Category: Stock Market

The better than expected surge in Goldman Sachs Group Inc’s (NYSE: GS) revenue could lift sentiment and expectations for the Macquarie Group Ltd (ASX: MQG) share price.

But the good results may have the opposite effect on our big four ASX banks. I’ll explain later.

The US investment bank posted a 41% jump in quarterly revenue to US$13.3 billion ($19 billion), it’s second highest on record, reported CNN.

While there’s a risk in extrapolating one offshore bank’s results to an ASX entity, a breakdown of Goldman Sachs’ earnings drivers in the June quarter bodes well for our home-grown millionaire factory.

The tale of two banks

Goldman’s top-line figure was 36% ahead of consensus, while its earnings per share of US$6.26 was nearly double what the market was expecting.

This stands in sharp contrast to many of its peers that have posted weak results, including JPMorgan Chase.

The key difference is that Goldman is more leveraged to capital markets and less to the so called “Main Street” business, which includes loans.

Leverage to capital markets

The surge in the share market and volatile trading conditions across a wide range of securities ranging from credit to commodities gave the bank a big lift.

You could say Goldman’s chief executive David Solomon owes the US Federal Reserve a big one. Record low interest rates and vast amounts of liquidity that’s pumped into financial markets have been credited for the sharp rebound in risk assets since the COVID-19 mayhem.

However, the real economy continues to tank and consumers and businesses are struggling to repay loans.

It’s a good thing that Goldman has little exposure to the weak areas of the economy.

Positive signs for Macquarie’s share price

Coming to Macquarie, I think there’s a chance the bank could overdeliver when it hands in its earnings report card in August.

While it’s expansion into home loans looks poorly timed with the benefit of hindsight, its capital markets and trading businesses should more than offset any weakness in its loans business.

Let’s also not forget the wave of capital raisings on the ASX, which investment banks like Macquarie collects lucrative fees off.

Good for Macquarie, bad for big four banks

Also, I believe the big four banks have been more aggressively winning share of the local home loan market at the expense of their smaller rivals with generous offers. This could have capped Macquarie’s exposure to this market.

The risk of rising bad debts is a key reason why the Westpac Banking Corp (ASX: WBC) share price, Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price and National Australia Bank Ltd. (ASX: NAB) share price have been underperforming.

The Commonwealth Bank of Australia (ASX: CBA) share price is also under pressure although it’s holding its ground better due to its stronger balance sheet.

CBA is the only one of the big four domestic banks that will report its full year results next month. Investors will be keenly watching both CBA and Macquarie.

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• ASX 200 jumps 1.3%: Big four banks drop lower, Afterpay up after U.S. update
• Biggest dividend cuts in 10 years to hit ASX investors next month
• This could be a problem for the Afterpay share price

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

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

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The Data#3 Limited (ASX: DTL) share price is on watch this morning after the technology company reported it expects another record full year result. Data#3 advised that consolidated net profit before tax for FY20 is expected to be approximately $34 million, up from $26.6 million in FY19. 

What does Data#3 do? 

Data#3 delivers technology solutions spanning cloud, mobility, security, data and analytics, and IT life cycle management. It offers services across consulting, procurement, projects, resourcing, and managed services. Headquartered in Brisbane, the company has facilities across 12 locations in Australia and Fiji. Now the largest enterprise software supplier in the Asia Pacific, Data#3 targets enterprise and government customers. 

How has Data#3 been performing? 

In 1HFY20, Data#3’s sales revenue increased 11.6% to $718.9 million with gross profit up 7.7% to $88.6 million. Sustained revenue growth was boosted by digital transformation projects and cloud-based solutions. Total revenue included $251.9 million in public cloud revenues, a 76.5% increase on the prior corresponding period. 

Net profit after tax increased 41.5% to $8.7 million in the first half of FY20. This led to a 41.5% increase in earnings per share, which reached 5.65 cents. The board declared an interim dividend of 5.1 cents per share, an increase of 41.7% on the prior corresponding period. This represented a payout ratio of 90.3%. 

Data#3 has seen sustained earnings growth since FY18, with NPAT increasing from $2.7 million in 1H FY18 to $8.7 million in the most recent half. Over the same period, the interim dividend has increased from 1.6 cents per share to 5.1 cents. The company reports it has a strong balance sheet with no material borrowings. 

What’s next for the Data#3 share price?

Today, Data#3 announced it is expecting a record full year result, with consolidated net profit before tax expected to grow 28% to $34 million. A solid pipeline of integration projects across hardware, software, and services contributed to the result. Data#3 sees strong growth in the Australian IT market, with digital technologies leading business transformation in both commercial and public sectors. The company believes it is well positioned to capitalise on these opportunities. 

More reading

• Why the Temple & Webster share price climbed 37% in June
• 2 ASX shares I’d buy if the market crashes again
• BWX delivers strong growth in FY 2020 and announces $50 million equity raising
• Zoono share price sinks lower despite COVID-19 sales surge
• Why Goldman Sachs’ revenue surge bodes well for the Macquarie Group share price

Motley Fool contributor Kate O’Brien 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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ASX dividend shares can provide you with a good source of income. There are some options out there with large dividend yields that can pay you a lot of cash each year.

Money in the bank isn’t going to earn much interest these days with the official RBA interest rate at just 0.25%.

Here are three ASX dividend shares with very large income yields:

NAOS Small Cap Opportunities Company Ltd (ASX: NSC)

This is a listed investment company (LIC) which targets small caps in a range of between $100 million to $1 billion.

The ASX dividend share owns a high-conviction portfolio of shares with a weighted average market cap of $182.7 million. Some of its investments include MNF Group Ltd (ASX: MNF), Consolidated Operations Group Ltd (ASX: COG) and BSA Limited (ASX: BSA). At the end of June 2020 it had 12 positions.

FY20 was a strange year, which included the COVID-19 market selloff. Its portfolio delivered a return of 2.59% (before fees), outperforming the S&P/ASX Small Ordinaries Accumulation Index’s decline of 5.67% by 8.26%.

At the current NAOS Small Cap Opportunities share price, it offers a grossed-up dividend yield of 11.7%. That’s great for a ASX dividend share. It’s also trading at a 28% discount to the net tangible assets (NTA) at 30 June 2020.

Pacific Current Group Ltd (ASX: PAC)

Pacific is a global asset management business which partners with other investment managers. It helps those investment managers grow. It has a portfolio of 15 specialist boutiques in Australia, India, Luxembourg, the US and the UK.

The company said in its FY20 third quarter update it’s expecting FY20 underlying net profit to be in the range of $23 million to $25 million. That was before the impressive run of the share market since the start of May 2020.

If the ASX share just maintains its dividend in FY20 it will pay investors an annual dividend of $0.25 cents per share. That would amount to a grossed-up dividend yield of 6.4%.

But there’s a fair chance that the ASX dividend share may pay a larger dividend considering the performance of markets over the past few months.

WAM Microcap Limited (ASX: WMI)

I think WAM Microcap could be a top ASX dividend share for many years to come.

It’s a listed investment company (LIC) which targets ASX shares with market capitalisations under $300 million. These businesses could be some of the best growth share opportunities. Not many investors go searching in the small cap zone, so these shares are usually trading at a more attractive valuation compared to their mid-cap counterparts.

Some of the shares it was invested in at 30 June 2020 were Objective Corporation Limited (ASX: OCL), FINEOS Corporation Holdings PLC (ASX: FCL) and Redbubble Ltd (ASX: RBL).   

The benefit of a LIC is that it can turn investment returns, including capital gains, into a dividend for its own shareholders. That means WAM Microcap can profit from growth shares and then pay its shareholders a dividend.

The ASX dividend share has only been around since June 2017, but it has already been an exciting dividend payer with special dividends in FY18 and FY19. It started paying a dividend in FY18, grew it in FY19 and seems on course to grow it again in FY20.

In FY20 the LIC’s gross portfolio return (before fees, expenses and taxes) was 11.8%, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 17.5%. That’s a very strong outperformance over one year.

At the current WAM Microcap share price, it’s trading with a FY20 grossed-up dividend yield of 6.25%.

Foolish takeaway

I think each of these ASX dividend shares have great income potential. For dividends I think WAM Microcap could be the best option over the long-term, but the Naos LIC does look very good value at the moment and it has a huge yield.

More reading

• 3 ASX dividend shares for every income investor’s portfolio
• 4 top ASX dividend shares you should never sell
• I think WAM Microcap is a retiree’s dream dividend share

Tristan Harrison owns shares of NAO SMLCAP FPO and WAM MICRO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Objective Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends FINEOS Holdings plc. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended FINEOS Holdings plc and REDBUBBLE 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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I think you can start a really good portfolio with as little as $10,000. For me, the best ASX shares to buy right now, or anytime, are ones that cover a few important areas. First, your portfolio should include cheap shares in good companies. Second, it needs to dedicate a small percentage to companies likely to see significant share price growth (although, not moonshots). And third, it should contain the beginning of an income stream.

Finding cheap shares is fraught with danger right now. A level of exuberance and optimism seems to be driving share prices. In fact, many companies are now trading at higher levels than they were in February. This is despite the impacts of fires, a pandemic lockdown and Victoria firmly in the grip of a second wave.

On that note, let’s take at look at the following ASX shares. These are all currently on my watchlist and I’m likely to invest in most of them in the near future.

Cheap ASX value shares 

Property

I think DEXUS Property Group (ASX: DXS) is one of the best ASX shares to buy right now. Dexus is trading at a market cap of $10.27 billion, approximately $6 billion less than its property portfolio is worth. The company has a price-to-earnings ratio (P/E) of 6.55, its lowest level for 7 years. At this price, it is paying a trailing 12-month (TTM) dividend yield of 5.3%.

I would commit $4,000 to this company. Why? Three reasons. First, office property is the real estate sector least impacted by the coronavirus pandemic. Most of Dexus Property’s assets are offices with a 97% occupancy rate. Second, the company has a weighted average lease expiry (WALE) or average lease duration, of 4.4 years. Third, it is valued at less than its real estate portfolio and pays a good dividend.

Another option for this position could be Centuria Office REIT (ASX: COF). It is a smaller version of Dexus and is a pure-play office fund. Like Dexus, it is valued at less than its portfolio value, has high occupancy, a long WALE, and has a higher TTM dividend yield than Dexus. Personally, however, I think I’m likely to get better share price growth from Dexus.

Gaming

I would also invest $4,000 in Aristocrat Leisure Limited (ASX: ALL). In the company’s 2019 annual report, it reported record profits on revenue of $4.4 billion. The company’s three main product verticals are electronic gaming machines, casino management systems, and digital social games.

In 2020 the land-based products, electronic gaming and casino management systems have suffered significant economic impact due to coronavirus. Nevertheless, the company has continued to invest in its digital games. Moreover, in the six months to 31 March, digital revenues increased by 27%, making up 46% of overall revenues. 

I believe casino revenues are likely to have already started flowing again across various countries, as well as among a few Australian casinos. The company will continue to see issues from a lack of tourism, but digital gaming will partly offset this. The company is trading at a P/E of 10.10. Less than half of its 10 year average P/E of approximately 23. I think this is a good company at a reasonable price.

My view is that this ASX share will provide an investor with decent share price growth over a 2 – 3 year horizon.

The best ASX shares to buy right now for growth

I have only allowed $2000 from the initial $10,000 to invest in riskier growth shares. My choice of the best growth share to buy right now is definitely Tyro Payments Ltd (ASX: TYR). The company is a very impressive payment processing fintech. It entered a market dominated by the banks and has become Australia’s largest EFTPOS provider of all authorised deposit-taking institutions (ADI) outside of the big 4 banks.

From 25 March, the company has reported its transactions weekly for transparency during the pandemic. In trading update number 17 the company showed a full year increase in transactions of 15% in spite of all of the problems this year. In addition, the company’s FY21 transaction volume is already 22% higher than the previous corresponding period. 

The company only listed on the ASX in December last year and has yet to post full year results. It is likely to either post a small result, producing a very high P/E or post a loss. Growth companies are volatile, however I am a believer in this company and I think it will continue to grow at a good rate for the next 2 – 3 years. 

More reading

• Why I would buy these blue chip ASX 200 shares this week
• Broker warns Afterpay and these ASX stocks are caught in an overcrowded trade
• What moved the Wesfarmers share price in June?
• This could be a problem for the Afterpay share price
• Investor in your 30s? Buy these cheap ASX shares

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments. 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 Telstra Corporation Ltd (ASX: TLS) share price could be heading a lot higher from here according to one leading broker.

Who is bullish on Telstra?

Goldman Sachs has been looking at the impact the second wave could have on the telco giant’s performance and remains very positive on its prospects.

According to the note, the broker has retained its conviction buy rating and lifted its price target slightly to $4.10.

This price target implies potential upside of 18% over the next 12 months excluding dividends. If you include its 16 cents per share dividend, which Goldman Sachs believes is sustainable for the foreseeable future, this potential return stretches to over 22.5%.

What did Goldman Sachs say?

Goldman has revised its earnings estimates for Telstra following the resurgence of COVID-19 infections in Australia and the six-week lock down of Melbourne.

It explained: “We revise lower our Telstra FY21 EBITDA by -3%, reflecting: (1) ongoing international travel restrictions; (2) extended Melbourne support measures; and (3) further delays in redundancies associated with its productivity program.”

It now expects Telstra to post a 4% decline in FY 2021 underlying EBITDA to $7.14 billion, before recovering +6% to $7.55 billion the following year.

This recovery is expected to be driven by cost savings and efficiencies.

It notes: “With digital servicing having materially increased (digital first contacts rising to 70% from 50%, 4mn app downloads in 8 weeks), we believe Telstra has increased scope to improve efficiencies in its retail store network and customer service. We remain constructive on the total quantum of savings (GSe A$2.6bn by FY22), and expect further benefits in FY23.”

The broker is also very positive on the company’s infrastructure and has updated its analysis of Telstra InfraCo.

It wrote: “In an uncertain, low-rate environment, we see telco infrastructure as highly attractive. We update our Telstra InfraCo analysis, which suggests a potential valuation of A$38bn, or 14.9x FY23 EBITDA. This would imply that Telstra’s retail business is trading on an EV/EBITDA of just 3.4x.”

Should you invest?

I think Goldman Sachs is spot on and I would be a buyer of Telstra’s shares right now. Especially if I were an income investor, given its attractive fully franked 4.6% dividend yield.

Overall, I feel it is the best option in the space and would choose it ahead of rival TPG Telecom Ltd (ASX: TPG).

More reading

• 5 things to watch on the ASX 200 on Thursday
• Buy Telstra and this ASX dividend share for income
• 3 safe and strong ASX dividend shares to buy during the pandemic
• Why I would buy Telstra and these ASX dividend shares
• a2 Milk and 1 other quality ASX share to buy right now

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. 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 Coles Group Ltd (ASX: COL) share price continued its positive run and pushed higher again on Wednesday.

The supermarket giant’s shares climbed 1.5% to reach a record high of $18.23.

When the Coles share price hit this level, it meant it was up an impressive 21% since the start of the year.

This compares very favourably to the 10% decline by the S&P/ASX 200 Index (ASX: XJO) in 2020.

Why is the Coles share price at a record high?

Investors have been buying Coles shares due to its defensive qualities and its positive performance during the pandemic.

The latter was driven by pandemic-induced panic buying and led to Coles reporting stellar sales growth during the second half.

For example, during the third quarter of FY 2020, Coles delivered a 12.4% increase in total sales to $9,226 million. This was driven by a 13.1% lift in Supermarket sales to $8,230 million, a 7.2% increase in Liquor sales to $740 million, and a 4.3% rise in Express sales to $256 million.

Management also revealed that the first four weeks of the fourth quarter had been positive. It notes that there is early evidence of customers changing their habits by purchasing less convenience and impulse products and moving towards more cooking and baking from scratch.

All in all, this appear to have set Coles up to deliver a very strong sales result in FY 2020.

What about its profits?

Although Coles’ sales have been growing very strongly, it remains unclear whether its profits have followed suit. Increased staffing and investments in security, cleaning, and safety glass are all expected to weigh on its margins this year.

Nevertheless, I’m quietly confident it will deliver a solid profit result. I estimate a full year net profit after tax in the region of $984 million, which will be an increase of 5% on FY 2019’s result.

From this I expect a fully franked full year dividend of 60 cents per share to be declared. This equates to a 3.3% dividend yield based on the current Coles share price.

Should you invest?

Although its shares are at a record high, I would still be a buyer of them if you plan to invest for the long term.

This is because I believe the company is well-positioned to grow its earnings and dividends at a solid rate over the next decade.

And while there are a number of options in the space, I would choose Coles just ahead of rival Woolworths Group Ltd (ASX: WOW).

More reading

• Is the Coles share price still attractive after it surged to a record high today?
• Which ASX shares will benefit from the second lockdown?
• 3 ASX shares to buy before earnings season
• 3 safe and strong ASX dividend shares to buy during the pandemic
• These ASX dividend shares will help you beat low interest rates

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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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Fortescue Metals Group Limited (ASX: FMG) shares rocketed to a new record high on Wednesday. Shares in the Aussie iron ore miner closed 3.4% higher at $16.03 per share after reaching an all-time high of $16.10 in early trade.

There’s no doubt Fortescue has been a success story in 2020 and is strongly outperforming the S&P/ASX 200 Index (ASX: XJO) this year. But as with all ASX gainers, the question is how long the growth can last. 

Let’s see what’s driving the Fortescue share price to new highs and whether or not it’s still in the buy zone.

Why the Fortescue share price is rocketing

One big factor behind Fortescue’s recent gains is a strong iron ore price recovery. The key commodity price hit a new 12-month high on Wednesday as China’s economic recovery continues to fuel demand for iron ore. There’s also ongoing supply disruptions from Brazil which is good news for Fortescue as one of the ‘Big Four’ iron ore miners around the world.

Strong commodity prices are clearly a good thing for Fortescue and its earnings. Investors have been piling into the Aussie iron ore miner this year, sparking a 48.7% share price gain. On top of that, a strong quarterly report in April has been an important factor. Fortescue reported record third-quarter iron ore shipments (42.3 million tonnes) and strong free cash flow. That led the Aussie miner to upgrade its FY20 shipments guidance to 175 to 177 million tonnes which has helped boost Fortescue’s value.

It’s interesting to note that while Fortescue shares are up 48.7% this year, rival iron ore shares are not. For instance, the BHP Group Ltd (ASX: BHP) share price is actually down 2.4% in 2020. It’s worth remembering that Fortescue is more of a pure iron ore miner while BHP has more diversified operations. For example, BHP has a number of segments including Petroleum, Copper, Iron Ore and Coal. That could be a big factor at the moment given some of the struggles in other commodity sectors.

Should you buy at an all-time high?

Normally, I’d be pretty wary of buying in to ASX shares at all-time highs. However, there are good signs for the Fortescue share price in 2020. The first one is obviously Chinese demand outperforming even bullish expectations. It also looks like supply disruptions could persist in Brazil, especially given the current impact of coronavirus on the country.

I also think governments could turn to infrastructure to kickstart their economies. That would further consolidate demand and push iron ore prices higher. On top of that, Fortescue’s price to earnings (P/E) ratio is still a lowly 6.9 despite strong recent gains.

If you’re after exposure to iron ore in 2020, I think Fortescue would be my pick ahead of BHP right now.

More reading

• Up 31% in 1 month: is the Saracen share price a buy?
• Why I would buy BHP and CBA shares for dividends
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 jumps almost 2% today, Afterpay rises
• The dangers of investing in managed funds

Motley Fool contributor Ken Hall 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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