The Afterpay Ltd(ASX: APT) share price is racing higher today after agreeing to be acquired by US payments giant Square. In morning trade, the buy now pay later (BNPL) provider’s shares are up 29% to $125.00.
But that wasn’t the only thing that Afterpay announced today. It also released a trading update along with its acquisition announcement.
How is Afterpay performing?
Afterpay continued its strong form during the fourth quarter of FY 2021. This may go some way to explaining why Square saw enough value in the current Afterpay share price to launch a takeover approach.
A strong finish to the year led to Afterpay reporting FY 2021 underlying sales of $21.1 billion or $22.4 billion in constant currency. This represents a 90% and 102% increase, respectively, over FY 2020’s underlying sales.
The key driver of its growth was its North America business, which reported a 148% increase in underlying sales to $9.8 billion. Its growth was even stronger in constant currency, with underlying sales growing 177% to $11.1 billion. This means its North America business is now its largest business.
This was supported by its ANZ business, which reported a 44% increase in underlying sales to $9.4 billion, and its Clearpay business, which delivered a 227% jump in underlying sales to $1.8 billion.
This ultimately led to Afterpay reporting a 78% increase in group revenue to $925 million. From this, merchant revenue represented $822 million, which is up 90% year on year. And finally, unaudited gross profit came in at $675 million for the year, up 75% on FY 2020’s gross profit.
What were the key drivers of this growth?
Driving Afterpay’s growth in FY 2021 were further strong increases in active customers, merchants, and repeat purchases. This was supported by its continued expansion internationally and its in-store card offering.
In respect to customer numbers, the company’s global active customers reached 16.2 million at the end of FY 2021. This was up 63% year on year. Once again, the North America business was the highlight, growing its active customers by 88% to 10.5 million. Over in the ANZ region its growth has slowed, with active customers increasing a modest 8% to 3.6 million. Whereas in the UK/Europe, Clearpay doubled its active customers to 2.1 million.
Another positive which may have supported Square’s view that the Afterpay share price offered value for money was its merchant revenue margin. The release explains that Afterpay’s merchant revenue margin remained firm during FY 2021 and was in line with what was achieved in FY 2020. This is despite increasing competition in the BNPL space.
Afterpay share price performance
Prior to today, the Afterpay share price was uncharacteristically underperforming the market significantly. However, following today’s gain, the company’s shares are now up X% year to date.
But it may not stop there. Given that the deal is an all-scrip one, there is no set acquisition price. This means that if Afterpay’s strong operating performance continues, US investors may believe its value is increasing and bid the Square stock higher to reflect this.
This will then mean the value of the offer will increase in line with the Square share price. Which is likely to drive the Afterpay share price higher.
Before you consider Afterpay, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Afterpay wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
Motley Fool contributor 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 has recommended AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Before market open, shares in the mineral explorer are trading for $7.34. They ended the previous trading day up 2.23%.
Let’s take a closer look.
The Lynas share price will be one to watch
In a statement to the ASX, Lynas says they have begun, “deep core drilling into fresh carbonatite below the current Rare Earth Elements (REE) open pit mine,” at Mt Weld in Western Australia.
According to the company, highlights include:
Completion of drilling, photography and geological logging
The identification of dolomite, ankerite, calcite and phoscorite
Concluding there are an array of concentrations of REE, including “visibly coarse grained REE”
All reports are due in by the end of the year
More work to gain a better understanding of the drill site will be conducted
It remains to be seen what this will mean for the Lynas share price.
Management commentary
Lynas CEO and managing director Amanda Lacaze said:
We are excited about this deep exploration drillhole into the Mt Weld carbonatite. The world will need increasing supplies of Rare Earths for many years to come. The Mt Weld orebody is recognised as one of the richest known deposits in the world. Expanding our knowledge of this ore body is an essential part of ensuring Lynas continues to grow as a reliable supplier to global markets.
This is the first time we have conducted a one-kilometre-deep exploration drilling at Mt Weld. The results will expand the ore body knowledge of the Mt Weld REE deposit and will assist planning for future resource expansion drilling into the fresh carbonatite.
Lynas share price snapshot
Over the past 12 months, the Lynas share price has increased 219%. Only in the last month, Lynas shares have appreciated a whopping 30.1%.
Should you invest $1,000 in Lynas Rare Earths right now?
Before you consider Lynas Rare Earths, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Lynas Rare Earths wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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The BHP Group Ltd(ASX: BHP) share price could be under pressure on Monday following lower iron ore prices and a potential worker strike at its Chilean copper mines.
It might be worth noting that the BHP share price is listed on the New York Stock Exchange, where it tumbled 2.09% on Friday night.
Why the BHP share price could come under pressure
Global output for copper could come under pressure after BHP workers at its Escondida copper mine in Chile rejected the company’s final wage offer.
According to BHP, the Escondida mine is “the world’s largest copper producer”, responsible for producing 1,068 kt in FY21.
Copper is a major earner for the BHP share price, contributing US$7,067 million of the Group’s US$25,639 million revenue in 1H21.
Bloomberg reported that “… 99.5% of 2,175 members of the main union at Escondida choose to pressure BHP into offering better terms in a new three-year contract, the union said in a statement late Saturday. Labor rules in Chile give either side the option to utilise at least five days of government mediation before a strike can begin. BHP confirmed it will request mediation in a bid to reach a deal.”
The Escondida union leaders are accusing BHP of offering “large one-time bonuses in exchange for longer hours and new demands” to lift productivity and drive profits.
If BHP is unable to reach an agreement in the coming days, a strike would follow.
The company reported that Escondida copper production decreased by 10 per cent to 1,068 kt driven by COVID-19 related issues, lower concentrate feed grades and lower cathode production.
Looking ahead, BHP forecasts copper output between 1,000 and 1,080 kt in FY22.
The BHP share price could be in for volatile August given the uncertainty around its Chilean workforce.
Copper prices are already on edge, with spot prices rallying almost 4% in the last two weeks from US$9,300/tonne to US$9,700/tonne.
Before you consider BHP, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and BHP wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Over the past couple of years, the Afterpay Ltd(ASX: APT) share price has never been far from the headlines.
Dropping as low as $12.44 following the coronavirus-induced crash of 2020, Afterpay shares then rallied to a 52-high of $160.05 in February this year. The company’s shares have since been on somewhat of a rollercoaster as tech shares fall in and out of favour amid rising inflation fears.
Today, Afterpay shares are firmly in the spotlight again following an acquisition offer from US-listed financial services and digital payments giant Square Inc(NYSE: SQ). So what does this mean for the Afterpay share price?
What will happen to Afterpay?
Square plans to acquire Afterpay for approximately US$29 billion worth of stock.
This means Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares in Square Class A common stock for each Afterpay share they hold on the record date.
Square notes that it may elect to pay 1% of total consideration in cash.
Based on Square’s last closing price of US$247.26, this values the Afterpay share price at approximately $126.21, a premium of approximately 30.6% to its last closing price of $96.66 on Friday.
If successful, Afterpay shareholders are expected to own approximately 18.5% of the combined company.
How will investors manage their Afterpay shares post-acquisition?
According to the announcement, Square will be looking to establish a secondary listing on the ASX via CHESS Depositary Interests (CDIs) to allow Afterpay shareholders to trade Square shares.
The acquisition will allow Afterpay shareholders to choose whether they want to receive the consideration in NYSE listed Square stock or the soon-to-be listed CDIs.
What’s next for the Afterpay share price?
According to today’s announcement, the transaction is expected to close in the first quarter of calendar year 2022.
Until then, there are a number of prerequisites that need to be satisfied.
Afterpay said it will apply for a ruling from the Australian Taxation Office regarding the “availability of scrip-for-scrip capital gains tax rollover relief in regards to the transaction for Afterpay shareholders in Australia.”
The company noted the transaction is intended to be “tax-free to Afterpay shareholders in Australia and receipt of confirmation of such ruling is a condition precedent to the transaction”.
The transaction will also require finalising regulatory approvals, shareholder approval and approval for quotation of shares on the New York Stock Exchange and ASX-listed CDIs.
Before you consider Afterpay, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Afterpay wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
Own Zip (ASX:Z1P) shares? Here’s what to look for during reporting season
Zip (ASX: Z1P) share price booms, IRESS gets a takeover offer. Scott Phillips on Nine’s Late News
Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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The National Australia Bank Ltd. (ASX: NAB) share price has moved sideways since early March, up just 3%. However, this could change following the banking giant’s recent announcement that it will conduct a buyback of its shares.
On Friday’s closing bell, NAB shares finished the day up 0.62% to $25.93.
Could NAB shares be a buy?
Over the coming months, NAB will undertake a buyback of up to $2.5 billion of its ordinary shares on-market. Expected to commence mid to late August 2021, the bank will reduce its surplus capital whilst increase shareholder value.
Basically, this means that when NAB buys back its shares, the number of shares on its registry will decrease. With a lesser amount, this effectively increases the value of each share as the revenue and profits remain the same.
Traditionally when this occurs, a company’s share price tends to rise over time.
In addition to the buyback, NAB announced that it has engaged with Citigroup Inc about the potential acquisition of its Australian consumer business. NAB noted that it regularly assesses opportunities to take over businesses that support its growth strategy in core banking markets.
What do the brokers think?
In mid-June, Australian investment house Morgans cut its rating on NAB shares by 5.2% to $27.50.
Following suit last week, Bell Potter raised its outlook by 12% on the bank’s shares. The Australian investment advisory firm put a 12-month price target of $27.50. This implies an upside of around 6% at the current NAB share price.
NAB share price snapshot
Both NAB shares and the S&P/ASX 200 Index (ASX: XJO) have tracked similarly year to date, up 14% and 12%, respectively. However, when looking at the past 12 months, the NAB share price has recorded a 43% return, while the ASX 200 is sitting 22% in the green.
Based on valuation grounds, NAB has a market capitalisation of roughly $85.5 billion, making it the fifth largest company on the ASX.
Before you consider NAB, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and NAB wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
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. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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The Mineral Resources Limited(ASX: MIN) share price will be in the spotlight on Monday morning. This comes after the mining services company announced it will acquire Red Hill Iron Limited(ASX: RHI)’s Iron Ore Joint Venture (RHIOJV).
At Friday’s market close, Mineral Resources shares finished the day down 0.65% to $63.01.
Acquisition in motion
The Mineral Resources share price could be on the move today as investors took the weekend to digest the company’s latest news.
Located in the West Pilbara region of Western Australia, the RHIOJV tenements contain a mineral resource of 820 million tonnes (Mt) with a grade of 56.44% iron ore. The remaining 60% interest is controlled by the Australian Premium Iron Joint Venture (APIJV).
Mineral Resources stated that the proposed acquisition aligns with its strategy of expanding the resource inventory around the Ashburton Hub. It sees this as supporting a long-term, sustainable iron ore export business.
The purchase of RHIOJV is subject to Red Hill Iron obtaining shareholder approval. If granted, Mineral Resources will pay $200 million in cash on completion of the transaction. A further $200 million will be released when the first commercial shipment of iron ore extracted from RHIOJV departs the port.
In addition, Mineral Resources will pay Red Hill Iron a royalty of 0.75% of free on board (FOB) revenue. This is on all iron ore that is mined and sold from the RHIOJV tenements and the Bungaroo South tenement. The latter is based on the condition that the Bungaroo South tenement is developed in association with the RHIOJV tenements.
Red Hill, this morning, recommended shareholders to vote in favour of the transaction. It noted the board believes that Mineral Resources can secure funding to develop RHIOJV and advance mining operations.
It is expected the acquisition will be completed sometime around early September 2021.
What did management say?
Mineral Resources managing director Chris Ellison welcomed the deal, saying:
We are pleased to have reached agreement with Red Hill Iron to acquire its participating interest in RHIOJV. The transaction is in line with our strategy to build own and operate infrastructure assets to unlock stranded iron ore deposits in the Pilbara and build a long-life, sustainable iron ore business exporting out of Onslow.
The RHIOJV holds a sizeable iron ore Mineral Resource in a strategically significant location in the West Pilbara. MRL’s proposed acquisition of RHI’s participating interest in the RHIOJV will enhance the Company’s iron ore footprint in the West Pilbara as we progress our Ashburton Hub development.
About the Mineral Resources share price
Since this time last year, the Mineral Resources share price has shot up by almost 140%. Year to date has also seen solid gains of close to 70%. It’s worth noting the company’s share price reached a new all-time high of $65.38 on Friday.
Mineral Resources presides a market capitalisation of roughly $11.8 billion, with more than 188.7 million shares on its books.
Should you invest $1,000 in Mineral Resources right now?
Before you consider Mineral Resources, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Mineral Resources wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
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. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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It certainly has been a volatile 12 months for CSL Limited(ASX: CSL) shares.
During this time, the biotherapeutics giant’s shares have had a number of ups and downs.
This has ultimately led to CSL shares recording a modest gain of 4% over the period. This compares to a 25% gain by the S&P/ASX 200 Index (ASX: XJO).
Is it a good time now to buy CSL shares?
One leading broker that believes investors should wait until after its FY 2021 results before considering an investment is Goldman Sachs.
At the end of last week, the broker retained its neutral rating and $305.00 price target on CSL shares.
Based on the current CSL share price of $288.91, this implies potential upside of 5.6% over the next 12 months.
What did the broker say?
Goldman has named CSL as a company that could surprise negatively during earnings season.
It commented: “FY21 result set to be challenging but in itself a minor focus. By reaffirming the FY21 earnings target of +3-8% despite delivering a +25% beat at 1H, CSL guidance points to an earnings decline of 47%-58% in 2H21. Whilst management has likely applied more than its usual degree of conservatism amidst so much uncertainty, it is also clear that the company was having to take tough decisions on customer allocations.”
The broker suspects that cost pressures will persist well into FY 2022 due to plasma collection headwinds.
Goldman explained: “Whilst pricing tailwinds can bridge gaps and mitigate the pressure to a large extent, CSL will be reluctant to assume sustainability of pricing beyond the very near-term, particularly if plasma collections continue to improve as we/they expect. As such, we see scope for cautious commentary on FY22, largely predicated around cost, which may manifest in another year of cautious guidance.”
One positive for CSL shares, though, is that Goldman remains positive on CSL’s longer term future.
Its analysts commented: “Resiliency of demand profile a distinct positive. Longer-term, as Covid pressures continue to ease, we see no reason why IG growth will not recover strongly to double digits. Although FcRn inhibitors look set to be approved in December, we believe the degree of competitive risk is highly manageable, at least for the early indications. Whilst the development of mRNA-based flu vaccines should be a key focus for Seqirus, plasma/Behring will remain the primary attraction for investors (86% of FY22E EBIT).”
Before you consider CSL, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and CSL wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
Motley Fool contributor 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 has recommended CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Fresh from the new highs of recent weeks, the S&P/ASX 200 Index (ASX: XJO) more or less ground to a halt last week, finishing the week essentially flat, despite hitting another incremental new all-time high on Tuesday afternoon.
It was a muted week for ASX 200 shares. There were few major gains outside the mining sector, which has continued to roar higher on record commodity prices, a falling Australian dollar and cash-gushing dividend payments.
The week was almost defined by the jaw-dropping announcement on Wednesday that Rio Tinto Limited (ASX: RIO) would be paying out more than $12 billion for its next interim dividend. Rio announced a monster US$5.61 payout, which was a record high, and a 143% increase on Rio’s last interim payment. Investors responded accordingly, sending Rio shares up to a new all-time high of their own by Friday, as well as up almost 5% for the week.
This goodwill spilled over into other ASX miners like BHP Group Ltd(ASX: BHP), which enjoyed a gain of 4.3% for the week.
ASX miners up, tech shares down
Meanwhile, the ASX banks were pretty flat last week. Commonwealth Bank of Australia(ASX: CBA) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) both recorded slight bumps (CBA won with its 0.5% gain). Conversely, National Australia Bank Ltd(ASX: NAB) and Westpac Banking Corp (ASX: WBC) both fell slightly. In the former’s case, this was despite NAB announcing a $2.5 billion share buyback program on Friday.
Perhaps the worst hit sector last week was ASX technology shares. ASX tech leader Afterpay Ltd(ASX: APT)’s shares lost almost 10% over the week, including 5.2% just on Friday. Zip Co Ltd (ASX: Z1P) fared a little better, but still lost more than 6% over the week. Xero Limited(ASX: XRO) fared better still, down almost 2%. But Appen Ltd(ASX: APX), Redbubble Ltd (ASX: RBL) and Nuix Ltd(ASX: NXL) really got crunched, all falling more than 10%.
This may have been, partially at least, a reaction to the poor earnings of the e-commerce giant Amazon.com Inc(NASDAQ: AMZN), which were released over in the US on Thursday night (our time) and saw the company lose more than 7% of its value the next day.
Amazon seems to be something of a guiding light for tech shares around the world these days, so this seems to have weighed on the ASX tech sector. Another issue that might have been spooking growth investors is the recent government crackdown on listed companies over in China.
How did the markets end the week?
Last week’s ASX 200 performance is reminiscent of a sewing machine – lots of ups and downs. Monday saw the ASX 200 start the week with a small loss of 0.05%. Tuesday then gave us some green, with a gain of 0.5%. Wednesday saw another day of losses, with the ASX 200 down 0.7%. Thursday then reversed this somewhat with a gain of 0.52%. But Friday’s loss of 0.33% sealed the ASX 200’s losses for the week.
Overall, since the ASX 200 started the week out at 7,394.4 points and finished up at 7,392.6 points, its loss for the week stands at 0.02%.
Meanwhile, the All Ordinaries Index (ASX: XAO) also went backwards, albeit slightly. The All Ords started off at 7,670.9 points and finished up at 7,664.2 points – a loss of 0.09% for the week.
Which ASX 200 shares were the biggest winners and losers?
Time now for our most salacious segment, where we check out the ASX 200’s biggest winners and poorest losers of the week. So boil the kettle and fetch the biscuits as we, as always, start with the losers:
As is evident, the ASX 200’s wooden spooner share from last week was none other than embattled casino operator Crown Resorts. Crown shares have not taken the news that rival Star Entertainment Group Ltd(ASX: SGR) isn’t interested in a merger at the present time too well. With last week’s losses, the company is now down almost 15% since Star left Crown at the alter on 23 July.
Next up was another company that has been disappointing investors in 2021 so far – A2 Milk. After a recent spurt of share price appreciation, A2 shares fell a nasty 13.5% last week. It seems that all the talk of regulatory crackdowns in China might have been scaring investors off a bit. A2’s rival Bubs Australia Ltd(ASX: BUB) also delivered a poorly-received quarterly report last week, which could also have given investors the jitters.
Nuix was up next, with the troubled tech company serving up yet another week of disappointment for investors. There was no major news out of Nuix last week, so perhaps investors were just throwing the baby out with the bathwater as part of the broader tech selloff in this case.
And we can probably say the same for annotated dataset provider Appen.
Now with the losers out of the way, let’s now check out last week’s winners:
Well, the ASX 200’s biggest winner last week was rare earths producer Lynas. The big 14.3% gain seemed to be the result of a quarterly update Lynas released on Monday. This showed the company increasing sales revenue, rare earths production and prices. No wonder investors were feeling inspired.
Champion Iron was another commodities company that had a week to remember. In this case, a quarterly update of its own, which again included rising revenues and selling prices, seemed to be the catalyst here. The fortunes of Champion’s fellow iron ore miners in BHP and Rio last week likely also helped.
Turning to a financial company in Iress, and we seem to have a takeover offer to thank for the strong gains enjoyed here. This offer came from EQT Fund Management and is offering to acquire all shares for a price of $15.30-$15.50 per share. This clearly got investors excited, despite the fact the company rejected a slightly lower offer from EQT last month.
And finally, we had copper miner Oz Minerals. Oz was yet another beneficiary of a well-received quarterly update. In this case, Oz Minerals managed to up its guidance for FY2021 on high production levels. Evidently not something too many investors had a problem with.
A wrap of the ASX 200 blue-chip shares
Before we… wrap things up, here is a look at how the ASX 200’s blue-chip shares are looking as we begin the month of August on the share market today:
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen owns shares of A2 Milk, Bitcoin, National Australia Bank Limited, Newcrest Mining Limited, and Telstra Corporation Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Amazon, Appen Ltd, Bitcoin, CSL Ltd., Xero, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Nuix Pty Ltd and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO, Appen Ltd, COLESGROUP DEF SET, Macquarie Group Limited, Telstra Corporation Limited, Wesfarmers Limited, and Xero. The Motley Fool Australia has recommended A2 Milk, Amazon, and BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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These days there is so much news to absorb every hour, let alone every day.
The frantic nature of the world has seen share markets also move very quickly. For example, many experts reckon last year’s recovery after the March COVID-19 market crash would have traditionally played out over years, not months.
Whether it’s China, inflation or the pandemic, there is always something for investors to fret over.
Mackay wrote on the company blog that Anderson turned £1000 of his clients’ money into £18,000 in 22 years.
“A true visionary, he took big stakes in dominant high-growth technology stocks such as Amazon, Netflix, Alibaba and Tencent,” he said.
“And Anderson ignored the cries of critics and began investing in Tesla at just US$6 per share (now US$660, split-adjusted).”
The trouble is most professional fund managers must show off outperformance on each quarterly and yearly report, which incentivises short-term wins.
Anderson despised this.
“Anderson has long condemned the financial industry. One of his major criticisms is its structurally short-term focus,” said Mackay.
“In a recent article with The Guardian, Anderson lamented the ‘near pornographic allure’ of earnings reports and macroeconomic headlines.”
Margin of potential upside
According to Mackay, professional investors’ short-term obsession presents an opportunity for those willing to go long.
Anderson lived by a philosophy called “growth at an unreasonable price”, which Mackay says aligns with Montaka’s strategy.
“Classic value investors seek a ‘margin of safety’, where they buy at prices significantly below market value,” said Mackay.
“Anderson likes to look for a ‘margin of potential upside’.”
This ‘margin of potential upside’ is obtained by calculating the chances of “asymmetrically high returns” versus the probability of a 100% downside catastrophe.
“This requires investors to adopt a unique mental framework: to dream up the next decade of real options available to a business,” Mackay said.
“If the upside significantly compensates for the downside, regardless of today’s relative price, you have a viable investment.”
Tomorrow’s growth stock winners can’t be judged on today’s share price
This means that if a company has potential for a massive future, investors mustn’t think of the current share price as too expensive.
“It’s when exponential progress, dramatic transformation and brilliant entrepreneurialism come together and prove that an ostensibly horribly expensive stock turns out to be extraordinarily undervalued,” Anderson said.
“The initial price is then unreasonably low by any standard and the return to patient investors is absurdly large.”
Anderson cited Amazon and Tencent as shares that have always been considered too expensive but they have kept growing as they keep inventing new opportunities.
“‘Rocket to the Moon’ trades at 40x earnings, therefore it is expensive: It’s a lazy conclusion (I’ve been guilty),” he said.
“And it can be very wrong.”
Johnson’s example was Cochlear Limited (ASX: COH), which he’d dismissed 20 years ago as “expensive” when it was around $35 with a PE ratio of more than 30.
The medical devices maker has grown 15% each year since then, with the shares going for $245.43 on Friday afternoon.
“With the benefit of hindsight, you could have paid 150 times earnings and have still generated a 10% annual return (including dividends).”
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tony Yoo owns shares of Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Alibaba Group Holding Ltd., Amazon, Cochlear Ltd., Netflix, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool Australia has recommended Amazon, Cochlear Ltd., and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Shares for cloud accounting software provider Xero Limited (ASX: XRO) have dipped more than 5% this year. But that’s after a glamorous 646% gain over the last 5 years.
So does this mean the New Zealand company has now reached its potential and there’s nothing left in the tank?
Absolutely not, according to a couple of experts. In fact, they reckon now is the time to snap up some more Xero shares.
“It’s a profitable tech company, which is great,” Fairmont Equities managing director Michael Gable told Switzer TV Investing.
“I think it’s ready to make another run.”
Top ASX pick in the technology sector
An analyst note out of Credit Suisse Group AG (SWX: CSGN) this week agreed with Gable. The team there retained an “outperform” rating for Xero shares while lifting the price target to $160.
The stock closed Friday at $140.28, which means Credit Suisse is expecting a 14% upside.
“Credit Suisse… believes the company is well-placed for growth,” said Mickleboro.
“Particularly (given) its positive subscriber growth outlook and its expectation for increases in its average revenue per user metric.”
Xero’s financial year ends on 31 March, so it will not be a part of the August reporting season frenzy.
Xero shares experiencing a ‘narrowing range’
Gable said that, after plateauing in December, Xero stocks have gone down and sideways. But price volatility is starting to narrow, which has piqued his interest.
“Over the last several months we’ve had the range start to tighten up,” he said.
“What that means is it’s had a massive run over the back end of 2020, it’s just consolidated that move, and now… it’s starting to break out of that range.”
Gable said he has been snapping up Xero shares in the past week for his clients. “This one’s on the move again, and it should just resume the uptrend from here.”
But it’s not too late to get in on the action, he reckons.
“It’s still at the start of that move,” said Gable. “If you’re looking to buy Xero I think it’s still a buying opportunity right here. It’s only just starting the move.”
If he’s proven correct, Gable forecasts Xero shares will trade at new all-time highs within the next few months.
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Motley Fool contributor Tony Yoo owns shares of Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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