Category: Stock Market

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.

You might be wondering if investing when the stock market is at or near its all-time high is a good idea. Before you decide, it’s worth considering two factors: your risk tolerance and your investment time horizon. It’s also worth looking at what has resulted from investing at previous all-time highs. Historically speaking, there has rarely been a bad time to put money to work assuming it’s money geared for long-term investing.

Here, we’ll go over some of the most important factors in deciding whether you should really be investing in the stock market right now.

Your risk tolerance

Some people have an insatiable tolerance for investment risk: No amount of bitcoin tokens or GameStop stock is enough. For others, it’s quite the opposite. No matter the type of investor you are, you should be evaluating risk from the standpoint of your total portfolio. That is, you should consider your entire financial situation and then assign risk from there.

Next, realize that there are two key attributes of risk tolerance: your ability to take risk and your willingness to take risk. You might be a multimillionaire with an above-average ability to take risk, but you might not have the willingness to do so because you don’t feel there’s much to be gained as a result. In another case, you might have a very high willingness to take risk but have other obligations that prevent you from adopting such a strategy. Simply put, risk tolerances vary widely.

There’s also a psychological risk when it comes to investing: Some people literally can’t sleep at night knowing their money is in danger of losing value. Stock market risk most famously comes in the form of volatility, or the tendency for investment values to fluctuate in either direction (at least in the short term). While it’s somewhat in vogue to ignore the importance of being able to sleep at night, you’d be smart to exercise caution before you take on more risk than you can personally bear.

Your investment time horizon

With regard to time horizon, you should only be investing money in the stock market that you won’t need for at least three years — some people even advocate five years as a minimum time frame. Regardless, if you’re planning on using the money in six months for a down payment on a home or a large college tuition bill, you shouldn’t be investing it in the stock market.

One of the keys to determining your time horizon for various buckets of money is to create an asset allocation as part of a complete financial plan. You might start with an emergency fund — money meant to cover short-term expenses in the event of job loss or other emergencies.

From there, you can build a portfolio of stocks, bonds, and other investments that reflects your ability to take risk over specific periods of time. Money in a child’s education fund meant for use in several decades can be earmarked as a long-term account whereas money meant for a home renovation next year will require short-term management.

In brief: A long time horizon — say, of at least five years — is a sign you’re ready for a stock market investment.

What if the market is at an all-time high?

Bears beware: The fact remains that over long periods of time, the stock market has rarely lost money. If you had invested money at all of the previous all-time highs — despite the crazy volatility often found in between — you’d have come out ahead. You may have even come out very far ahead depending on the specific time period during which you began.

Investing now has a few important advantages. First, the sooner you invest, the sooner you’ll be eligible to collect dividends, for example, and accumulate more shares. This is the very essence of compounding. Through compounding asset values, you’ll be shocked at how fast your money can grow.

Next, investing now will start your holding period for preferential long-term capital gains tax treatment. Long-term capital gains rates reward investors who have held stocks and bonds for over a year. Over time, you want as much of your income as possible taxed at as low a rate as possible — the sooner you start investing, the sooner this will happen.

Invest, but have a strategy in place

The stock market — without question — can make you a very wealthy individual if you stick to the basics. Invest early and often, sell only when necessary, and focus on the long term. But before you do, make sure to take a thorough look at your entire financial picture and be entirely honest with yourself about your appetite for risk as well as your relevant investment time horizon. If everything checks out, proceed confidently and invest now.

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

The post Should you really be investing in the stock market right now? appeared first on The Motley Fool Australia.

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• Why the Whispir (ASX:WSP) share price is jumping 7% today
• Why is the Mineral Resources (ASX:MIN) share price struggling this week?
• The Amcor (ASX:AMC) share price has struggled since May
• Yes, the ASX is due for a correction. But don’t worry
• Why the Webjet (ASX:WEB) share price has fallen 10% in a month

Sam Swenson, CFA, CPA has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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

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The Mineral Resources Limited (ASX: MIN) share price has taken a downward turn in the last week.

After hitting an all-time high of $61 last Thursday, Mineral Resources shares closed yesterday’s trading session at $58.14. That’s a tumble of around 4.5% in the past week.

Let’s take a look at how the Mineral Resources share price has performed and what’s driving shares down.  

Mineral Resources shares tumble with overall market

Mineral Resources has not released any price-sensitive news over the past week that could explain the decline in its share price.

It may be that the mining services company is feeling the effect of weakness in the overall market.

Since last Thursday, the S&P/ASX200 Index (ASX: XJO) itself has tumbled more than 100 points.

As a result, many shareholders might be prompted to lock in their profits after the outstanding performance of Mineral Resources shares over the past year.

Snapshot of the Mineral Resources share price

Mineral Resources shares have outperformed in the last 12 months.

The company’s share price has continued to trend higher over the past year, hitting new high after new high.

Shares in Mineral Resources have surged more than 137% in the last 12 months, and more than 48% since the start of the year.

What’s been fuelling recent success?

Mineral Resources is a mining services company that also has a portfolio of mining operations across lithium and iron ore.

The company’s business revolves around mining services, commodities, infrastructure and energy. These mining services include contract crushing, recovery of base metals, logistics, and accommodation.

The surging price of spot iron ore has helped fuel the Mineral Resources share price over the past 12 months. At the close of trade yesterday, iron ore was trading at US$219 a tonne.

Mineral Resources claims to be the fifth largest iron ore producer in Australia. The company also has aspirations to triple production to 90 million tonnes per annum over the next five years.

In addition to iron ore, Mineral Resources has two high profile lithium projects which have contributed to the company’s prospects.

Based on the current share price, Mineral Resources Limited has a market capitalisation of nearly $11 billion.

The post Why is the Mineral Resources (ASX:MIN) share price struggling this week? appeared first on The Motley Fool Australia.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Amcor Plc (ASX: AMC) share price has been under the pump in the last couple of months. While shares in the global packaging company are up 1.9% since 30 June, it’s been tough going for a couple of months.

Amcor shares surged higher to $16.05 per share on May 7. Since then, investors have watched the shares slide 4% in approximately 10 weeks to $15.41 at Tuesday’s close.

So, what’s driving the current volatility in the Amcor share price?

Why the Amcor share price has struggled since May

Let’s start with why the packaging company’s value jumped in May to start with. The major factor sparking that surge was the release of the group’s third quarter trading results for FY2021.

Amcor announced net income up 47.5% on the prior corresponding period (pcp) to US$267 million for the quarter ended 31 March 2021. For the first 3 quarters combined, net income was up 58% on pcp to US$684 million.

Climbing net sales figures, combined with the falling cost of sales, helped boost earnings and investors spirits. The Amcor share price jumped higher as a result, closing May 7 at $16.05 per share.

However, it’s been largely downhill since then. It’s worth noting that there haven’t been any price-sensitive announcements from the packaging group since May.

That hasn’t stopped investors from selling down in a volatile patch for the packaging group. That means there hasn’t been a clear catalyst for the recent share price softness we’re seeing reflected in Amcor’s valuation.

One factor could be the rise of the Delta strain both across Australia and more generally across the globe. COVID-19 restrictions crimped demand for packaging and strained supply chains when it first broke out in March 2020.

Foolish takeaway

While the Amcor share price has struggled since May, it’s not all bad news for investors. Shares in the packaging group are still up 1.7% year-to-date and flat on a last twelve months basis.

The post The Amcor (ASX:AMC) share price has struggled since May appeared first on The Motley Fool Australia.

More reading

• Brokers name 3 ASX shares to buy today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Amcor Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Australian share market is historically due for a correction, according to one expert.

Fairmont Equities managing director Michael Gable noted that we just saw the 2021 financial year close with the All Ordinaries Index (ASX: XAO) heading up 26%.

“Its best performance in 34 years — as you would know, the share market is unlikely to repeat this performance,” he said in a memo to clients.

“If the easy money has been made off the COVID lows, then what can we expect from here?”

Unfortunately history is not on investors’ side.

“We… tend to have a correction every 18 to 24 months, and it has been 16 months since the last one,” said Gable.

“Many are betting that the market has run too hard in the face of increasing inflationary expectations, the re-emergence of COVID cases, and a sluggish vaccination rollout.”

How to dodge the 2021 share market correction

Despite the pessimism, Gable reckoned the share market would still end up positive for the 2022 financial year. But it will require hard work on the part of individual investors.

“Gains will be harder to come by,” he said.

“Last year we had a ‘rising tide lifts all boats’ scenario that made it seem so easy that every second millennial is now an expert trader. I suspect that reality will hit home this year, don’t you?”

To clinch the gains on offer, Gable recommended investors be very alert and not be passive about which ASX shares to buy and sell.

“It will involve more than just buying and holding,” he said.

“Those of you that have been around a while know that buying and holding doesn’t always work and I am sure you can think of more than one stock that should have been sold a lot earlier.”

Finance commentator Peter Switzer also said this week that even if a short-term correction does occur, it won’t be anything like the bloodbath seen in March 2020.

“There’s a lot more certainty about what will happen compared to the frightening days when the virus threat closed down the world economy, Italians were dying and hospitals weren’t able to handle the avalanche of patients,” he wrote on his website.

“There’s a pile of stimulus from governments worldwide. Interest rates are set to make consumers spend and businesses invest.”

He added that Australia now has coronavirus vaccines.

“This scare will escalate the jabbing between now and Christmas,” Switzer said.

“We learnt yesterday [more] Pfizer is on the way and that will be a huge stimulation for vaccinations… This is the kind of game-changing development that will suppress excessive negativity of big stock market influencers.”

The post Yes, the ASX is due for a correction. But don’t worry appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Webjet Limited (ASX: WEB) share price has been on a disappointing run over the last month. This comes despite no news being released by the online travel agent since the middle of May – over 2 months.

At yesterday’s market close, Webjet shares finished the day down 1.26% to $4.69.

COVID-19 lockdowns hit the travel industry

The resurgence of COVID-19 cases in Australia is a likely catalyst for the recent downturn in the Webjet share price.

As the super infectious Delta variant spreads through communities, travel restrictions have returned, with some states closing their borders. This impacts companies like Webjet that rely on domestic travel to generate revenue.

A large number of cases across the states could mean that hard lockdowns will potentially remain for the coming weeks. Most notably, South Australia, is in the midst of one of the world’s harshest lockdowns, with level 5 restrictions in place.

Adding to the woes, New Zealand has enforced mandatory quarantine for most of Australia. This will also likely affect Webjet’s revenue stream as fewer people will be travelling internationally.

Fortunately, Webjet still has substantial cash reserves to survive the ongoing crisis that has put the travel industry in a tailspin. At its most recent update in May, the company stated it had $431 million pro forma cash on hand. This includes the net proceeds of $250 million in convertible notes completed in April 2021.

The average monthly cash burn rate stands at around $5.5 million, although this may change due to the unfolding situation. However, going off estimates, this provides Webjet with enough breathing space to run operations for the next 6.5 years without raising additional funds or drawing down on debt.

The company is scheduled to hold its annual general meeting (AGM) on 31 August.

Webjet share price summary

Over the last 12 months, the Webjet share price has lifted more than 60% since hitting near COVID-19 lows, but is still a long way off from 2019 levels.

Currently, the company’s share price is sitting in the middle of its 52-week range of $2.63 to $6.33.

Based on valuation grounds, Webjet has a market capitalisation of around $1.7 billion, with approximately 379 million shares outstanding.

The post Why the Webjet (ASX:WEB) share price has fallen 10% in a month appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Could the Hub24 Ltd (ASX: HUB) share price be one to look at after its latest quarterly update?

Hub24 has a few different parts to its business. It has its Hub24 platform, the HUBconnect business and Xplore platform. The business offers advisers and their clients a comprehensive range of investment options, with managed portfolio solutions and enhanced transaction and reporting functionality.

June 2021 quarterly update

For the three months to 30 June 2021, Hub24 announced record platform quarterly net inflows of $3.9 billion. That comprises $2.2 billion from Hub24 platform, $1.4 billion from the completion from the completion of the ClearView Wealth bulk transition and $0.3 billion from Xplore Wealth.

It also had record platform annual net inflows of $8.9 billion – an increase of 80% year on year.

Total funds under administration (FUA) is now $58.6 billion, including Xplore, with platform FUA of $41.4 billion as at 30 June 2021 (up 141% year on year). The portfolio, administration and reporting services (PARS) FUA was $17.2 billion.

During the quarter, the private label investment and superannuation offer for IOOF Holdings Limited (ASX: IFL) was launched and the Hub24 and IOOF teams are continuing to work together to roll out the solution across the IOOF adviser network. The bulk transition of $1.4 billion from Clearview was also completed during the quarter, management said this demonstrated the teams’ ability to deliver record organic growth whilst also managing large scale projects.

The company said that given Hub24’s significant growth in FY21, the expansion of our product and service offerings and the opportunities available in the market, it is investing to support future growth. The company is going to expand its executive team, hire additional distribution team members and invest in technology infrastructure to support scale and ongoing innovation.

According to the latest available ‘Strategic Insights’ data for the Australian platform market, Hub24’s market share has increased to 3.9% from 2.5% at 31 March 2021 and now includes the Xplore platform FUA.

Broker opinion on the Hub24 share price

Credit Suisse is one of the first brokers to react to Hub24’s update. The broker noted that the FUA rise, helped by strong inflows, was stronger than it had been expecting.

Another thing that the broker noted was that it has grown its market share of advisers from 9% to 15% over FY21. As a result, FUA may be able to reach a higher number than originally thought.

Credit Suisse has a price target of $31 on Hub24 for the next 12 months and rates it a buy. That suggests the Hub24 share price could increase by more than 20% in the next year, if the broker is right.

On the broker’s numbers, Hub24 is valued at 58x FY22’s estimated earnings.

The post Is the Hub24 (ASX:HUB) share price a buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor 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 and has recommended Hub24 Ltd. The Motley Fool Australia has recommended Hub24 Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The A2 Milk Company Ltd (ASX: A2M) share price was previously the darling of the S&P/ASX 200 Index (ASX: XJO). Shares in the Kiwi dairy company climbed nearly 1,000% from July 2016 to July 2020.

But it’s been a tough time for investors since then.

The A2 Milk share price has plummeted more than 64% lower to $6.89 per share in the last 12 months, hitting a 52-week low of $5.04 in May 2021.

So, what’s driving these recent share price losses for one of the previous ASX market darlings?

Why the A2 Milk share price is down 64% in the last 12 months

Perhaps unsurprisingly, the coronavirus pandemic hasn’t helped A2 Milk. The Kiwi company generates a significant proportion of sales from daigou sales channels. Daigou is the cross-border exporting of goods from outside China for resale and consumption in China.

Restrictions on travel and increasing problems with inventory management have spurred multiple A2 Milk earnings downgrades. That’s spelled trouble for the A2 Milk share price which has been tracking lower since July last year.

The announcement in August 2020 that senior executives were selling down certainly didn’t help. Millions of dollars worth of company shares were sold by the Chairman, CEO, COO and others in August which triggered a further share price decline.

It’s been a dramatic fall for a company that had long been seen as a growth success story. Shares in the Kiwi dairy company have, however, lifted off their recent lows in July.

Foolish takeaway

Clearly, the A2 Milk share price has struggled in the last year or so. Early investors in the company would still be sitting on a paper gain even at the current levels.

It’s also not all doom and gloom for investors. The Kiwi dairy group’s shares have actually gained 10% in the last month after closing at $6.89 per share on Tuesday.

The post It’s been a bad year for the A2 Milk (ASX: A2M) share price. Here’s why appeared first on The Motley Fool Australia.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The National Australia Bank Ltd (ASX: NAB) share price hasn’t been performing at its best so far this month.

In fact, NAB shares are currently trading 2.8% lower than their final closing price of June. After beginning the month at $26.22, NAB shares closed yesterday trading for $25.47 apiece. That is a fall of 0.7% on the day.

The flop follows news the big bank is in discussions to buy Citi’s Australian consumer business and reports it’s been tangled up in potential fraud.

Let’s take a closer look at what the market’s heard from NAB lately.

The month so far for NAB

A flat June’s trading for the bank continued into the beginning of July. The NAB share price gained just 0.14% between June 30 and July 13.

Then, after market close on July 13, the bank announced it was in discussions about acquiring Citi’s Australian consumer business.

At the time, Motley Fool Australia said Citi’s Australian consumer business will reportedly cost its new owner around $2 billion. The sale is also said to include around $11.5 billion worth of assets that would fit well with NAB’s current business model.

Citi’s Australian consumer business offers banking products including credit cards, loans, mortgages, foreign currency accounts, term deposits, and general banking accounts.

Following the news, the NAB share price gained a tiny 0.08% on July 14.

Then, on 16 July, reports swirled that NAB may be caught up in Forum Finance’s alleged fraudulent leases. NAB is thought to hold mortgages against founder Bill Papas’ property portfolio. Another report claimed NAB could be in hot water following breaches of Papua New Guinea’s anti-money laundering laws.

NAB shares fell 1.9% on the day the reports were published.

NAB share price snapshot

Despite its recent poor performance, the NAB share price is still well and truly in the green.

It has gained 11% since the beginning of 2021. It is also about 40% higher than it was this time last year.

The post It hasn’t been a great month so far for the NAB share price appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It has been an eventful couple of months for the EML Payments Ltd (ASX: EML) share price.

Since this time in May, the payments company’s shares have lost 26% of their value.

Though, this isn’t a bad outcome considering the EML Payments share price was down as much as 45% at one stage.

Why is the EML Payments share price under pressure?

Investors were selling down the EML Payments share price in May after the release of an update on its PFS Card Services Ireland business. That update revealed that the Central Bank of Ireland raised concerns over the business in relation to Anti-Money Laundering/Counter Terrorism Financing compliance.

This is particularly bad news because EML Payments moved its European operations out of London and into Ireland due to Brexit. This means that this business is responsible for all its PFS Card Services’ European revenue.

Management revealed that 27% of EML Payments’ total revenue is generated by the business. And with the Central Bank of Ireland intending to take action, potentially even removing its financial service authorisation for the European market, the company could lose a big chunk of its revenue.

Where next for its shares?

Where the EML Payments share price goes next could depend on what action the Central Bank of Ireland takes on the PFS Card Services Ireland business.

However, one leading broker has effectively removed the business from its valuation and still believes EML Payments shares are decent value. According to a note out of Macquarie, its analysts have an outperform rating and $3.95 price target on its shares.

While Macquarie may have removed the under-fire business from its valuation, it appears confident that any action will not be as extreme as forcing it to shut down. This could mean a big increase in its valuation should the outcome be much more favourable for EML Payments.

Recent broker upgrade

Another leading broker that appears to agree with this view is RBC Capital. Earlier this month the broker upgraded EML Payments shares to an outperform rating with an improved price target of $4.50.

RBC Capital believes the market is overestimating the impact from any action, creating a buying opportunity for investors. It suspects that a one-off fine and higher compliance costs are the most likely outcome from the investigation.

Overall, the last couple of months have been tough for EML Payments shares. However, if these brokers are to believed, the next two could be much more positive.

The post Two months on, what is the outlook for the EML Payments (ASX:EML) share price? appeared first on The Motley Fool Australia.

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Motley Fool contributor 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 and has recommended EML Payments. The Motley Fool Australia owns shares of and has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Totus Capital portfolio managers Ben McGarry and Tim Warner pick a pair of stocks that have tailwinds galore.

Best share #1: The world is rebuilding

MF: What is the best stock buy right now?

Ben McGarry: Fortescue Metals Group Limited (ASX: FMG), in the short term, still looks very good to us.

We’ve owned Fortescue since the Vale dam collapse a couple of years ago, on a supply shortage in iron ore that would be supportive for pricing. 

The supply continues to disappoint. We had the Rio Tinto Limited (ASX: RIO) quarterly out this morning and iron ore volume supplies to the downside. It’s very difficult to see where major new projects are coming online which is quite a different setup to the last time we had an iron ore price slide.

[Fortescue] is about to pay about 9% of the market cap in an interim dividend… a half-year dividend after the next result. That should be paid in early September.

At spot pricing this morning, the iron ore price is at US$220 a ton. You know, these guys get it out of the ground for less than US$20 a ton. So the spot pricing versus where the market has their long-term iron ore forecast, and even near-term iron ore forecast, is way out of whack.

Spot pricing [is] less than 3 times earnings, comes [with] a huge dividend yield, a net cash balance sheet, it has long-life assets, owns its own rail, port and shipping infrastructure, and has a founder that is highly aligned with returning capital to shareholders. 

We actually liked the market structure of iron ore as well. It’s a nice consolidated market globally and, as I said, it’s difficult to see where the supply is coming from over the next few years with most of the world trying to stimulate their economies to grow.

Tim Warner: It fits our process around cash-generative, owner-operator. It still fits in. Whilst it might not be a year-long growth story, it still fits within our process and adds some diversity to the book.

BM: You’ve certainly got super-clean accounting in the major iron ore companies, same as you’ve got in the major tech companies.

Because they’re so cash-generative, they don’t need to dress up their earnings with tricks like amortisation of intangibles, et cetera. It’s a very clean part of the market in terms of reporting and accounting.

Best share #2: The world is having their groceries delivered

MF: If the market closed tomorrow for 5 years, which stock would you want to hold?

TW: HelloFresh SE (ETR: HFG), which is the leader in the meal kit delivery space. 

Our view is that the product is fantastic. It offers convenience, value, and a quality, all-in-one solution. Both Ben and I are users of meal kits and believe that there’s a sticky habit-forming process from using them.

It’s got a long runway for growth. The grocery retail market is an extremely large market, it’s one of the biggest markets in the world. And the online share of that lags a lot of other categories in retail. 

Then, of that, meal kits, it’s only such a small portion of that together. So it’s a very nascent opportunity and huge marketplace, which we like for the long-term growth prospects.

The business model is counter-positioned against the incumbent supermarket retailers. So it structurally has higher margins due to their vertical integration throughout the whole supply chain, from the producer through the brand through the wholesale that they take all the margin — whereas a typical retailer only takes the retail margins at the end. 

[This] makes it extremely hard for the incumbent, legacy retailers to compete in this niche category as it’s a different business model and they’re focusing on trying to just do online retail, not delivering meal kits.

You’ve also got the food wastage, as it’s a B2C business… The customer is ordering in advance, they minimise food wastage, which is like 10% to 12% for retailers, which is a huge cost to their cost of goods. 

One’s a retailer, one’s the manufacturer and we think they’re in this nice sweet market spot where it’s hard for these incumbent guys to compete. But in a huge market where they can just take little bits of share, which is not very meaningful to the large supermarkets — but to them, it’s extremely meaningful.

In the short term, from a market perspective, it looks to be a temporary COVID beneficiary. Everyone thinks that everyone’s just jumped on the meal kit bandwagon because it’s easy and we’re in lockdown. And I’m sure there’s some truth to that but trends that they have been reporting, and what we’re seeing from data, is that we think it’s more of a structural change that’s being accelerated forward.

Pre-COVID, these businesses were profitable, free cash-flow generative, and growing at 30% to 40% top line… So, there was a business model here with structural change happening and we think it’s only being put forward. And then finally it’s a self-funding business model, it receives cash upfront from their customers and pay their suppliers later, doesn’t need to raise any capital and it can deploy that capital at really high rates in return for a long period of time. 

So we like that one on a 5-year buy and hold.

Looking back

MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.

BM: Look, we did well in the first quarter of 2020 and we got more bullish, but not quickly enough in the second quarter of 2020. 

[We] were sort of surprised by the level of stimulus and with interest rates near zero, a lot of companies with very high valuations took off. The sort of environment in the second half of last year with a lot of monetary and fiscal stimulus and zero interest rates meant that unprofitable companies and companies with less proven and more faddish business models were some of the best performers in the second half of 2020.

We were slow to recognise that and gave up a chunk of the good performance in the start of the year.

MF: Was there a specific company you wished you bought into during that period? 

BM: The two that, you know, surprised us the most were Tesla Inc (NASDAQ: TSLA) and Afterpay Ltd (ASX: APT). And the issue that we should have been quicker to recognise then was that the ‘customer love’ for the product. I think that’s the common denominator.

MF: Do you have a position on Afterpay at the moment? Either short or long?

BM: No, we’ve sort of steered clear. We think the buy now, pay later space is tricky, in that it’s highly competitive. 

The main protagonists are burning a lot of cash. And they’ve been clear beneficiaries of a strong retail environment during the COVID period and the stimulus. 

We’ve got a lot of respect for Afterpay management but it’s just unclear how the industry is going to evolve over the medium term. 

The post The 2 best shares to hang your hat on: fund managers appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tony Yoo owns shares of AFTERPAY T FPO and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Amazon, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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