Recent events indicate we are at the beginning of a silver bull market. The silver to gold ratio is larger than it has ever been in my lifetime. Industrial demand is starting to come back online, and the world is seeing increase industrial use for renewable assets and batteries. Also, I stack (or collect) precious metals and I cannot get any until July. 

Precious metals are not formed on earth. They come from the single most violent event in the universe, when a star goes supernova. They then land on earth and through geological processes end up in various types of deposits over millions of years. So not only are they rare on earth, they are some of the rarest metals in the universe!

I have been stacking precious metals for about 30 years now. In this time, I have learned two things about silver in particular.

First, it is very volatile. In US dollars, the gold price has rise by 11.4%, year to date (at the time of writing). Since the silver bull market started (around late April), the silver price in US dollars has risen 10.1% in a month. Second, it always seems to snap back to an average ratio. In the 48 years since 1970, it averaged 57:1. I buy gold when the ratio is close to average, and I buy silver when it is large. Today the ratio is ~103:1.

The silver bull market

South32 Ltd (ASX: S32) owns the silver and lead producing Cannington mine in Queensland. Cannington is one of the world’s largest and lowest cost silver mines. It produces 6% of the total world silver production. With an earnings yield of 13.6% at the time of writing, South32 appears to be selling cheap. For the 3 years it has been profitable it has achieved an average return on capital expended of 27%. This is a very good user of capital.

BHP Group Ltd (ASX: BHP) started out as a silver miner and still produces a lot of silver as a by-product. In FY2019, it produced around 2.9 Moz of silver. BHP is well placed across a range of commodities including the booming iron ore trade as well as future facing copper and nickel production. 

Of the major producers, Oz Minerals (ASX: OZL) processed approximately 630,421 ounces of silver in FY19 as a byproduct of its gold production. However, Sandfire Resources Ltd (ASX: SFR) is in the feasibility stage of a mineral deposit in Botswana with a known silver reserve of 14.6Moz. Its share price is likely to see a bump as the silver bull market takes hold.

Foolish Takeaway

Australia is well placed for the silver bull market – we have the third largest silver reserves on the planet. Our miners also have access to large deposits of silver across the world. We are very cost effective miners with a demonstrated capacity to bring production online quickly. 

More reading

• 3 commodity trends to watch this week
• ASX 200 Weekly Wrap: ASX rallies on mining highs
• Where to invest $5,000 in ASX 200 shares immediately
• Have $500 to invest? Then buy these 5 ASX 200 shares immediately
• ASX 200 drops 1% on Friday

Motley Fool contributor Daryl Mather 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.

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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.

More reading

• 3 explosive ASX growth shares to buy
• 3 ASX shares that I’d invest $1,000 into EVERY month
• 2 ASX stocks that could replace cash
• Where growth, income, and value investors can invest right now
• 3 top ASX growth shares that could smash the market in the 2020s

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

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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.

More reading

• ASX 200 Weekly Wrap: ASX rallies on mining highs
• Where to invest $20,000 into ASX shares right now
• How I would build a $130,000 ASX dividend portfolio right now
• 3 ASX dividend shares I would buy to beat low rates
• How to reduce your work to part-time using ASX shares

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.

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