Category: Stock Market

Specialised ASX uranium shares are having a bumper start to 2021. For example, Paladin Energy Ltd (ASX: PDN), Boss Energy Ltd (ASX: BOE), and Deep Yellow Limited (ASX: DYL) are currently trading around 93%, 79%, and 57% higher, respectively, since the first trading day of the year.

The only exception is Energy Resources of Australia Ltd (ASX: ERA), an ASX-listed company 68% owned by Rio Tinto Limited (ASX: RIO). This company shut down its only uranium operation, the Ranger Uranium Mine, in January this year. Subsequently, its share price has decreased by around 35% in 2021.

So, why are shareholders of operating ASX uranium miners seeing an incredible return on investment (ROI) in 2021? Let’s take a look.

Uranium and green energy

Nuclear power is a zero-emissions generator. According to the website Trading Economics, it’s being increasingly considered by governments such as the United States and China for the transition to clean energy.

Other elements are also seeing increasing demand because of the green revolution, including lithium, copper, and platinum group elements. Uranium, however, is a much more controversial option in green energy production than others.

Uranium is currently trading on the commodities market for US$30.90 per pound. While it’s only 0.65% higher this year, experts are predicting lower supply and increasing demand will see its price rise further.

The radioactive element entered a rut in the market after the Fukushima nuclear disaster. Its price has still not recovered to the levels seen before the accident.

Arguably, optimism surrounding the increasing acceptance of nuclear energy is one reason ASX uranium shares are doing so well this year.

Uranium production in Australia

Demand is only one side of the uranium equation. The other, of course, is supply. There are only two operating uranium mines in the country presently, the BHP Group Ltd (ASX: BHP) owned Olympic Dam mine and General Atomic’s Beverley and Four Mile mine. Both mines are in South Australia.

Yesterday, Boss Energy announced it had all the permits necessary to resume operations at its Honeymoon uranium mine. The news sent ASX uranium shares rocketing. Boss Energy increased 29%, Paladin went up 19%, and Deep Yellow was 7.2% higher.

Even Energy Resources, which has no current operations, increased 2.4% yesterday. The glow of the Honeymoon news radiated onto other nuclear shares. Investors seemingly felt optimistic Australia may ramp up production of uranium into the future and that government is more ready to approve such projects.

ASX uranium shares’ recent history

As of writing, ASX uranium shares are having a so-so day. The Paladin share price is 0.53% higher, Energy Resources shares are flat, Boss Energy is down 13.5%, and the Deep Yellow share price is also flat.

But it could be argued that the rise in the value of these shares over 2021 is not a mere blip. Each one is significantly higher than it was 12 months ago. Paladin is up by around 359%, Boss Energy is 172% higher, and Deep Yellow is around 183% greater. Even Energy Resources is up 19% on this time last year.

The market capitalisations of Paladin, Boss Energy, and Deep Yellow are around $1.25 billion, $456 million, and $241 million, respectively.

More reading

• Is the Transurban (ASX:TCL) share price a buy for dividends?
• The ASX’s China problem is getting worse… and quickly
• The Boss Energy (ASX:BOE) share price is up 16% today. Here’s why
• Deterra (ASX:DRR) share price outperforms on royalty update
• ASX miners set for tough start even as commodity premiums hit a 14-year high

Motley Fool contributor Marc Sidarous 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.

The post These ASX uranium shares are surging this year. Here’s why appeared first on The Motley Fool Australia.

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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.

Big tech is getting even bigger.

The FAANG group of stocks crushed earnings across the board this quarter, showing that dominant tech companies are only getting stronger as the economy revs up into the post-COVID era.

All of these giants posted results that were much better than analyst estimates (although Netflix missed expectations on a key subscriber growth metric). The chart below shows how their earnings-per-share (EPS) results compared with expectations.

Company	EPS Result	EPS Estimate	Surprise
Facebook (NASDAQ: FB)	$3.30	$2.37	39%
Apple (NASDAQ: AAPL)	$1.40	$0.99	41%
Amazon (NASDAQ: AMZN)	$15.79	$9.54	66%
Netflix (NASDAQ: NFLX)	$3.75	$2.97	26%
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG)	$26.29	$15.82	66%

Source: Yahoo! Finance.

It’s remarkable that companies as big as this quintet, which together make up more than $6.73 trillion in market value, were able to beat Wall Street expectations by so much. The chart above represents more than $10 billion in unexpected profits in just a single quarter. That’s more than all but a handful of companies make in a year.

The results show that these companies are stronger than ever, but they’re actually even more profitable than they look.

Get to know GAAP

All of the FAANG stocks report earnings according to generally accepted accounting principles (GAAP), which is required by the SEC. All companies report GAAP results, but most other publicly traded companies provide an additional adjusted profits figure, which becomes the benchmark for the stock. FAANG stocks don’t do this. Their profits are based on GAAP and include expenses like share-based compensation that other companies make disappear by instead emphasizing measurements like adjusted EPS or EBITDA.

To get an idea of how profitable the FAANG group is, compare them to the next wave of tech stocks that have gained fanfare recently.

Tesla (NASDAQ: TSLA), the fast-growing leader in electric vehicles, reported $438 million in GAAP profits, or $0.39 per share in its first quarter, and $1.05 billion in non-GAAP profits, or $0.93 per share. Adjusted EBITDA was even higher at $1.84 billion. There’s a significant difference between the three profitability marks Tesla gives. $614 million in share-based compensation accounts for the difference in between GAAP and non-GAAP earnings, which more than doubles Tesla’s profits.

Shopify (NYSE: SHOP) is another high-growth stock that has dazzled investors with its surging revenue and returns. In its first quarter, it reported adjusted operating income of $210.8 million, nearly double the GAAP figure as it backed out share-based compensation, related payroll taxes, and amortization of intangibles.  

Other examples abound. Uber (NYSE: UBER) is the leading global ride-sharing company and a threat to disrupt transportation in multiple ways, but the historically loss-making company has only promised to be profitable on an adjusted EBITDA basis by the end of this year. Snapchat parent Snap (NYSE: SNAP) may be one of the most profligate spenders on share-based compensation. In its first quarter, it reported a GAAP loss of $286 million but finished with a $2.5 million non-GAAP profit when not factoring in $237 million in share-based compensation and other expenses. The company has acknowledged that it needs to rein in share-based comp as it is steadily diluting shareholders, with shares outstanding up 3% last year.

What it means for investors

There’s nothing wrong with reporting adjusted earnings per share or using share-based compensation, and there are plenty of good reasons to invest in stocks like Shopify and Snap that are growing fast and have disruptive potential. However, their use of adjusted earnings shows that investors aren’t making apples-to-apples comparisons when they compare them with FAANG stocks. 

Apple posted GAAP net income of $23.6 billion in its quarter but also had $4 billion in share-based compensation. If it were adjusting its profits, they would be nearly 20% higher. 

The tech giants don’t need to do that, though. They are already delivering monster profits, and they may be purposely avoiding padding their figures because of antitrust concerns. They don’t want to look even more powerful than they are.

But powerful companies are good for investors, and all four of these businesses dominate their respective subsectors. Unless something changes on the regulatory front, these FAANG stocks will continue to spin off tons of cash, and they all look like great bets to continue beating the market.

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

More reading

• Here are the US shares that ASX investors were buying last week
• ASX 200 Weekly Wrap: Shares have average week but a great month
• Tesla’s $293 million of free cash flow in Q1 was an incredible year-over-year improvement
• Tesla and Coinbase continue to dominate Aussie’s US share picks
• The Core Lithium (ASX:CXO) share price jumped over 11% today

Jeremy Bowman owns shares of Amazon, Facebook, Netflix, and Snap Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix, Shopify, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Uber Technologies. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post FAANG stocks crushed earnings; here’s another great reason to buy them appeared first on The Motley Fool Australia.

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

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a strong gain. At the time of writing, the benchmark index is up 0.75% to 7,120.3 points.

Four ASX shares that are climbing more than most today are listed below. Here’s why they are storming higher:

Ecofibre Ltd (ASX: EOF)

The Ecofibre share price is up 9.5% to 86.5 cents. Investors have been buying the hemp company’s shares following the release of an investor update this morning. That update revealed improved momentum in its core United States independent pharmacy business. In April, the Ananda Professional pharmacy segment saw its best month since September 2020.

MoneyMe Ltd (ASX: MME)

The MoneyMe share price has jumped 7.5% to $1.45. This follows the release of a trading update for the month of April. According to the release, the digital credit company delivered record originations of $47 million for the month. This is up 693% over the prior corresponding period. In light of this, the company now expects its gross customer receivables to exceed $300 million in FY 2021. This will be up at least 225% year on year from $134 million in FY 2020.

Nearmap Ltd (ASX: NEA)

The Nearmap share price has surged 14.5% higher to $2.36. This follows the release of an update after the market close on Tuesday. According to the release, trading has remained strong since the end of the first half. As a result, it now expects to deliver annual contract value (ACV) of $128 million to $132 million in FY 2021. This compares to its previous guidance of $120 million to $128 million and will be a 20% to 24% increase on FY 2020’s ACV of $106.4 million.

Race Oncology Ltd (ASX: RAC)

The Race Oncology share price has stormed 5.5% higher to $3.24. This follows news that the biotechnology company has raised $5.4 million from institutional and sophisticated investors in an oversubscribed placement. These funds were raised via the issue of 1.8 million new shares at $3.00 per share. Race Oncology intends to use the new capital to help develop its Bisantrene cancer drug. 

More reading

• ASX 200 jumps 0.7%: ANZ half year results, Nearmap jumps
• Here’s why the Race Oncology (ASX:RAC) share price is leaping higher
• Why the Ecofibre (ASX:EOF) share price is soaring 9% higher today
• Why the MoneyMe (ASX:MME) share price is charging 6% higher today
• 5 things to watch on the ASX 200 on Wednesday

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

The post Why Ecofibre, MoneyMe, Nearmap, & Race Oncology shares are storming higher appeared first on The Motley Fool Australia.

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The corporate watchdog has announced it is commencing legal proceedings against Westpac Banking Corporation (ASX: WBC).

Despite the news, the Westpac share price appears to be unfazed – trading 0.77% higher to $26.18at the time of writing.

What are the allegations?

Allegations came to light this morning, following a media release from the Australian Securities and Investments Commission (ASIC). The corporate watchdog has advised it is commencing civil proceedings against Westpac for activities carried out in 2016.

The specific event in question relates to Westpac’s role in executing a $12 billion interest rate swap transaction. This transaction was associated with AustralianSuper and IFM investors purchasing a 50.4% majority stake in Ausgrid from the NSW state government. Furthermore, an agreement for the acquisition was signed around 7 am on 20 October 2016.

ASIC alleges that by 8:30 am, Westpac knew it would be chosen by the consortium to carry out the transaction. The corporate watchdog states that this is the alleged inside information. Additionally, ASIC alleges “Westpac’s traders acquired and disposed of interest rate derivative products in order to pre-position Westpac in anticipation of the execution of the swap transaction.”

The swap was later executed between Westpac and the consortium at 10:27 am. ASIC alleges the pre-positioning “had the potential to impact the price of the swap transaction to the detriment of the Consortium or the special purpose vehicle.”

What does ASIC want?

Based on the media release, the corporate watchdog will be seeking declarations and financial penalties for Westpac’s alleged contraventions.

Another financial penalty wouldn’t look great for the ASX-listed big four bank. Back in September last year, Westpac agreed to pay the largest fine in Australia corporate history — a $1.3 billion wrist-slapping for breaches of anti-money laundering and counter-terrorism financing.

Days after Westpac big profits announced to ASX

The revelation follows mere days after Westpac provided its half-year results to the ASX. For the six months ended 31 March, Westpac reported a statutory net profit after tax of $3,443 million. This was an increase of 189% over the prior corresponding period and 213% over the second half of FY 2020.

It was a positive day for the bank, leading to a 5% gain for the Westpac share price.

More reading

• Here’s where brokers think the Westpac (ASX:WBC) share price will go next
• 2 quality ASX dividend shares that will help you beat low interest rates
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 flat, Westpac rises after HY21, Premier returns jobkeeper
• Here’s how much the Westpac (ASX:WBC) dividend is worth now

Motley Fool contributor Mitchell Lawler 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.

The post Westpac (ASX:WBC) accused of insider trading by corporate watchdog appeared first on The Motley Fool Australia.

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Shares in Zip Co Ltd (ASX: Z1P) are generally the talk of the ASX, so why have they been slipping lower?

At the time of writing, the Zip share price is trading at $7.64. That represents a 45% fall from its highest closing price ever – $13.92 ­– which it nabbed just two and a half months ago.

Over the last 30 days, Zip shares have continued to fall, dropping by another 9% since 6 April.

So, what’s been driving the Zip share price recently? Let’s take a look at the month that’s been for the buy now, pay later (BNPL) provider.

Fall from grace

The Zip share price started strong in April, as investors responded well to the company’s third-quarter results. On the day the results were released, Zip’s shares closed 16% higher than the previous day.

Within its quarterly results, Zip delivered record revenue and transactions. It recorded an 80% increase in group quarterly revenue, raking in $114.4 million. As well as a 195% increase in transactions, processing an impressive 12.4 million. Zip also posted a 114% jump in quarterly transaction volume to $1.6 billion.

On 14 April, Zip’s shares were put into a trading halt. They stayed there until the following day when Zip announced it would undertake a $400 million senior unsecured convertible notes offering. The notes, which are convertible into fully paid ordinary shares at an initial conversion price of $12.39, mature 7 years after they were issued unless otherwise redeemed, repurchased, or converted.

That same day, Zip shared its co-founders Larry Diamond and Peter Gray had offloaded a total of 2 million shares for $9.18 apiece. As a result of the day’s news, the Zip share price fell another 6%.

The announcement, made on 20 April that the Bank of America (NYSE: BAC) has been slowly purchasing shares in Zip, didn’t help save its share price – which closed another 2% lower that day. Zip stated that the Bank of America now holds 6.15% of the company.  

The final news from Zip in April was when it announced its agreement with Adobe (NASDAQ: ADBE) to become an Accelerate partner in the Adobe Exchange Partner Program. The partnership will see Zip become the BNPL provider for Adobe’s e-commerce software, Magento. As a result of this last piece of news, the Zip share price gained a measly 1.6% by the day’s close.

The Zip share price since

Since Zip released its latest piece of news to the ASX, its share price has fallen another 13%.

Despite the poor monthly performance, the Zip share price is 37% higher than it was at the start of the year. It’s also still up 194% over the last 12 months.

More reading

• ASX 200 tech shares under pressure after Nasdaq selloff
• 3 buy-rated ASX growth shares for investors in May
• a2 Milk and Zip were among the most traded ASX shares last week
• These are the 10 most shorted shares on the ASX
• Why is the Zip (ASX:Z1P) share price falling on hard times?

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. owns shares of and recommends Adobe Systems. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has recommended Adobe Systems. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why has the Zip (ASX:Z1P) share price fallen 9% in the last month? appeared first on The Motley Fool Australia.

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The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is not having a great start to the trading day today. At the time of writing, ANZ shares are down a hefty 1.93% to $28.28 a share. This pulls away from the gains this ASX bank has made in recent months. Since the broader S&P/ASX 200 Index (ASX: XJO) is having a day in the green today (up 0.7%), we can safely say it’s ANZ with the problem today.

So what’s wrong with ANZ in the eyes of the market? Well, it’s probably something to do with the banks’ half-year results that were released to investors this morning.

We already covered the substance of this report earlier today. This included a 45% increase in statutory profits to $22.94 billion.

But let’s dig a little deeper into what ANZ announced in terms of its dividend. Just to start things off, let’s note that the ANZ share price currently has a trailing dividend yield of 2.12%.

What about ANZ’s new dividend?

So, ANZ announced that its interim dividend for 2021 would come in at 70 cents per share, fully franked. This dividend will be paid out on 1 July, with an ex-date of 10 May. That is a substantial rise from both ANZ’s last dividend and its previous interim dividend. ANZ paid out a final dividend of 25 cents per share, fully franked, in September last year. Before that, its previous interim dividend was 35 cents per share (also fully franked). That was paid out on 16 December 2020.

Before the pandemic, ANZ was paying out far higher dividends. Its annual dividend for 2019 consisted of 2 payments of 80 cents per share each (albeit one was only 70% franked). It also followed this pattern from 2016 to 2018, all fully franked.

So today’s announcement of a 70 cents per share payout goes a long way in restoring ANZ’s dividend to its former glory. It’s also more of a restoration than what Westpac Banking Corp (ASX: WBC) announced earlier this week. But how much is it actually worth?

Well, if we take the newly announced interim dividend together with ANZ’s last final dividend, we get an annual dividend of $1.05 per share. On the current ANZ share price, that would translate into a yield of 3.71%, or 5.3% grossed-up with full franking.

If we annualise the new dividend of 70 cents per share, we get a potential forward yield of 4.95%, or 7.07% grossed-up. That’s starting to look like a yield that shareholders would expect of a big four ASX bank. It’s also a bit larger than what Westpac’s new dividend is worth on current pricing.

More reading

• ASX 200 jumps 0.7%: ANZ half year results, Nearmap jumps
• ANZ (ASX:ANZ) share price on watch after reporting $2.9bn half year profit
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 rises, Flight Centre drops, Super Retail grows
• Struggling ASX gold shares just got upgraded by a top broker

Motley Fool contributor Sebastian Bowen 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.

The post Here’s how much ANZ’s (ASX:ANZ) dividend is worth now appeared first on The Motley Fool Australia.

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At lunch on Wednesday, the S&P/ASX 200 Index (ASX: XJO) hasn’t let weakness on Wall Street from stopping it from storming higher. The benchmark index is currently up 0.7% to 7,118.3 points.

Here’s what is happening on the market today:

ANZ half year results

The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is trading lower on Wednesday following the release of its half year results. For the six months ended 31 March, ANZ reported a statutory profit after tax of $2,943 million and cash earnings from continuing operations of $2,990 million. This was up 45% and 28%, respectively, on the second half of FY 2020. This allowed the bank to declare a fully franked interim dividend of 70 cents per share.

Nearmap share price jumps

The Nearmap Ltd (ASX: NEA) share price is rocketing higher today. Investors have been fighting to get hold of its shares after it revealed that its performance has been stronger than expected since the end of the first half. Nearmap now expects to deliver annual contract value (ACV) of $128 million to $132 million in FY 2021. This compares to its previous guidance of $120 million to $128 million. It will also be a 20% to 24% increase on FY 2020’s ACV of $106.4 million.

Amcor Q3 update

The Amcor CDI (ASX: AMC) share price is pushing higher following the release of its third quarter update. For the nine months ended 31 March, the packaging company reported a 12% increase in net income to US$805 million. Adjusted earnings per share came in at 51.5 US cents per share, up 16% on a comparable constant currency basis. This was driven by a modest increase in sales and improving margins.

Best and worst ASX 200 performers

The best performer on the ASX 200 on Wednesday has been the Nearmap share price with a 14% gain following its trading update. The worst performer has been the Flight Centre Travel Group Ltd (ASX: FLT) share price with a 4% decline. Investors have been selling the travel agent’s shares following its Q3 update.

More reading

• Is the Flight Centre (ASX:FLT) share price a buy after its Q3 update?
• ANZ (ASX:ANZ) share price on watch after reporting $2.9bn half year profit
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 rises, Flight Centre drops, Super Retail grows
• 2 exciting ASX tech shares that have been tipped as buys

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 Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Amcor Limited. The Motley Fool Australia has recommended Flight Centre Travel Group Limited and Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post ASX 200 jumps 0.7%: ANZ half year results, Nearmap jumps appeared first on The Motley Fool Australia.

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The Race Oncology Ltd (ASX: RAC) share price is gaining today, up 5% in late morning trade.

The ASX healthcare share entered a trading halt on Monday prior to disclosing the details of a capital raising, which it released this morning.

Race Oncology’s primary focus is its cancer drug, Bisantrene. Bisantrene has been shown to inhibit overexpression of the fat mass and obesity associated (FTO) protein, linked to a wide range of cancers.

What did Race Oncology report on its capital raising?

The Race Oncology share price is moving higher today after the company reported it had raised $5.4 million from institutional and sophisticated investors in an oversubscribed placement. The capital raise is not subject to shareholder approval.

Race will issue approximately 1.8 million new shares at $3.00 per share. The stock is currently trading for $3.22 per share.

The company also revealed that participants in the capital raising will get 1 attaching option (exercisable at $4.50 and expiring 16 May 2022) for every 20 new shares they subscribed to at no cost.

Existing shareholders are also eligible for the 1 bonus option per 20 shares they hold on a pro-rata non-renounceable basis. Race reported it wants to reward its loyal shareholders while also helping grow the company.

Race plans to use the new capital to help develop Bisantrene.

Commenting on the successful capital raising, Race’s CEO, Phil Lynch said:

This new funding supports efforts to deliver outsized returns to shareholders via our Three Pillar strategy, where we are investigating Bisantrene as both a potential precision oncology agent, and as a heart-friendlier chemotherapeutic.

Daniel Tillett, Race’s CSO added, “We believe that this raise will accelerate our plans and rewards our loyal shareholders.”

The company said it expects the new shares and placement options will be allotted and issued by 14 May.

Race Oncology share price snapshot

It’s been a truly stellar year for Race Oncology shareholders, with shares up 794% over the past 12 months. For some perspective, the All Ordinaries Index (ASX: XAO) has gained 34% over that same time.

Year-to-date the Race Oncology share price has continued to outperform, with shares up 66% so far in 2021.

More reading

• Why the Race Oncology (ASX:RAC) share price is frozen
• Why the Race Oncology (ASX:RAC) share price is racing higher
• Why Ampol, Netwealth, Orocobre, & Race Oncology shares are storming higher
• Why the Race Oncology (ASX:RAC) share price is rocketing 10% higher

Motley Fool contributor Bernd Struben 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.

The post Here’s why the Race Oncology (ASX:RAC) share price is leaping higher appeared first on The Motley Fool Australia.

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At some point, you have to just admit it.

Yep, even the professionals.

Even the ones who’ve been doing this for years.

So it’s my turn.

I. Was. Wrong.

Thing is, I’m still not sure why. I mean, it’s not the first time I’ve been wrong.

It sure as hell won’t be the last.

But it still hurts.

The company in question, this time, is financial services mob, Challenger. It’s the business that, among other things, has a dominant market share in annuities.

(For the uninitiated, annuities are products sold to people who want to swap their lump sum for a regular income stream instead — essentially giving up some potential upside in exchange for not needing to sweat on market volatility — usually in retirement.)

When we recommended members of Motley Fool Share Advisor buy Challenger shares, the thesis was pretty simple.

There are greater numbers of people retiring than ever in Australia.

The scars of the GFC were — are — deep and raw for them.

Financial planners, in general, tend to love annuities.

And the return offered to Challenger’s annuity customers was sufficiently low that the company should have had more than enough margin to play with.

So, a top-notch brand, good margins, and a growing customer base egged on by their financial advisors…

Should’ve been a lock.

And yet…

And yet, earnings didn’t go anywhere for a decade.

(They went negative in 2020 actually, but that’s an understandable exception.)

Yes, falling interest rates didn’t help.

But those tailwinds.

Those (expected) margins.

In the event, we probably held on too long.

But it was one of those situations where the logic just seemed pretty straightforward.

So we — I — waited for the thesis to play out.

And waited.

And waited.

In the end, it was a chat with the team that ended up determining the fate of the recommendation.

I — again — explained why Challenger should be a great company.

Should achieve great results.

Should be a great recommendation.

I still think the logic is sound.

And yet, as Yogi Berra (might have) said, “In theory, there is no difference between theory and practice. In practice there is”.

Even as I was explaining it to the team, I was mentally asking myself a version of that statement.

“If you’re so right, where are the results?”

Now, I’m no stranger to being patient. 

Some of my best recommendations have taken time to really hit their straps. Others have been volatile, falling before they rose, and went higher.

So, I don’t mind waiting, if the results are going to come.

But how long do you wait?

How long can you suspend disbelief… or at least suspend the growing feeling that theory and practice were diverging, with no signs of the gap getting smaller any time soon?

In the end, reality always wins.

And so, we decided to recommend our members sell their Challenger shares.

Now, that doesn’t mean that, thanks to Murphy’s Law, the business performance won’t suddenly improve.

Anything could happen from here.

But there’s just insufficient evidence to say it’s likely.

And at some point, you just have to call time on an idea.

Was the thesis wrong? Maybe.

Did business circumstances change? Probably.

Is this an execution problem that could be fixed? It’s possible.

But, just as insanity is often described as ‘doing the same thing and expecting a different result’, at some point you’ve gotta just admit defeat on an idea.

It’s important, though, to remember that I haven’t talked about the share price, thus far. 

Because that had nothing to do with our decision.

The share price simply tells you what the market is thinking, not how a business is performing.

And those are — hopefully obviously — two different things.

That doesn’t mean they can’t be saying the same thing, sometimes.

But they’re not a perfect proxy for each other.

And that’s important.

We’ve made winning recommendations whose shares stayed underwater for a long time.

We’ve had losers that got off to wonderful starts, but then crashed and burned.

And lots in between.

To beat the market, you have to do something different to the market.

That means you need to ignore what it’s ‘telling’ you, and start using its wild swings to your advantage.

And, it means selling when your thesis is not likely to play out (regardless of the reason).

It’s true that one of my guiding maxims is ‘be slow to buy and slower to sell’.

But that’s not “… and never sell”.

Or, to invoke a well known (and much loved) piece of advice: “you’ve gotta know when to hold ’em, and when to fold ’em”.

Challenger has had a chance.

Actually, a lot of chances.

But it was time to pull the pin.

I am glad to say it’s generally the exception. Most of our recommendations are market-beating. 

And our average is soundly above the ASX, too. 

So we’re doing something right.

(Though, as the lawyers — rightly — ask us to point out, past performance is no guarantee of future success.)

But it’s a reminder that not everything will go well.

And that, after enough chances, sometimes you just have to call an investment a loss and move on.

To hopefully bigger and better things.

Just remember: you make those calls, not the market.

More reading

• Are Coinbase (NASDAQ:COIN) shares worth a look?
• GameStop opening fulfillment center in e-commerce transformation
• Why the Ecofibre (ASX:EOF) share price is soaring 9% higher today
• Why the IkeGPS (ASX:IKE) share price is surging today
• Why the Kirkland Lake Gold (ASX:KLA) share price is rising today

Motley Fool contributor Scott Phillips 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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Cryptocurrency is hot at the moment, so exchange operator Coinbase Global Inc (NASDAQ: COIN) has demanded much attention since its direct listing last month.

But its US$50 billion float valuation had many scratching their heads as to whether it’s starting too high.

Investors were asking this very question on Coinbase’s first day on the NASDAQ on 15 April, with the price going up and down wildly.

So with currencies like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETC) still all the rage, is it worth dabbling in Coinbase?

Frazis Capital portfolio manager Michael Frazis, in a video update to clients, said his team “really likes” the stock.

“It’s not trading as expensively as you think… It would be less than 20 times [enterprise value to sales ratio]. I think it was 17 times sales.”

In fact, the stock closed Wednesday morning at US$280.66, dropping 4.61%. 

That’s only 12% above the listing reference price, and after it had been up as high as US$429.54 during its first week in the market.

Institutional investors need a trusted cryptocurrency platform 

According to Frazis, cryptocurrency “is heading mainstream” and “every professional investor is thinking about it”.

This is where Coinbase comes in, as the “most trusted counterparty” in a wild unregulated emerging market.

“If you have other people’s money, you want to make sure your custody is rock-solid. And I don’t think any of the other exchanges other than Coinbase really offer that,” he said.

“You want to go to the best… Being known as the best custodian, being insured, and being properly regulated… puts Coinbase in a really strong position for all those institutional flows.”

The business model is lucrative, according to Frazis.

“Like a brokerage, they charge so much – and it’s an extremely profitable business.”

“They benefit from flows and volumes, and they certainly benefit from [cryptocurrency] price increase as well, because it increases the volumes.”

Don’t go all-in on Coinbase though

While the business model and share price look attractive, Frazis reckons anyone considering investing should do so in small increments with a long-term horizon.

This is because the business had its big ramp-up in valuation in the 12 to 24 months before listing.

“That was the big move, so that’s not going to happen again,” he said.

“If Coinbase trades sideways or down for a year, it could wind up for another explosive movement. But I don’t think you’ll get a quick buck there – but it’s a very good long-term investment.”

More reading

• Here are the US shares that ASX investors were buying last week
• Warren Buffett hates Bitcoin. Here’s why
• How Tether is fuelling the Bitcoin price rally
• Some takeaways from Warren Buffett’s Berkshire Hathaway meeting
• ASX 200 Weekly Wrap: Shares have average week but a great month

Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends 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.

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