Investors have always sought the protection of gold in cases of recessions and financial crises. Gold was already off to a strong start in 2020 following geopolitical escalations between the US and China, and the US and Iran. The coronavirus pandemic further propped up gold prices to almost record all-time highs.

This is why investors should be watching ASX gold shares instead of trying to pick ‘cheap’ stocks and dividend traps. 

Tailwinds for gold 

Safe-haven buying has been fuelled by the collapse of global equity markets in first quarter of the year. Central banks around the world have their printing machines running overtime in an attempt to cushion the economic repercussions of the coronavirus. Furthermore, interest rates were slashed by major global central banks, with the Reserve Bank of Australia cutting rates to 0.25% and the US Federal Reserve cutting interest rates to zero percent. Printing more money and raising debt should see fiat currencies get devalued. 

Additionally, China’s decision to curb Hong Kong’s autonomy by pushing forward a controversial national security law and the likelihood of a strong US retaliation will continue to support stronger gold prices, in my opinion. As reported by the BBC, President Donald Trump has said that “this is a tragedy for Hong Kong … China has smothered Hong Kong’s freedom”. Rising tensions could put the US–China trade deal agreed in January at risk. 

As economies around the world begin to restart economies by relaxing lockdown measures and allowing businesses to reopen, there is the risk of a ‘second wave’ of coronavirus infections. While global equities have rebounded and remain optimistic, a second wave could initiate another broad market sell-off. 

ASX gold shares

ASX gold miners are an excellent avenue to gain gold exposure without having to directly invest in the commodity. There are a broad range of gold miners that have differing growth and cost characteristics. 

Northern Star Resources Ltd (ASX: NST) and Saracen Mineral Holdings Limited (ASX: SAR), for example, have typically been more growth orientated, favouring acquisitions and the expansion of their mining capabilities. Both miners are involved in the joint venture of the KCGM, the largest open pit mine in Australia and the 2nd highest producer of gold. These significant acquisitions have generated immediate revenue and continue to provide the businesses with additional exploration and reserve upside. While I would say Northern Star and Saracen are more volatile and risky investments, their ‘growth’ orientated business models have seen significant capital gains for their long-term investors. 

Alternatively, Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) are more cost-focused with some of the lowest all-in sustaining costs. Evolution and Newcrest are well positioned to leverage off higher gold prices given their low production costs. 

More reading

• Why these 3 ASX 200 blue chips could be set for growth this week
• 5 ASX 200 winners and 3 losers from last week
• ASX 200 Weekly Wrap: Surging bank shares push ASX toward 6,000
• 5 things to watch on the ASX 200 on Monday
• Top ASX Stock Picks for June 2020

Motley Fool contributor Lina Lim 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 Forget cheap stocks. Why investors should watch ASX gold shares instead appeared first on Motley Fool Australia.

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Speculation that the federal government is readying a large home buyer’s grant could put the building materials sector on an earnings upgrade cycle.

There are reports that the Morrison government will announce later this week that new home buyers will get a cash handout of between $20,000 to $40,000.

This fourth round of stimulus is aimed at protecting the home construction industry from falling off a cliff, according to a report on Yahoo.

New housing grant

Around 380,000 tradies are expected to benefit from the generous cash handout for existing and first-home buyers looking to purchase newly constructed dwellings.

There’s even talk that the grant will be made available for home renovations, although we shouldn’t get too excited just yet as nothing is confirmed.

The only thing that seems to be reasonably certain is that the new housing grant will at least match the $21,000 offered by the Rudd government during the global financial crisis.

Building to an upgrade

If the new measure works as intended and provides a strong pipeline of home construction activity, brokers will likely scramble to upgrade their earnings expectations for a number of ASX shares.

These include building materials companies Boral Limited (ASX: BLD), CSR Limited (ASX: CSR), Adbri Ltd (ASX: ABC) and James Hardie Industries plc (ASX: JHX).

It’s probably no coincidence that two of the four shares are among the top five best performers on the S&P/ASX 200 Index (Index:^AXJO) today. The pair is Boral and Adbri as they are the worst in the group and would probably have the most to gain.

More stimulus in the pipeline

But the industry may also get a second tailwind. State governments are also tipped to announce separate stimulus on top of the up to $40k grant.

Governments are forced to act after the industry’s peak body, Master Builders Australia, predicted 400,000 building businesses and 1.2 million jobs were in jeopardy due to housing downturn.

The association is pushing for renovations to be included in the package as it claims that will generate $7 billion in economic activity and 24,036 jobs.

“Work for builders and tradies in 2020/21 is fast evaporating and the indications are that 2021/22 will not be much better,” said the chief executive of Master Builders, Denita Wawn.

Other ASX stocks to benefit

If renovations are included, it won’t only be building materials companies that will be smiling. Hardware retailers owned by Wesfarmers Ltd (ASX: WES) and Metcash Limited (ASX: MTS) are also likely to benefit.

If you are wondering why the share prices of property developers like Stockland Corporation Ltd (ASX: SGP) seem to be in the doldrums today, it’s probably because new housing estate developments only make up a part of their portfolio.

Unfortunately for them, the other parts (such as shopping malls) are still under significant pressure.

More reading

• These 5 ASX 200 shares were last week’s biggest winners
• 3 leading ASX 200 shares to buy for market-beating returns
• Top brokers are urging you to buy these ASX shares today
• Leading brokers name 3 ASX 200 shares to buy right now
• The latest ASX 200 stocks to be upgraded by top brokers

Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc. The Motley Fool Australia owns shares of Wesfarmers 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 These ASX shares are set to get a big boost from the next big government stimulus appeared first on Motley Fool Australia.

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The share market was positive last week with the S&P/ASX 200 Index (ASX: XJO) up 5.3%. Australian shares continued their post-crash rally in May with the ASX 200 ending the month up 4.2%. The index has now climbed more than 25% since the March crash, but remains around 20% below February highs. 

Share prices over May were impacted by the loosening of coronavirus restrictions, changing commodity prices, and local economic expectations. With lockdowns easing ahead of initial expectations, the economy is reopening earlier than expected. This has improved confidence prompting a rebound for sectors previously sold off heavily. We take a look at last week’s biggest share price gainers. 

Southern Cross Media Group Ltd (ASX: SXL)

Shares in Southern Cross Media surged 62.1% last week to finish the week at 23.5 cents. The share price rallied mid week despite no news out of the broadcaster, resulting in an ASX price query. Challenger Ltd (ASX: CGF), a substantial holder in Southern Cross Media, has been selling down its stake, with its voting power falling from 8.32% to 6.27% in May. 

Southern Cross shares were dramatically sold down as the coronavirus crisis took hold, falling from above 60 cents in February to just 11 cents in April. The broadcaster completed a $169 million capital raising in May (announced in April) with proceeds used to pay down debt. The capital raising was conducted at 9 cents a share in the face of declining advertising revenues. 

The broadcaster has instituted sweeping cost reductions with $40–$45 million in operating expenditure savings to be realised in CY20. Capital expenditure is being reduced by $3–$6 million over FY20 and FY21. The FY20 interim dividend was cancelled and no final dividend will be paid. 

Following the receipt of the full proceeds of the capital raising, Southern Cross Media’s net debt stood at $161.8 million in early May. Southern Cross managed to achieve positive earnings before interest, tax, depreciation and amortisation (EBITDA) in April, with revenue declines partially offset by operating cost reductions. Southern Cross Media has warned however that bad and doubtful debt provisions could reach $5 million in H2 FY20. 

Virgin Money Uk PLC (ASX: VUK)

Virgin Money shares gained 23.2% last week to close the week at $1.805. There was no news out of the lender last week to prompt the price rise, however investors were favouring ASX banking shares with the big four banks also rising. 

In its interim financial results released earlier in May, Virgin revealed a resilient first half performance, with underlying profit before tax of £120 million. During the half business lending increased by 5.7% while personal lending increased by 6.2%. Costs were down 3% year on year. 

Virgin says it has a defensive portfolio consisting of 82% mortgages, 11% business, and 7% unsecured lending. Its credit card portfolio is prime quality and it has low exposure to more impacted small and medium enterprises. Nonetheless, the lender has booked a COVID impairment provision of £164 million. 

Virgin is taking a disciplined approach to risk management. The loan portfolio has been built prudently and customers and credit lines managed proactively. Virgin says its funding and liquidity position would allow it to withstand a 9–12 month shut out of markets and it has no reliance on short-term wholesale funding. 

Boral Limited (ASX: BLD)

Boral shares climbed 21% last week and finished the week at $3.11. There was no news out of Boral last week to prompt the surge in the share price, however Boral shares were heavily sold off in the March crash and even now are trading 38% down from their February highs. 

Boral is currently embroiled in litigation relating to its US windows business, which it acquired in 2017. In the lawsuit Boral alleges the former owner of the windows business breached non-compete covenants. The former owner has made his own $700 million claim against Boral with litigation ongoing. 

The windows business has been a source of pain for Boral with financial irregularities uncovered in December. These included misreporting in relation to inventory levels and costs associated with raw materials and labor. Pre-tax earnings were overstated by US$24.4 million between March 2018 and October 2019. 

Austal Limited (ASX: ASB)

Austal shares gained 20.1% last week closing the week at $3.34. Shares spiked Friday morning after the shipping company increased FY20 earnings guidance. Austal is now forecasting group revenue of around $2 billion and group EBIT of no less than $125 million. 

The improved forecast is attributable to a number of factors. These include COVID-19 having a more limited impact in April and May than anticipated and the sustained strength of the US dollar. Austal was also awarded a new vessel construction contract in May. 

Austal is a shipbuilder producing commercial vessels and defence prime contractor. It has shipyards across the US, Western Australia, Vietnam, and the Philippines. Shares in the shipbuilder were sold off sharply in the March correction, falling 47%. Austal shares remain 20% down from their February high. 

McMillan Shakespeare Limited (ASX: MMS)

Shares in McMillan Shakespeare climbed 18.8% last week to finish the week at $8.64. The McMillan Shakespeare share price has been in decline since late last year. Revenues and profits fell in the first half, following which coronavirus hit. 

McMillan Shakespeare has reported a decline in novated leasing volumes since the onset of coronavirus, however salary packaging activity remains unchanged. The company has a large customer base in the health, public, and emergency service sectors which should provide some protection against a fall in volumes. 

New asset financing in Australia and New Zealand has declined. The focus in this area is on extending maturing lease contracts and working with customers to restructure lease arrangements. In the UK, McMillan Shakespeare’s asset management business responded to the lockdown by furloughing non-essential staff and reducing salary and other costs. 

More reading

• These ASX shares are set to get a big boost from the next big government stimulus
• 3 leading ASX 200 shares to buy for market-beating returns
• Top brokers are urging you to buy these ASX shares today
• Leading brokers name 3 ASX 200 shares to buy right now
• The latest ASX 200 stocks to be upgraded by top brokers

Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal 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 These 5 ASX 200 shares were last week’s biggest winners appeared first on Motley Fool Australia.

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