Over the five weeks since the US election, the financials index (ex-property trusts) has gained over 10%, more than twice that of the ASX200. Expectations are that rates will continue to rise, a more profitable operating environment under which financials can drive a wider margin. This week we ask Vince Pezzullo from Perpetual Equity Investment Company, and John Murray from Perennial Value Management for their view on a selection of companies in the financials sector. The stocks discussed include CBA, QBE Insurance and Henderson Group. We also asked each of the panelists to share one of their preferred picks in the financials sector.
Below is an edited transcript of the Buy Hold Sell video.
Commonwealth Bank (ASX:CBA)
John: Hold. Reasonable yield.
Vince: Sell. They’ll struggle to grow their dividend. No credit growth.
QBE Insurance Group (ASX:QBE)
Vince: Hold. I think the macro trade’s happened already. You basically need the insurance cycle to improve from here.
John: Buy. Still reasonably cheap on price-to-book, about 1.1 times. It's been a lot higher than that. If you're a believer the US cycle will continue to run, which it could do, there's cream on the cake there. So, buy.
Henderson Group (ASX:HGG)
John: Hold over a one-year period. I think the acquisition has been a good thing, but there's still a lot to work through there. I think it's a hold.
Vince: Buy. I like the Janus deal. I like the management especially. And I am a believer in active management.
Clydesdale Bank (ASX:CYB)
Vince: Buy. I quite like Clydesdale. I like what the management is doing. There's a lot of costs to rip out of that bank now that it has been spun out, and you're buying into a cheap pound trade basically. It’s based in the UK and the Pound is down about 25%. It's a great, easy trade.
Macquarie Group (ASX:MQG)
John: Buy. I like Macquarie. I think it's reasonable value at these levels. I think it's run by one of the best management teams in the country. In the longer term, I think there's a global infrastructure story which will come on the back on increased fiscal expenditure and you may see that, for example, come out of the biggest economy of the world, being the US, on the back of Trump. So, I like the thematic of Macquarie over a five-year few from here as well.
Episode Recorded on 7/12/2016
Participate in our 2017 Outlook Survey and get first access to our fund manager stock picks for 2017: (VIEW LINK)
Disclaimer: The information contained in this presentation is general in nature and should not be relied upon. Before making any investment of financial planning decisions, you should consult a licensed professional who can advise you whether the decision is appropriate for you. Contributors to this show may have commercial or financial interests in the companies mentioned.