/2009, which saw the Macquarie share price cut by more than 50%, the bank has reinvigorated and repositioned itself as a more diverse and reliable outfit.

However, leading into 2019, there are a few reasons it’s unlikely to find its way into my portfolio.

1. Moving parts. 

Macquarie is a company with many moving parts across many businesses, operating in many jurisdictions.

Combined with the uncertainty in forecasting global markets, I find it very difficult to imagine what Macquarie will look like in 5 or ten years, or even where its competitive advantage lies. The more uncertain a company’s outlook, the more compelling the valuation needs to be before I’ll buy its shares.

2. Cyclicality. 

As a capital markets facing business, Macquarie still makes much of its money from activity in global financial markets and leasing.

While I might be guilty of ‘timing’ the market, I think there is no harm in waiting for a time when uncertainty pervades markets and shares like Macquarie — and other financials like Commonwealth Bank of Australia (ASX: CBA) and Magellan Financial Group Ltd (ASX: MFG) — get thrown out with the bath water.

Buy, Hold or Sell

Macquarie is a very profitable business which continuously surpasses my expectations. However, I struggle to get comfortable with the business and its outlook. Therefore, despite the recent share price fall and forecast 5% dividend yield, I’m happy to watch this one from the sidelines, for now.

If you’re looking for two shares I’m watching closely in 2019 (including one I already own), keep reading…

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Owen Raszkiewicz

Owen Raszkiewicz

Owen is the Founder of Rask Australia, Lead Investment Analyst for Rask Invest, Head Educator at Rask Education, and Chief Banana peeler for two rabbits.