Author: therawinformant

ASX shares took a bit of a tumble today. The S&P/ASX 200 Index (ASX: XJO) dropped by around 3%. I’ve got my eyes on some high quality ASX shares if the COVID-19 selloff gets worse.

Only time will tell whether this is the start of another extended decline for the ASX or whether it was just a temporary blip during the recovery.

If today’s drop does lead to another painful decline then I’ve got my eyes on these top ideas:

Share 1: Pro Medicus Ltd (ASX: PME)

On a day that the ASX dropped 3%, the Pro Medicus share price went up 2.7%. That’s an impressive performance.

I think Pro Medicus is one of the best ASX shares. But it’s also one of the most expensive.

It’s very rare to find a business on the ASX with an earnings before interest and tax (EBIT) margin of above 50%. In the FY20 half-year result it reported an EBIT margin of 50.2%. This means that a lot of new revenue can flow straight to the bottom line. This strong economic performance means Pro Medicus’ cash reserves and dividend can increase at a fast rate. It also doesn’t have any debt.

The ASX share continues to win large international contracts. Each new client it wins gives it a stronger reputation to win over the next client in the pipeline.

I think it speaks volumes that Pro Medicus initiated a share buyback whilst other ASX shares were doing dilutive capital raisings during the COVID-19 share market crash.

However, I personally wouldn’t want to consider buying Pro Medicus shares unless it dropped under $22.50 again.

Share 2: Australian Ethical Investment Limited (ASX: AEF)

Australian Ethical’s share price fell 7.2% today. The ethical fund manager has been very volatile over the past nine months due to the bushfires and the recent coronavirus crash.

I think Australian Ethical is a very promising ASX business. Before COVID-19 it was rapidly growing funds under management (FUM).

Fund managers are very scalable because it doesn’t really cost much more to manage $2.1 billion compared to $2 billion. The early superannuation withdrawal and the decline of the share market won’t have helped the ASX share’s FUM. But that will hopefully just be a temporary setback for Australian Ethical.

If it can keep attracting more clients and benefit from rising superannuation contributions then this ASX share could be one to watch. I like that it doesn’t have any debt and it continues to grow its cash balance.

However, I’m waiting for a share price under $4 to buy shares.

Foolish takeaway

I may be waiting a long time to buy Pro Medicus and Australian Ethical shares. They’re two of the most promising ASX shares out there. I just want to buy them for a price that’s quite a bit cheaper.

More reading

• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• These were the worst performers on the ASX 200 last week
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• These ASX healthcare shares could be long term market beaters
• Why Austal, Evolution, Newcrest, & Pro Medicus are tumbling lower

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. 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 S&P/ASX 200 Index (ASX:XJO) dropped 3% today.

Pessimism seems to have returned because the boss of the US Federal Reserve downplayed how fast the US economy could bounce back.

The ASX 200 was a sea of red

There was a lot of red on the ASX today. There were two key industries that the market really punished, banks and travel companies.

The Commonwealth Bank of Australia (ASX: CBA) share price dropped 4.4%, the Westpac Banking Corp (ASX: WBC) share price dropped 6.1%, the Australia and New Zealand Banking Group (ASX: ANZ) share price declined 6.2% and the National Australia Bank Ltd (ASX: NAB) share price went down 5.4%.  

Looking at ASX 200 travel shares, the Webjet Limited (ASX: WEB) share price plunged 10.1%, the Flight Centre Travel Group Ltd (ASX: FLT) share price went down 10.4% and the Corporate Travel Management Ltd (ASX: CTD) share price declined 7.7%.

JB Hi-Fi Limited (ASX: JBH) fails to impress

The ASX 200 retailer revealed a trading update today. It was impressive, but the JB Hi-Fi share price still fell by more than 4%.

In the second half of FY20 to date, JB Hi-Fi Australia sales grew by 20%, JB Hi-Fi New Zealand sales dropped 19.3% and The Good Guys sales rose by 23.5%.

The New Zealand sales were impacted by the closure of stores due to restrictions.

The ASX 200 company is now expecting net profit to be in the range of $300 million to $305 million. This would be an increase of 20% to 22%. The profit growth includes an estimated impairment of New Zealand assets of around $25 million after tax.

IPH Ltd (ASX: IPH) share price rises again

The IPH share price went up another 4.3% today. Yesterday the ASX 200 IP company announced an acquisition called Baldwins Intellectual Property for $7.4 million.

It’s based in New Zealand and was established in 1896. Baldwins’ FY20 earnings before interest, tax, depreciation and amortisation (EBITDA) after normalisation adjustments for partner salaries was approximately NZ$2 million.

Clients include large multi national businesses, universities, government agencies, start-ups and individual inventors.

More reading

• These ASX 200 stocks just got downgraded by top brokers
• 3 of the best ASX 200 blue chip shares to buy today
• Why the Webjet share price isn’t a bargain buy
• These ASX shares are the best way to invest overseas
• What today’s ASX 200 selloff tells me

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. 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.

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I think that having a little exposure to small cap shares can be a good thing for a portfolio if your risk profile allows it.

After all, if you can identify the next Afterpay Ltd (ASX: APT) when it is still only a small cap, you could generate mouth-watering returns.

With that in mind, here are three small cap ASX shares which I think are worth watching closely:

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan is a provider of enterprise mobility software to sales and service organisations. This software has been designed to increase sales win rates, reduce costs, and improve customer satisfaction. This is achieved through improved mobile worker productivity. Demand for Bigtincan Hub has been growing very strongly over the last couple of years and continues to this day. At the end of April the company revealed that it remains on course to achieve its 30% to 40% organic revenue growth target in FY 2020.

Volpara Health Technologies Ltd (ASX: VHT)

Another small cap ASX share to watch is Volpara Health Technologies. It offers cost-effective, mission-critical software that help radiologists deliver the highest-quality breast imaging services. Its software also leverages artificial intelligence imaging algorithms which assist with the early detection of breast cancer. At the end of FY 2020 its annual recurring revenue was up 172% year on year to NZ$18 million. This compares to its estimated US$750 million ARR opportunity in breast cancer screening.

Whispir (ASX: WSP)

A final small cap ASX share to watch right now is Whispir. It is a software-as-a-service communications workflow platform provider. Whispir’s intelligent and powerful workflows aim to revolutionise customer engagement, business resilience, and operational communications. Demand has been increasing very strongly during the pandemic and looks likely to lead to a strong full year result in August. I’m confident there will be more of the same in FY 2021 and beyond.

More reading

• 3 great shares to buy now if you’re an ASX 200 investor in your 20s
• EML Payments and these ASX mid cap shares could be destined for big things
• 3 small cap ASX tech shares that could be stars of the future
• Sezzle Inc shares and 2 other small cap ASX techs surge higher today
• 2 exciting small cap ASX shares that could have big futures

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO, BIGTINCAN FPO, VOLPARA FPO NZ, and Whispir Ltd. The Motley Fool Australia has recommended BIGTINCAN FPO, VOLPARA FPO NZ, and Whispir Ltd. 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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Our market went into a freefall on Thursday with ASX big bank stocks leading the tumble. But these aren’t the only stocks to come under pressure as leading brokers downgraded two others to “sell”.

The S&P/ASX 200 Index (Index:^AXJO) fell 3.1% as it slipped below the psychologically important 6,000 mark with every sector dropping into negative territory.

We could see a few more days of weakness given the market’s big rebound from its COVID-19 low, but I don’t see the ASX 200 dropping back into a bear market.

While investors could see the weakness as a buying opportunity, brokers think you should be avoiding these two ASX stocks.

Cold chill from US mortgage business

The first is share registry services group Computershare Limited (ASX: CPU) as Citigroup downgraded its recommendation on the stock to “sell” from “neutral”.

“Our Deep Dive into CPU’s second largest business (US mortgage servicing) highlights several near-term challenges, all the more so if, as we expect, refi picks up again,” said Citigroup.

“There is the allure of potential positives down the track, but these are of uncertain size and likely some time away.”

Negatives outweigh positives

The positives the broker is referring to is earn one-off fees and the potential for higher margin sub-servicing work on non-performing loans. Around 8.5% of US mortgages are on a loan holiday.

But the upside may not eventuate until the second half of FY21 at the earliest and Citi pointed out that the tailwinds are hard to quantify.

In the meantime, revenue growth from Computershare’s US mortgage servicing division is expected to slow from around 20% CAGR over the last four years to about 6%.

The Computershare share price crashed 8.1% to $12.88 today. Citi’s price target on the stock is $12 a share.

In a hole

Another stock that took a hit from a broker downgrade was the South32 Ltd (ASX: S32) share price.

The stock lost 4.4% to $2.19 after Macquarie Group Ltd (ASX: MQG) lowed its rating on the miner to “underperform” from “neutral”.

The broker believes the downside risks to South32 is intensifying with most of its key commodities trading under Macquarie’s forecasts.

Earnings disappointment to come?

“The downside risk is headlined by hard coking coal which is trading 26% and 33% below our FY21 and FY22 estimates, respectively,” said the broker.

“Most other commodities and operating currencies are also trading well below our forecasts. Only manganese offers material upside risks to our FY21 assumptions.”

Macquarie’s 12-month price target on South32 is $1.90 a share.

More reading

• ASX 200 drops 3%, Webjet share price sinks
• These ASX shares are the best way to invest overseas
• Should I keep my stake at the current Monadelphous share price?
• All Technology Index sees stunning comeback
• Top brokers name 3 ASX 200 shares to buy today

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited and South32 Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie 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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If you’re looking to add a few ASX 200 blue chip shares to your portfolio in June, then the three listed below could be worth considering.

I believe these blue chip shares have the potential to generate solid returns for investors over the next few years. Here’s why I would buy them:

Commonwealth Bank of Australia (ASX: CBA)

The first blue chip share to consider buying is Commonwealth Bank. I think it would be a great option for investors that don’t already have exposure to the banking sector. This is because I believe it is the highest quality bank in Australia and well-positioned for growth once the headwinds it is facing ease. And with its shares offering an estimated fully franked yield of at least 5% in FY 2021, it is also a handy source of income in this low interest rate environment.

Goodman Group (ASX: GMG)

Another ASX blue chip share to consider buying is Goodman Group. It is an integrated commercial and industrial property group with a high quality portfolio of assets. I’m a big fan of Goodman because its properties are exposed to industries benefiting from structural tailwinds like ecommerce. Given how these assets are likely to be in demand for many years to come, I believe it is well-positioned for solid long term growth.

SEEK Limited (ASX: SEK)

A final ASX blue chip share to consider buying is SEEK. While times are hard now, I think the job listings giant could still be a market beater over the next decade. This is due to the quality of its ANZ business and its growing China-based Zhaopin business. The latter contributed 47.8% of total revenue during the first half of FY 2020. This compares to the ANZ business, which accounts for 25.6% of its revenue. Given how lucrative the China market is, I’m confident Zhaopin can drive strong growth for SEEK for many years to come.

More reading

• ASX 200 drops 3%, Webjet share price sinks
• Fundie sees trouble ahead for ASX bank dividends
• ASX bank share prices tumble as they aren’t out of the COVID-19 woods yet
• What is the ASX impact of a fall in house prices?
• 3 ASX shares to buy now with $10,000

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended SEEK 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 MGM Wireless Limited (ASX: MWR) share price had a gloomy day on the market on Thursday after shares resumed trading for the first time since late May.

MGM Wireless is a micro-cap ASX tech share that designs and develops technology, software and wearable devices to enhance communication between families, schools, and society.

The company’s multichannel communication solutions enable schools to communicate with parents and caregivers using their preferred medium. These solutions are used by more than 1,400 schools and 1.7 million parents.

What’s going on with MGM Wireless shares?

MGM Wireless requested the voluntary suspension of its shares in late May pending an announcement of a significant new customer contract and capital raising.

The company revealed details of the capital raising last week on 5 June, announcing its intention to raise up to $1.5 million via a share purchase plan (SPP).

The SPP will be priced at 10.75 cents, representing a 23.2% discount to the last trading price of MGM shares on 22 May.

MGM Wireless will use the capital raised from the SPP primarily to accelerate the growth of its Spacetalk business.

Spacetalk is a children’s smartwatch sold in Australia, New Zealand and the UK through leading retailers like Officeworks, JB Hi-Fi Limited (ASX: JBH) and Kogan.com Ltd (ASX: KGN). 

MGM Wireless is aiming to scale-up growth and progress towards potential “company-changing deals” for Spacetalk and new product releases.

With this, the company detailed two new products set to be released this month: a new model watch specifically for seniors and a new model children’s watch.

MGM Wireless believes the revenue growth for its seniors watch could match or exceed the growth it has experienced with Spacetalk. In this way, the seniors watch creates the opportunity to double the rate of the company’s overall revenue growth.

New customer contract update

As we touched on earlier, MGM Wireless requested its shares be suspended pending the announcement of two developments: the capital raising and a “significant new customer contract”.

While the capital raising was announced last week, details of the contract came today, allowing MGM Wireless shares to resume trading.

The company advised that the contract is currently progressing through the final stages of the customer’s authorisation and contract execution process.

However, the requirements of these final stages and COVID-19 logistical issues have reportedly caused the sign-off to take longer than expected.

MGM Wireless noted it will inform the market immediately once it is in a position to make an announcement regarding the outcome of this customer contract.

More reading

• Why the Webjet share price isn’t a bargain buy
• These ASX shares are the best way to invest overseas
• Why is the A2 Milk share price underperforming?
• What today’s ASX 200 selloff tells me
• HRL Holdings share price flies 20% on consensus-beating earnings guidance

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. 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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Two of the worst performers on the S&P/ASX 200 Index (ASX: XJO) on Thursday were the Flight Centre Travel Group Ltd (ASX: FLT) share price and the Webjet Limited (ASX: WEB) share price.

The shares of the travel booking companies fell 10.5% and 10%, respectively.

Why did Flight Centre and Webjet shares crash lower?

With the market falling heavily today, it appears as though investors have been taking profit.

This isn’t entirely surprising given the stellar gains Flight Centre and Webjet shares have made over the last seven weeks.

Prior to today, the Webjet share price was up over 100% since April 22, whereas the Flight Centre share price was up 64% over the same period.

This has been driven by Australia’s quicker than expected recovery from the pandemic and optimism that the domestic travel market could rebound in the coming months. That is of course if Australia can avoid a second wave as restrictions are eased.

Therefore, news that someone in Melbourne that was protesting at the weekend has been diagnosed with COVID-19 may have also spooked investors today.

Should you buy the dip?

I wouldn’t be a buyer of Flight Centre or Webjet’s shares right now. Although both their shares are down materially from their highs, they still look very expensive to me.

This is particularly the case with Webjet. It currently has a market capitalisation of $1.4 billion. This is based on a total of ~339 million shares outstanding and a share price of $4.18.

Surprisingly, Webjet’s market capitalisation is actually greater than what it was at the start of the year before the pandemic.

At that point Webjet had a total of ~135.6 million shares outstanding and a share price of $9.49. This equates to a market capitalisation of just under $1.3 billion.

So, despite the Webjet share price trading 73% lower than its 52-week high and the next couple of years likely to be very tough, its valuation is actually higher now than in January because of its highly dilutive capital raising.

I believe this demonstrates why it can be dangerous to just use a company’s share price as a guide for whether a share is cheap or not.

More reading

• All Technology Index sees stunning comeback
• How the A2 Milk and Bubs share prices have performed during the pandemic
• Why Flight Centre, Smartgroup, Woodside, & Worley shares are dropping lower
• The smartest ASX shares to invest $10,000 in right now
• ASX 200 jumps 2.4%, unloved shares keep rising

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. 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.

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Investing in international shares is something Australian investors don’t do enough of, in my opinion.

I mean, think about it. ASX shares only make up something like 2% of all the available equity in the world. So, if you just stick to the S&P/ASX 200 Index (ASX: XJO), you’re excluding yourself from over 98% of the potential opportunities out there.

There’s nothing wrong with ASX shares, but how many of them have a truly global presence in the way overseas shares like Apple, Alphabet or Mastercard do?

So with this in mind, here are the three best shares that can, in my view, help you easily gain access to the wider world of investing available beyond our shores.

BetaShares FTSE 100 ETF (ASX: F100)

The FTSE 100 index is the United Kingdom’s equivalent to our own ASX 200 however, as the name suggests, it consists of the UK’s top 100 companies by market capitalisation. The BetaShares FTSE 100 ETF tracks the performance of this index, providing investors with exposure to the 100 largest companies traded on the London Stock Exchange. Queen Elizabeth II may still be our head of state, but the UK is a world away. Therefore, I think investing in the largest British companies through this ETF is a great way to invest overseas and diversify an ASX share-focused portfolio.

F100’s top holdings include HSBC Bank, GlaxoSmithKline, British American Tobacco, BP, Royal Dutch Shell and even our own Rio Tinto Limited (ASX: RIO), which is dual-listed on the London Stock Exchange.

Vanguard MSCI Index International Shares ETF (ASX: VGS)

If you want a simple, one-stop-shop solution to achieving global diversification in your ASX share portfolio, you needn’t look beyond this monster of an ETF. VGS holds more than 1,500 companies across the advanced economies of the world, including Japan, the UK, Switzerland, Canada and, of course, the United States. The biggest US companies like Microsoft and Amazon.com dominate this ETF, but you are also getting some other names like Toyota, LVMH, Nestle and Royal Bank of Canada.

For cheap, easy diversification across a portfolio of quality global companies, this ETF is definitely worthy of consideration.

MFF Capital Investments Ltd (ASX: MFF)

MFF is a slightly different investment to consider today if you want to invest overseas. It’s not an ETF, but rather a listed investment company (LIC). This means it is run by a fund manager rather than a computer algorithm. This fund’s manager is Chris Mackay. Mr Mackay is a co-founder of Magellan Financial Group Ltd (ASX: MFG) and an extremely well-regarded Aussie investor with considerable global experience.

MFF focuses mostly on US shares and has perennial performers like Visa and Mastercard as top holdings in its portfolio. Recently, MFF has stocked up on its cash position and is currently sitting with more than 45% of its assets in cash.

I like that MFF is making a bet against the crowd right now. I also think this LIC represents a great way of getting some contrarian investing strategies from the international stage into one’s ASX portfolio.

More reading

• Should I keep my stake at the current Monadelphous share price?
• All Technology Index sees stunning comeback
• Top brokers name 3 ASX 200 shares to buy today
• Is the Scentre share price cheap today?
• ASX bank share prices tumble as they aren’t out of the COVID-19 woods yet

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares), Magellan Flagship Fund Ltd, Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Mastercard, and Visa. The Motley Fool Australia has recommended Alphabet (A shares), Mastercard, and Vanguard MSCI Index International Shares ETF. 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 A2 Milk Company Ltd (ASX: A2M) share price has been a surprisingly poor performer over the last couple of months.

Since peaking at $19.23 in the middle of April, the fresh milk and infant formula company’s shares have been creeping lower.

Today they are changing hands for $17.65, which means they are now down over 8% from their high.

As a comparison, the S&P/ASX 200 Index (ASX: XJO) is up over 10% during the same period.

Why has the a2 Milk share price been underperforming?

There are a couple of reasons for its underperformance during the last two months.

The first is the outperformance of the a2 Milk share price in the months before it reached its all-time high. This is evident in its year to date gain of approximately 26% compared to a 10.5% decline by the ASX 200.

Investors were scrambling to buy the company’s shares during the first few months of 2020 due to speculation that its sales in China were on fire because of panic buying. This proved to be the case in April when a2 Milk Company released a trading update and upgraded its guidance.

However, with this already priced into its shares, the buy side soon ran out of steam and its shares began to slide.

What else is weighing on its shares?

In addition to this, recent data out of China isn’t overly positive for a2 Milk Company.

According to Goldman Sachs’ latest China Consumer Connections, the company’s online sales underwhelmed during the month of May.

After months of explosive sales growth, the broker estimates that a2 Milk Company’s sales on Chinese ecommerce platforms fell 1% in May compared to the same period last year.

In light of this, it believes its online market share in China has fallen from upwards of 9% in March to 6% in May.

This appears to have been driven by market share gains by local infant formula companies. This is particularly the case with Feihe International’s Firmus infant formula, which has been winning market share at a rapid rate.

Should you be concerned?

I think it is a bit early to be concerned by its recent online market share losses. Especially as it has a tendency to be reasonably volatile. But it will be worth keeping an eye on things to see if there are any negative trends forming.

For now, though, I continue to see a2 Milk Company as a share to buy.

More reading

• How the A2 Milk and Bubs share prices have performed during the pandemic
• 2 ASX shares I’d buy if the ASX crashes again
• 3 top ASX shares to buy now to get rich later
• 3 companies with great intangible asset moats
• Will ASX 200 shares hit a record high in June?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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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