Category: Stock Market

I have studied internet growth shares very closely ever since 2010. In a stroke of genius, I valued Amazon.com, Inc. as too expensive at that time. The Amazon share price is up 1,675.83% since then.

Australia’s geographical remoteness, not only from the world but also from each other, is well suited to online commerce. The country is presently seeing a spurt of growth for internet banks, none of which are currently listed on the ASX, as well as a continual smattering of small startups predominantly in the software-as-a-service (SAAS) category.

Software as a service

There are several outstanding Australian SaaS companies on the S&P/ASX 200 Index (INDEXASX: XJO). The largest of these is Xero Limited (ASX: XRO). The internet growth share posted its first profit since listing on the ASX last week and saw its share price dip by 8.7% over the week. With ~2 million users, investors are keen to see the company focus on customer acquisition and product development.

The company has grown its customer offerings. Initially it was a pure play cloud-based accounting package. It has since added a range of related functionality areas. These include bank streaming for reconciliation, payroll and inventory tracking. The platform also includes ~800 add on business apps from other providers, embedding it further as business infrastructure. 

Xero sees an annual customer churn rate of ~10%. The majority of this is due to companies going out of business, underlining the company’s staying power. That is, most organisations purchase the service and stay with it.

Internet growth shares in retail

There are 2 major online service providers in the retail space. The first is the country’s current leading internet growth share, Afterpay Ltd (ASX: APT). The second is Kogan.com Ltd (ASX: KGN). Of these 2 shares, I prefer Kogan for a medium- to long-term growth prospect.

The Afterpay empire is built on foundations of unsecured debt. In times of economic hardship, unsecured debt is the first to see defaults. Additionally, the company has already spawned a range of copycat products. While its integration with providers and functionality is pretty slick, that alone doesn’t constitute a competitive advantage. 

Kogan, on the other hand, continues to grow steadily. Aided by stay-at-home conditions, Kogan delivered an impressive Q3 result. The company reported increases against the prior corresponding period of 30% gross sales and 23% gross profit. March saw the company record its largest ever increase in active customers since its IPO.

Additionally, the company announced on Friday the purchase of leading furniture company Matt Blanc for $4.4 million. This adds to its portfolio of companies with strong supply chains. Unlike Amazon, Kogan produces much of its own merchandise, meaning it can not only compete at higher margins, but its products can also be sold on Amazon’s Australian website. The company also has additional services such as insurance, which sets it apart. 

More reading

• Are Xero shares a top long-term buy?
• A vaccine (probably) won’t be a quick fix for the ASX 200
• ASX 200 expected to rocket higher on Moderna COVID-19 vaccine news
• 5 things to watch on the ASX 200 on Tuesday
• Where to invest $500 in ASX shares right now

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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 and recommends Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Amazon. 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 third-quarter update from Commonwealth Bank of Australia (ASX: CBA) forecasts a fall in the Australian house price index, a proxy for house prices, from between 11% to a worst-case scenario of 32%.

In line with this, REA Group Ltd (ASX: REA) reported a 33% slide in residential listings during April. The REA result is slightly misleading. It reports on a period when people were not allowed to leave their houses.

Nonetheless, these 2 figures, combined with a similar National Australia Bank Ltd (ASX: NAB) forecast, paint a bleak picture of the short to medium-term real estate market.

A dip in house prices will reverberate throughout the economy. Companies operating in the construction, insurance, and mortgage sectors will feel the impact. However, some companies are likely to see a lesser impact than others. 

Direct exposure to a fall in house prices

ASX real estate investment trusts and companies dedicated to developing residential housing have the most direct exposure. According to its 2019 portfolio report, Stockland Corporation Ltd (ASX: SGP) has a development pipeline of 76,000 lots of residential real estate. The company estimates this has an end market value of $21.4 billion. A financial impact on this company is inevitable in the case of a fall in house prices.

The Boral Limited (ASX: BLD) share price fell by 10.6% last week. On 15 May, Boral reported concrete volumes were down ~16% and revenue down ~6% for the 4 months ending April 2020, compared with the prior corresponding period.

One ASX share I believe is likely to be less impacted than others is the REA Group share price. When the economy resumes, its previous activity real estate listings are likely to remain constant or slightly lower.

It is likely developers will want to move existing inventory as quickly as possible to limit their losses. As any recession drags on, of course, retail listings become a way for people to downsize and survive in a turbulent market. So while REA too will feel the impact, I believe it will escape the worst of any market downturn. 

Financiers and insurers

The KPMG 2019 report on the mortgage market reports the big 4 banks as holding 81% of the total mortgage market. As CBA is the nation’s largest mortgage holder, it will be the most exposed to a fall in house prices.

However, long-suffering investors in Westpac Banking Corp (ASX: WBC), of which I am one, will also see a hit to revenues. The company launched a $2,000 rebate last year. In January, Canstar reported that Westpac had deliberately positioned itself in the lowest priced 10 loans in the market in all fixed investment loan categories. In any other year, this would have been a canny loss-leading strategy. Alas, 2020 is not any other year.

Foolish takeaway

It is very easy to get wrapped up in the moment. However, I believe all of the companies mentioned here are good companies with good management teams in place. They are likely to see lower share prices in the near term until the actual scale of any fall in house prices is known.

This may be a good time to “buy the dip” as they say. Only you may need to be patient before the turnaround comes. 

More reading

• This is the latest ASX 200 stock to unveil double digit profit growth
• The newspaper killers: 3 ASX 200 online classifieds shares dominating the market
• NAB is going to question borrowers with loan holidays
• Forget term deposits and buy these top ASX dividend shares
• Why this overlooked ASX 200 stock just got upgraded by 3 leading brokers to “buy”

Motley Fool contributor Daryl Mather owns shares of Westpac Banking. The Motley Fool Australia has recommended REA 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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In my opinion, a vaccine probably won’t be a quick fix for the S&P/ASX 200 Index (ASX:XJO) or any share market across the world.

On the healthcare side of things it’s very promising that American biotechnology company Moderna has seen promising initial phase 1 data in its participants. My colleague James Mickleboro covered the news here.

But there are two reasons why I don’t think investors should get too excited yet. (I readily admit I’m not an expert on vaccines at all though.)

The first is that the vaccine itself is still going to take time to go through the R&D process even if this is the fix for the situation. It may not prove to be the dream fix for the situation people are hoping. The company is aiming to start a phase 3 trial in July, so we’re still months away from seeing if it can be successful for the population. There’s going to be a lot more economic damage between now and potential final approval.

The other problem is how long it will take to get to the global population. It takes a lot of time to ramp up production of vaccines to the point where millions of people can receive it. And Moderna is a for-profit business – how much will it charge per dose? Will it be prohibitively expensive for most countries to be able to afford to give it to their citizens?

How much is a vaccine worth to the share market?

International share markets jumped overnight in response to the news. The ASX is also expected to rise by more than 1% today. 

Hopefully the healthcare side of things will be sorted sooner rather than later. However, there’s several issues in economies that may not be fixed quickly. A global recession seems unavoidable at this stage, the damage may already have been done. It just depends on whether it’s a small recession or a large one.

More reading

• 2 millionaire-maker ASX internet growth shares
• ASX 200 expected to rocket higher on Moderna COVID-19 vaccine news
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 climbs 1% in positive start to the week
• Why this overlooked ASX 200 stock just got upgraded by 3 leading brokers to “buy”

Motley Fool contributor Tristan Harrison 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 book Killing Fairfax is a great insight into the launch of online classifieds. The far reaching impact of the growth of online classifieds has been the decline in newspaper profitability, as well as the ultimate purchase of Fairfax Media Ltd by Nine Entertainment Co Holdings Ltd (ASX: NEC). As an interested bystander, this has been like watching a slow motion car crash. 

Today, 3 major S&P/ASX 200 Index (INDEXASX: XJO) companies dominate online classified sales. While there remain unlisted competitors, the market giants have a clear lead.

Equipment for sale

Carsales.Com Ltd (ASX: CAR) does exactly what it says – sells cars. This is an area that, by itself, supports a large percentage of classified-style sales. However, the company has also branched into motorbikes, trucks, farm machinery, construction machinery and a range of other areas. The Carsales.com share price remains about 13% down, year to date. At the time of writing it is trading at a price-to-earnings (P/E) ratio of ~25. This is approximately 1 point above the 10-year average.

The 10-year compound annual growth rates (CAGR) for sales, earnings per share, dividend and equity are all over 10%. As a growth company, the return on capital expended has been well above 20% for the past 5 years.

Housing sales

REA Group Ltd (ASX: REA) is the largest of the newspaper-killing online classifieds companies. With a market cap of just over $11 billion it is one of the flagship companies on the ASX 200 and our largest IT company. It is also approximately 10 times larger by market cap than its closest direct competitor Domain Holdings Australia Ltd (ASX: DHG).

Like Carsales.com, REA also benefits from word-of-mouth marketing, and it too has diversified into other online classified areas such as commercial properties. Unlike other classified companies, houses are considered an investment. As such, REA also draws revenues from media and data sources. 

Many real estate related shares were down this week, including REA, due largely to the Q3 results from the Commonwealth Bank of Australia (ASX: CBA). Commonwealth Bank forecast a reduction in housing prices of between 11% and a worst case of 30%. However, I do not think it will impact REA like the 2008 GFC did. The company is paid predominantly for listings, so I believe it is likely to see revenues remain the same or rise as developers look to offload inventory.

Jobs, jobs, jobs

Of all the online classifieds SEEK Limited (ASX: SEK) is likely to see sustained reduction in revenues from the economic downturn. Our present 6.2% unemployment is masked by the role being played by the JobSeeker payments. And while the Australian economy is well placed to rebound from the current crisis. The same cannot be said for the rest of the world. Trade tensions aside, the impact of COVID-19 on the US, Japan, the UK and many other trading partners is likely to manifest in employment figures. 

The Seek share price is down ~23% year to date. Nonetheless it is still trading at a P/E of 39.8. This is a growth expectation that may not reflect the short-term reality.

Foolish takeaway

Of all of the online classifieds companies I like Carsales.com best at present. Its broad diversification in similar sectors will help sustain revenues regardless of economic factors. People sell equipment in both good and bad economies – albeit for vastly different reasons.

The company has been well managed over the long term. It shows solid evidence of continued growth and is currently trading at a reasonable P/E for a definite growth opportunity.

More reading

• 4 ASX 200 shares exposed to a fall in house prices
• Forget term deposits and buy these top ASX dividend shares
• Will these ASX car dealers bounce back after COVID-19?
• Why all ASX investors should avoid this easy mistake in 2020
• The importance of diversifying your ASX portfolio and how you can do it

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited, Nine Entertainment Co. Holdings Limited, REA Group Limited, and SEEK 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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National Australia Bank Ltd (ASX: NAB) is going to check in on borrowers which have loan holidays.

According to reporting by The Australian, NAB is going to start contacting the 80,000 borrowers who applied for a mortgage holiday to check if they can begin making repayments.

Initially these checks were meant to only come in at the three month mark, which is what Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have agreed to.

What is the bank actually going to check?

Apparently NAB will discuss the current status of the borrower’s loan, what the repayment pause will mean for the plan and what the borrower’s plans are for the next few months during the coronavirus period.

There is a lot of economic pain out there. There’s a reason why huge numbers of people are on jobseeker or jobkeeper.

According to the stats, over the past week banks have approved another 60,000 requests for loan deferrals from customers. That brings the total to 703,000 loans to $211 billion, including business loans.

It would be a good thing for NAB if it can start those loan repayments again in these uncertain times. 

Is the NAB share price a buy?

The NAB share price is down 45% since 21 February 2020. In a few years’ time this price may prove to be cheap. But at this stage it’s very hard to know how much damage NAB is facing over the next 12 months. It was the only bank to pay a dividend out of the big four ASX banks which recently reported. But it is the only bank to do a capital raising so far, at a dilutive discount. It might have been better to defer the dividend like ANZ and Westpac did. 

I don’t like to invest with that much uncertainty when there is a large potential downside. I prefer less ‘risky’ bets, though that’s obviously why NAB shares are down so much to begin with.

More reading

• ASX 200 Weekly Wrap: Gold miners help edge ASX ever higher
• Are rental yields better than dividend yields?
• Leading broker names CBA shares as a sell
• What happens to ASX shares if Australian house prices do fall 30%?
• This is the best ASX big bank stock you can buy right now

Motley Fool contributor Tristan Harrison 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) looks set to continue its positive run on Tuesday after very promising coronavirus vaccine news.

At the time of writing, SPI futures are pointing to 2% or 199 points gain for the benchmark index at the open.

This follows a strong night in Europe and on Wall Street which saw the FTSE jump 4.3%, the DAX rise 5.7%, the Dow Jones gain 3.85%, the S&P 500 climb 3.15%, and the Nasdaq index storm 2.45% higher.

What is the vaccine news?

Investors were piling into the share market on Monday night after American biotechnology company Moderna released phase one trial results for its coronavirus vaccine candidate, mRNA-1273.

Moderna’s 45 person trial included three dose groups of 15 receiving either a 25, 100 or 250 microgram dose. The participants received two doses of the potential vaccine through an intramuscular injection in the upper arm. These were made approximately 28 days apart.

Today’s results revealed that its vaccine produced COVID-19 antibodies in all 45 participants.

Moderna’s Chief Medical Officer, Tal Zaks, M.D., Ph.D., was very pleased with the results.

He said: “These interim Phase 1 data, while early, demonstrate that vaccination with mRNA-1273 elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25 µg.”

“When combined with the success in preventing viral replication in the lungs of a pre-clinical challenge model at a dose that elicited similar levels of neutralizing antibodies, these data substantiate our belief that mRNA-1273 has the potential to prevent COVID-19 disease and advance our ability to select a dose for pivotal trials.”

Moderna is now aiming to get a phase 3 trial underway in July. If this is successful it could mean a vaccine will be ready much sooner than anyone expected.

The company’s chief executive officer, Stéphane Bancel, said: “With today’s positive interim Phase 1 data and the positive data in the mouse challenge model, the Moderna team continues to focus on moving as fast as safely possible to start our pivotal Phase 3 study in July and, if successful, file a BLA.”

“We are investing to scale up manufacturing so we can maximize the number of doses we can produce to help protect as many people as we can from SARS-CoV-2,” he concluded.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 climbs 1% in positive start to the week
• Why this overlooked ASX 200 stock just got upgraded by 3 leading brokers to “buy”
• Why ASX iron ore miners like BHP aren’t afraid of the China trade war
• 3 top Warren Buffett quotes to start off your week

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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