Category: Stock Market

Fortunately, in this low interest rate environment, there are a good number of ASX shares paying investors handsome dividends.

Here are two ASX dividend shares that I think income investors should buy right now to beat low interest rates:

Coles Group Ltd (ASX: COL)

The first ASX dividend share to consider buying is this supermarket giant. I think Coles is one of the best options for income investors right now due to its attractive yield, defensive qualities, and positive long term growth outlook. The latter is thanks to a combination of food inflation, its refreshed strategy, defensive earnings, and expansion opportunities.

Overall, I believe this puts the company in a great position to grow its dividend at a consistently solid rate over the next decade. For now, based on the current Coles share price, I estimate that it offers an attractive fully franked ~3.2% FY 2021 dividend.

Vanguard Australian Shares High Yield ETF (ASX: VHY)

A second option for income investors to consider buying right now is an exchange traded fund or ETF. I think the Vanguard Australian Shares High Yield ETF is great for investors that don’t have the funds to construct a diverse portfolio of ASX dividend shares. This is because this fund is invested in a total of 66 top shares which offer some of the most generous yields on the Australian share market.

These include the likes of Coles, the big four banks, BHP Group Ltd (ASX: BHP), and Telstra Corporation Ltd (ASX: TLS). Based on the current Vanguard Australian Shares High Yield ETF unit price, I estimate that it offers a FY 2021 dividend yield somewhere in the region of 4% to 5%. This is vastly superior to what you’ll find from a savings account or term deposits right now.

More reading

• Top ASX Stock Picks for September 2020
• Beat low interest rates with Coles and this ASX dividend share
• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• ASX reporting season heroes to buy for FY21
• 5 top ASX dividend shares you should never sell

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 Medical Developments International Ltd (ASX: MVP) share price has fallen hard since COVID-19 put the world at a standstill.

Between 19 February and 22 March, the Medical Developments share price took a sharp nosedive, falling from $11.26 to $3.92 – a 65% loss in the space of a month. Today, the Medical Developments share price has recovered some ground and finished the day up 2% to $5.90.

Despite recent gains, Medical Developments shares are still a long way off their all-time highs of $11.78, so shareholders may be wondering if the company will ever reach that level again.

What happened to Medical Developments in 2020?

The Australian-based healthcare company has had a bad run of luck. While it is easy to attribute the dramatic fall in the Medical Developments share price to COVID-19, that’s not the full story.

Sure, the company has been savaged by profit plunges in its FY20 report, released 2 weeks ago. However, a shock CEO exit and poor management decisions have led Medical Developments on a downhill run.

First and foremost, since the onset of coronavirus, sales from its flagship product Penthrox declined due to the state-wide lockdown laws, which saw decreased levels of sporting and outdoor activities. Furthermore, the company’s emergency services market experienced softening demand for the ‘green whistle’. This resulted in an 8% decline for FY20.

Unsurprisingly, its respiratory sales grew 61% underpinned by a record amount of equipment purchased relating to COVID-19.

Net profit after tax decreased by 63% to $0.37 million, compared to FY19’s $1.03 million.

The surprise resignation of long-term CEO John Sharman sent shareholders heading for the hills in early March. After 10 years of being at the helm of the company, John Sharman choose to pursue other business interests. Chair David Williams advised that the board would search for a leader that can spearhead its growth in the United States and Europe.

More recently, Medical Developments announced that it had reached an agreement with the Mundipharma network in Europe to take back the distribution rights for its own pain relief drug, Penthrox. Purchasing back the EU rights will cost the company 3 million euros and also include a 5% royalty payment on sales.

Across the Atlantic, Penthrox is still yet to be approved for sale in the United States. The company has a potential meeting with the Food and Drug Administration (FDA) towards the end of the year, with Phase II and Phase III trials still be undertaken. FDA approval is expected to be around late 2024.

Will the Medical Developments share price recover?

Before the fateful crash in the Medical Developments share price, the business had a price-to-earnings (P/E) ratio of 520. Today, the company’s P/E ratio is almost twice as much, sitting at 986. Investors have clearly priced in a lot of good things for the healthcare company, despite its recent misfortunes.

At a current market capitalisation of $390 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $2.69 million, it may be a while before the share price recovers anywhere near its all-time high.

Should you invest?

I think that a lot has to go right for Medical Developments to be a success. Sales have grown in some overseas countries, but the United States remains the biggest healthcare market.

In my opinion, I would prefer to look for a leaner business that is well-run and not wasting precious cashflow resources on re-purchasing rights that were once-sold off, especially in the current climate.

In light of this, I will be staying away and keeping my eye out for other opportunities.

More reading

• Medical Developments International share price tumbles on FY 2020 profit decline
• Why the Medical Developments International share price jumped 14% higher today

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. owns shares of Medical Developments International Limited. The Motley Fool Australia has recommended Medical Developments International 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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On Tuesday I looked at three small cap ASX shares which I think have the potential to grow much larger in the future. You can read about them here.

But if you’re not comfortable investing in small caps, then you might want to consider mid cap shares.

I like this side of the market as mid caps tend to carry less risk than small caps and greater potential returns than large caps.

With that in mind, here are two ASX mid cap shares I would buy:

BINGO Industries Ltd (ASX: BIN)

I think this $1.5 billion waste management company could be a great option for investors. While the pandemic is likely to weigh on its near term performance, it didn’t stop it from delivering a strong FY 2020 result. Thanks partly to its Dial a Dump Industries acquisition, BINGO delivered a 40.8% increase in underlying EBITDA to $152.1 million. 

I’m confident there will be further growth ahead for BINGO thanks to the aforementioned acquisition. This is because it has allowed the company to be fully vertically integrated from collections to landfill. It also makes it the largest player in building and demolition waste in Sydney and provides it with some much-needed diversification. 

Jumbo Interactive (ASX: JIN)

Jumbo Interactive is an $835 million online lottery ticket seller and the operator of the Oz Lotteries website. From this popular website, the company resells tickets on behalf of gambling giant Tabcorp Holdings Limited (ASX: TAH). These two companies have worked together for many years and recently signed a new long term reseller agreement.

I believe this long term agreement gives the company a lot of stability with its future earnings and will allow it to focus on growing its Powered by Jumbo SaaS business. I’m confident this business will be the key driver of growth in the future given its massive market opportunity. Management notes that it has a US$303 billion global total addressable market, with only 7% of this market online at the moment.

More reading

• Latest ASX stocks brokers are urging you to buy today
• ASX 200 down 1.7%: Afterpay sinks on PayPal news, QBE sacks its CEO, bank shares lower
• Top ASX Stock Picks for September 2020
• Why I’m buying this undervalued ASX share right now
• 3 under the radar ASX growth shares to buy today

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 recommends Jumbo Interactive Limited. The Motley Fool Australia has recommended Jumbo Interactive 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 there are some ASX shares that a worth a spot in almost every investor’s portfolio.

Most investors should focus on creating the best total returns they can. That means the best return when adding both capital growth and dividends together.

A business like Telstra Corporation Ltd (ASX: TLS) may offer a decent dividend yield today, but its capital return has been very disappointing over the short-term and long-term.

The best total returns are going to come from businesses that can deliver good capital growth. I think these two ASX shares are worth buying in a heartbeat:

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is a leading payments business. It facilitates digital giving to clients – large and medium US churches are the main target area for Pushpay.

COVID-19 has obviously been a difficult time for churches. Restrictions and people’s cautiousness have meant that electronically donating is a very useful service. Pushpay even provides a livestreaming option for churches to connect with their congregations.

There’s a clear tailwind for Pushpay at the moment. But it’s the underlying economics that really attract me at the moment.

In just one year (FY20) the ASX share managed to grow its gross profit margin from 60% to 65% as it grew its revenue by 32% to US$129.8 million. That shows it’s a very scalable business. Pushpay is aiming for US$1 billion of revenue from US churches over the long-term. Its gross profit margin could go much higher in the coming years.

In FY21 the business is aiming to at least double its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) to US$50 million. If growth continues to be faster than expected then Pushpay could continue to beat its own guidance, as it did in FY20.

When you compare Pushpay’s valuation to other ASX tech shares, I think it looks much more reasonable. At the current Pushpay share price it’s valued at 35x FY21’s estimated earnings.

Citadel Group Ltd (ASX: CGL)

Citadel is another software business that I think looks like a good value buy right now.

The ASX share offers software to clients to help manage their data. It serves reliable sectors like education, defence and healthcare.

FY20 was a transformative year after the business acquired UK healthcare software business Wellbeing. Looking at the underlying numbers, total software revenue increased by 35.7% to $47.5 million and total services revenue grew by 26.7% to $80.1 million, meaning total revenue grew by 29.4% to $128.4 million. Total underlying EBITDA grew by 25.3% to $29.2 million.

Citadel thinks there are a range of cross selling opportunities for the company to take advantage of. The UK software can be sold into Australia, the Australian software can be sold into the UK and the combined package can be sold to new markets.

Citadel is steadily shifting to a recurring revenue model, which comes with higher profit margins. That should mean that more of the additional revenue is turned into profit.

The ASX share is targeting double digit organic growth as well as new verticals, plus acquisition opportunities. It can grow the business in many different ways. I think this optionality is exciting for investors.

As a bonus, Citadel offers a grossed-up dividend yield of 3.5%. It maintained its dividend at 10.8 cents per share in FY20.

At the current Citadel share price it’s trading at 13x FY22’s estimated earnings.

Foolish takeaway

I think both of these ASX shares look very good value for the growth they could achieve over the next couple of years and the long-term. As technology shares I believe they have good operational advantages compared to most other sectors, which hopefully leads to growing profit margins and market-beating returns.

More reading

• 3 fantastic ASX growth shares to buy and hold
• Why it makes sense to invest in ASX tech shares
• 4 ASX growth shares I’d buy in September
• 2 ASX dividend shares with yields over 10%
• How to invest in ASX shares in uncertain times?

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Investors are demanding transparency after QBE Insurance Group Ltd (ASX: QBE) suddenly sacked its chief executive with no details on why.

The insurance giant announced Tuesday morning that Pat Regan had been terminated from his position.

The company gave no information other than to say Regan was fired because his “workplace communications” did not meet the code of ethics and conduct.

So shareholders have been left to guess what had gone on, and whether the penalty was appropriate.

According to S&P Global Ratings, Regan’s departure provokes more questions than answers.

“The departure of QBE’s group CEO, which follows other senior executive turnover, could harm strategic continuity and raise uncertainty about culture and governance at the insurer,” the company stated.

Investment firm Allan Gray holds more than $400 million of shares in QBE. Its portfolio manager Simon Mawhinney told Nine that QBE was showing “poor corporate transparency”.

“The board has kept shareholders in the dark about the reasons and as shareholders we are therefore unable to assess the appropriateness of this significant decision.”

The Motley Fool has contacted Allan Gray for further comment. QBE declined to add any further comment.

QBE chair Mike Wilkins said Tuesday that the company is “committed to having a respectful and inclusive environment” and that Regan “exercised poor judgment”.

The board will initiate a culture review and establish additional channels for employees to “safely raise concerns”.

The dramas at QBE come after AMP Limited (ASX: AMP) lost its chair and a director last month over its decision to promote Boe Pahari as AMP Capital chief executive. 

Pahari had faced serious sexual harassment allegations, with AMP defending its decision by saying they were “low level” offences. Since the Pahari’s alleged behaviour was aired publicly, other cases of alleged harassment have also come to light.

Regan replaced John Neal in the chief executive role at QBE 3 years ago. Neal’s bonus was slashed more than half a million dollars that year for not reporting a romantic relationship with his executive assistant.

More reading

• ASX 200 rises 1.8%, Afterpay had a volatile day
• ASX 200 falls 1.8%, Afterpay drops 8%
• ASX 200 down 1.7%: Afterpay sinks on PayPal news, QBE sacks its CEO, bank shares lower
• Why Afterpay, Flight Centre, Helloworld, & QBE shares are tumbling lower
• QBE share price tumbles lower after shock CEO sacking

Motley Fool contributor Tony Yoo 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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The S&P/ASX 200 Index (ASX: XJO) went up by 1.84% today to 6,063 points.

There was volatility for the ASX’s leading buy now, pay later business today:

Afterpay Ltd (ASX: APT)

The Afterpay share price dropped 1.9% to $82.50 today, however it dropped as low as $74 in early trading.

The ASX 200 buy now, pay later (BNPL) sector learned that PayPal is going to launch its own interest-free instalment option for customers.

However, the CEO of BNPL peer Sezzle Inc (ASX: SZL), Charlie Youakim, was quoted by the Australian Financial Review offering a bit of reassurance:

“We always expected further competition in the buy now, pay later space and we are more than prepared for it.

“The buy now, pay later sector in the US is very nascent compared to Australia and there is more than room for multiple players.

“BNPL makes up just 1 per cent of the e-commerce payment mix in the US, whereas in Australia, it’s 8 per cent. E-commerce comprises just 12.5 per cent of the $5.4 trillion retail market. The market is enormous.

“We’re constantly evolving and adapting to the needs and wants of our consumers, rolling out new products, and expanding into new geographies.”

The Sezzle share price finished lower by 3.8%. The Afterpay share price decline was among the worst performers in the ASX 200.

AMP Limited (ASX: AMP)

AMP has announced it’s going to undertake a portfolio review of its assets and businesses.

The company said the review may conclude that AMP’s current mix of assets and businesses delivers the best value for shareholders and may not result in a recommendation to pursue any specific transaction.

AMP said it periodically receives unsolicited interest in its assets and businesses. There has been a recent increase in the interest and enquiries to AMP. The review will look at both the relative merits as well as the potential separation costs and the ‘dis-synergies’ with a focus on maximising shareholder value.

Whilst the review goes on the company will continue to implement the planned transformation strategy.

AMP chair Debra Hazelton said: “The board believes that AMP has high-quality businesses with significant strategic value. The board and management firmly believe in our existing strategy, including a repivot to private markets in AMP Capital and are confident that this will deliver long-term value for shareholders. However, we have taken a decisive step to undertake a portfolio review to ensure we appropriately assess all options to maximise shareholder value in a considered and disciplined manner.”

The AMP share price rose by almost 5%, making it one of the best performers in the ASX 200.

Nufarm Limited (ASX: NUF)

Agribusiness Nufarm saw its share price rise by 2.5% today. It announced impairments today as well as providing FY20 guidance.

Nufarm announced it expects to recognise $215 million of impairment charges relating to its European assets. It comprises a $190 million pre-tax impairment relating to intangible assets and a derecognition of tax assets of approximately $25 million.

The impairment was decided after taking into account the recent operating performance and a moderated outlook of future earnings based on an expectation of continuing margin pressure due to higher manufacturing costs and increased competition.

Based on preliminary, unaudited accounts, Nufarm expects underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to between $290 million to $300 million. After the sale of its South American businesses, underlying EBITDA from continuing operations is expected to be in the range of $230 million to $240 million.

Australia was a highlight with drought breaking rains on the east coast of Australia in late January. There has been strong demand for crop protection products which has more than doubled second half underlying EBITDA for the ANZ business and provides a “much stronger outlook” for the summer cropping season.

More reading

• QBE’s silence triggers shareholder outrage
• The Future Fund is stockpiling cash. Should ASX investors take the hint?
• 3 fantastic ASX growth shares to buy and hold
• Latest ASX stocks brokers are urging you to buy today
• Praemium share price edges higher after Powerwrap offer goes unconditional

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The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price gained today. But for investors with a longer-term horizon (2 plus years) the venerable blue chip still looks like it’s trading for a bargain at today’s $5.68 per share.

Like every travel share, Sydney Airport was smashed by the lockdowns and social distancing introduced to combat the spread of COVID-19. From its 2020 peak on 17 January through its trough on 19 March, the Sydney Airport share price dropped 48%.

Since that low, the share price has rebounded 25%, but that still leaves shareholders down 32% year-to-date. For comparison the S&P/ASX 200 Index (ASX: XJO) is down 9% in 2020.

At today’s share price, Sydney airport has a market cap of 14.5 billion.

What does Sydney Airport do?

Sydney Airport Holdings owns a 100% interest in Sydney Airport. The airport provides an international gateway connecting to more than 90 other airports around the world.

Headquartered in Sydney, the company provides aeronautical, retail, property, car rental, and parking and ground transport services through its 2 main business units: Aviation (Sydney Airport) and Leasing & Advertising Opportunities.

Sydney Airport shares began trading on the ASX in 2002.

Why does Sydney Airport share price look like a bargain?

Forward looking investors have begun to accumulate the company’s shares. But as mentioned above, Sydney Airport’s share price is still down 32% in 2020.

With its revenues slashed due to a virtual halt in air travel, it continues to operate at a net loss. But that won’t be the case indefinitely. Once the coronavirus is brought under control or eradicated, airlines will take to the air again. And I believe Sydney Airport’s prime role in domestic and international travel should see its share price surpass its January highs.

Nathan Bell, the head of research and portfolio management at Investsmart, has a keen eye on Sydney Airport shares as well. He says it, and Auckland International Airport Limited (NZE: AIA), represent good value at their current price. According to Bell (as quoted by the Australian Financial Review):

People are once again going on holidays in the northern hemisphere, which is another good omen for this pair of airports. Vietnam, Taiwan and Korea recently reopened their domestic borders and passenger numbers are 10-20 per cent above 2019 levels, suggesting pent-up demand.

The Sydney Airport share price closed up 1.24% today.

More reading

• Top ASX Stock Picks for September 2020
• These market veterans believe a share market pullback is coming. Here’s their surprising advice…
• This ASX-listed company makes $5.7 million per employee
• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• Is this ASX 200 market too greedy right now?

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. 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 Adriatic Metals PLC (ASX: ADT) share price has zoomed more than 10% higher today. The bullish price action follows the company’s announcement of a significant footprint to its silver project.

What did Adriatic announce?

Earlier today, Adriatic reported the addition of a significant footprint to its Vares Silver Project in Bosnia & Herzegovina.

According to the update, the company’s application for a significant land extension was approved by the government of Zenica-Doboj Canton. As a result, Adriatic has added another 32.12sq km to its project, bringing the total area of concessions to 40.78sq km.

Adriatic’s management acknowledged the constructive work and said the company focus was on finding possible repeats of mineralisation.

Under the terms of the original concession agreement, Adriatic has 3 fields. Veovaca 1nad 2 and Rupice-Jurasavac Brestic. The approval of the second amendment to the concession will see these fields extend into adjacent areas.

The company said the expanded concession area contained historical targets, including an area between Veovaca and Rupice. Adriatic considered these concessions to be a high priority for further exploration and drilling. The company will actively pursue exploration permits following upcoming airborne geophysical surveys.

What does Adriatic do?

Adriatic is a precious and base metals explorer and developer. The company owns the world-class Vares Silver Project in Bosnia & Herzegovina, which is considered very pro-mining. The project comprises 2 high-grade deposits, located at Rupice and Veovaca.

As a result of its impressive resource inventory, Adriatec is looking to fast-track production at the Vares Silver Project. Results from the company’s 2019 scoping study found a net value estimation of US$917 million.

The Rupice deposit is of particular interest as it is located on a hillside. This allows mine sequencing to target high-grade ore from year 1 of drilling, allowing the company to payback capital.

The Adriatic share price is looking to close today’s session 10.23% higher at $2.37. Shares in Adriatic have performed strongly in 2020, surging more than 47% for the year.

More reading

• The Future Fund is stockpiling cash. Should ASX investors take the hint?
• The Reject Shop could be a recession-buster after signing new deal
• 3 fantastic ASX growth shares to buy and hold
• Latest ASX stocks brokers are urging you to buy today
• Praemium share price edges higher after Powerwrap offer goes unconditional

Motley Fool contributor Nikhil Gangaram 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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After an incredible few months on the share market, I’m sure many an ASX investor is feeling flush right now. The S&P/ASX 200 Index (ASX: XJO) is up more than 33% since bottoming out on 23 March. That represents a lot of ASX 200 shares that have given investors impressive gains over the last 5 or so months.

And for some ASX shares, it’s an even better story. Afterpay Ltd (ASX: APT) shares are still up more than 800% since 23 March, despite this week’s heavy selling. It’s a similar story with Zip Co Ltd (ASX: Z1P), Marley Spoon AG (ASX: MMM) and Sezzle Inc (ASX: SZL).

But now we are putting some of these (frankly) sometimes ridiculous gains in the rear-view mirror, I’m sure there are many investors wondering ‘what’s next’. After all, we investors are trained to be ever-wary of good times turning sour in a rapid fashion. And there’s never an investor who feels more vulnerable than one sitting on a triple-digit profit margin after just a few months.

Of course, there’s nothing to indicate that markets are today in any danger of a crash in the near-term future. The ASX 200 is (at the time of writing) up a healthy 1.7% to 6,057 points, pretty standard.

But one piece of news has caught my eye this week, and I think it doesn’t bode too well for investors.

Enter the Future Fund

The Future Fund is Australia’s national sovereign wealth fund that was initially set up in 2006 by the then-government of John Howard. It was established to help fund the federal government’s payment of Commonwealth superannuation liabilities. Today, it manages $161 billion worth of assets, which are invested in a range of asset classes including cash, foreign currencies, bonds, shares and unlisted assets such as infrastructure.

According to reporting in the Australian Financial Review (AFR), the Future Fund has turned bearish on global share markets. That’s the conclusion I’m drawing from the fund’s decision to increase its cash position from 9.6% to 17% of its total asset allocation over the quarter ending 30 June 2020, anyway.

Further evidence for this bold claim? Well, the AFR reports that Future Fund chief executive Raphael Arndt had this to say on the growing cash position:

We don’t feel any pressure to deploy that liquidity… There is not a lot of distress baked into asset pricing, but there’s certainly the potential for that to emerge as the stimulus is pulled back over the next year or so… And that’s why we think we’re much better off being positioned in a cautious way right now.

To me, this statement reads ‘shares are looking overvalued and we think there’s a significant chance they will be a lot cheaper sometime in the next year’. In other words, the Future Fund is positioning itself for another share market crash, or something close to it.

Cash is king?

So should ASX investors take this hint and start stockpiling cash? Well, yes and no in my opinion. I do think now is the time to start building a modest cash position out in your investment portfolio if you haven’t done so already – perhaps a 10% or 20% allocation. The gains we have seen over the last 5 or so months are unlikely to be repeated over the next 5 months, at least in my opinion.

But I’m also not advocating investors sell everything and go underground. There’s a difference between hedging your portfolio’s risk exposure with cash and trying to time the markets with everything you’ve got. Everyone has different volatility tolerances, but if you’re one of those investors who can’t stomach a market drop, remember, it’s usually too late to take money off the table during a market crash.

More reading

• 3 fantastic ASX growth shares to buy and hold
• Latest ASX stocks brokers are urging you to buy today
• Praemium share price edges higher after Powerwrap offer goes unconditional
• Strike Resources share price wanes despite moving closer to an off-take agreement
• Some ASX winners and losers from a high Aussie dollar

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. 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 Reject Shop Ltd (ASX: TRS) share price is trading 2.01% higher today after the company signed a new deal with a supermarket giant.

Reject Shop share price lifts on deal with Tesco

Earlier today an article on news.com.au broke the news that the Reject Shop had inked a new 3-year deal with UK supermarket giant, Tesco.

According to the article, the new partnership will see Tesco-branded grocery items stocked in 354 Reject Shop stores. The first products to be stocked will include packaged food, health, beauty and household products.

The Reject Shop’s management highlighted that the deal will offer customers more choice and high quality products at a discount price.

Reject Shop CEO Andre Reich stated: “We’re all facing tough economic times, and The Reject Shop will always help people save money”.

How did the Reject Shop perform in FY20?

For FY20, the Reject Shop reported a huge improvement in its financial performance.

After delivering a $16.9 million loss in FY19, the company reported a net profit of $1.1 million for FY20. Despite the return to profitability, shares in the Reject Shop dropped as the company missed net profit expectations.

The company also reported a 3.4% increase in sales for FY20 of $820.6 million and 30.1% surge in earnings before interest, taxes, depreciation and amortisation (EBITDA) of $23.7 million.

According to the company, sales growth was fuelled by strong consumer demand for ‘essential’ products during the COVID-19 pandemic. The Reject Shop reported strong performances in cleaning products, groceries, toiletries and pet care. 

Why the Reject Shop could be a recession-buster

Following today’s news of a 7% contraction in GDP growth, Australia is facing its first recession in nearly 30 years. As a result, discount retail operators like the Reject Shop could be poised to benefit.

With traditional retailers facing troubling times, shoppers could turn to budget retailers like Reject Shop. The company has a firm footing in in Australia’s ‘dollar shop’ industry and could see a surge in demand as economic times get tougher.

In addition to deals with supermarket giants like Tesco, Reject Shop is embarking on an ambitious growth plan. Additional initiatives include establishing more physical stores and online shopping facilities. This potential has been reflected in the Reject Shop’s share price, which has bolted more than 123% for the year.

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Motley Fool contributor Nikhil Gangaram 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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