Author: therawinformant

If you’re looking for better interest rates than those on offer with savings accounts or term deposits, then I have good news for you! Despite the pandemic, the Australian share market is still home to a good number of shares offering decent dividends.

Two ASX dividend options that I think are top picks for income investors right now are listed below. Here’s why I like them:

Commonwealth Bank of Australia (ASX: CBA)

The first ASX dividend share to consider buying is Commonwealth Bank. I think the banking giant’s shares are trading at a very attractive level following a sharp pullback this year. And although this pullback isn’t completely unjustified, I believe the extent of its decline has been overdone.

While guessing what dividend the bank will pay next year is difficult given the increased uncertainty caused by the coronavirus second wave, I would expect something in the region of $3.00 per share in FY 2021. After which, I expect a rebound to a more normal level in FY 2022. The former still equates to a generous fully franked 4% yield.

SPDR S&P/ASX 200 Fund (ASX: STW)

I think the SPDR S&P/ASX 200 Fund ETF could be another good option for income investors right now. As its name implies, this fund gives investors exposure to all of the 200 companies listed on the S&P/ASX 200 Index (ASX: XJO) through just a single investment. This means you’ll be investing in a diverse group of shares including Commonwealth Bank and the rest of the big four banks, mining giants, and countless REITs.

Although predicting what the yield will be in FY 2021 is tricky because of the pandemic, traditionally it is around 4% to 4.5%. I think this makes it a good option for income investors that don’t have enough funds to maintain a truly diverse portfolio.

More reading

• Should you buy CBA shares before the dividend announcement?
• Bank savings rates fall as Buffett racks up record cash pile and analysts tip Qantas share price rebound
• It’s ASX reporting season! Here’s what to watch out for this week
• CBA and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak

Motley Fool contributor James Mickleboro 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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Is the Wesfarmers Ltd (ASX: WES) share price too expensive?

Wesfarmers is one of the largest and most popular companies on the ASX for Aussie investors. The company has a massive presence in the Australian retail scene, after all. It owns the stupendously successful hardware chain Bunnings, as well as the Officeworks, Kmart and Target store chains.

It also used to own Coles Group Ltd (ASX: COL) before Coles was kicked out of the Wesfarmers nest and spun off to live life on its own terms in late 2018. Before Coles was demerged, Wesfarmers was actually the largest non-public employer in the country. The company still retains a 5% stake in Coles to this day.

In addition to the retail stores listed above, Wesfarmers also owns a significant portfolio of other businesses. It owns the Kleenheat brand of gas, Covalent Lithium and the WorkWear clothing brand, amongst many others. If you’re looking for a diversified conglomerate, then this is Australia’s largest by far.

It’s a bold claim then, perhaps, to label Wesfarmers as overvalued. But I think there is sufficient cause here.

Is the Wesfarmers share price overvalued?

So on current pricing, Wesfarmers is asking a price of $47.01 a share. That gives the stock a price-to-earnings (P/E) ratio of 24.38 and a trailing dividend yield of 3.25% (which comes fully franked).

By comparison, the broader S&P/ASX 200 Index (ASX: XJO) currently has an average P/E ratio of 16.99. So the market is pricing Wesfarmers far above the market average, for a start.

But let’s look at some of Wesfarmers’ numbers.

In the 6 months to 31 December 2019, Wesfarmers reported 6% growth in revenue and 4.4% growth in after-tax profits. solid numbers to be sure, but nothing exciting in my opinion. Ditto with Wesfarmers’ dividends. A 3.25% yield is solid, but nothing to write home about.

Not only that, but last year’s interim dividend came in at $1 per share. In February this year, Wesfarmers only delivered a 75 cents per share dividend (a 25% drop). This does take into account the demerger of Coles (from which Wesfarmers shareholders received an additional special dividend), but it still doesn’t excite me.

So for a company with (pre-coronavirus) revenue growth of 6% and a dividend yield of 3.25%, we are being asked to pay 24.38x earnings. It’s a ‘no deal’ for me.

Foolish takeaway

Wesfarmers is due to report its full-year earnings on 20 August, so it will be interesting to see what the past 12 months have thrown up for the company. Even so, there is nothing in the current Wesfarmers share price that leads me to believe the shares are anything but too expensive.

Yes, it’s a relatively stable and diversified company. But it is also one that is not growing very fast, and which I think there are few growth avenues left to meaningfully pursue. As such, I think there are better options out there for growth and income investors alike than Wesfarmers shares today.

More reading

• Why I would buy Goodman Group and these blue chip ASX shares
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• Are ASX retail shares buys right now?
• Why I’ve gone cold on ASX REITs
• Sigma share price jumps on $172 million deal

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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 Why the Wesfarmers share price is too expensive appeared first on Motley Fool Australia.

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There are few ASX shares that I would buy today in this current climate. We are living in uncertain times with COVID-19 causing disruptions and impacting businesses across the globe.

Yet despite this, valuations on some companies have soared these past few months. You only have to look at Afterpay Ltd (ASX: APT) and Domino’s Pizza Enterprises Ltd (ASX: DMP) to see how their share prices have skyrocketed.

What happens next to these shares is anyone’s guess, however there are still some absolute bargains on the ASX that I believe will provide strong returns in the near future. Here are 3 ASX shares that are worth a closer look today.

WiseTech Global Ltd (ASX: WTC)

The WiseTech Global share price has fallen 28% since 18 February 2020. In the early phase of the pandemic, the company was hit hard as global trade came to a standstill. Since then, economic trade has slowly started to pick up again and WiseTech Global has seen its operations get back to normal levels.

WiseTech’s latest business update to the market reaffirmed its FY20 guidance of revenue of $420–$450 million (growth of 21–29%), and earnings before interest, taxes, depreciation and amortisation (EBITDA) of $114–$132 million (growth of 5–22%).

I am confident that the long-term prospects of WiseTech Global remain strong and the company is well-placed to expand into new markets.

PolyNovo Ltd (ASX: PNV)

The PolyNovo share price has gained 73% from its March lows, meaning a $5,000 investment would have already netted you a $3,600 profit. A decent return for having your spare cash working for you rather than sitting in a savings account accumulating 1% interest per annum.

PolyNovo develops biodegradable material that is used for skin tissue repair to treat burn and skin trauma patients. Although the PolyNovo share price has stormed higher in recent months, in my view this Australian-based medical device company still has a long way to go and could be the next CSL Limited (ASX: CSL) in the years to come.

Just last month, PolyNovo addressed the market with a trading update stating that it had reached record US sales in June, and announced its first sales to the UK. The company expects its FY20 product sales to be at least double of that in FY19. In light of this, I think that the PolyNovo share price is undervalued and represents a buy today.

Qantas Airways Limited (ASX: QAN)

The Qantas share price has fallen from grace with investors, sitting 55% below its all-time high reached back in December 2019. Whilst the travel industry has been decimated from the coronavirus pandemic, I think that all the bad news has already been priced into this company.

The International Air Transport Association (IATA) has painted a bleak picture of international travel not returning to pre-COVID-19 levels until 2024. While short haul and domestic flights are likely to rebound more quickly, it’s predicted that travel within the country will return to normal by the end of 2020. I believe this is a big positive for Qantas as the Melbourne–Sydney route is the 2nd busiest domestic service in the world.

As Australia’s largest airline, I am convinced that Qantas will be able weather the storm and come out through the other side. The strong pullback on the Qantas share price is a buying opportunity for patient investors.

Foolish takeaway

I think these ASX shares are trading at very attractive prices for what profit they may be generating in the next few years. If I had to pick 1 of the 3, it would be PolyNovo based on its sizeable $1.5 billion addressable opportunity and management’s drive to expand into new markets.

More reading

• Bank savings rates fall as Buffett racks up record cash pile and analysts tip Qantas share price rebound
• ASX 200 jumps 1.2%: Big four banks rise, Qantas update, Mesoblast surges
• Qantas share price higher despite share purchase plan flop
• Top brokers name 3 ASX shares to buy next week
• Alliance Airlines reports 24% increase in profits

Aaron Teboneras owns shares of CSL Ltd. and WiseTech Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and POLYNOVO FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO and WiseTech Global. 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.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Six companies are currently evaluating COVID-19 vaccine candidates in late-stage testing. Johnson & Johnson (NYSE: JNJ) isn’t one of them.

J&J was among the first to commit resources to a major effort to fight COVID-19. It established a partnership with the US Government early on to develop a novel coronavirus vaccine. It’s the biggest healthcare company in the world, with massive resources. And yet Johnson & Johnson lags well behind multiple rivals, both big and small.

Don’t discount J&J’s prospects, though. The healthcare giant’s COVID-19 vaccine candidate could have an ace in the hole that just might make it the biggest winner of all.

Johnson & Johnson announced the publication of results from a preclinical study of its lead vaccine candidate, Ad26.COV2-S, on July 30. You might not think preclinical results would be a big deal. After all, several of J&J’s rivals in the race to develop COVID-19 vaccines have already announced results from early-stage clinical studies in humans.

The company reported that its experimental vaccine induced a robust immune response in nonhuman primates. In particular, vaccination with Ad26.COV2-S resulted in the production of high levels of neutralizing antibodies, which hold the potential to prevent infection by the coronavirus. J&J noted that its vaccine candidate provided “complete or near-complete protection in the lungs from the virus” in the animals in the preclinical study.

All of that was great news. But what really made these preclinical results stand out was that the impressive immune response was obtained with only a single dose of Ad26.COV2-S. Other COVID-19 vaccine candidates that are farther along in clinical testing require two doses.

There are a couple of key reasons why a “one-and-done” vaccine is preferable to vaccines that require multiple doses. First, a single-dose vaccine is cheaper. Second, people would be more likely to receive a single vaccine dose than they would be to get both doses of a vaccine that requires two.

It’s still early, though. J&J is evaluating both one- and two-dose regimens of Ad26.COV2-S in its phase 1/2a clinical studies. The company also plans to include both dosing regimens in its planned phase 3 study. There’s a possibility that testing could lead J&J to go with the two-dose approach. However, if the single-dose vaccination works as well in humans as it did in nonhuman primates, Johnson & Johnson could easily vault from laggard to leader in the COVID-19 vaccine space.

Playing the long game

Johnson & Johnson arguably remains something of an underdog in the race to develop a COVID-19 vaccine. Even though the company expects to begin a late-stage study of Ad26.COV2-S in September, it’s still well behind several other drugmakers. You also might be surprised that J&J has only won major regulatory approval for one vaccine – ever. And that approval came last month, with European approval of the company’s Ebola vaccine.

But J&J appears to be playing the long game pretty well with its COVID-19 vaccine development. It spent more time upfront to identify a candidate that could potentially be administered with only one dose. The company also is charging much less for its vaccine than its top rivals are. Last week, J&J landed a deal with the U.S. government to supply 100 million doses of Ad26.COV2-S for around $1 billion. By comparison, Pfizer and BioNTech are supplying 100 million doses to the US for $1.95 billion.

Lower pricing with fewer doses required might not seem like a smart strategy. Couldn’t J&J make a lot more money selling a two-dose vaccine regimen at a price more competitive with its rivals? Sure. The healthcare stock might even be up more year to date if it took this approach.

However, a single-dose vaccine would be much more attractive to governments across the world. And J&J is likely to sell it at cost while the pandemic is ongoing. After the pandemic ends, expect the company to raise its price.

Remember Aesop’s fable about the tortoise and the hare? It looks like Johnson & Johnson could be the tortoise in the race to develop a COVID-19 vaccine. The tortoise might win the race in the real world – just as it did in the fable.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Everything you need to know about the coronavirus vaccine race

Keith Speights owns shares of Pfizer. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Johnson & Johnson. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The curtain is about to be lifted on the Commonwealth Bank of Australia (ASX: CBA), ladies and gentlemen. Yes, on Wednesday, we are set to get a good look at the CBA books.

CommBank has been the holder of one of the biggest secrets on the ASX over the past few months. Due to a quirky reporting schedule, it was the only ASX bank that has not (until now) had to give investors a look at its numbers since the coronavirus pandemic hit our shores.

That means CBA is the only ASX bank yet to deliver a dividend cut or cancellation to its army of yield-hungry retail investors. The debate has been raging for months now as to what kind of final dividend CBA shareholders can expect this year.

After all, the ASX banking sector, formerly renown for its fat, fully franked dividends, has run dry in 2020. CBA’s banking stablemates Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) have ‘deferred’ their dividends entirely this year. National Australia Bank Ltd (ASX: NBA) did pay a 30 cents per share interim dividend last month. But that was down a long way from 2019’s interim payout of 83 cents per share. It was also accompanied by a dilutive capital raising. So in effect NAB shareholders were being billed with one hand and paid with the other.

An ASX banking dividend crisis

Of course, we can’t really blame the banks for this situation. The coronavirus crisis has severely damaged the economy — of which the fortunes of the banks are intrinsically tied. There are simply fewer people who want credit during a period of high unemployment and low (or negative) economic growth. And the banks’ hands were tied anyway.

The Australian Prudential Regulatory Authority (APRA) pretty much forbade the banks from paying substantial dividends between March and July. Although this ‘guidance’ was downgraded in June, the banks’ are still expected not to pay out more than 50% of their earnings as dividends. Seeing as CBA’s $4.31 in dividends per share in 2019 represented a payout ratio of around 80% of earnings, it’s my view that CBA shareholders will almost certainly not be spared a pay cut on Wednesday.

Are CBA shares a buy before earnings?

Even if CommBank does pull a dividend rabbit out of its hat on Wednesday, I’m not too wild about this bank as an investment in 2020 – for dividends or anything else. Why? Well, I think CBA shares do not offer much in the way of value in their current pricing. At the time of writing, Commonwealth Bank is trading at $73.84. That is (believe it or not) is just 7.6% below where the shares were this time last year.

That isn’t a great buffer for any future coronavirus-induced complications in my view. What if mortgage arrears pick up in 2021? Or what if credit growth grinds along at zero for a couple of years? What if there is a crash in house prices? These are all entirely conceivable events in the current climate. And yet it doesn’t look to me like investors are pricing in any of these risks. As such, I’m staying away from CBA shares right now, probably regardless of what happens on Wednesday.

More reading

• Bank savings rates fall as Buffett racks up record cash pile and analysts tip Qantas share price rebound
• ASX 200 jumps 1.2%: Big four banks rise, Qantas update, Mesoblast surges
• It’s ASX reporting season! Here’s what to watch out for this week
• BHP and 2 more ASX dividend shares for beginners
• CBA and 2 more ASX 200 shares to watch this week

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank 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.

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If you’re searching for some blue chip ASX shares to add to your portfolio this month, then the three listed below could be worth considering.

I believe these blue chip ASX shares have the potential to provide strong returns for investors over the next few years. Here’s why I would buy them in August:

Goodman Group (ASX: GMG)

The first blue chip ASX share to consider buying is Goodman Group. I’m a big fan of the integrated commercial and industrial property group due to its high quality portfolio of assets. Many of its assets have exposure to structural tailwinds such as ecommerce through agreements with Amazon and DHL. I believe these will be in demand for a long time and are likely to drive strong rental income growth over the next decade and beyond.

REA Group Limited (ASX: REA)

Another blue chip ASX share to consider buying is REA Group. I think the property listings company has an outstanding business model and have been very impressed with the way it has performed through both the housing market and coronavirus crises. And although trading conditions may remain tough for the next couple of quarters, I believe its growth will accelerate materially once things return to normal. Especially given its strong market position, growing global operations, potential price increases, and cost cutting.

Wesfarmers Ltd (ASX: WES)

A final blue chip share to consider is Wesfarmers. I think it is a great blue chip share to buy due to its positive long term outlook. I believe the conglomerate is well-positioned to deliver solid earnings and dividend growth over the next decade. This is thanks to the quality and diversity of its portfolio which includes the key Bunnings brand and the likes of Kmart, Catch, Officeworks, and several chemicals and industrials businesses. The company also has a hefty cash balance which is likely to be used for acquisitions in the near future.

More reading

• Are ASX retail shares buys right now?
• Is the REA Group share price in the buy zone? This broker thinks it is
• Kogan share price in spotlight after it releases new profit update
• These were last week’s best performing ASX shares
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended REA 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.

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The 4DMedical Ltd (ASX: 4DX) share price has surged more than 7% today after the technology company released an investor presentation outlining its market opportunity.

The company says its lung diagnostics software will create a step change in the capacity of physicians to diagnose and manage patients with lung diseases, which gave the 4DMedical share price a boost in today’s trade.

What does 4DMedical do?

Founded in 2012, 4DMedical is a Melbourne-based software company focused on diseases of the lung. The company is seeking to commercialise its four dimensional lung imaging technology which converts X-ray images into scan data. 4DMedical says existing lung diagnostics are “decades out of date, not fit for purpose, and ripe for displacement.”

4DMedical says its technology provides a non-invasive way of understanding regional lung motion and airflow in real time. Use of the technology is expected to improve patient and health outcomes and reduce costs of care. The company runs a software-as-a-service business model, allowing hospitals to access its technology without issues associated with hardware integration, capex or additional staff. 

How does the technology work? 

4DMedical’s technology integrates with existing X-ray equipment, meaning clients are not required to make a capital investment. The XV technology converts X-ray images into 4 dimensional data (3 dimensional plus time) which can be used to inform patient treatment. The platform allows the company to rapidly deploy a suite of respiratory diagnostic products across its network of clinics and hospitals. This provides a strong ability to defend market share from future competitors. 

4DMedical’s technology has won influential fans, with the head of the Alfred Hospital’s Lung Transplant Service saying, “4DMedical lung imaging technology provides a rare and exciting opportunity to improve lung health outcomes for patients globally.” 

What’s next for 4DMedical?

The respiratory diagnostic sector represents a global market of over US$31 billion per annum. The United States market is worth $13.7 billion. 4DMedical’s initial focus is on rapid penetration of the US market – given the large market size, even low market penetration could see substantial revenue generation with high gross margin. FDA approval is in place for 4DMedical’s XV Ventilation product, which is set to launch into the US in FY21. 4DMedical will commence TGA and CE Mark approval process for the XV Ventilation product in FY22. Launch in Australia and New Zealand is also slated for FY22. Launch in Europe is expected to take until FY23. 

The 4DMedical share price is currently up by 7.23% to $1.70 per share at the time of writing, giving the company a market capitalisation of $262.69 million.

More reading

• Why I would buy Goodman Group and these blue chip ASX shares
• Top broker thinks the IDP Education share price is going a lot higher
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• Are ASX retail shares buys right now?
• Here’s why the Mineral Resources share price rocketed 22% in July

Motley Fool contributor Kate O’Brien 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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When your business deals with international students, the closing of borders globally is never going to be a good thing.

This is what has happened to IDP Education Ltd (ASX: IEL) in 2020 and unsurprisingly has been reflected in its share price.

The IDP Education share price is down a disappointing 46% from its 52-week high.

Is this a buying opportunity?

While the short term will undoubtedly be tough for IDP Education, I believe this is priced in by the market now. In light of this and its very positive long term outlook, I feel this is a buying opportunity for investors.

I’m not the only one that would class it as a buy. According to a note out of Goldman Sachs, its analysts have retained their buy rating but cut the price target on the student placement and language testing company’s shares to $17.00. This compares to the current IDP Education share price of $13.43.

What did Goldman Sachs say?

Although it acknowledges that the next couple of years will be impacted by tough trading conditions in the core Australia and India markets, the broker remains very positive on its long term prospects.

It commented: “We now expect volumes across all of IEL’s key student placement markets to remain soft during 1H21E, and now only expect a recovery to commence from 2H21E. Whilst near-term uncertainty is likely to persist, we continue to see the longer-term structural growth profile of international education remaining robust.”

“Surveys on prospective students continue to suggest that plans to continue pursuing a higher level of education remains the case for the majority of students, and we expect this deferral of volumes to result in a build up of the student pipeline when markets reopen. We expect a sharp recovery in SP volume in FY22E, with a pick up in IELTS volume to lead student placement volumes,” the broker added.

In addition to this, Goldman believes that IDP Education will be in a strong position when conditions return to normal thanks to its strong balance sheet and access to capital markets.

It commented: “A strengthened balance sheet has allowed IEL to maintain its existing levels of capacity, particularly student placement agents, and we expect, that when international education markets fully reopen, this will place it in a favourable position to take a higher share of student placement volume vs. peers which may have had to reduce capacity during this period.”

I think Goldman Sachs is spot on and would be a buyer of IDP Education’s shares right now.

More reading

• Why I would buy Goodman Group and these blue chip ASX shares
• ASX stock of the day: 4DMedical share price surges 7% on market opportunity
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• Are ASX retail shares buys right now?
• Here’s why the Mineral Resources share price rocketed 22% in July

Motley Fool contributor James Mickleboro 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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This reporting season is described as the worst on record for the S&P/ASX 200 Index (Index:^AXJO). But there are a few stocks that could get upgraded this month.

The problem is that we will likely see more downgrades than upgrades post results. While profit expectations are low for FY20, the market is pricing in a V-shape recovery in the current financial year.

ASX Christmas Grinch

That looks optimistic and even our prime minister pained a sombre outlook for Christmas. Up to 400,000 Aussies is expected to be out of work by the end of this year as Prime Minister Morrison is bracing for three quarters of negative growth, reported the SMH.

While stocks at the mercy of economic cycles may see their FY21 earnings downgraded further, consensus expectations for some healthcare stocks may be set too low.

That’s the view taken by Credit Suisse as it reviewed the sector before these companies hand in their profit results.

ASX stocks on upgrade cycle

The broker pointed to the Sonic Healthcare Limited (ASX: SHL) share price and Healius Ltd (ASX: HLS) share price as two cum-upgrade candidates.

“Both SHL and HLS have pre-announced FY20 results; as such, there is little earnings risk going into the results,” said Credit Suisse.

“In addition, both companies are benefitting from robust COVID-19 testing levels, which is more than offsetting any potential weakness in the base businesses.”

The broker’s FY21 forecast net profit for Sonic is 7% above the street and Healius is 20% ahead of consensus.

 Structural upgrade story

Another in the sector that I like is the Ansell Limited (ASX: ANN) share price. The glove maker is on the cusp of a structural shift, according to Credit Suisse, and I couldn’t agree more.

“We expect ANN to meet its FY20 guidance and expect strong growth for FY21 as the strong healthcare demand will persist through FY21,” added the broker.

The demand for personal protective equipment (PPE) is expected to stay stronger for longer even if a vaccine is found for COVID-19.

I believe the Ansell share price will continue to hit new record highs in FY21.

Possible reporting season downgraders

But not all healthcare stocks will see upgrades. In fact, Credit Suisse warns that two may even be hit by broker downgrades.

One at risk stock is the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price. The stage four lockdown in Victoria will weigh on the hospital operator’s earnings growth for longer than expected.

Meanwhile, the Mayne Pharma Group Ltd (ASX: MYX) share price could also lose favour in the coming weeks.

The drug supplier is facing persistent and intense pricing pressure from generic medication and demand for its drugs is likely to be soft from the COVID-19 distraction.

If there is any delay in the launch of its generic NuvaRing in the current half, brokers may be forced to take an axe to FY21 estimates.

More reading

• These ASX healthcare shares could be fantastic long term options
• Why I’ve gone cold on ASX REITs
• Sigma share price jumps on $172 million deal
• Got $3,000 to invest? Try these 2 dirt-cheap ASX shares
• Why the Breville share price gained 14% in July

Motley Fool contributor Brendon Lau owns shares of Ansell Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia has recommended Ansell Ltd., Ramsay Health Care Limited, and Sonic Healthcare 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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