Warren Buffett may not have had the best of years.

But with the COVID-19 pandemic moving across the world at lightning speed, and government and central banks responding almost as quickly, the Oracle of Omaha could be forgiven for erring on the side of caution.

On Saturday 1 May, Buffett and his long-time business partner Charlie Munger hosted Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B)‘s annual general meeting (AGM). With a nod to the continuing impact of coronavirus, the AGM was held virtually.

Why Buffett sold out of the US airlines

One of the questions that came up during the AGM was Berkshire Hathaway’s decision to sell its holdings in four United States airline shares during the early months of the pandemic.

While most every travel share plummeted during those first months, massive government stimulus, near-zero interest rates, and the rapid rollout of vaccines have seen most airline shares rebound strongly.

For example, Delta Air Lines Inc (NYSE: DAL), which Berkshire sold, has rebounded 145% from its 15 May 2020 lows.

Warren Buffett, however, said that the airline’s share price recovery may have been significantly more muted if Berkshire hadn’t sold its holdings. This, he said, was owing to the fact the airlines may not have been the beneficiary of as much government largesse had Berkshire still been invested.

He said (quoted by Bloomberg), “They might have very well had a very, very, very, very different result if they had a very, very, very rich shareholder that owned 8 or 9%.”

The billionaire investor conceded that over the past year, overall:

The economic recovery has gone far better than you could say with any assurance, so we didn’t like having as much money as we had in banks at that time. I do not consider it a great moment in Berkshire’s history, but also we’ve got more net worth than any company in the United States under accounting principles.

As for Berkshire’s growing mountain of cash, currently somewhere in the range of US$145 billion (AU$188 billion)?

Vice chair Charlie Munger stepped in to answer why the company didn’t splurge more near the market lows.

Munger said no one (not even money managers!) can call the market bottom with any accuracy. “There always is some person who does that by accident, but that’s too tough a standard. Anybody who expects that out of Berkshire Hathaway is out of his mind.”

Why Warren Buffett likes Apple shares

At the current Apple Inc (NASDAQ: AAPL) share price of US$131.46, the company has a mind boggling market capitalisation just north of US$2.2 trillion. That’s thanks to the share price gaining 467% over the past 5 years, with shares up 79% in the past year alone.

And Warren Buffett, once known for avoiding tech shares because he didn’t understand them, is a big fan.

Citing the current ultra-low interest rate environment as supporting the big technology shares, Buffett said, (also quoted by Bloomberg) “The Googles and Apples are incredible in terms of what they earn on capital. They don’t require a lot of capital, and they gush out more money.”

According to Bloomberg, Berkshire owns a little more than 5% of all Apple shares. And Buffett no longer feels put off by its technological nature, instead focusing on the company’s quality management and relationship with its customers.

I feel that I understand Apple and its future with consumers around the world. Apple has fantastic management — Tim Cook was under appreciated for a long time, and he has a product that people absolutely love. There’s an installed base of people and they get satisfaction rates of like 99%.

This brings us to 3 of Warren Buffett’s mantras that arguably every investor should keep in mind. Namely, and in no particular order, they are something along the lines of:

• Look for companies with great brands and the ability to control prices.
• A great manager is as important as a great business.
• And, the best investments provide real-world value, not just market value.

Happy investing!

More reading

• Warren Buffett hates Bitcoin. Here’s why
• Some takeaways from Warren Buffett’s Berkshire Hathaway meeting
• ASX 200 Weekly Wrap: Shares have average week but a great month
• Retail just changed. Forever…
• Why Facebook and Apple couldn’t lift the Nasdaq Thursday

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Delta Air Lines and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2023 $130 calls on Apple, short June 2021 $240 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, and long January 2023 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Apple, and Berkshire Hathaway (B shares). 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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On Tuesday 27 April, large-cap tech giants Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) each reported first-quarter earnings. While Alphabet stock surged and Microsoft shares fell slightly after the release, both companies posted impressive growth metrics.

As companies become larger, it often becomes harder for them to grow as fast as they did in the past. Yet Alphabet and Microsoft, helped along by their cloud computing divisions, managed to post eye-opening 34% and 19% revenue growth rates, respectively.

Despite both companies being well-known entities among investors, it’s quite possible they are actually still being underrated. That’s due to another factor besides mere revenue growth — and that factor is margin expansion.

Revenue growth is nice, but operating leverage is a magical combination

What investors may not fully appreciate is each company’s ability to expand its operating margin into the future. Last quarter, Alphabet posted an impressive 29.7% operating margin, while Microsoft posted an even more incredible 40.9%.  

These are larger than typical, owing to the strong competitive advantages, or “moats,” each company has. Yet with such already-large operating margins, investors may still be underestimating how much further each company’s margin can grow in the future.

Microsoft is on a steady upward trajectory

Microsoft should be able to expand its operating margin because, well, its margin has been ticking up consistently over the past five years. In 2016, the company-level operating margin was 28.6%, but it consistently increased to 37% in 2020 before reaching nearly 41% last quarter.

How has Microsoft been able to grow its margin so much? Chalk it up the massive scale of its various software platforms, including Office and Dynamics 365 cloud software offerings, as well as its growing Azure infrastructure-as-a-service (IaaS) platform. These core software offerings, along with the asset-light Windows operating system and LinkedIn social media platform (purchased in 2016), are basic enterprise tools used all over the world. Since they’re being delivered via the cloud, each incremental sales dollar requires very little incremental cost since the development that goes into each service is largely fixed.

Enterprise software is also a really attractive business because it’s pretty sticky. If a company adopts your software, it’s a pain to switch and retrain all of their workers on a new platform. So, enterprise software companies usually don’t drop prices, they can usually increase prices a bit every year or so.

One other factor is that the 2016 operating margin was likely held back by the company’s large investments in Azure. Microsoft doesn’t break out Azure revenue or margin specifically, only growth rate (Azure grew 50% last quarter). Five years ago, Azure was likely a drag as Microsoft invested in data centers and personnel to get it up and running to compete with leader Amazon.com Inc (NASDAQ: AMZN) Web Services. Now that Azure is achieving greater scale as the No. 2 IaaS platform in the world, its margin is likely expanding toward AWS’ 30% margin and boosting the company’s overall bottom line.

Alphabet’s core and cloud businesses are getting more profitable, too

Unlike Microsoft, Alphabet recently began breaking out its revenues and margins across various segments, including the breakout of cloud profitability. As the up-and-coming third-place cloud platform, Google Cloud Platform (GCP) is still losing money. In fact, GCP reported increasing losses each of the last three years, chalking up a $5.6 billion operating loss in 2020.

At the same time, Alphabet’s core Google services (search, ad networks, YouTube, Android) segment has made a fairly steady operating margin of 32% to 33% each of the past three years. However, last year was affected by the pandemic, depressing the margin at the beginning of the year. Google services’ operating margin had jumped to 36% by the fourth quarter as the company recovered, showing core Google is actually getting more profitable.

Yet last quarter, both Google services and cloud got a big margin boost. Google services’ operating margin jumped to 38.2%. Meanwhile, GCP still produced losses, but the operating loss margin fell from -62.3% to -24.1%.

Both companies did receive some benefit from lower travel expenses during the pandemic, as well as lower depreciation costs as it was determined both companies’ cloud servers should have a longer useful life than previously thought. Still, those server savings, while different from the past, should be a permanent cost reduction going forward. And it’s likely business travel won’t quite return to normal once the pandemic is over as companies have discovered some meetings can easily take place over videoconferencing.

How big could margins get? Three examples provide optimism

Last quarter proved there is still strong double-digit growth to be had for Microsoft’s software platforms as well as Google search and YouTube, even though these dominant services have been around for quite a while. As long as both companies can grow these wide-moat products and services by double-digits, I don’t see why operating margins can’t continue to expand with scale.

How big could margins get? There are a few examples of other global technology networks that have higher margins than Microsoft or Google. For instance, Visa Inc (NYSE: V) and Mastercard Inc (NYSE: MA), which operate global credit and debit card networks worldwide and benefit from increasing swipe fees over a fixed network, have operating margins of 67.2% and 53.4%, respectively, even in the pandemic-affected 2020. Another tech monopoly, VeriSign Inc (NASDAQ: VRSN), the domain registry for the .com and .net domain names, has an operating margin of 64.9%.

Meanwhile, Microsoft’s dominant software platform and Google’s search and YouTube platforms have similar characteristics to Visa, Mastercard, and VeriSign. That is, a dominant fixed-technology platform, which achieves global scale without much in the way of incremental costs.

While Amazon Web Services’ operating margin is around 30%, Google’s and likely Microsoft’s cloud margins are lower and a current drag on overall company margins. Yet as the cloud market matures, both should grow their cloud margins toward AWS. And who’s to say AWS and the other cloud IaaS players can’t eventually make margins even higher than that, as cloud computing grows over the next decade?

While both companies’ operating margins may not reach quite the heights of a Visa or VeriSign any time soon, it’s not out of the question that they could consistently move toward that 60% region over time. That’s why I still think both stocks could continue to surprise to the upside and benefit shareholders over the next decade.

More reading

• Seven West (ASX:SWM) share price wobbles on market update
• Retail just changed. Forever…
• ACCC sends a warning shot at Apple and Google app stores
• Microsoft beats Wall Street’s expectations with strong Q3 earnings
• Alphabet topped Wall Street’s earnings targets by 66%

Billy Duberstein owns shares of Alphabet (C shares), Amazon, and Microsoft and has the following options: short June 2021 $1320.0 puts on Alphabet (C shares). His clients may own shares of the companies mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Mastercard, Microsoft, and Visa and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Mastercard. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post How high can Microsoft’s and Alphabet’s margins go? appeared first on The Motley Fool Australia.

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Ask A Fund Manager

In part 1 of our interview, Perennial portfolio management director Stephen Bruce explained how value stocks are roaring. Now in part 2, he tells us which ASX share will go gangbusters as the UK economy enjoys a renaissance this year.

Overrated and underrated shares

The Motley Fool: What’s your most underrated stock at the moment?

Stephen Bruce: I quite like Virgin Money UK CDI (ASX: VUK). 

We’re positive on the Aussie financials, but the dynamics are very similar in the UK. If you look at the UK economy, the government’s brought in almost identical stimulus and support measures to what we have here.

One key difference though is that the UK is — after getting off to a bit of a disastrous start with COVID — they’re absolutely racing ahead with a vaccination program. They’re more than halfway there. Probably by June, everyone will be done. 

The furlough scheme, which is their equivalent of JobKeeper, has been extended out until September. And summer is coming. 

So you have to think that the UK economy is really going to come roaring back to life over the next 6 months and Virgin Money, being a UK bank, will be exposed positively to that.

But then stepping back from the macro, it’s a pretty interesting company being the biggest challenger bank in the UK and having recently merged with… Yorkshire and Clydesdale Bank, which gave increased scale and national presence, a super-strong brand and obviously opportunity for revenue and cost synergy. We think it’s got good macro exposure, an interesting market position, and then some good stock-specific drivers there. 

And it’s actually trading on a very cheap valuation. It was around 0.6, 0.7 times its book value. So it doesn’t take too much of a stretch to see that getting a decent re-rating over time as the clouds lift. 

MF: What do you think is the most overrated stock at the moment?

SB: I’m probably not the only person who thinks about Afterpay Ltd (ASX: APT) when you ask questions like that now.

Who knows how it will pan out. Full credit to people for having created a phenomenon. As we stand today, you have no profits, an unproven business model, you’ve been exploiting a regulatory arbitrage, you know competition’s coming for you, it’s only a matter of time until the regulators come for you. The insiders are selling stock as fast as they possibly can. 

I have a sneaking suspicion that once the revenue line stops going [up], that the margin line will [plunge] and the bad debts line will [soar]. The losses will go [up]. 

Who knows, but I’d say for that stock to be a $30 billion market cap and in the top 20 [of the ASX], it’s a sign of the times maybe.

That’s what growth managers exist for, to have that in their portfolio.

MF: Some growth managers argue that, back in March last year when it was $8, Afterpay was also a value stock.

SB: I know. I think it even got to $6.

There’s probably a lesson, that you should buy a little bit of those things when they get to that level. Unfortunately, I didn’t.

MF: Is there also a lesson that people shouldn’t think that value and growth are mutually exclusive? There can be overlaps occasionally, can’t there?

SB: Absolutely. Knowing when to take the opportunities with stocks, which generally fall into one bucket, is really important. When we look at where we’ve made money over time, it’s often been the opportunities that you’ve had to buy what are high-quality growth stocks, which have just temporarily fallen out of favour. That’s been some of the best money-making opportunities that we’ve had over time.

MF: If the market closed tomorrow for 5 years, which ASX share would you want to hold?

SB: I think Macquarie Group Ltd (ASX: MQG). The reason I say that is, looking at Macquarie today, it seems probably a fairly valued stock. It doesn’t look super cheap or super expensive.

A lot can change in 5 years in the market. We all have our view of how the world will be in 5 years, it could be very different. When you think about Macquarie and its outlook now for the next 5 years, based on how we probably all assume the world will be, it’s pretty good — but that can change. 

One thing we know about Macquarie is they’ve been able to change their spots, or their stripes, as required, over a long period of time. Even though they’ve gotten very large, they don’t seem to have lost that ability to build new businesses and identify opportunities. 

I think, as long as the culture remains intact and more importantly, the remuneration structures remain intact, then it’s a business that you can rely on. You come back in 5 years’ time and the business will probably look very different, but it will probably still be doing well.

Looking back

MF: Which stock are you most proud of from a past purchase?

SB: This gets back to the point I made before, or you made actually, about knowing when to buy growth-y stocks. 

James Hardie Industries plc (ASX: JHX) has been a very good contributor to our fund. If you think about it over the long-term, it’s generally sat pretty squarely in the reasonably expensive growth-y part of the market. Occasionally you do get an opportunity to buy these things.

I think it was back in 2019, I can’t really exactly remember what the issues [were], but people were starting to doubt its growth outlook in the US and the stock had been sold off pretty aggressively. That provided an opportunity, if you’d formed a view that the long-term outlook… hadn’t really changed. That was an opportunity to buy a high-quality growth stock at a value price. 

We bought that. It did really well. We sold it around early 2020, and then we got a second opportunity again, in the COVID sell off, when everything got hit really hard, to buy it again.

We bought it and sold it twice. We’ve had two bites of the cherry in the last 2 years on that stock, and it’s been a really good contributor to performance.

MF: Do you remember how much you bought and sold for on both occasions?

SB: If I just look at the timeline, I probably would have been buying it around $20 and then selling it at closer to $30. And then buying it again at probably around $20 and selling it probably closer to $30. 

$20 to $30 twice, I would estimate.

MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a share at the wrong timing or price.

SB: Yes… Probably not buying CSL Limited (ASX: CSL) back in 2002 was my biggest mistake. 

It was just after they’d merged with ZLB or acquired ZLB — this was a base fractionator. It was quite a difficult period in the industry, you had [the] currency going the wrong way and a few other factors, but it was the one time that you could have bought CSL really cheaply. 

Obviously, CSL has gone on to be probably one of the best, if not the best, amongst the absolute best companies that Australia has produced. 

MF: Anything to add?

SB: The last 5 years have been pretty tough for value. The last year has been great. When we look at the setup going forward, we’re pretty confident that value is going to continue to do quite well for a time yet. 

Investors have had a great run out of growth, momentum, tech and all that stuff. They probably all underweight value and it’s been a good call. But maybe it’s time to take some profits in some of those things, in your Afterpays, and then think about reinvesting in the value end of the market.

More reading

• Macquarie Group (ASX:MQG) triumphs in battle over Vitalharvest shares
• ASX 200 Weekly Wrap: Shares have average week but a great month
• Here’s how the CSL (ASX:CSL) share price performed in April
• Top ASX shares to buy in May 2021
• Afterpay (ASX:APT) share price continues its dominance in April

Tony Yoo owns shares of AFTERPAY T FPO, CSL Ltd., and Macquarie Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Pssst, I’m a value investor who makes money from growth shares: fundie appeared first on The Motley Fool Australia.

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One fund manager sees blue skies for a particular small-cap ASX share, saying it potentially has an “unregulated monopoly” in its sector.

Medallion Financial Group managing director Michael Wayne told the Switzer Investor Strategy Day that he’s very bullish on the long-term prospects of Audinate Group Ltd (ASX: AD8).

Audinate is a maker of digital networking protocol software for audio distribution. Its flagship product is called Dante, and it allows big stadium and arena events to replace numerous cables with a digital signal.

Wayne said the company’s fortunes nosedived during the COVID-19 downturn last year.

“They’ve been doing it tough. There’s been less outdoor concerts, less sporting events.”

But Wayne reckons the depression is temporary as Audinate pretty much has the industry to itself.

“This particular business is being adopted 17 times quicker than the nearest competitor,” he said.

“Every new electronic item that’s being produced — 70% of those new items — include this Dante protocol.”

Audinate’s Dante can become an ‘unregulated monopoly’

The rapid unrivalled adoption of Audinate’s technology drew parallels to another familiar protocol that we’re all now familiar with.

“You can liken it to Bluetooth, if you like. Except Bluetooth isn’t as good a technology and it’s owned by a cooperative,” said Wayne.

“In many ways, we believe this Dante product by Audinate has the potential to be an unregulated monopoly.”

Only 2 weeks ago, Audinate reported its highest-ever quarterly revenue, suggesting the recovery out of the pandemic is well on its way.

Audinate chief executive Aidan Williams, however, did warn of some short-term headwinds.

“We are closely watching global supply chains for potential negative impacts on both our customers and Audinate, which may constrain our near-term revenue and growth,” he said at the time.

“Along with our manufacturing and OEM partners, we are working to mitigate supply chain challenges and expect this near-term uncertainty to resolve itself as calendar year 2021 progresses.”

Audinate shares ended Monday 1.36% down, to close the day at $7.98. It is down from the start of the year when it went for $8.28, but only after a spectacular recovery out of the coronavirus low of $3.13.

Morgan Stanley rates the stock as “overweight” with a price target of $10.

Dante was first developed in the 2000s with a grant from the National Information and Communications Technology of Australia (NICTA). The team was spun-off into its own company in 2006, then listed on the ASX in 2017.

More reading

• 3 exciting small cap ASX shares for your watchlist
• 2 small cap ASX shares that are growing quickly
• 3 growing small cap ASX shares to watch
• Brokers name 3 ASX shares to buy now
• Audinate (ASX:AD8) share price climbs on Q3 update

Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO. The Motley Fool Australia has recommended AUDINATEGL FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Like Bluetooth but better: ASX share excites fundie appeared first on The Motley Fool Australia.

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More reading

• Like Bluetooth but better: ASX share excites fundie
• 2 quality SaaS ASX shares to buy in May 2021
• 2 quality ASX dividend shares that will help you beat low interest rates
• 5 things to watch on the ASX 200 on Tuesday
• Why did the Omni Bridgeway (ASX:OBL) share price sink 5% today?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Kate O’Brien owns shares of Apple and Rio Tinto Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. 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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There are a few quality software as a service (SaaS) shares on the ASX that could be really good ones to look at in May 2021.

SaaS businesses can create attractive recurring revenue at high profit margins, which can generate really good net profit over time as they grow.

The below two businesses are still in the growth phase:

Xero Limited (ASX: XRO)

Xero is one of the world leaders in cloud accounting software. It is a global business with its offering available in dozens of countries. However, there are a few markets where it offers a particularly strong offering with good integration with the tax systems there. Australia, the UK, New Zealand and North America have hundreds of thousands of users.

The SaaS ASX share’s growth has been strong over the long-term. In the FY21 half-year result, Xero’s subscribers went up 19% to 2.453 million. The report also saw operating revenue go up 21% to $410 million and earnings before interest, tax, depreciation and amortisation (EBITDA) grew 86% to $120.7 million.

Xero’s gross profit margin continues to rise, despite already being very high. It went up 0.5 percentage points to 85.7%. It’s that high margin that allows a lot of the new revenue to fall to the next profit line for Xero.

There is still a long way to go with the shift to online accounting, so Xero can be a major beneficiary here.

Management said that the result demonstrated the value its customers attributes to their Xero subscription and the underlying strength of the Xero business model. It continues to prioritise investment in customer growth and product development in line with the long-term opportunity it sees.

Volpara Health Technologies Ltd (ASX: VHT)

Volpara is a SaaS company that utilises artificial intelligence to improve the early detection of breast cancer by analysing breast images (mammograms) and associated patient data. This can provide personalised breast care through clinical decision support and practice management tools. It also aims to provide cost effective reduction of breast cancer deaths.

After strong growth, the SaaS ASX share now has annual recurring revenue (ARR) of around US$18.6 million at the end of the FY21 fourth quarter which included 20% of organic growth year on year.

Volpara estimates that it has at least one software product being used in the screening of approximately 32% of US women for breast cancer. Its average revenue per user (ARPU) now sits at US$1.40, up from US$1.22 at the end of the third quarter of FY21.

The CRA Health acquisition is working particularly well. It has already led to the largest customer win in Volpara’s history.

Volpara’s gross profit margin is above 86% and rising, making it one of the highest on the ASX.

The company is now shifting to risk and genetics for FY22 as it looks to accelerate its sales growth. It’s aiming to provide women with the information needed to make informed decisions – this is planned to begin in October 2021. A new form of patient letter that includes the woman’s breast images will be launched at that time, to engage women directly and fill the clinical need that exists in that space.

More reading

• Why the Xero (ASX:XRO) share price charged higher in April
• 3 stellar ASX growth shares for investors in May
• The Xero (ASX:XRO) share price is smashing the ASX 50 this month
• 2 outstanding ASX growth shares that could be great buy and hold options
• Here’s why the Volpara (ASX:VHT) share price is up 6% today

Tristan Harrison 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 VOLPARA FPO NZ. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has recommended VOLPARA FPO NZ. 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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This afternoon the Reserve Bank of Australia will be meeting to decide on the cash rate.

According to the latest cash rate futures, there is an 86% probability of a cut to zero being priced in by the market.

Though, not everyone is expecting a cut at this meeting. Economists at Westpac Banking Corp (ASX: WBC), for example, continue to expect rates to stay on hold at 0.1% until 2023 at least.

One thing that is for sure, though, is that whatever happens at today’s meeting, it isn’t going to get any easier for income investors in the near term.

But don’t worry, because there are still plenty of ASX dividend shares offering generous yields. Two to consider are listed below:

Telstra Corporation Ltd (ASX: TLS)

The first ASX dividend share to consider is Telstra. This telco giant has had a rough few years, but is finally on track to return to growth again in FY 2022.

This is being driven by the successful execution of its T22 strategy and plans to split into three separate businesses and monetise assets.

Goldman Sachs is positive on the company and currently has a buy rating and $4.00 price target on its shares.

The broker is also forecasting 16 cents per share fully franked dividends for the foreseeable future. Based on the latest Telstra share price of $3.49, this will mean dividend yields of 4.6%.

Transurban Group (ASX: TCL)

This leading toll road operator could be an ASX dividend share to buy. Transurban owns a collection of important roads in Australia and North America such as CityLink in Melbourne and the Eastern Distributor in Sydney.

Ord Minnett is a fan of the company and believes it is well-placed to grow its distribution in the coming years.

The broker is currently forecasting dividends of 37 cents per share in FY 2021 and 58 cents per share in FY 2022. Based on the latest Transurban share price of $14.03, this equates to yields of 2.6% and 4.1%, respectively, over the next two years.

Its analysts have a buy rating and $16.00 price target on its shares.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 flat, Westpac rises after HY21, Premier returns jobkeeper
• Here’s how much the Westpac (ASX:WBC) dividend is worth now
• Why is the Telstra (ASX:TLS) share price rising today?
• Why Dubber, PointsBet, Starpharma, & Westpac shares are storming higher

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Transurban Group. 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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On Monday the S&P/ASX 200 Index (ASX: XJO) started the week with a small gain. The benchmark index rose a few points to 7,028.8 points.

Will the market be able to build on this on Tuesday? Here are five things to watch:

ASX 200 expected to rise

The Australian share market looks set to have a positive day on Tuesday following a solid start to the week on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 16 points or 0.25% higher this morning. In the United States the Dow Jones rose 0.7% and the S&P 500 climbed 0.3%. The tech-focused Nasdaq index was out of form, though, and dropped 0.5%. This could weigh on local tech shares today.

Oil prices rise

Energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) could have a positive day after oil prices strengthened. According to Bloomberg, the WTI crude oil price is up 1.35% to US$64.44 a barrel and the Brent crude oil price has risen 1.1% to US$67.51 a barrel. Oil prices jumped after demand hopes outweighed concerns over rising COVID numbers in India.

Reserve Bank meeting

The Reserve Bank of Australia will be meeting this afternoon to decide on the cash rate. According to the latest cash rate futures, there is an 86% probability of a cut to zero being priced in by the market. However, economists at Westpac Banking Corp (ASX: WBC) don’t believe the central bank will cut rates. They continue to forecast rates staying on hold at 0.1% for the foreseeable future.

Gold price storms higher

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) will be on watch after the gold price stormed higher overnight. According to CNBC, the spot gold price is up 1.4% to US$1,792.70 an ounce. Weakness in the US dollar and bond yields gave the precious metal a boost. Elsewhere, the silver price jumped 4.3% overnight.

Westpac rated as a buy

The Westpac share price may have stormed higher on Monday but could keep on climbing according to Goldman Sachs. According to a note, the broker has retained its buy rating and lifted its price target to $29.03. It was pleased with its half year result and sees plenty more upside if the bank can deliver on its cost cutting plans.

More reading

• How the gold price is impacting these ASX gold shares
• ASX 200 flat, Westpac rises after HY21, Premier returns jobkeeper
• Brokers weigh in on the Beach Energy (ASX:BPT) share price plunge
• 2 of the best ASX 200 blue chip shares to buy today
• Here’s how much the Westpac (ASX:WBC) dividend is worth now

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 Omni Bridgeway Ltd (ASX: OBL) share price fell today as the company announced the settlement of a class action case. As a result, shares in the dispute resolution finance company dropped to $3.54, down 5.6% on Friday’s close.

In comparison, the All Ordinaries Index (ASX: XAO) dipped by only 0.05%.

Wivenhoe Dam class action

Omni Bridgeway is involved as a litigation funder regarding the settlement of the Wivenhoe class action for an aggregate amount of $440 million. In essence, this means that the company provides funding for the claimants. In return, the company receives a proportion of the damages recovered.

The Wivenhoe dam case has been a hard fought and extremely expensive case on behalf of approximately 6,700 claimants. The defendants are state-owned enterprises Seqwater, Sunwater and the Queensland Government.

However, only the State of Queensland and Sunwater have settled their half of the liability in the class action. Seqwater is yet to settle, with its 50% of the $880 million damages going to court in May.

Class action resolution

Shares in the company dropped today after Omni Bridgeway announced the settlement of the Wivenhoe Class Action with the State of Queensland and Sunwater.

This morning the supreme court of New South Wales approved the terms of the settlement sought on behalf of the group members. The settlement is now unconditional, although appeals can still be made. Omni Bridgeway stated this is unlikely to happen.

Notably, the company will receive a fee from the settlement for $30 million. This is for project costs and the management fee.

Nonetheless, Omni Bridgeway’s estimated total income for this investment may still change. This is both as a result of the non-settling respondent, Seqwater and the intricacies surrounding the settlement.

Regarding Seqwater, the company stated: “The 50% of the investment relating to the judgment against Seqwater remains unsettled and will continue to be carried as an intangible investment at cost pending future resolution.”

About the Omni Bridgeway share price

Omni Bridgeway is a specialist in dispute resolution finance, with particular expertise in civil and common law legal and recovery systems. The company boasts operations spanning Asia, Australia, Canada, Europe, the Middle East, the UK and the US.

Shares in the mid-cap ASX listed stock have not had a good year, with the Omni Bridgeway share price falling by 20%.

More reading

• Warren Buffett hates Bitcoin. Here’s why
• How the gold price is impacting these ASX gold shares
• Why did the Talga (ASX:TLG) share price fall today?
• Why did the National Storage (ASX:NSR) share price rise 3% today?
• Why did the Hexagon Energy (ASX:HXG) share price sink 10% today?

Motley Fool contributor Daniel Ewing 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.

The post Why did the Omni Bridgeway (ASX:OBL) share price sink 5% today? appeared first on The Motley Fool Australia.

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Earlier today, we looked at some of the highlights and key takeaways from Berkshire Hathaway Inc‘s (NYSE: BRK.A)(NYSE: BRK.B) annual meeting for shareholders.

As per usual, Berkshire’s chair and CEO Warren Buffett, as well as vice-chair Charlie Munger, gave their opinion on the current state of the economy and the markets. As well as answering questions from shareholders, of course.

Buffett and Munger had a lot to say on a wide range of issues. But one area might be of particular interest to cryptocurrency fans and investors.

Now Warren Buffett actually (and comically) dodged this question somewhat at the meeting over the weekend. He said that he would prefer not to comment, seeing as he feels like most people watching would have a different opinion on it than what he and Munger do.

But he has gone on the record before on Bitcoin (CRYPTO: BTC), stating he thinks it’s worthless and a form of ‘artificial gold’. However, Charlie Munger wasn’t so ambiguous.

Red flag to a bull

Mr Munger started off by saying that “those who know me well are just waving the red flag at the bull” by asking about Bitcoin. He went on to say this:

Of course I hate the Bitcoin success. I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shovelling out a few extra billions and billions of dollars to somebody who just invented a new financial product out of thin air. So I think I should say modestly that I think the whole damned development is disgusting and contrary to the interests of civilisation. And I’ll leave the criticism to others.

Ok, so let’s dig into these criticisms. Firstly, the ‘useful to kidnappers and extortionists’ part. It’s true that Bitcoin’s unregulated and anonymous nature makes it useful for some ‘black market’ illegal commerce.

But other assets, such as gold, diamonds or even just hard cash can perform similar roles. So the idea that Bitcoin is some kind of ‘gamechanger’ when it comes to unsavoury or illegal activity is arguably a stretch.

Is bitcoin ‘artificial gold’?

What about the ‘artificial gold’ or ‘thin air’ argument? Well, it’s also true that Bitcoin was created out of thin air, for want of a better phrase. Since it doesn’t produce a cash flow, the only value that it has is what investors assign to it. But again, we can say that about a range of assets.

Hard cash is created out of thin air too and doesn’t produce a yield either. Indeed, since it’s no longer tied to a gold standard, it too is a form of fiat currency. That means it is only worth what we as a society deem it to be.

Even gold itself shares many of these attributes. Gold is actually a remarkably underused metal. Gold doesn’t produce a yield. And most of the gold produced either ends up as jewellery or in bullion form as a financial asset, rather than being used industrially to produce goods.

Foolish takeaway

At the end of the day, only you can decide whether Bitcoin is a legitimate asset. Or if Buffett and Munger are right and it’s essentially worthless.

Bitcoin only has value as long as investors give it value. If you think it has a future as a legitimate and unique store of value, then it’s understandable to disagree with these two esteemed investors on this issue.

There’s also nothing wrong with being in total agreement with Buffett and Munger that Bitcoin doesn’t have what it takes to be a sound long-term investment.

More reading

• How Tether is fuelling the Bitcoin price rally
• Some takeaways from Warren Buffett’s Berkshire Hathaway meeting
• ASX 200 Weekly Wrap: Shares have average week but a great month
• Why the Ether price gains are outpacing Bitcoin’s price rise
• Tesla’s $293 million of free cash flow in Q1 was an incredible year-over-year improvement

Sebastian Bowen owns shares of Bitcoin. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and Bitcoin and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short June 2021 $240 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). 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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