The Credit Corp Group Limited (ASX: CCP) share price is surging higher today. This comes after the company released its half-year results for the 2021 period.

In early morning trade, shares in the debt collector are swapping hands for $32.68, up 10.93%.

Let’s take a look and see the company’s latest announcement and what that means for the Credit Corp share price.

How did Credit Corp perform for H1 FY21?

Sending the Credit Corp share price higher, the company highlighted robust trading conditions which either met or exceeded key targets.

For the period ending 31 December, 2020, Credit Corp delivered total group revenue of $188 million, reflecting a 2% decline on the prior corresponding period (pcp).

In its largest market, Australia/New Zealand debt buying stayed relatively steady with $113.3 million recorded. The 1% increase remained in line with the previous year. Credit Corp noted that its collections reduced over the December quarter due to reduced COVID-19 stimulus packages from the Commonwealth government.

The United States debt buying segment recorded the strongest gains, rising to $37.3 million, up 33%. This was attributed to improvements in operations and elevated purchases of debt ledgers in the last few years.

In addition, Australia/New Zealand lending dropped to $37.4 million, down 26%. This is because new customer approval rates and loan amounts were affected by the economic downturn. However, the company noted that in the last quarter, applications have exceeded the prior year. Thus, it expects lending revenue to return to growth in the second-half of FY21.

Overall, net profit after tax (NPAT) came to $42.3 million, a 10% jump over the comparable period.

Credit Corp revealed that it has a healthy cash balance of $400 million and remains debt free to capture any potential opportunities that may accelerate growth.

The board declared a fully-franked dividend of 36 cents per share to be paid to eligible shareholders on 12 March, 2021.

What did management say?

Credit Corp CEO, Mr. Thomas Beregi, commented on the purchase of the debt ledger from Collection House, saying:

The Collection House purchase will enable us to maintain our operational scale and grow collections while ongoing purchasing volumes recover.

Furthermore, Mr. Beregi went on to talk about the resilience of its United States market, adding:

While COVID-19 has produced tight purchasing conditions, our US business is very competitive and can grow NPAT rapidly when conditions ease.

Outlook and guidance for Credit Corp

Looking ahead, Credit Corp believes that its continued performance will run into the remaining second-half of the 2021 financial year. It noted that the recent investment in Collections House will drive strong revenue generation more than the recovery to pre-COVID levels.

In light of the above, the company upgraded its guidance for the FY21 period.

Credit Corp anticipates purchase debt ledger (PDL) acquisitions to come around $310 million to $330 million. Previously, its forecasts estimated PDL to fall between $270 million to $330 million.

NPAT is also looking to surge with the company predicting guidance of $85 million to $90 million. Last month, Credit Corp projected NPAT to be between $70 million and $85 million.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• 5 things to watch on the ASX 200 next week
• ASX 200 rises 1.5%
• Credit Corp (ASX:CCP) share price up 1% but Collection House (ASX:CLH) crashes 66% lower

Motley Fool contributor Aaron Teboneras 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Moderna Inc (NASDAQ: MRNA) stock is down 9% on Monday after Bank of America analyst Geoff Meacham downgraded his opinion on the stock from neutral to underperform and kept his $150 target on the shares. Moderna, which traded hands at $185 on Friday, opened at $173 and dropped down to $154 in early trading.

The biotech stock skyrocketed in 2020 because of the COVID-19 pandemic, running up from $19 a share to $111. Moderna’s messenger RNA (mRNA) platform allows it to find vaccines quickly and get them into clinical trials before its rivals.

Meanwhile, Pfizer signed a collaboration agreement with another biotech, BioNTech, another mRNA specialist, to develop its COVID-19 vaccine. Moderna and Pfizer were neck-and-neck all year in the race to get COVID-19 vaccines to the public. The Food and Drug Administration (FDA) granted emergency-use authorisation to both companies in December.

Moderna has a wide-ranging platform with 27 molecules in its pipeline, so long-term investors could be rewarded if it finds success in any major programs including vaccines for cytomegalovirus and certain cancers.

While the market was already bullish about Moderna prior to the pandemic, the huge run-up in valuation is undoubtedly due to its ability to produce (and get clearance) for a highly effective COVID-19 vaccine in under a year. Moderna’s phase 3 data and the FDA’s resulting decision is seen as a proof-of-concept for Moderna’s mRNA platform. Moderna expects to bring in $11 billion in revenue from its vaccine this year.

However, there is a serious downside to Moderna’s vaccine and the class of mRNA vaccines in general: distribution issues. Pfizer’s drug has to be frozen, and Moderna’s vaccine has a 30-day window before it starts to go bad. As a consequence, other vaccine makers like Johnson & Johnson and Novavax might end up taking a larger market share if and when they cross the regulatory finish line, and that could put downward pressure on Moderna’s stock.

Investors should probably wait for a cheaper price to buy Moderna.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Moderna says vaccine protects against all known variants
• Pfizer COVID-19 vaccine given green light for use in Australia
• Will the ASX see a share market bubble in 2021?
• Moderna coronavirus vaccine approved in Europe
• How MRNA stock performed in 2020

Taylor Carmichael owns shares of Novavax. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Johnson & Johnson and Moderna Inc. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Vulcan Energy Resources Ltd (ASX: VUL) share price won’t be going anywhere on Tuesday after the clean lithium focused mineral exploration company requested a trading halt.

Why is the Vulcan share price in a trading halt?

Less than one week after advising that it was not conducting a capital raise at this point in time, Vulcan requested a trading halt this morning to launch one.

According to the release, Vulcan Energy is seeking to raise approximately $100 million via the placement of approximately 15.4 million new fully paid ordinary shares to sophisticated and professional investors. The placement is not underwritten.

It is aiming to raise the funds at a fixed offer price of $6.50 per new share, which represents a 17.1% discount to its last closing price of $7.84.

Management notes that the placement will provide the funding to support it through to the final investment decision at its Zero Carbon Lithium Project in Germany.

Where will it spend the funds?

It intends to use $50 million of the funds for project development, permitting, feasibility study costs and overheads.

This includes the definitive feasibility study (DFS), which is due mid-2022 and includes the acquisition of exploration data, the permitting of the Zero Carbon Lithium Project, and completion of studies towards permitting and development.

The company also intends to put $30 million towards drill site acquisition and preparation and $20 million will be used for strategic opportunities to accelerate project development. In respect to the latter, management advised that Vulcan is assessing options to acquire existing infrastructure in Germany to accelerate development.

What is the Zero Carbon Lithium Project?

The Zero Carbon Lithium Project is expected to be Europe’s largest lithium operation and run 100% on clean geothermal energy.

Management plans to use its unique Zero Carbon Lithium process to produce both renewable geothermal energy, and lithium hydroxide, from the same deep brine source.

By doing so, it believes it will be addressing EU market requirements for lithium by reducing the high carbon and water footprint of production, and total reliance on imports, mostly from China.

Overall, it believes its resource will be able to satisfy Europe’s needs for the electric vehicle transition, from a zero-carbon source, for many years to come.

More reading

• Why the Vulcan Energy (ASX:VUL) share price stormed 186% higher in January
• Bright day for Sun Cable after inking giant solar farm development deal
• What’s with the Vulcan (ASX:VUL) share price today?
• The Piedmont Lithium (ASX:PLL) share price just rocketed 32% to a record high
• Zip and Vulcan were among the most traded ASX shares last 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. 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 Pro Medicus Limited (ASX: PME) share price is dropping lower on Tuesday despite the release of a positive announcement this morning.

At the time of writing, the leading health imaging company’s shares are down 1% to $42.39.

What did Pro Medicus announce?

This morning the company announced that it has received clearance by the U.S. Food and Drug Administration (FDA) for its Breast Density artificial intelligence (AI) algorithm.

This means the company now has clearance in the US, Europe, and Australia markets, which paves the way for management to begin marketing the algorithm across all three jurisdictions.

What does this algorithm do?

According to the release, the Breast Density algorithm is intended for use with compatible full field digital and digital breast tomosynthesis systems.

It assesses breast density from a mammography study and provides an ACR BI-RADS Atlas 5th Edition breast density category to aid radiologists in the assessment of breast tissue composition.

In December 2019, CEO Dr Sam Hupert spoke about the algorithm.

He explained: “Working with the breast imaging team at Yale, which is one of the most highly regarded in the US, we were able, using Visage Research Server, to anonymise over 30,000 cases. This data was then fed into our machine learning model which was used to produce the Breast Density algorithm.”

“As an extra validation, we had a team of five breast imaging specialists at Yale each curate over 500 cases using our curation tools and then tested the algorithm against these curated cases. The results were so promising we decided to commercialise the product and have applied for FDA approval,” he added.

Dr Hupert also pointed out that the product differs from its competition due to its software being GPU based.

He commented: “Because Visage is GPU based, we are able to run our algorithm on our client’s existing hardware which takes around a second to provide the analysis, so it is pretty much on demand. This is unlike others that either require a fair amount of additional onsite hardware to run their algorithm or they have to do it in the cloud [..] This can be costly and because the files are so large, time consuming.”

What now?

Dr Hupert believes today’s approval could pave the way for similar developments in the future.

“We developed this algorithm using our own AI Accelerator platform which enabled us to significantly speed up every stage of the process from concept to FDA approval. This not only provides us with a fast-track mechanism to develop our own algorithms in future, it paves the way for further collaborations with the growing number of our research oriented clients,” he concluded.

More reading

• The Pro Medicus (ASX:PME) share price zoomed 25% higher in January
• These were the best performing ASX 200 shares in January
• These ASX 200 shares are on fire in 2021
• Why Vulcan (ASX:VUL) and these ASX shares are smashing the market in 2021
• ASX 200 down 0.5%: JB Hi-Fi guidance impresses, Super Retail update, Ramsay surges

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. 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 Catapult Group International Ltd (ASX: CAT) share price has been a positive performer on Tuesday in morning.

At the time of writing, the sports analytics and wearables company’s shares are up 2% to $1.79.

Why is the Catapult share price pushing higher?

Investors have been buying Catapult’s shares on Tuesday after the release of an update in relation to its Media & Engagement vertical.

According to the release, for the 2020-21 US college sports year, Catapult Licensing has renewed agreements with NFL Productions and Bleacher Report, a sports media subsidiary of Turner Broadcasting System (TBS).

The Bleacher Report production team uses Catapult to create original content on a daily basis, while NFL Productions relies on Catapult Licensing for research, rights clearances, and content fulfilment services. This is for a multitude of projects, which include original programming on NFL Network and documentary projects produced by NFL Films.

Management notes that Catapult content is often featured in popular NFL programming, such as “A Football Life”, “Path to the Draft”, and coverage of the NFL Draft, with audiences in the several millions for each program.

It also advised that over the past two months, Catapult Licensing has supported global brands such as Samsung, Guinness, Nissan, and Adidas in creating commercial campaigns for the 2021 football season.

Furthermore, the company has signed a multi-year partnership with the College Football Playoff (CFP), which is the annual post-season invitational tournament to determine the NCAA college football national champion. With this addition, management notes that Catapult Licensing will represent one of the most prestigious libraries in American sports.

Content licensing potential

Management believes that Catapult’s innovative content licensing business has a lot of potential.

It explained: “Video content licensing remains an important component of the pro sports ecosystem, and Catapult continues innovating within a lucrative vertical for the Company. Catapult’s leadership in SaaS sports technology has positioned it to manage the video content assets (i.e. footage) of its customers.”

“Content licensing is a major revenue-generating activity for Catapult’s core North American customers. Catapult adds significant value to these customers through the use of its technology and market knowledge, thereby cementing the Company’s relationships with these leagues and teams.”

“For the 2021 college football season, Catapult Licensing launched a new live clipping solution, which allows teams to schedule live game feeds, make live clip edits, add custom pre and post rolls, and publish to multiple social media channels. The solution is already being used by many NCAA teams for social media coverage of football games,” it concluded.

More reading

• Why the Temple & Webster (ASX:TPW) share price is sinking 5% lower today
• Here’s why the Volpara (ASX:VHT) share price is surging 5% higher
• Why the GR Engineering (ASX:GNG) share price will be on watch today
• Forget gold. I’d follow these 3 steps to capitalise on a stock market rally
• The WiseTech (ASX:WTC) share price is trading near 52-week highs

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Catapult Group International Ltd. The Motley Fool Australia owns shares of and has recommended Catapult Group International Ltd. 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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In morning trade on Tuesday, the Temple & Webster Group Ltd (ASX: TPW) share price is sinking lower.

At the time writing, the online furniture and homewares retailer’s shares are down 5% to $10.44.

Why is the Temple & Webster share price sinking lower?

Investors have been buying Temple & Webster shares following the release of its half year results this morning.

According to the release, the company delivered a 118% increase in revenue over the prior corresponding period to $161.6 million.

This was driven by the doubling of its active customers from 335,000 to 678,000 and a 6% increase in the average spend per active customer to $401.

And thanks to operating leverage, Temple & Webster’s earnings grew even quicker. Management notes that its fixed cost as a percentage of sales decreased from 11.6% to 7.5% over the last 12 months.

This led to its earnings before interest, tax, depreciation and amortisation (EBITDA) jumping a massive 556% to $14.8 million.

Also heading in the right direction was its contribution margin, which increased from 15.3% at the end of FY 2020 to 17%. This margin growth was driven partly by an increase in private label sales, which is now 25% of revenue. Management has a mid term target of 30%

No figures were provided for its net profit (or loss) after tax. However, management advised that it was cash flow positive for the half and ended the period with a cash balance of $85.7 million. This includes the proceeds of a $40 million placement during the period.

Temple & Webster’s CEO, Mark Coulter, was very pleased with the half.

He commented: “I am pleased to present a great set of results for the first half of FY21. While 2020 remained a challenge for the country, we are proud that many Australians continued to turn to Temple & Webster for their furniture and homewares needs. It is great to see our revenue growth translating into operating leverage and significant profit growth. This allows us to accelerate our investment into areas such as data, technology, private label and brand awareness to further differentiate our proposition.”

How does this compare to expectations?

Temple & Webster’s result has fallen short of Goldman Sachs’ expectations for the half.

According to a recent note, its analysts were forecasting revenue of $171.1 million and EBITDA of $17.6 million for the half.

This compares to its actual result of $161.6 million and $14.8 million, respectively.

Outlook

Management advised that the second half has started strongly, with January’s revenue growth tracking in excess of 100%.

It also revealed that it continues to experience strong tailwinds. These include the ongoing adoption of online shopping due to structural and demographic shifts, an acceleration of these trends due to COVID-19, an increase in discretionary income due to travel restrictions, and the continued recovery of the housing market and unemployment levels.

The company intends to continue its reinvestment strategy by investing into growth areas of the business to cement its online market leadership and drive market share.

More reading

• Why Afterpay, ResMed, Temple & Webster, & Worley shares are dropping lower
• Top ASX shares to buy in February 2021
• 2 ASX shares that are growing rapidly
• Why the Temple & Webster (ASX:TPW) share price hit new highs last year
• Why Beach, Fortescue, Iluka, & Temple & Webster shares are dropping lower

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 Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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 Volpara Health Technologies Ltd (ASX: VHT) share price has returned from its trading halt and is pushing higher on Tuesday.

In morning trade, the health technology software company’s shares are up 5% to $1.56.

Why is the Volpara share price surging higher?

Investors have been buying Volpara’s shares this morning following the announcement of a new acquisition.

According to the release, the company has acquired CRA Health for US$18 million upfront, with an additional US$4 million payable upon it meeting recurring revenue and staff retention targets over the next 18 months. Post-acquisition, Volpara will have ~NZ$35 million cash.

CRA Health is a breast cancer risk assessment company that was spun out from Massachusetts General Hospital, a Harvard Medical School teaching hospital.

The release explains that CRA Health’s cloud based CRA software is tightly integrated into major electronic health record (EHR) systems. It receives patient information, including breast density, and returns the risk of breast cancer alongside appropriate recommendations.

This includes whether additional imaging or genetics testing is advised and reimbursed according to established guidelines. CRA also has electronic interfaces built with all the major genetics companies.

CRA is a profitable, operating cash-flow-positive software-as-a-service (SaaS) company with low customer acquisition costs due to its relationships with the major EHR companies. It now has annualised recurring revenues (ARR) of over US$4 million (NZ$6.2 million) after experiencing strong growth over the last year despite the COVID-19 pandemic.

Its software covers around 2.4 million women, or approximately 6% of US screenings, with an average revenue per user (ARPU) of approximately US$1.70. Unaudited revenue for its last financial year ended 31 December 2020 was US$3.1 million.

A very significant acquisition

Volpara’s CEO, Dr Ralph Highnam, believes the acquisition of CRA is significant.

He said: “The acquisition of CRA is very significant for Volpara. CRA is a leading provider of risk assessment tools within major EHR systems and has integrations already built with the main genetics companies. CRA has a strong science background, just like Volpara, and provides us with world-class knowledge about risk and genetics. CRA is expected to benefit the Volpara brand and will accelerate us on our mission to save families from cancer by preventing advanced-stage breast cancer.”

The acquisition will increase group ARR to ~US$17.5 million (NZ$26.9 million) and group ARPU to over US$1.40.

Volpara’s Chair, Paul Reid, added: “We have known CRA for a long time, and they share our values, mission, and scientific background. We can’t wait to see the results of combining these two global leaders and the positive effect these will have on women’s healthcare.”

More reading

• Here’s why the Volpara (ASX:VHT) share price is edging higher
• 2 ASX healthcare shares to buy this week
• 2 exciting small cap ASX shares to buy
• 2 exciting small cap ASX shares to watch
• 3 quality SaaS ASX shares to buy

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends VOLPARA FPO NZ. The Motley Fool Australia owns shares of and 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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GR Engineering Services Ltd (ASX: GNG) shares will be on watch today after the company provided investors with a business update on its guidance for the full 2021 financial year. At market close yesterday, the GR Engineering share price finished the day at $1.18.

It will be interesting to watch how the company’s shares perform today as investors digest this morning’s update.

What did GR Engineering announce?

The GR Engineering share price will be in focus this morning after the company released a positive update.

According to this morning’s release, GR Engineering advised that favourable trading conditions have continued throughout FY21.

As a result, the company upgraded its revenue guidance for the period ending 30 June 2021. GR Engineering now expects its full-year revenue to come in at between $340 million and $360 million, reflecting a sizeable increase on the original guidance.

Originally, GR Engineering had forecast FY21 revenue for the same period to be around $280 million to $300 million.

The company stated that its half-year results will be released on 24 February 2021.

Management commentary

Mr Geoff Jones, managing director of GR Engineering, touched on the company’s robust performance, saying:

GR Engineering has been able to build on its strong finish to FY20 and is forecasting record revenue for FY21 with improved EBITDA margins. The pipeline of ongoing and near-term prospective projects remains solid and provides revenue and earnings visibility beyond FY21. The balance sheet has been strengthened and this has been underpinned by strong cash generation in the first half of FY21.

About the GR Engineering share price

Over the past 12 months, the GR Engineering share price has trekked higher, delivering a 28% gain for shareholders.

During March, GR Engineering shares fell to a multi-year low of 60 cents, before zooming on an upwards trajectory.

It’s worth noting that the GR Engineering share price is currently a whisker away from its 52-week high of $1.26.

Based on the current share price, the company commands a market capitalisation of roughly $183 million.

More reading

• Forget gold. I’d follow these 3 steps to capitalise on a stock market rally
• The WiseTech (ASX:WTC) share price is trading near 52-week highs
• 2 outstanding ASX tech shares to buy
• Robinhood forced to raise another $2.4 billion despite limiting GameStop trades
• Here’s why the Fortescue Metals (ASX:FMG) share price fell 12% in January

Motley Fool contributor Aaron Teboneras 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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A stock market rally can never be guaranteed. The past performance of indexes such as the FTSE 100 Index (FTSE: UKX) and S&P 500 Index (SP: .INX) shows that they have experienced significant volatility and periods of decline. As such, defensive assets such as gold have proved to be popular among risk averse investors.

However, the stock market has delivered high single-digit annual total returns over recent decades, despite its periods of decline.

Therefore, a long-term investment horizon that seeks to purchase a diverse range of cheap, high-quality businesses could be relatively profitable compared to holding other mainstream assets.

Diversifying in a stock market rally

While risk reduction may not be the foremost thought for all investors when deciding how to capitalise on a stock market rally, it could be the most important aspect of investing. After all, it is all too easy to lose money from poor performances from a small number of holdings that can negatively impact on a portfolio’s prospects.

As such, buying a wide range of stocks that operate in different industries and geographies could be a sound move. It may mean lower company-specific risk, which is the threat of one holding dragging down the performance of an entire portfolio. It may also lead to a broader range of growth opportunities being present within a portfolio that enhances its returns in a rising stock market.

Buying high-quality businesses

Purchasing high-quality businesses may also be a logical move in a stock market rally. Clearly, deciding what are attractive companies is open to debate. However, companies with sound financial positions and wide economic moats could be a good starting point. They may be able to deliver relatively strong profit growth that enables them to command higher valuations than their peers.

Furthermore, financially-sound companies may be better placed to survive a period of volatile economic and stock market performance. As the last year’s events regarding coronavirus have shown, the future performance of the world economy is very unpredictable. This makes holding higher-quality companies even more important.

Purchasing cheap shares

Buying expensive shares in a stock market rally may mean limited scope for capital gains. Of course, even highly-valued companies can become even more expensive. However, the past performance of the stock market suggests that many companies (but not all) revert to their average valuations over the long run. This means that buying stocks with low valuations may provide greater scope for capital appreciation versus purchasing highly-rated businesses.

Of course, this strategy is not guaranteed to succeed. Growth stocks, for example, can rise to exceptionally high ratings that are difficult to justify based on previous averages or profitability. However, through buying an asset for less than its intrinsic value, it is possible to obtain relatively high returns in a long-term stock market rally.

More reading

• Why the GR Engineering (ASX:GNG) share price will be on watch today
• The WiseTech (ASX:WTC) share price is trading near 52-week highs
• 2 outstanding ASX tech shares to buy
• Robinhood forced to raise another $2.4 billion despite limiting GameStop trades
• Here’s why the Fortescue Metals (ASX:FMG) share price fell 12% in January

Motley Fool contributor Peter Stephens 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 Forget gold. I’d follow these 3 steps to capitalise on a stock market rally appeared first on The Motley Fool Australia.

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A stock market rally can never be guaranteed. The past performance of indexes such as the FTSE 100 Index (FTSE: UKX) and S&P 500 Index (SP: .INX) shows that they have experienced significant volatility and periods of decline. As such, defensive assets such as gold have proved to be popular among risk averse investors.

However, the stock market has delivered high single-digit annual total returns over recent decades, despite its periods of decline.

Therefore, a long-term investment horizon that seeks to purchase a diverse range of cheap, high-quality businesses could be relatively profitable compared to holding other mainstream assets.

Diversifying in a stock market rally

While risk reduction may not be the foremost thought for all investors when deciding how to capitalise on a stock market rally, it could be the most important aspect of investing. After all, it is all too easy to lose money from poor performances from a small number of holdings that can negatively impact on a portfolio’s prospects.

As such, buying a wide range of stocks that operate in different industries and geographies could be a sound move. It may mean lower company-specific risk, which is the threat of one holding dragging down the performance of an entire portfolio. It may also lead to a broader range of growth opportunities being present within a portfolio that enhances its returns in a rising stock market.

Buying high-quality businesses

Purchasing high-quality businesses may also be a logical move in a stock market rally. Clearly, deciding what are attractive companies is open to debate. However, companies with sound financial positions and wide economic moats could be a good starting point. They may be able to deliver relatively strong profit growth that enables them to command higher valuations than their peers.

Furthermore, financially-sound companies may be better placed to survive a period of volatile economic and stock market performance. As the last year’s events regarding coronavirus have shown, the future performance of the world economy is very unpredictable. This makes holding higher-quality companies even more important.

Purchasing cheap shares

Buying expensive shares in a stock market rally may mean limited scope for capital gains. Of course, even highly-valued companies can become even more expensive. However, the past performance of the stock market suggests that many companies (but not all) revert to their average valuations over the long run. This means that buying stocks with low valuations may provide greater scope for capital appreciation versus purchasing highly-rated businesses.

Of course, this strategy is not guaranteed to succeed. Growth stocks, for example, can rise to exceptionally high ratings that are difficult to justify based on previous averages or profitability. However, through buying an asset for less than its intrinsic value, it is possible to obtain relatively high returns in a long-term stock market rally.

More reading

• Why the GR Engineering (ASX:GNG) share price will be on watch today
• The WiseTech (ASX:WTC) share price is trading near 52-week highs
• 2 outstanding ASX tech shares to buy
• Robinhood forced to raise another $2.4 billion despite limiting GameStop trades
• Here’s why the Fortescue Metals (ASX:FMG) share price fell 12% in January

Motley Fool contributor Peter Stephens 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 Forget gold. I’d follow these 3 steps to capitalise on a stock market rally appeared first on The Motley Fool Australia.

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