Stock Pick

  • The smartest shares to buy if you have $2,000

    I think investors need to be smart about which shares they buy at the moment.

    The first wave of the coronavirus seems to be passing, but we haven’t seen the full economic pain of it yet. There could still be a second wave.

    I think smart growth share investors with $2,000 should go for ideas that which long-term growth potential but could see growth accelerate due to the current situation.

    If you have $2,000, I’d be looking at one of these smart share ideas:

    Bubs Australia Ltd (ASX: BUB)

    Bubs is one of the lucky businesses seeing its growth accelerate during this period. In the update for the third quarter to 31 March 2020, Bubs said its quarterly revenue of $19.7 million was up 67% on the prior corresponding period and up 36% on the previous quarter.

    Customers are stocking up on Bubs products. The infant formula business recently announced another impressive distribution announcement which will see more products sold in more shops.

    I was pleased to see that the company generated a positive operating cashflow of $2.3 million for the period and ended with a cash balance of $36.4 million. Positive cashflow is an important step for a small cap. 

    It may be too bullish of me to expect it to follow in the exact footsteps of other ASX infant formula shares, but it’s making some very promising moves.

    Magellan High Conviction Trust (ASX: MHH) 

    Many of the world’s best businesses aren’t listed in Australia. You could look to invest in them directly, or you could invest in them indirectly. I like the idea of this listed investment trust (LIT) which is invested in around 10 of the best shares in the world. You don’t need to worry about which individual shares to own.

    Its top five holdings include Alibaba, Alphabet, Microsoft, Starbucks and Tencent. It also owns Facebook. Apart from Starbucks, I think the other top four are clearly in a good position to keep earning strong profits during this difficult period because of their digital business models.

    We can sometimes buy this LIT at a nice discount when its share price is less than its net asset value (NAV) per share). At the moment that discount is around 5%, not bad.

    Pushpay Holdings Ltd (ASX: PPH)

    Pushpay is another share I think that can be a strong performer over the next three years. It already has been very good since the start of May.

    FY20 was a great result and the earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) is expected to jump again in FY21 by around 100%.

    I expect electronic donations to US churches to rise significantly because of the coronavirus. I like that Pushpay’s app also allows those churches to livestream their services to people who can’t be there.

    Pushpay is a great share to invest in because its margins are rapidly rising. It’s starting to generate good cashflow and there are still plenty of countries and (non-church) charitable sectors to expand into.

    Foolish takeaway

    I really like all three of these share ideas. At the current prices it’s hard to pick between them, though I’d put Bubs and Pushpay slightly higher. I think they all have very promising futures.

    There are several other shares I’d love to buy for my portfolio:

    5 cheap stocks that could be the biggest winners of the stock market crash

    Investing expert Scott Phillips has just named what he believes are the 5 cheapest and best stocks to buy right now.

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    More reading

    The post The smartest shares to buy if you have $2,000 appeared first on Motley Fool Australia.

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  • Should ASX 200 investors want share buybacks or dividends?

    Man choosing between two options with arrows

    Warren Buffett has long been an advocate of buying back his own stock rather than paying a dividend to shareholders. The reason why? He believes that he can invest the funds better than individual shareholders and, thus, compound their wealth quicker.

    That is Buffett and predominantly US shareholders though. He has an amazing track record of allocating capital and creating outperformance for shareholders. Australian investors are much hungrier for and more used to dividends making up a significant portion of their share market investment returns versus their US counterparts.

    The argument for dividends

    What do Malta, New Zealand and Australia have in common? A full imputation credit system, i.e. franking credits. We are lucky enough to receive a tax credit for income taxes paid by the companies we own shares in. This is a significant benefit and under current law can even lead to a tax refund, depending upon your circumstances.

    Dividends also allow investors the choice of where to invest their new capital. This can help with increasing diversification or improving investment returns by redeploying capital into your best idea at the time. Many companies offer dividend reinvestment plans (DRIP) giving you the option (without brokerage) to buy more of the company’s shares, if that’s your best idea.

    Dividends are a great way to increase your cash flow. Many retirees hold a diversified portfolio of dividend-paying shares, the income of which they live off.

    Another reason dividends may be preferred over buybacks is that management teams often mistime buybacks, buying at high share prices and conserving cash at depressed share prices.

    Some great dividend shares include Jumbo Interactive Ltd (ASX: JIN) and Macquarie Group (ASX: MQG).

    The arguments for buybacks

    Buybacks reduce the number of outstanding shares on the market, meaning that all future earnings are greater on a per-share basis. Theoretically, investors should see greater share price appreciation if everything else was consistent.

    Cash is a drag on your investment returns. The same can be said for companies. Buying back shares is a way of reducing cash drag and improving returns. A perfect example of this is Apple Inc. (NASDAQ: AAPL) which has a mountain of cash.

    So why didn’t Buffett buy Berkshire during the bear market?

    When Berkshire Hathaway Inc. (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, including buying back Berkshire’s own stock. This is despite Berkshire trading at a price-to-book value below Buffett’s previously touted buy zone of 1.2 times.

    A couple of potential reasons for Buffett not buying back more of his own shares are:

    1. Berkshire’s investment portfolio includes a number of wholly-owned businesses, as well as a number of consumer-facing share investments. Buffett has more information about these businesses than anyone else. This would suggest he knows the true economic impacts on these businesses and thinks that the share price is out of line with the business fundamentals.
    2. The buy-back program is at the full discretion of Buffett and Munger, vice chairman of Berkshire. A price-to-book valuation isn’t ideal and so in recent times, they have looked more to earnings multiples to value Berkshire.

    Foolish bottom line

    Both buybacks and dividends can be great for investors when implemented well by management. ASX investors should buy shares in companies with great management teams.

    Here are some great dividend paying stocks if you want more franking credits.

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    Edward has just named what he believes is the number one ASX dividend stock to buy for 2020.

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    More reading

    Lloyd Prout has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, Berkshire Hathaway (B shares), and Jumbo Interactive Limited 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 Macquarie Group Limited. The Motley Fool Australia has recommended Apple, Berkshire Hathaway (B shares), and Jumbo Interactive 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 Should ASX 200 investors want share buybacks or dividends? appeared first on Motley Fool Australia.

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  • Alibaba Drops After Projecting Slowing Growth in Uncertain Times

    Alibaba Drops After Projecting Slowing Growth in Uncertain Times(Bloomberg) — Alibaba Group Holding Ltd. slid after projecting revenue growth will slow this year, reflecting post-Covid 19 economic uncertainty at home as well as the potential for U.S.-Chinese tensions to disrupt its business.Its stock slid as much as 4% in Hong Kong Monday, after a drop of almost 6% in New York before the weekend. The e-commerce giant forecast sales growth this year of at least 27.5% to more than 650 billion yuan ($91 billion), down from 35% previously and slightly below analysts’ estimates. While it posted a better-than-expected 22% rise in March quarter revenue of 114.3 billion yuan, that marked its slowest pace of expansion on record.Online shopping began to bounce back from March, executives said Friday. But the tepid outlook demonstrates the world’s second-largest economy has yet to fully shake off Covid-19, with consumers still hesitant about spending on big-ticket items. Asia’s most valuable corporation is tackling also the rise of rivals such as ByteDance Ltd. and Pinduoduo Inc. And the Tmall operator is going head-to-head with Tencent Holdings Ltd. for internet leadership in everything from online media to payments and cloud computing. JD.com Inc., the No. 2 Chinese online retailer, forecast better-than-expected revenue this quarter.“The market is a bit disappointed despite the strength given 2Q guidance of 20-30% YoY growth for JD and 99% GMV growth in 1Q20 for PDD,” CICC analyst Natalie Wu wrote. “We regard Alibaba’s advantage as a market leader as intact and unchanged in the longer run, though it may take several quarters for market sentiment to swing back.”Read more: Alibaba Sales Growth Plumbs New Lows While Uncertainty EscalatesAlibaba has lost more than $70 billion of market value since the coronavirus first erupted in January, and now has to grapple with not just an uncertain global economic environment but also any potential fallout from U.S.-Chinese financial tensions. On Friday, executives sought to assuage concerns about a U.S. bill that mandates much closer accounting scrutiny of U.S.-listed Chinese companies and may bar them from American bourses.Chief Financial Officer Maggie Wu said Friday Alibaba’s financial statements have been consistently prepared in accordance with U.S. GAAP accounting measures and were beyond reproach. “The integrity of Alibaba’s financial statements speak for itself, we have been an SEC filer since 2014 and hold ourselves to the highest standard,” she told analysts on a conference call. “We will endeavor to comply with any legislation whose aim is to protect and bring transparency to investors who buy securities on U.S. stock exchanges.”The bigger short-term challenge is in reviving growth: Alibaba’s bread-and-butter customer management or marketing business grew just 3% in the March quarter. Much of that stems from weaker consumer sentiment during the coronavirus-stricken quarter, when total Chinese e-commerce rose just 5.9% or at less than a third of 2019’s pace, according to government data. Jefferies analysts led by Thomas Chong wrote that Alibaba’s guidance was in fact a positive when viewed against an array of uncertainties gripping the post-Covid 19 global economic environment.What Bloomberg Intelligence SaysUser engagement and transaction volume have rebounded in April and May to precrisis levels, which bodes well for normalized sales growth ahead, especially as merchant-support measures are gradually rolled back.\- Vey-Sern Ling and Tiffany Tam, analystsClick here for the research.Rival PDD posted a revenue rise of 44% on Friday, down sharply from 91% in the previous quarter but ahead of expectations. Its sales and marketing expenses jumped 49%. PDD’s shares climbed 15% Friday.Alibaba’s March-quarter net income was 3.2 billion yuan, down 88% from a year ago when it booked an 18.7 billion yuan one-time gain on investments. In February, Alibaba declared a waiver of some service fees for merchants struggling financially during the outbreak on its main direct-to-consumer Tmall platform. In April, the company rolled out a new 10-billion-yuan subsidy program for Tmall users to buy electronics, encroaching on JD.com’s traditional turf. These initiatives may further compress margins for the June quarter.“The challenging part is for them to achieve the same amount of growth this year,” said Steven Zhu, a Shanghai-based analyst with Pacific Epoch. “Just because they are too big, for the same amount of growth, they need to spend much more effort.”But executives were confident in a gradual e-commerce recovery over the year. Beyond its main business, younger divisions such as its cloud computing arm should buoy the bottom line. That division’s revenue jumped 58% in the quarter.“Despite a challenging quarter due to reduced economic activities in light of the COVID-19 pandemic in China, we achieved our annual revenue guidance,” Wu said in a statement. “Although the pandemic negatively impacted most of our domestic core commerce businesses starting in late January, we have seen a steady recovery since March.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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