The end of the financial year could complicate the recovery of some beaten down ASX shares.

These underperforming stocks on the S&P/ASX 200 Index (Index:^AXJO) may see the rebound in the share prices capped by shareholders looking to unload these losers for tax-loss purposes before the June 30 deadline.

If you aren’t already thinking about the tax implications for the financial year, you should be!

Waiting longer for a recovery

This is particularly so because the V-shaped economic recovery that many were hoping to see once the COVID-19 emergency passed is unlikely to materialise.

The debate is now focused on whether we will get a “U” or “L” shaped recovery instead. This means the short- to medium-term outlook for some coronavirus-impacted shares is likely to stay dim.

No point holding on to some of these losers if you can utilise the loss to offset your capital gains liabilities, especially if you think you can buy these laggards back later at a discount or around the same price.

What’s tax-loss selling?

For those who need a refresher on what tax-loss is, if you sell a stock below what you paid, the loss can be used to offset any profit you make on other investments.

For instance, if you made a loss of $100 on a stock and made a $100 profit on another, your capital gains liability is likely to be zero. You should check with your accountant to ensure you stay within the rules.

You should also note that the tax office takes a dim view of those who sell a stock for tax loss and then buy it back almost immediately. Again, be sure to speak to your tax professional for advice.

Poor foundations

But coming back to stocks that I believe make ideal tax-loss selling candidates, there are several that come to mind.

One stock that fits the bill is building materials group Boral Limited (ASX: BLD). The Boral share price was already under pressure before the COVID-19 disaster due to poor management that drove multiple profit downgrades.

The market’s patience ran out and this forced its chief executive Mike King to announce his departure in August.

The transition to a new leader usually marks a volatile period for shareholders. Newly installed chief executives of embattled companies almost always make dramatic cuts and changes that includes big write-down of assets.

A better option to Boral

If you are hanging on because you believe construction activity in the US and Australia will experience a speedy recovery, you probably would do better buying its better run rival James Hardie Industries plc (ASX: JHX).

Sure, you will be paying a premium for the switch, but you are getting a higher quality investment – and it’s particularly worth paying for quality during highly uncertain periods.

Weak properties

Another group of stocks that I think make good tax-loss selling targets are those own shopping malls and apartment projects.

I can’t see a V-shape recovery for this group and I am not swayed by arguments that their shares are trading below book value.

The problem is that there is lots of room to lower the value of their assets if structural changes to mega malls are afoot.

The outlook for apartment sales are also bleak as this segment of the property market is overly dependent on property investors and international students.

Examples of companies exposed to these thematic are Vicinity Centres (ASX: VCX), Stockland Corporation Ltd (ASX: SGP) and Mirvac Group (ASX: MGR).

Clipped wings

A third example of a stock that I see little reason to hang on to for the near term is Flight Centre Travel Group Ltd (ASX: FLT). The Flight Centre share price made a very decent 60% bounce since its March bottom and is ripe for tax loss selling for those who have been in the stock for a while.

Shares in the travel agent is still down close to 70% this financial year and international travel is one of the last few industries to return to “normalcy” (whatever that looks like in the post-coronavirus world).

Its cost base is also higher than online rivals as it operates brick and mortar shops. I reckon there’s time to buy back the stock later when more of the COVID-19 dust has settled.

The wild card is government support. There’s speculation that the federal government may extend a financial helping hand to industries most stricken by the pandemic.

However, I would rather back other travel related stocks if I wanted to take a punt on the government stimulus.

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• 2 unbelievable ASX 200 value shares to buy today
• Why didn’t Warren Buffett buy more shares in the recent bear market?
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again

Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc. Connect with me on Twitter @brenlau.

The Motley Fool Australia has recommended Flight Centre Travel 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.

The post The ASX 200 stocks in the tax-loss selling firing line appeared first on Motley Fool Australia.

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During routine analysis on the weekend, 2 absolute fantastic S&P/ASX 200 Index (ASX: XJO) shares jumped out at me. I had previously written these off as far too expensive and turned my attention elsewhere. Both of these ASX 200 value shares have been among the best performing shares of the decade, increasing their share price by at least 10 times in the past 10 years. 

This is a unique window in time where shares of this calibre are available at what I believe are discount prices. 

Altium Limited (ASX: ALU)

Between 2010 and now, Altium has been one of the outperforming ASX 200 value shares, with its share price returning over 146 times the initial investment. That means a $10,000 investment 10 years ago would have become over $1.4 million today. This is not a company that is built on smoke or vapour – Altium develops software for the printed circuit board (PCB) design industries.

Over a 10-year period, it has achieved compound annual growth rates (CAGR) that are the envy of most organisations. It is clear Altium is a company built on solid technological foundations, managed with steel-like discipline. This includes a 10-year sales CAGR of 16.4%, an 8 year earnings per share (EPS) CAGR of 30.3%, and a cashflow CAGR of 39.3%. Over the past 5 years, using a USD to AUD conversion rate of $0.72, the company has an average return on capital employed (ROCE) of 20%.

This is an organisation that knows how to turn capital into profits. 

The company is sitting on a current price-to-earnings (P/E) ratio of 60, which immediately sounds high. It is way over the company’s 10-year average P/E of 23. However, when you factor in the compound growth rates I have mentioned with a horizon of 10 years, then the share price appears to be at a discount.

Personally, even if it was selling at a small premium I would be interested in owning this ASX 200 value share. Even with the recent hit from the coronavirus, it clearly has a long runway ahead of it. 

Domino’s Pizza Enterprises Ltd. (ASX: DMP)

Everyone knows Domino’s. Most readers have probably bought from Domino’s. We know the taste, the buying experience, the usefulness of the app. And for many of us, we know that we automatically choose Domino’s Pizza. It isn’t a thought-through process. This is what makes it one of the great ASX 200 value shares.

Like Altium, Domino’s was an outperforming share during the past decade, returning 12 times the initial purchase price. It has a sales CAGR of 21.9% and shows no signs of slowing, with last years sales growth exceeding that of the previous 2 years. Its 10-year cashflow CAGR is 22.3% and it has a 10-year EPS CAGR of 21.4%. Also like Altium, the company has demonstrated an ability to turn capital into profits, averaging a ROCE of 19% over the past 4 years.

On paper, its P/E is 39.16. That’s 9 points higher than its 10-year average. However, over a 10-year investing horizon and based on the above CAGRs, I believe it is selling at a discount.

Foolish takeaway

When searching for ASX 200 value shares it is important to dig a bit deeper than the initial summary statistics. If you were to look at headlines and P/E ratios alone, you will never have a full measure of an organisations true worth. 

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• The ASX 200 stocks in the tax-loss selling firing line
• Why didn’t Warren Buffett buy more shares in the recent bear market?
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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.

The post 2 unbelievable ASX 200 value shares to buy today appeared first on Motley Fool Australia.

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When Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) reported its March quarter activity, many investors were shocked to see that Warren Buffett had not put more of his massive cash pile to work. Buffett didn’t make any meaningful buys, despite the S&P 500 Index being down as much as 34%. This included Berkshire’s own stock, which had been trading at a price-to-book value below Buffett’s previously touted buy zone of 1.2 times.

Further to this, it was interesting to see that he had sold down certain shares during the recent bear market. Primarily, the mass exodus from the US airlines.

Why didn’t Warren Buffett buy more shares?

No one other than Buffett (or Charlie Munger) will know why Berkshire acted the way it has recently, but here’s my best guess.

1. Buffett is an investor. He thinks and acts for the ultra long term. Short-term volatility may provide buying opportunities, but with an ultra long-term horizon, investing with so much uncertainty means Buffett doesn’t want to make bets he’s not sure of.
2. The share market is future looking, which is why the market has partially bounced back despite the reporting of increasing unemployment. But, there is an argument that the market has recovered out of line with the economy. We do not yet know the full economic impact of COVID-19, or if there will be a second wave. Warren Buffett doesn’t invest in what he doesn’t know or understand.
3. Berkshire performed so well coming out of the Great Recession in part because of the preferential deals and discounted purchases Buffett could make whilst other businesses were distressed. Many of these deals and purchases weren’t made straight away and Buffett is probably hoping to do the same again as the economy emerges from the effects of the pandemic. It is worth noting that between 1987 and 2016, the average time for the S&P/ASX 200 to reach new highs after a correction of 10% or more was over 3 years.

Why did Buffett sell the airlines?

This one is fairly simple. His thesis was broken and he thinks he can redeploy that capital into other ideas or keep it safe in cash.

What ASX investors should do

Retail investors won’t get preferential deals like Buffett. Dollar cost averaging into great shares is a fantastic way to ensure you don’t miss out on discounts.

The ASX is made up of many shares. Some will be cheap and some will be expensive. Be selective and buy quality businesses with strong balance sheets and long-term prospects. Some quality businesses to consider are Treasury Wine Estates Ltd (ASX: TWE), Aristocrat Leisure Limited (ASX: ALL) and Volpara Health Technologies Ltd (ASX: VHT).

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• The ASX 200 stocks in the tax-loss selling firing line
• 2 unbelievable ASX 200 value shares to buy today
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again

Lloyd Prout owns shares in Aristocrat Leisure Limited and Berkshire Hathaway Inc and expresses his own opinions.. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited and VOLPARA FPO NZ. The Motley Fool Australia has recommended Berkshire Hathaway (B shares). 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 Why didn’t Warren Buffett buy more shares in the recent bear market? appeared first on Motley Fool Australia.

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