Some ASX COVID-19 shares are directly involved in the fight against the pandemic and are still generating high levels of growth.

No-one can know how long the world is going to be fighting this pandemic, but it has been going on for over a year already. The COVID-19 variants could make it even harder to stop the spread completely.

These two ASX COVID-19 shares could be worth owning:

Ansell Limited (ASX: ANN)

Ansell is one of the world leaders in manufacturing protective equipment, particularly gloves. It provides plenty of other items like protective suits.

As you might expect, there has been a large increase of demand for Ansell’s products during this difficult period with the global pandemic. The growth continued into the first half of FY21, with its healthcare division generating organic growth of 37.3% with strong volume growth across all strategic business units.

Industrial organic growth was still good at 7%, with strong growth with its chemical protective clothing and multi-purpose gloves offsetting weaker demand from impact gloves.

The company has invested for more growth in the coming years by starting five new production lines and expect another eight lines to go live during the second half to help meet the demand. By FY22 to FY23 Ansell expects to have more than doubled its in-house capacity of single use gloves and suits.

The ASX COVID-19 share says it expects the coronavirus will continue to impact the world for some time and once the pandemic is under control, elevated demand for its products will likely persist for multiple reasons. Enhanced safety practices at plants and hospitals, better protection awareness in emerging markets, more research and testing worldwide or the potential need for annual COVID-19 vaccinations are reasons that Ansell could keep seeing elevated demand.

In the first half of FY21 it generated 65.5% growth of earnings per share (EPS) to 82.9 cents.

Sonic Healthcare Ltd (ASX: SHL)

Sonic is one of the main businesses involved in doing high levels of COVID-19 testing using PCR tests.

The northern hemisphere has seen high levels of COVID-19 cases, which has contributed to high levels of organic growth for Sonic in countries like the USA, Germany, the UK, Switzerland and Belgium. The Australia division has also seen high levels of organic growth because there has still been a lot of testing, even if there hasn’t been too much of an outbreak.

Sonic has been able to utilise its existing infrastructure and staff to carry out all of the COVID-19 tests, which is why the business has seen strong profit margin growth. FY21 half-year sales went up 33% whilst net profit after tax (NPAT) rose 166% to $678 million.

The ASX COVID-19 share expects the next 12 months will continue to see good profit generation. If the pandemic subsides then its pre-COVID base business can make a recovery. If there’s more pandemic waves then the testing will likely increase.

Management also believe there’s potential growing demand for COVID-19 serology testing to see if a person is immune or not to COVID-19.

Sonic’s balance sheet is “very strong” and can support acquisitions as well as other significant opportunities in Australia, the UK, the USA and Canada.

More reading

• Aussie dollar tipped to weaken and this ASX share stands to gain the most
• 2 ASX 200 shares to buy for growth
• Should income investors buy Sonic Healthcare (ASX:SHL) shares?
• Why the Sonic (ASX:SHL) share price could be a hidden opportunity
• 2 top quality blue chip ASX shares to buy in April

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ansell Ltd. and Sonic Healthcare Limited. 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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Could it be time to buy Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares at today’s share price?

The ANZ share price hasn’t moved much over the last month, but it has gone up just over 60% over the last six months.

Why has the ANZ share price risen so much?

ANZ and the overall market are seeing a recovery right now. The painful credit provisions that were taken earlier during 2020, because of the COVID-19 pandemic, are not being repeated.

In the three months to 31 December 2020 (the first quarter of ANZ’s FY21), it generated cash profit from continuing operations of $1.81 billion – up 54% on the average of the last two quarters of 2020. It was a similar sort of story as the bank generated $1.62 billion of statutory profit.

That quarterly average of the credit impairment charge in the first half of FY20 was $827 million and in the second half the quarterly average was $541 million. In the first quarter of FY21, ANZ decided on a capital release of $150 million reflecting improved economic conditions.

ANZ said that margins were up across the group due to higher volume growth in targeted segments and a “disciplined and active approach to risk and pricing”. ANZ managed to achieve the profit result whilst keeping costs in check and operating with the majority of employees still working remotely.

The number of Australian loans being deferred has dramatically reduced. In mid-February, ANZ said that of the 96,000 loans where a deferral was provided, only 15,000 were still being deferred. Those active deferrals represented $6 billion.

Balance sheet

The ANZ share price is also being supported by its strengthening balance sheet. At 31 March 2020, it had an APRA common equity tier 1 (CET) ratio of 10.8%, which had increased to 11.3% at 30 September 2020 and rose again to 11.7% at 31 December 2020.

Is now a good time to buy the ANZ share price?

ANZ has already risen quite a bit, the broker Macquarie Group Ltd (ASX: MQG) thinks the major bank can rise further with a price target of $30 and rates it as a buy.

However, Macquarie believes that low interest rates could be a pain for ANZ’s margins.

Morgan Stanley has a price target of $26.20 for ANZ, which suggests a bit of a decline. Using Morgan Stanley’s numbers, the ANZ share price is valued at 14x FY21’s estimated earnings with a dividend of $1.15 per share. That would be a grossed-up dividend yield of 5.9% if the dividend is fully franked.

More reading

• ASX 200 down 0.4%: Tech shares rise, Afterpay increases US stake
• This broker expects great things from Bank of Queensland’s (ASX:BOQ) results next week
• Seek (ASX:SEK) share price lifts as jobs ads reach 12-year high
• ASX 200 up 0.9%: Cleanaway jumps, tech shares rise, Incitec Pivot sinks
• Top brokers name 3 ASX shares to buy next week

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. 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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Dipping your toes into the stock market can be daunting, but many investors agree asking yourself these 3 questions can help set you up for the best chance to buy into successful shares on the ASX.

Starting out in investing can be both extremely rewarding and challenging. Every person and their dog will have an opinion on what’s ‘the next big thing’, there are a host of different investing styles to choose between and there’s never any guarantee of success.

But if you’re here, I probably don’t need to work to convince you that, no matter the challenges, investing can be immensely worthwhile.

There’s a ton of ever-changing information on the thousands of companies listed on the ASX. It’s one of the beauties of the beast – all the information professional market analysts use is available to the public.

I’m going to walk you through how to decide if an ASX listed company’s shares are the best buy for you and your portfolio.

Before we get started…

No matter how well researched or how highly recommended an ASX share is, there is no guarantee that they will make a good buy. All investment decisions need to be made by yourself as an individual, based on your specific needs and circumstances. Take the time to determine your goals, abilities and investing strategy before you begin.

3 things to check before deciding if an ASX share is right for you

1. Does it have a strong foundation and good cash flow?

If you don’t know what a company’s earnings before interest, tax, depreciation and amortisation (EBITDA) and price-to-earnings ratio (P/E) are, start by getting a hold on their meanings.

Once you’ve got a grasp on them, have a look at these metrics in the company you’re hoping to invest in. Many analysts believe these measures are one way to help predict growth.

You most likely want your ASX share of choice to have both a stable P/E and EBITDA. If you’re an investor who doesn’t want much risk, you probably also want to make sure that both have been consistently stable for some time.

This might be the quickest way to get a basic grasp on a company’s financial status, with the understanding that these numbers can change.

2. Do you believe in the growth potential of the industry?

There’s more to investing in ASX listed companies than the company itself, which is why it’s worth looking into the future of industry your ASX share of choice operates in.  

Take scope of an industry, its strengths and its weaknesses, before investing in any company within it.

You (presumably) don’t want to be among the people who invested in landlines, just as mobile phones were gaining traction. No market analyst worth their salt would be caught recommending even the strongest company in a risky industry. 

Further, if you’ve done your homework and believe an industry is up and coming, that might be a sign an investment in a company within that industry is right for you. Those who invested in strong companies in the buy now, pay later and lithium sectors only a year ago are sure to be rejoicing now.

Don’t forget, even the best investment is only as strong as the industry it falls into.

3. Do you trust those who manage it? 

Finally, take a look at who is managing the company. More than that though, look into their history, education and past endeavours.

If the CEO is brilliant but has never lasted more than 5 years in a role and they’ve been at the company for 4 years now, consider the possibility of a senior management shake-up in the near future.

Does the company’s senior management have a history of making solid, strategic decisions? What sort of publicity — negative or positive — has the management team amassed? Are you comfortable with the skills of the people managing your potential investment?

Market analysts often take the people running a company into consideration when deciding whether it’s an ASX share is a good buy. It’s not the be-all measurement, but it’s good to be aware of. Particularly if you’re undecided on whether a company is the best ASX investment for you to buy into.

More reading

• How to turn $20,000 into $240,000 in 10 years with ASX shares
• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• 3 small caps ASX dividend shares offering big income
• Prime Media (ASX:PRT) share price unmoved as ACM tightens grip

Motley Fool contributor Brooke Cooper 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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I’m a big fan of buy and hold investing and believe it is the best way for investors to grow their wealth. To demonstrate how successful it can be, I like to pick out a number of popular ASX shares to see how much a single $20,000 investment 10 years ago would be worth today.

On this occasion, I have picked out the three ASX shares that are listed below:

Codan Limited (ASX: CDA)

This electronic product company’s shares have been a great place to invest your money over the last decade. This has particularly been the case over the last five years thanks to the surging gold price and its industry leading metal and gold detectors. Sales have been growing very strongly for its Minelab business, underpinning stellar earnings and dividend growth. Positively, this is continuing in FY 2021 and is being bolstered further by a series of acquisitions. These acquisitions are diversifying its offering, which could prove very important when the gold price eventually weakens and demand for detectors softens. For now, over the last 10 years, Codan’s shares have generated an average total return of 28.3% per annum. This would have turned a $20,000 investment into $242,000.

Sydney Airport Holdings Pty Ltd (ASX: SYD)

This airport operator’s shares may be trading well below their highs due to the impact of the pandemic on the travel industry, but this hasn’t diminished their market-beating returns over the last 10 years. Thanks to its position as the busiest airport in Australia and the global tourism boom, Sydney Airport was growing at a consistently solid rate until COVID-19 hit. This has led to its shares providing investors with an average total return of 12.35% per annum since 2011. This would have turned a $20,000 investment into almost $64,000.

Technology One Limited (ASX: TNE)

This enterprise solutions company’s shares have been another great place to invest over the last decade. During this time the company has gone from being a relatively small player to one of the largest in the region. In addition to this, its shift to a software-as-a-service business model has underpinned strong growth in its recurring revenues in recent years. This has gone down well with investors and positioned it well for the future. All in all, this has led to its shares generating an average total return of 26.8% per annum over the last decade. This means a $20,000 investment in its shares 10 years ago would be worth $215,000 today.

More reading

• Why Codan, Flight Centre, Magellan, & Woolworths are sinking
• Leading broker names 3 of its best ASX share ideas for April
• Bullish ASX 200 shares breaking into 52-week highs 
• Acquisitions and spin-offs put these 3 ASX shares on brokers’ “buy” list
• Broker tips Sydney Airport (ASX:SYD) share price to push even higher

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 S&P/ASX 200 Index (ASX: XJO) came back from the Easter break with a bang last week. Over the four days, the benchmark index rose 2.4% to 6,995.2 points.

While a good number of shares climbed higher with the market, some performed better than others. Here’s why these were the best performing ASX 200 shares last week:

Silver Lake Resources Limited (ASX: SLR)

The Silver Lake share price was the best performer on the ASX 200 last week with a gain of 18.2%. A number of gold miner’s raced higher last week after the price of the precious metal climbed to a one-month high. The easing of bond yields was supportive of the gold price over the week.

EML Payments Ltd (ASX: EML)

The EML share price wasn’t far behind with a gain of 17.1% over the four days. Investors were fighting to get hold of its shares following the announcement of the acquisition of Sentenial Limited for up to 110 million euros (~A$170.7 million). Sentenial is a leading European Open Banking and Account-to-Account (A2A) payments provider. It utilises a cloud-native, API-first, full stack enterprise grade payment platform. Among its customers are 4 of the top 7 banks in the United Kingdom.

Afterpay Ltd (ASX: APT)

The Afterpay share price was on form last week and surged 15.1% higher. Investors were buying the payments company’s shares following the release of an update on its bi-annual Afterpay Day sale in the United States. According to the release, the U.S. sale drove a 35% increase in new active customer to its platform compared to the same period last year. This means the total number of customers that have signed up to Afterpay in the U.S. now exceeds 16 million. Clearly increasing competition isn’t slowing its growth.

Ramelius Resources Limited (ASX: RMS)

The Ramelius share price was a strong performer and charged 13.3% higher over the week. As with Silver Lake, this was driven partly by a rebound in the gold price. But also giving its shares a boost was its third quarter production update which revealed that it achieved its guidance. This went down well with analysts at Macquarie. In response to the update, the broker retained its outperform rating and $1.80 price target on its shares.

More reading

• These were the worst performing ASX 200 shares last week
• Is Bapcor (ASX:BAP) the best defensive ASX share to own?
• Why it looks like a V-shaped recovery for the Xero (ASX:XRO) share price
• Is the Coles (ASX:COL) share price a buy today?
• ASX 200 flat, Flight Centre drops, Air New Zealand rises

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends EML Payments. The Motley Fool Australia owns shares of and has recommended EML Payments. 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.

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The S&P/ASX 200 Index (ASX: XJO) was in fine form last week and surged notably higher. The benchmark index rose 2.4% over the four days to end the week at 6,995.2 points.

Unfortunately, not all shares on the index were able to climb higher with the market. Here’s why these were the worst performing ASX 200 shares last week:

Chorus Ltd (ASX: CNU)

The Chorus share price was the worst performer on the ASX 200 last week with a 6.4% decline. Investors were selling the New Zealand telco’s shares after it revealed that it has reduced its indicative Maximum Allowable Revenue (MAR) range to NZ$680 million to NZ$710 million. This compares to its previous MAR range of NZ$715 million to NZ$755 million.

AMP Ltd (ASX: AMP)

The AMP share price was out form and sank 4.9% over the four days. This may have been driven by profit taking after a strong gain a week earlier. That gain was driven by news that the embattled financial services company’s CEO, Francesco De Ferrari, is resigning. Mr De Ferrari will be replaced by the Australia and New Zealand Banking GrpLtd (ASX: ANZ) Deputy CEO, Alexis George. She will join the company in the third quarter of 2021.

Incitec Pivot Ltd (ASX: IPL)

The Incitec Pivot share price wasn’t far behind with a 3.8% decline last week. Investors were selling the agricultural chemicals company’s shares following an update on its Waggaman ammonia operation. Incitec Pivot warned that the operation is expected recommence production later than previously expected. As a result, it expects an earnings before interest and tax (EBIT) impact of $36 million in FY 2021.

Corporate Travel Management Ltd (ASX: CTD)

The Corporate Travel Management share price dropped 3.7% over the four says. This appears to have been driven by concerns over the rollout of COVID-19 vaccines across Australia. This follows the Government’s announcement that under 50s would not be receiving the AstraZeneca vaccine due to blood clotting worries. This has sparked concerns over the timing of the travel market recovery.

More reading

• Is Bapcor (ASX:BAP) the best defensive ASX share to own?
• Is the Coles (ASX:COL) share price a buy today?
• ASX 200 flat, Flight Centre drops, Air New Zealand rises
• How would Warren Buffett invest in the share market today?
• ASX 200 down 0.4%: Tech shares rise, Afterpay increases US stake

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. 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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Some smaller ASX dividend shares also have high dividend yields, not just the big blue chips.

Businesses that are smaller may have the ability to generate decent capital and profit growth, as well as paying high dividend payouts.

These three ASX dividend shares are small but have higher yields:

Propel Funeral Partners Ltd (ASX: PFP)

For FY21, Propel Funeral Partners has a grossed-up dividend yield of 5.5% according to Commsec.

Propel is the second largest funeral operator in Australia and New Zealand. The company is aiming to benefit from the ageing population demographics to generate long-term organic growth. It has also been making acquisitions to capture more market share.

The business managed to generate earnings growth in the FY21 half-year result, despite all of the impacts of COVID-19.

Revenue rose 3.5% to $59 million, operating net profit after tax (NPAT) rose by 7.6% to $8.4 million, whilst operating earnings per share (EPS) went up 7% to 8.5 cents. This funded a 50% increase of the dividend to 6 cents per share.

The ASX dividend share is forecasting shorter-term growth because it’s expecting death volumes to revert to long-term trends.  

Accent Group Ltd (ASX: AX1)

Accent is expected to pay a grossed-up dividend yield of 7.5% in FY21, according to Commsec.

The shoe business is planning to keep opening more stores to expand its reach and grow its market share. There continues to be a high level of demand for quality shares, which is why the company saw NPAT growth of 57.3% to $52.8 million.

Total sales only went up 6.6% to $541.3 million, but online sales rose 110% to $108.1 million.

The ASX dividend share’s management team want to keep growing its online sales and investing in innovation, with a long-term objective of at least 10% compound EPS growth.

Growing the dividend is one of the key goals of the business. The FY21 interim dividend was increased by 52.4% to 8 cents per share.

In the first eight weeks of the second half of FY21, like for likes sales went up 10.7%.

Pengana Capital Group Ltd (ASX: PCG)

Pengana is a fund manager that’s backed by investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

It has a trailing grossed-up dividend yield of 7.8% after a 25% increase of its interim dividend in the half-year result.

Pengana has steadily been growing its funds under management (FUM) in recent months. Over the month of February 2021, FUM grew by another $45 million to $3.63 billion.

The ASX dividend share managed to grow its underlying profit before tax went up 17.1% year on year and funds under management grew by 15% in six months to 31 December 2020.

Its funds have been generating outperformance and it continues to launch new funds which could generate more earnings over time.

More reading

• 3 ASX dividend shares to buy today
• 2 high yield ASX dividend shares to buy today
• Why Brickworks (ASX:BKW) is a top class ASX dividend share
• 3 ASX dividend shares to buy with yields above 5%
• Retail shares: buy what you know, but who owns what you buy?

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Accent Group and Propel Funeral Partners 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 Prime Media Group Limited (ASX: PRT) share price was not trading today despite news that the Australian media regulator has approved Australian Community Media (ACM) obtaining a 20% stake in the company.

At yesterday’s market close, shares in the rural and regional broadcaster were trading at 21 cents each.

Let’s take a closer look at today’s news and what it might mean for the Prime Media share price.

ACM buys Prime assets

The Australian Communications and Media Authority (ACMA), approved ACMs purchase from Bruce Gordon, owner of WIN Network and third-largest owner of Nine Entertainment Co Holdings Ltd (ASX: NEC).

The purchase increased ACM’s stake in the company to 19.99% from its previous 14.67%. Under the Broadcasting Services Act (1992) any party which seeks to control 15% or more of a media company must first obtain the approval of ACMA.

ACM made the purchase one month previously.

The purchase has made ACM the largest shareholder in Prime Media, overtaking Seven West Media Ltd (ASX: SWM) major owner Kerry Stokes.

In a note to ACM staff, as reported by The Australian, part-owner Antony Catalano said:

The Prime Media Group is in a strong financial position, it is well-managed, and we believe it has an important role to play in the evolving regional media landscape.

ACM and Prime audiences have similar interests, aspirations and goals. We hope to explore ways in which we can work more closely to ensure we continue to deliver the highest-quality journalism for regional Australians.

As part of the deal, ACM will need to sell its regional newspapers in Bendigo and Wagga Wagga. This is to comply with Australian legislation.

Prime Media share price snapshot

Despite today’s dearth of price movement, the Prime Media share price has been very successful over the past 12 months. In the past year, Prime Media’s value has increased by 112.12%. Media companies suffered heavily from the COVID-induced market crash of last year.

Prime Media has a market capitalisation of $75.2 million.

More reading

• ASX banks are facing millions of cyber attacks each day
• Could this ASX ETF be in a perfect storm in 2021 and beyond?
• Why the Nine (ASX:NEC) share price is falling today
• Top brokers name 3 ASX shares to sell next week
• Nine (ASX:NEC) and News Corp (ASX:NWS) share prices rise after Facebook deal

Motley Fool contributor Marc Sidarous 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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Bapcor Ltd (ASX: BAP) could claim to be one of the best defensive ASX shares to own for a few key reasons.

An auto parts business may not capture many of the headlines, but Bapcor has been steadily growing and has been delivering strong profit growth.

Here’s why Bapcor actually has a really good claim to being one of the leading defensive ASX shares:

Countercyclical demand?

During normal and good economic times, Bapcor has seen good levels of growth. It has comfortably delivered good growth over the last few years.

But what about during recessions? Theoretically, plenty of retail businesses – in-fact most businesses – see lower demand during a recession. You’d also expect some like new car sales to decline during a recession.

But this can actually be a boost for Bapcor. Car owners would try to make their vehicle last longer during difficult economic times and this helps demand for Bapcor’s businesses like Burson and Autobarn.

This is one of the main reasons that Bapcor can deliver defensive returns as an ASX share.

The COVID-19 recession has been particularly strange. Bapcor is seeing enormous demand, partly due to the economic stimulus. The HY21 result saw Bapcor revenue rise 25.8% and net profit after tax (NPAT) grew 49.7% to $67.7 million.

Growing network of domestic locations

Bapcor has a good record of same store sales growth at Burson, which is the key profit-making division within the business.

Burson continues to add five to ten more locations to its national network each year. The business is growing its client base each time it adds a new location and its earnings before interest, tax, depreciation and amortisation (EBITDA) margin. In the FY19 result its EBITDA margin was 14.9% and in HY21 it had increased to 18.3%.

Bapcor plans to increase the Burson, light commercial vehicle, specialist wholesale, retail and service location count significantly over the next few years.

Reliable dividend

Some businesses are able to provide their shareholders with reliable and consistent dividends which can make it easier to hold through volatile periods of time.

Bapcor is one of the few S&P/ASX 200 Index (ASX: XJO) shares to grow the dividend through the difficult year of 2020.

It has a dividend growth streak record going back several years to when it first started paying a dividend. Bapcor currently has a grossed-up dividend yield of 3.4%.

International growth

There is international growth potential with Bapcor. Not only does it now own a quarter of the largest auto parts distributor in south east and north east Asia, but Bapcor is also aiming to grow its Thailand Burson locations from six to more than 80.

This would translate to more than $100 million of revenue according to management. It could expand to other Asian markets after that.

These two Asian investments could drive growth for Bapcor for years to come.

More reading

• Is the Coles (ASX:COL) share price a buy today?
• ASX 200 flat, Flight Centre drops, Air New Zealand rises
• How would Warren Buffett invest in the share market today?
• ASX 200 down 0.4%: Tech shares rise, Afterpay increases US stake
• ASX 200 climbs 1%, Westpac rises, Western Areas jumps

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. 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 Xero Ltd (ASX: XRO) share price looks to make a V-shaped recovery after falling as much as 30% from its record all-time highs of $155 back in late December 2020.

Its shares have since bounced ~30% and within 10% of record highs. 

What’s driving the Xero share price? 

Strength coming back to tech shares 

Surging bond yields and a rotation out of tech shares meant that the fundamentally sound Xero share price was swimming against the tide for most of late February and early March. 

With bond yields largely topping out for now and strength coming back into the broader market, tech shares have been able to breathe a sigh of relief. The S&P/ASX Information Technology (INDEXASX: XIJ) is up almost 10% in April, after falling more than 20% between 11 February and 9 March.

This has seen strength come back into leading ASX 200 tech shares such as Afterpay Ltd (ASX: APT) and Xero. 

Xero spending money to make money 

Xero went on a small shopping spree with the acquisition of workforce management platform, Planday, on 4 March for €155.7 million (~A$242 million) and e-invoicing business, Tickstar on 24 March for SEK 150 million (~A$23 million). 

On 8 March, Macquarie noted that Planday is expected to contribute around 10% of the group’s revenue over the longer term. It reduced FY22 earnings estimates by 2% to account for additional losses from the integration of Planday, while it boosted FY23 estimates by 17%. Despite the positive upgrade to earnings, the broker was neutral rated with a $120.00 target price. 

On the same day, broker UBS was also positive on the acquisition, highlighting that it will push Xero outside its core accounting software verticals and into employee and workforce management. The deal may also help Xero build direct relationships with employees and present future opportunities, said UBS. The broker retained a sell rating with a pessimistic $79.50 target price. 

Ord Minnett wasn’t too bullish on the company’s acquisition of Tickstar, noting that it does not see it as a material growth or earnings contributor in the medium term. On 25 March, it rated Xero shares as lighten with an $88 target price. 

Is the Xero share price too high? 

The Xero share price is currently trading above all but one broker target price. Even then, Morgan Stanley‘s target price of $140.00 is just less than 1% higher than its current price of $139.00. 

Broker target prices aren’t the be-all and end-all for where prices are going. If anything, Morgan Stanley’s commentary supersedes the black and white price target. The broker said that data checks and industry feedback point to continuing SME subscriber growth. The two recent acquisitions increase the broker’s convention in long-term subscriber, revenue, and earnings targets.

While $140.00 might be a key price point to watch, the broker clearly believes in the Xero share price in the long run.  

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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 Xero. 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 Why it looks like a “V” shaped recovery for the Xero (ASX:XRO) share price appeared first on The Motley Fool Australia.

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