Category: Stock Market

The founder of Appaloosa Management believes the U.S. stock market is one of the most overpriced he’s ever seen.

On Wednesday David Tepper told CNBC that it is the second-most overvalued stock market he’s ever seen, behind only 1999.

According to the report, the S&P 500 is currently trading with a forward price to earnings ratio of over 20, which is a level not seen since 2002.

While this is of course the U.S. market, it has consequences for the local share market.

Most days the S&P/ASX 200 Index (ASX: XJO) will follow the lead of U.S. markets. If it were to pullback by 20%, it is very unlikely that the ASX 200 would not be dragged lower with it.

“Pretty full”.

Mr Tepper said: “The market is pretty high and the Fed has put a lot of money in here. There’s been different misallocation of capital in the markets. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full.”

The hedge fund manager believes tech heavyweights Amazon, Facebook and Alphabet are potentially fully valued now.

“Just because Amazon is perfectly positioned doesn’t mean it’s not fully valued. Google or Facebook … they are advertising companies. …They are not rich but they may be fully valued,” he told CNBC.

In light of this, he has been conservative with his investments and currently holds only 10% to 15% long positions in equities.

Should you be concerned?

While I think that Tepper makes some fair points, I would argue that things are very different to 1999.

For a start, with rates close to zero, valuations are naturally higher than they would have been 20 years ago.

In addition to this, I suspect the market is expecting a swift recovery from this current crisis. So while it may look expensive on a forward 12-month basis, valuations look a little more reasonable the further out you go.

But that is of course if economies bounce back strongly. I’m optimistic that they will, but the next few months will be key.

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• Top brokers name 3 ASX 200 shares to buy right now
• LNG spot price surge benefits ASX 200 shares

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. 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 Alphabet (C shares), Amazon, and Facebook and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Alphabet (C shares), Amazon, and Facebook. 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 Xero Limited (ASX: XRO) share price will be one to watch on Thursday after the release of its full year results.

How did Xero perform in FY 2020?

For the 12 months ending March 31, Xero delivered a 30% increase in operating revenue to NZ$718.2 million and a 29% lift in annualised monthly recurring revenue (AMRR) to NZ$820.6 million.

This was driven by a 2% increase in average revenue per user to NZ$29.93 and a 26% jump in subscribers to 2.285 million. Xero added 467,000 net subscribers during the 12 months, which was up 8% on FY 2019’s additions.

The company’s margins expanded once again thanks to the benefits of scale. Xero ended the period with a gross margin of 85.2%, up 1.6 percentage points year on year.

This ultimately led to Xero delivering a 52% increase in EBITDA to NZ$139.17 million. On the bottom line, the company recorded a profit after tax of NZ$3.34 million, compared to a loss of NZ$27.14 million a year earlier.

What were the drivers of its growth?

During the 12 months its Australia subscribers grew by 26% to reach 914,000. Management notes that it has continued to benefit from the opportunity represented by Single Touch Payroll.

In the UK its subscribers grew by 32% to 613,000. The strong subscriber additions of 150,000 were assisted in part by the Making Tax Digital initiative and Xero Tax now offering end-to-end integration with HMRC.

Over in New Zealand its subscribers grew by 12% to 392,000, with 41,000 subscribers joining in FY 2020.

North America subscribers grew by 24% during the 12 months to reach 241,000. Management notes that its subscriber growth is accelerating. It believes this is a strong indicator of the early progress from its renewed positioning in a key global market.

Finally, its Rest of World subscribers grew by 51% to 125,000. This maintained the momentum that this part of the business has reported in recent periods.

At the end of the period Xero’s total lifetime value of subscribers was up 27% to NZ$5.53 billion.

COVID-19 impact.

With Xero’s financial year ending on March 31, the company notes that the COVID-19 pandemic only had a modest impact on its operating and financial performance for the year.

However, it did result in some reduction in its AMRR progress during March and has continued doing so early in FY 2021. Management notes that it is a difficult time for many people in small business.

Xero’s CEO Steve Vamos commented: “Many of our customers and partners are having to adapt the way they operate, while investing enormous effort to survive at this difficult time. Helping them is our immediate priority.”

“While COVID-19 brings uncertainty, our long-term strategic ambitions are unchanged and we remain committed to our three strategic priorities: to drive cloud accounting around the world, grow the small business platform, and to continue to build for global scale and innovation. Now more than ever, small businesses are recognising the benefit of being able to use the cloud to run their businesses and manage their finances,” he added.

Management believes “it would be speculative for us to say anything more at this time on its potential impact on our expected performance for FY21.”

As a result, no guidance has been provided with today’s results release. Though, it has reiterated that its “ambition is to be a long-term oriented, high-growth business.”

More reading

• 5 things to watch on the ASX 200 on Thursday
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. 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 Zip Co Ltd (ASX: Z1P) share price has been on a rollercoaster ride in 2020. The buy now, pay later (BNPL) provider’s shares are down 4.52% to $3.38 per share. However, that doesn’t tell the full story.

Zip shares plummeted to a new 52-week low of just $1.05 per share on 19 March. Investors were spooked by the potential impact of COVID-19 on discretionary spending levels here in Australia.

Many of Zip’s sales come from discretionary spending, whether that be in retail, travel, electronics or a number of others. However, the Zip share price has been surging back to life and is up 221.90% from its 52-week low. That means a $10,000 investment in Zip could be worth as much as $32,190 in less than 2 months.

So, is it a good time to invest in Zip, or have you missed the boat on the Afterpay Ltd (ASX: APT) competitor?

Is the Zip share price in the buy zone?

Zip shares have had quite the resurgence in April and May. A strong quarterly update followed by a solid April trading update have been key to the strong share price rebound. In fact, the BNPL sector has been doing well with consumers continuing to spend and Afterpay shares also rocketing higher.

Zip offers point-of-sale credit and digital payment services to consumers and merchants. The group counts big names like Amazon, Chemist Warehouse, Bunnings and Big W amongst its key clients. Customers were still spending big and using Zip’s services despite COVID-19 concerns. Times are tough, but many Aussies are still looking to fix up their homes or enjoy some retail therapy amid the economic shutdown.

That spending underpinned the Zip share price growth in April and May. In fact, Zip reported an 81% year on year increase in monthly revenue in April to $15.1 million. On top of that, Zip added some 70,000 customers during April, taking total customer numbers to 2 million, a 66% increase year-on-year. Merchant numbers increased to 23,100, a 50% increase from April FY19.

Foolish takeaway

The Zip share price has been rebounding strongly despite market panic in February. I think the recent trading updates show that there is still growth potential in the years ahead. We could be looking back at $3.38 per share as an absolute bargain price for Zip shares in no time…

More reading

• Top brokers name 3 ASX 200 shares to buy right now
• Why Afterpay, Flight Centre, Mesoblast, & Sezzle shares are dropping lower
• Safe dividend stocks to buy today for the COVID-19 world
• Short sellers are going after Afterpay’s rivals and these ASX shares
• 3 top-notch ASX shares on my May watchlist

Ken Hall 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 owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking for dividends in 2020, you’ll have to look a little harder than normal. The pandemic has led to many dividend favourites deferring or cancelling their payments in FY 2020.

But not all companies have been affected by the pandemic. Some have continued their growth unabated and will be paying dividends as normal this year.

Income investors can still earn a decent income with the dividend shares listed below:

Coles Group Ltd (ASX: COL)

This supermarket operator’s defensive qualities have been on display for all to see in 2020. I believe this demonstrates why it would be a quality long term option for income investors to consider buying right now. In addition to this, its long term earnings and dividend outlook is very positive. This is due to its long track record of same store sales growth and focus on cost cutting. The latter will see Coles aim to deliver $1 billion in cumulative savings by FY 2023. I estimate that its shares currently offer a forward fully franked 4.25% dividend yield. 

Dicker Data Ltd (ASX: DDR)

Another dividend share to consider buying is Dicker Data. It has also been performing strongly in 2020 despite the crisis. Last month the wholesale distributor of computer hardware and software revealed that its first quarter profits grew 36.3% on the prior corresponding period to $18.4 million. It also advised that it intends to increase its dividend by 31% to 35.5 cents per share in FY 2020. This represents a 4.9% fully franked dividend yield.

Rural Funds Group (ASX: RFF)

Another option for income investors to consider is Rural Funds. It is an agriculture-focused property group with a diverse portfolio of assets across a number of industries. Given its long-term tenancy agreements and periodic rent increases, it has good visibility on its future earnings. Last month Rural Funds reaffirmed its guidance for both FY 2020 and FY 2021. It expects to pay a distribution of 10.85 cents per share in FY 2020 and then 11.28 cents per share in FY 2021. This equates to yields of 5.7% and 5.9%, respectively.

More reading

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• 3 blue chip ASX dividend shares to buy right now
• Why high yield dividend shares can be detrimental to your wealth
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• UBS picks the real ASX winners from the COVID-19 grocery boom

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited and RURALFUNDS STAPLED. 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 future of embattled airline Virgin Australia Holdings Limited (ASX: VAH) is looking a little brighter this morning after the Queensland government threw it a lifeline.

What has happened?

Late on Wednesday Queensland Treasurer Cameron Dick revealed that the state-owned Queensland Investment Corporation (QIC) will make an official bid for a stake in the airline.

Virgin Australia is currently in voluntary administration after failing to find the funding required to see it through the coronavirus travel restrictions.

The survival of Virgin Australia is very important for the Queensland government given how many jobs the company provides in the state. Virgin Australia’s headquarters are based in Brisbane.

In addition to this, the airline brings a lot of traffic into Brisbane Airport, which QIC owns a stake in.

Treasurer Dick commented: “We have an opportunity to retain not only head office and crew staff in Queensland, but also to grow jobs in the repairs, maintenance and overhaul sector and support both direct and indirect jobs in our tourism sector.”

He also believes that saving Virgin Australia is imperative, as Australia needs another sustainable, national airline to compete with Qantas Airways Limited (ASX: QAN).

A “laughable” move.

Not everyone believes that this is a good move by the Queensland government.

Last night Home Affairs minister, Peter Dutton, criticised the plan.

He tweeted: “Premier Palaszczuk has almost bankrupted Queensland, and now in the middle of a crisis they want to buy an airline. It is laughable. She “leads” a government which is corrupt and chaotic.”

What now?

Administrators are understood to be looking to conclude the sale process by next month.

But just because the QIC is bidding for a stake, doesn’t necessarily mean it will succeed. There are a number of rumoured suitors looking over Virgin Australia.

However, Mr Dick appears optimistic. He said: “This is a competitive space, but Queensland is a serious contender and our discussions with the administrators have been making progress. Queensland is Australia’s home of aviation and with all our competitive advantages, we fully intend to stay that way.”

More reading

• 5 things to watch on the ASX 200 on Thursday
• ABS reveals overseas travel arrivals plummeted a massive 99% in April
• ASX stock of the day: This ASX airline share jumped 45% today on expansion speculation
• Regional Express soars 45% higher amid plans to take on Qantas and Virgin Australia
• Up 140% since March: the ASX airline share flying under the radar

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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