Could ASX shares follow Aussie wages in moving lower?

Given wage growth is a powerful economic indicator, there’s a strong possibility.

This morning, the Australian Bureau of Statistics (ABS) released its wages data for the March quarter 2020. The ABS reported that the seasonally adjusted Wage Price Index (WPI) rose 0.5% in the March quarter and 2.1% over the preceding 12 months.

It’s worth noting 2 things from these statistics. Firstly, these wage rises barely cover the rate of inflation for the same periods. According to the ABS, inflation was 0.3% in the March quarter and 2.2% over the preceding 12 months.

Secondly, this period only just clips the onset of the coronavirus and associated economic shutdowns and, as such, is more of an indicator of ‘how things were’ compared to ‘how things are’. We’ll have to wait until the statistics for the June quarter are released to get a better idea of how much the economy has been impacted by the coronavirus.

So, what do these wage figures tell us? Well, according to the Australian Financial Review (AFR), the data isn’t too promising from an economist’s point of view. The AFR notes that one economist is predicting an unemployment level of 12% in the weeks ahead and expects the Fair Work Commission to freeze the minimum wage in 2020. All of this points to relatively flat wages (perhaps even declines) for the remainder of 2020.

Most of the downward pressure on wages will come from soaring unemployment. Employers don’t have much of an incentive to offer higher wages for new staff when so many people will be looking for work, however, to temper this blow, inflation is also likely to significantly drop through the remainder of 2020.

What does this mean for ASX shares?

Low wages are a consequence of lower economic growth, which is the underlying issue here both for the economy and (in my opinion) the stock market. Low growth and high unemployment translate directly into consumers spending less money, which in turn is bad news for ASX companies.

Consumer staples companies like Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) will likely fair ok, but it’s the consumer discretionary companies that I think investors should watch out for.

With low growth and high unemployment, how many people will be shopping for new TVs from Harvey Norman Holdings Limited (ASX: HVN) or new iPhones from Kogan.com Ltd (ASX: KGN)? Not nearly as many as were in 2019 I’d wager.

We have some sobering numbers here and I wouldn’t be surprised if the flow-on effects emerge on the ASX this year.

More reading

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• 3 ASX dividend kings to buy and hold forever

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. 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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Investors aren’t letting any dips go to waste. The S&P/ASX 200 Index (Index:^AXJO) staged a late recovery to finish the day 0.4% higher after slumping by more than 1% in the morning.

This is happening quite regularly in recent times and reinforces my belief that there’s a lot of money waiting on the sidelines.

Eager buyers

The limited selection of investment alternatives to equities and fear-of-missing-out (FOMO) are supporting the market amid the COVID-19 market sell-off.

But this isn’t an excuse to buy ASX shares indiscriminately. Since the ASX 200 bounced from its bear market low on March 23, many stocks have run ahead of fundamentals.

Those hunting for buying opportunities could find their targets among the latest batch of ASX shares that were just upgraded to by brokers to “buy”.

Dressed for success

One potential stock for your watchlist is Kathmandu Holdings Ltd (ASX: KMD). Credit Suisse upgraded the adventure gear retailer to “outperform” from “neutral” as it believes its attractive valuation overrides the near-term uncertainties.

“While we acknowledge KMD faces a period of earnings uncertainty, we believe the strength of the company’s execution during the peak of lockdown restrictions; the consumer appeal of its brands; and its robust balance sheet all underpin our confidence in the company’s recovery,” said the broker.

“This view is supported by our scenario analysis which highlights valuation upside under all scenarios.”

Kathmandu is listed on both the ASX and the New Zealand Stock Exchange. Credit Suisse’s price target on the stock is NZ$1.40 a share, which implies a more than 40% upside from Wednesday’s closing price.

Beating the street

Another stock on the upgrade list is CSR Limited (ASX: CSR). Wilsons lifted its rating on the building materials group to “overweight” from “market weight” after CSR posted its full year result.

As foreshadowed in my article yesterday, brokers will be busy upgrading their earnings forecasts for the group.

“We are encouraged by the better than expected result, which highlighted market share growth and margin resilience in the Building Products segment, despite challenging construction markets,” said Wilsons.

“While there is potential for some earnings volatility in Building Products due to the timing and stage of the residential construction cycle, we are confident a robust balance sheet, advanced aluminium hedging profile and an attractive property portfolio provides support.”

The broker’s 12-month price target on CSR is $4.87 a share, which implies a 36% upside if dividends are included.

More reading

• How to use your superannuation to become a millionaire
• Top brokers name 3 ASX 200 shares to buy right now
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• The smartest ASX shares to buy if you have $2,000
• ASX gold shares steady: Can gold provide your portfolio with defensive and safe returns?

Motley Fool contributor Brendon Lau 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.

The post The latest ASX shares upgraded by brokers to “buy” appeared first on Motley Fool Australia.

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I’m a big advocate of buy and hold investing and believe it is one of the best ways to grow your wealth over the long term.

If you can identify a company which has the potential to grow consistently over a long period of time, you can generate some incredible returns on the share market.

A prime example of this is CSL Limited (ASX: CSL).

CSL, which was previously known as Commonwealth Serum Laboratories, was established in Melbourne in 1916 to service the health needs of a nation isolated by war.

In the years that followed CSL provided Australians with access to 20th century medical advances including insulin and penicillin, and vaccines against influenza, polio and other infectious diseases.

It was incorporated in 1991 and then listed on the Australian share market in 1994 for a stock-split-adjusted price of $0.76 per share. Today its shares are changing hands for a massive $306.97.

This means investors that invested $10,000 into the CSL IPO back in 1994 would have received 13,157 shares for their troubles.

Fast-forward to today and those 13,157 shares have a total value of $4,038,804.29. Yes, you read that correctly, a $10,000 investment is now worth over $4 million today.

Don’t forget the dividends.

But it gets better. Very few people would turn to CSL for dividends. Due to the premium that its shares (deservedly) trade at, CSL’s shares will generally only ever yield a ~1% dividend.

However, if you bought shares at the IPO, you would be counting down the days to its dividend payments each year.

In FY 2020 CSL is expected to pay a dividend of approximately $3.13 per share. This means that those 13,157 shares we acquired at the IPO would generate total dividends of $41,200 this year.

That’s more than four times the original investment and, based on its current trajectory, is only likely to increase over the coming years.

And while not every company will generate as strong returns as this, if you choose wisely and focus on companies with strong business model and positive long term growth prospects, you might just identify a future millionaire maker.

More reading

• How to become a better investor in just 2 minutes
• 4 top ASX shares to invest $4,000 into immediately
• The smartest ASX shares to buy if you have $2,000
• Why the coronavirus is still affecting share markets
• Is this ASX healthcare share about to soar?

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 CSL Ltd. 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.

The post If you invested $10,000 in the CSL IPO, this is how much you’d have now appeared first on Motley Fool Australia.

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