Don’t let today’s weakness on the S&P/ASX 200 Index (Index:^AXJO) fool you. The new bull market is here to stay although the next phase of the rally could see investors rotate to value stocks from growth.

It’s growth stocks, including tech darlings like the Afterpay Ltd (ASX: APT) share price, that’s stolen the lime light since our market hit its bear market bottom in March.

But we may soon see the ASX value shares outperform as conditions seem ripe for these laggards to outperform.

Why value can outperform growth

The recent steepening of the yield curve and expectations of a V-shape recovery favour these underachievers, according to Morgan Stanley.

While there’s great debate over the shape of the ongoing economic recovery due to the COVID-19 crisis, the broker is more convinced than ever of a quicker rebound.

“Our global team’s increased conviction in a sharper and shorter economic downturn has projected a V-shaped recovery in global markets,” said the broker.

“Coupled with ongoing stimulus roll-out across regions and within country, [these are] providing the support for improving Value signalling and performance over the near and long term.”

What are value stocks?

Value stocks are those that tend to trade at a discount to the market or to their historical valuations. Growth stocks are those that trade at a premium as investors are willing to pay up for companies best placed to increase their earnings coming out of the recession.

“Expensive valuations and better growth should push bond yields higher and the curve steeper – a ‘normal’ early cycle pattern, with the global rates team forecasting steeper yield curves into year-end for both the US and Australia,” added Morgan Stanley.

Top stock picks for new year

The broker highlights 11 ASX value stocks that it believes are the best of the bunch. Financial stocks on its list include Australia and New Zealand Banking GrpLtd (ASX: ANZ), Bendigo and Adelaide Bank Ltd (ASX: BEN) and Link Administration Holdings Ltd (ASX: LNK).

In the industrials space, its top picks include cement supplier Adbri Ltd (ASX: ABC), building materials group Boral Limited (ASX: BLD), casino operator Crown Resorts Ltd (ASX: CWN), alcoholic drinks maker Treasury Wine Estates Ltd (ASX: TWE) and national carrier Qantas Airways Limited (ASX: QAN).

There’re also one stock from property and materials each that Morgan Stanley favours. These are DEXUS Property Group (ASX: DXS), retailer Harvey Norman Holdings Limited (ASX: HVN) and BlueScope Steel Limited (ASX: BSL).

Looking for more buy ideas for FY21? The experts at the Motely Fool have picked their best ASX stocks to buy now.

Click on the link below to find out for free what these stocks are.

More reading

• Has the Afterpay share price become too expensive to buy?
• Why A2 Milk, Afterpay, Mesoblast, and Temple & Webster are pushing higher
• 2 ASX shares to buy for beginners
• Where to invest $5,000 in an irrational market
• Is the Macquarie share price a solid buy today?

Brendon Lau owns shares of Australia & New Zealand Banking Group Limited and BlueScope Steel Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Crown Resorts Limited and Link Administration Holdings Ltd. 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.

BrenLau owns shares of Australia & New Zealand Banking Group Limited and BlueScope Steel Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Crown Resorts Limited and Link Administration Holdings Ltd. 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.

The post Next phase of bull market could see ANZ Bank outperform Afterpay appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2URWNWo

Is the National Australia Bank Ltd (ASX: NAB) share price a strong buy?

The NAB share price remains down more than 30% from its pre-coronavirus level. When a blue chip drops that hard I think it’s worth considering whether it could be an contrarian opportunity to buy it.

NAB and the other big four ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) were smashed during the selloff. The worst point was 23 March 2020.

Thankfully the NAB share price has actually gone up 37% from its low in March.

The COVID-19 picture looks much better now for Australia than it did in March. But the economic pain could still take some time to cure. The OECD has warned that Australian GDP could fall by 5% in 2020. If there is another outbreak and a return of lockdowns then Australian GDP could fall by 6.3% in 2020.

What will the fallout be for NAB?

NAB revealed some of the expected pain in its recent FY20 half-year result. NAB said credit impairment charges increased 158.6% to $1.16 billion. As a percentage of gross loans and acceptances, credit impairment charges rose 23 basis points to 38 basis points.

FY20 first half charges included $828 million of additional collective provision forward looking adjustments, of which $807 million was a top-up to the economic adjustment to reflect potential COVID-19 impacts. In other words, NAB has provisioned $807 million for the COVID-19 pain. Higher bad debts result in a lower net profit and therefore a lower NAB share price is likely.

The market was already expecting the sort of economic pain reported in this year’s interim report, that’s why the NAB share price had fallen so much before the result was released.

Worryingly, NAB’s loan arrears had been rising even before COVID-19. The ratio of loans that are more than 90 days past due increased by 18 basis points to 0.97% in the FY20 half-year result. At the end of FY19 this arrears ratio was 0.93%. The FY19 half-year result the arrears ratio was 0.79%. At the end of FY18 the loan arrears ratio was 0.71%. It has been steadily climbing.

Australia’s success at flattening the curve is good news for the broader economy. But there are still specific sections of the economy which could struggle. International tourism may not return during 2020. Australia hasn’t even managed to open the travel bubble with New Zealand yet.

However, if the NAB profit pain is less than expected by the market then the NAB share price could prove cheap today.

There were fears that the big ASX banks may not have provisioned enough money for how much COVID-19 will hurt the overall economy. Hopefully the current provisions are enough. There are signs it could be enough with the initial jobkeeper estimate being $60 billion higher than the expected real number.

What about the NAB dividend?

The NAB board decided to reduce the NAB interim dividend by 64% to 30 cents per share. This was obviously a large income hit to shareholders. But NAB acknowledged that the economic pain needed to shared across the bank, customers and shareholders. It could take a few years for the half-yearly dividend to return to something like $0.80 cents per share if the bank remains prudent with capital. 

The decision to reduce the dividend was equivalent to $1.6 billion of CET1 ratio capital, or 37 basis points in percentage terms. The bank also did a large capital raising to increase its CET1 ratio, raising $3 billion from institutional investors alone.

Is it time to buy NAB at this share price?

The NAB share price is still a lot lower than it was before the COVID-19 hit. But interest rates are now a lot lower too, which means it could be harder for NAB to maintain profitability if the net interest margin (NIM) sinks.

I don’t think NAB is a strong buy right now. Jobkeeper is expected to come to an end in September and that could cause more economic uncertainty. At this NAB share price I think I’d want to wait at least until November or December before buying.  

More reading

• Is the Macquarie share price a solid buy today?
• Why the Wisr share price is surging 32% higher today
• Got $3,000? These 5 beaten-down ASX shares are begging to be bought
• Can ASX big banks generate an attractive sustainable dividend yield from FY21?
• ASX 200 down 0.3%: Big four banks mixed & Healius rockets on medical centre sale

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The post Is the NAB share price a strong buy? appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3d6DP4M

Due to the market crash in March, a number of shares are trading significantly lower than their 52-week highs.

While not all shares are necessarily bargain buys, a few which I think could be great value are listed below. Here’s why I like them at these levels:

The Aristocrat Leisure Limited (ASX: ALL) share price is down 29% from its 52-week high. This has left the gaming technology company’s shares trading at 21x estimated FY 2021 earnings. I think this makes them great value based on its long term growth prospects. Aristocrat Leisure appears well-positioned to deliver strong earnings growth over the next decade thanks to its leading pokie machine business and fast-growing digital business. The latter is generating significant recurring revenues from its millions of daily active users.

The Clover Corporation Limited (ASX: CLV) share price has lost a third of its value since peaking at $3.31. This has brought the shares of the infant formula ingredients producer down to an estimated 27x FY 2021 earnings. While this is still a notable premium to the market average, I believe it is a good price to pay for a company with such strong growth potential. Clover’s business looks well-placed to benefit from increasing demand for infant formula and favourable changes to ingredient requirements in a number of key markets.

The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is trading 33% below its 52-week high. Investors have been selling the airport operator’s shares after the coronavirus pandemic made its terminals a ghost town. And while it will take time for passenger numbers to recover fully, it will inevitably come in time. I think this makes it well worth taking advantage of this share price weakness by making a patient long-term investment.

More reading

• Where to invest $5,000 in an irrational market
• 3 fantastic ASX 50 shares I would buy today
• 3 ASX shares to buy for 2021
• 2 quality ASX 200 shares to buy for long-term growth
• Investing $1,000 into these ASX 200 shares could be a smart move

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The post Are these beaten down ASX shares in the buy zone? appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3ee4ePl