ASX gold stocks are rising with the market but there’re two that are leading the charge after getting upgraded by Citigroup.

These upgraders are the Northern Star Resources Ltd (ASX: NST) share price and Saracen Mineral Holdings Limited (ASX: SAR) share price.

These stocks jumped 3.1% to $12.57 and 2.8% to $4.72, respectively, in late trade.

ASX gold stocks not shining as brightly

In contrast, the S&P/ASX 200 Index (Index:^AXJO) rallied by around 1% ahead of the market close today.

Other gold miners aren’t faring as well. The Newcrest Mining Ltd (ASX: NCM) share price and Evolution Mining Ltd (ASX: EVN) share price are lagging behind with a 0.2% to 0.5% gain.

Latest ASX gold stocks to be upgraded to buy

The Northern Star share price and Saracen share price outperformance coincided with Citigoup’s decision to upgrade both to “buy” from “neutral”.

What’s interesting is that the upgrades came at the same time Citi was downgrading its gold price forecasts.

Gold price close to peak

“Citi’s commodity team has downgraded its outlook for gold, now calling for ‘peak gold’ in 2021 before unwinding in 2022 based on vaccine news and sharp global growth,” said the broker.

“We update our estimates accordingly seeing material cuts to earnings, NPVs and target prices across our coverage universe.”

The broker expects the price of the precious metal to make a fresh push to above US$1,975 an ounce in the next six to nine months. This should be enough to push the average gold price to new record highs in 2021.

Gold getting hammered by rising risk appetite

However, the party won’t last. Citi is tipping the gold price to fall. Its long-term price assumption is US$1,400 an ounce (adjusted for inflation).

What’s taming the broker’s bullishness towards the safe haven asset are the risks that the US Federal Reserve could turn hawkish as the COVID‐19 recovery unfolds.

The big jump in industrial metals like copper is adding to the view that investors are rotating towards risk assets and away from safe havens.

The recent downtrend in the US dollar is also further evidence that the great rotation is already unfolding, in my view. After all, the greenback is seen as the world’s reserve currency and is in demand when things look dicey.

Merger potential a saving grace

What the NST share price and SAR share price have going for them is their potential merger.

“SAR remains our preference heading into the deal,” added Citi.

“MergeCo should be the second-largest gold producer on the ASX and one of a handful that can deliver meaningful growth over the next couple of years.”

But both stocks aren’t immune from the lower gold price forecasts. Citi’s 12-month price target on the Northern Star share price falls by $2 to $13.90 a share.

The Saracen share price target is also cut to $5.30 from $6.20 a share.

More reading

• ASX stock of the day: Why are Netwealth (ASX:NWL) shares up 7%?
• Why the ASX 200 could be the Nasdaq of 2021
• Some things ASX investors should watch out for in 2021
• ASX 200 up 0.7%: Zip capital raising, A2 Milk trading halt, Sydney Airport dividend update
• Citigroup picks the best ASX retail stocks to own for 2021

Motley Fool contributor Brendon Lau owns shares of Evolution Mining Limited and Newcrest Mining Limited. 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 Antisense Therapeutics Ltd (ASX: ANP) share price is storming high today. This comes as the biotech company made a recent announcement on a decision by the European Commission on one of its medicinal products.

At the time of writing, the Antisense share price is up an astonishing 31.82% to 14 cents, after rocketing by as much as 45% earlier this afternoon. Indeed, the All Ordinaries Index (ASX: XAO) pales in comparison, moving 0.9% higher to 6,976 points.

What’s rocketing the Antisense share price higher?

Investors are running in droves to get a hold of Antisense shares after this latest development.

Just days ago, the European Commission advised it had granted orphan drug designation for Antisense’s ATL1102 medicinal product for Duchenne muscular dystrophy.

The positive outcome was a result of the favourable opinion issued by the European Medicines Agency (EMA) Committee last month. The company also recently obtained orphan drug designation and rare paediatric disease designation for ATL1102 in the United States.

Achieving orphan status in the European Union allows Antisense to receive development and marketing incentives. These concessions include reduced fees on scientific advice and the marketing authorisation application. In addition, the company will be granted market exclusivity for 10 years upon regulatory approval. A further 2 years can be added for its paediatric use in the treatment of Duchenne muscular dystrophy.

What did the head of Antisense say?

Mr Mark Diamond, Antisense managing director and CEO, commented on the result:

We are very pleased the EC has adopted the decision to designate ATL1102 for DMD as an Orphan Drug in the EU. We have now successfully achieved orphan drug designation in Europe and orphan drug and rare paediatric disease designations the US, the world’s major pharmaceutical markets.

We expect that the incentives that come from such designations including marketing exclusivity periods will be of very significantly commercial value should ATL1102 be successful in its progress through development and ultimately achieve marketing approval.

How has the Antisense share price performed recently?

The Antisense share price has reached a multi-year high today on the back of the European Commission’s decision.

At the start of the year, its shares were swapping hands for 9 cents and now they are trading for 14 cents per share — a gain of more than 55%.

More reading

• With the Archer Materials (ASX:AXE) share price up 222% this year, what’s next?
• Why the BSA (ASX:BSA) share price has surged 7% higher today
• Why the Uniti (ASX:UWL) share price is on watch today
• Why Meteoric Resources (ASX:MEI) share price is soaring 6% higher
• Why the Cardiex (ASX:CDX) share price, up 73% in 2020, is gaining again today

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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Exchange traded funds (ETFs) provide investors with an easy way to invest in a large number of shares through just a single investment. This includes whole indices, commodities, or even investment themes.

Unsurprisingly, this has gone down well with investors and has led to their popularity surging in recent times. In fact, November was another record-breaking month for the local ETF industry.

If you’re looking to join in on the action, then you might want to get better acquainted with the two ETFs listed below:

BetaShares Global Cybersecurity ETF (ASX: HACK)

The BetaShares Global Cybersecurity ETF aims to track the performance of an index that provides investors with exposure to the leaders in the global cybersecurity sector. This includes a number of cybersecurity giants and emerging players, such as Accenture, Cisco, and Cloudflare, Crowdstrike, and Okta.

With cybercrime on the rise, BetaShares notes that demand for cybersecurity services is expected to grow strongly for the foreseeable future. This could lead to this side of the market outperforming the broader market over the coming years.

And with the cybersecurity sector heavily under-represented on the ASX, this ETF ensures that Australian investors don’t miss out on these potential returns.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

When it comes to choosing shares to buy, Warren Buffett often talks about companies with moats. These are sustainable competitive advantages, which over the long run have supported earnings growth and underpinned strong returns for the legendary investor.

Identifying companies with moats can be time-consuming for retail investors. Luckily, VanEck has done the hard work for you and put together a fund with 48 US-based stocks which have sustainable competitive advantages.

Among its holdings are the likes of Amazon, American Express, Boeing, Coca-Cola, Microsoft, Pfizer, and Yum! Brands. Over the last five years the ETF has generated a net return of ~16% per annum for investors.

More reading

• 2 ETFs delivering solid returns
• 2 quality ETFs to buy for long-term investing
• 2 ETFs for ASX tech investors to buy today
• 4 ASX growth shares to buy in December
• Why this ASX cybersecurity ETF is a buy today

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 BETA CYBER ETF UNITS. The Motley Fool Australia has recommended VanEck Vectors Morningstar Wide Moat ETF. 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 Wednesday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three ASX shares that have just been given sell ratings by brokers are listed below. Here’s why these brokers are bearish on them:

Estia Health Ltd (ASX: EHE)

According to a note out of Morgan Stanley, its analysts have downgraded this aged care operator’s shares to an underweight rating with a reduced price target of $1.50. The broker made the move after downgrading its earnings estimates for Estia Health. It believes that the company’s earnings will remain challenged until the Royal Commission into the sector is finalised. The Estia Health share price is trading at $1.72 today.

News Corporation Class B Voting CDI (ASX: NWS)

Another note out of Morgan Stanley reveals that its analysts have retained their underweight rating and US$15.00 price target on this media giant’s US listed shares. While the broker acknowledges that potential changes in Australia, in relation to social media companies paying for content, could be a big positive for the company, it isn’t enough for a change of rating. The broker continues to believe that News Corp’s shares are overvalued and its earnings outlook is challenging. The US listed shares of News Corp last traded at US$17.64, which implies potential downside of approximately 15%.

St Barbara Ltd (ASX: SBM)

Analysts at Macquarie have retained their underperform rating and $2.40 price target on this gold miner’s shares. This follows the company’s investor briefing, which highlighted new opportunities at its Gwalia mine. The broker notes that the company intends to undertake a new province strategy to fill its under-utilised mill and then develop provincial open pit and historic stockpile opportunities. While this has the potential to be a positive, it isn’t enough to sway Macquarie. It is holding firm with its bearish rating for the time being. The St Barbara share price is fetching $2.48 on Thursday afternoon.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Tuesday
• Top brokers name 3 ASX shares to buy today
• News Corp (ASX:NWS) shares sink after Foxtel buyout rejected
• ASX stock of the day: Japara Healthcare (ASX:JHC) share price soars 23%

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 Netwealth Group Ltd (ASX: NWL) share price is surging today, up 6.78% to $17.02 at the time of writing. Netwealth shares had closed at $15.88 a share yesterday, and opened at $16.25 this morning, climbing as high as $17.17 before settling at their current level.

At this level, the Netwealth share price has delivered a year-to-date return of more than 110% to investors, making it one of the best performing ASX financials shares of 2020 so far.

In fact, coming off the 52-week low of $4.80 we saw back in March, Netwealth is up more than 220%. In saying that, the company is still not at its 52-week high at these levels. Netwealth shares hit $18.67 back in mid-October, and remain almost 10% off that level even after today’s gains.

So what is this high-flying company? And why are its shares climbing today?

What is Netwealth?

Netwealth is a $4.05 billion company that plays in the wealth management space. It offers a ‘platform’ service that allows individuals and financial advisors to access and manage a range of financial products and services.

Managing a portfolio of different assets can be difficult for ordinary ‘retail investors’ like you and me. Different investment classes and assets like individual ASX shares, internationally-listed shares, managed funds, foreign currencies, bonds and fixed-interest investments, term deposits, exchange-traded funds (ETFs) and superannuation accounts (not to mention tax records) are usually held through different providers or brokers. Thus, it can be difficult to ‘keep track’ of these different investments for many people.

That’s where Netwealth’s market lies. Its flagship ‘Wealth Accelerator’ platform offers a place to keep track of all of these assets, as well as other services like pensions, self-managed super funds (SMSFs), and insurance. Users can also use tools like dollar-cost averaging and income reinvestment as well as researching reports on companies and investments.

Financial advisors can also use the platform on behalf of their clients.

Why has the Netwealth share price had such a good day, and year?

Unfortunately, there is no obvious reason why Netwealth shares are outperforming today. The last market announcement the company made to the ASX was back in early November. As a case in point though, Netwealth shares are up almost 7% today, whereas the S&P/ASX 200 Index (ASX: XJO) is up just 0.87%.

However, another company in Netwealth’s space is also experiencing outsized gains. Hub24 Ltd (ASX: HUB) shares (a Netwealth competitor) are up 3.25% at the time of writing.

So, it’s possible that today’s moves are just some optimism over the objectively fantastic year the company has had. Back in August, Netwealth released its earnings report for the 2020 financial year. In this report, the company outlined how revenues were up 25.9%, net income rose 25.5% and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 24.8%

ASX data shows that trading volume for Netwealth shares has ticked significantly higher over both today and yesterday – both days coming in far above Netwealth’s average volume over the past five days.

The competition scored an own goal

Another possible reason investors are appreciating Netwealth shares of late could be the disruption the financial services industry as a whole has been experiencing since 2018.

The 2018 banking royal commission was heavily critical of the big four ASX banks and their wealth management arms. Especially the level of ‘vertical integration’ that was going on (i.e. how the banks’ financial advisors were recommending their own products and services to customers). This has since resulted in Commonwealth Bank of Australia (ASX: CBA) selling a stake in Colonial First State, and National Australia Bank Ltd (ASX: NAB) deciding to offload MLC. Other wealth managers like AMP Ltd (ASX: AMP) and IOOF Holdings Limited (ASX: IFL) didn’t come out unscathed either.

These companies are all more or less direct competitors to both Netwealth and Hub24. According to reporting in the Australian Financial Review (AFR) earlier this year, retail customers did not fail to notice those companies’ tarnished reputations, providing Netwealth with a healthy tailwind going into 2020. It seems this tailwind has paid off over the year, if the company’s earnings numbers are anything to go by. Perhaps investors are today betting this will continue into the new year.

More reading

• Why the ASX 200 could be the Nasdaq of 2021
• Some things ASX investors should watch out for in 2021
• Here are the best 5 ASX financials shares of 2020
• ASX 200 up 0.7%: Zip capital raising, A2 Milk trading halt, Sydney Airport dividend update
• Citigroup picks the best ASX retail stocks to own for 2021

Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd and Netwealth. The Motley Fool Australia has recommended Hub24 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 Codan Limited (ASX: CDA) share price has been charging higher for a second day in a row.

In afternoon trade the technology company’s shares were up 12% to $11.32.

This means the Codan share price is now up over 18% over the last two trading days.

Why is the Codan share price rocketing higher?

Investors have been scrambling to buy the company’s shares this week following the release of its guidance for the first half of FY 2021.

According to the release, Codan has been experiencing very strong demand for its metal detectors from both the recreational and commercial markets.

This has been supported by the realisation of benefits from an expanding geographic spread, increased distribution into mass market retail channels, and an investment to increase manufacturing capacity.

It has also offset a particularly disappointing performance by Codan’s Tactical Communications business. This business is expected to deliver a first half result significantly down on the prior corresponding period.

All in all, management is expecting Codan to deliver another record first half profit for the six months ending 31 December.

It has provided guidance for a net profit after tax of $40 million for the half. This is up by 33% from $30 million a year earlier.

What about the full year?

Management is refusing to get carried away with the first half performance and will not be providing guidance for the second half.

Particularly given how the second half is usually the stronger half for metal detector sales. It believes it is too early to determine if sales have been pulled forward and the traditional second-half weighting will materialise this year.

Though, one positive is that there is strong market anticipation about the launch of its new feature packed detector in the third quarter of FY 2021. In addition, it has advised that the Communications business will enter the second half with an order book in excess of $30 million.

It expects both to contribute to a strong full year result.

More reading

• Why Codan, Pro Medicus, Uniti, & Zip shares are storming higher
• Why the Codan (ASX:CDA) share price is surging 5% higher today

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 ELMO Software Ltd (ASX: ELO) share price has been a very strong performer on Thursday.

In afternoon trade the cloud-based HR and Payroll software provider’s shares are up over 11% to $6.53.

Why is the ELMO share price surging higher?

Investors have been buying ELMO’s shares today after it announced another bolt-on acquisition.

According to the release, the company has agreed an initial payment of 20 million pounds (A$35.3 million) to acquire UK-based Webexpenses.

This consideration comprises a combination of cash (51%) and scrip (49%). The deal also comes with an earnout consideration of ~13 million pounds (A$23 million), which is payable in the same balance of cash and scrip, and is subject to the achievement of financial targets.

What is Webexpenses?

Webexpenses is a high growth, cloud-based expense management solution.

Management notes that the acquisition provides ELMO with highly complementary technology, as well as a large customer base. It expects this to accelerate its mid-market expansion in the UK. It also adds to ELMO’s revenue, customer base, and its market opportunity.

In respect to the latter, management estimates that the acquisition increases ELMO’s Total Addressable Market (TAM) by A$1.4 billion to A$12.8 billion across the UK and ANZ markets.

“An exciting and significant step.”

ELMO’s CEO and Co-Founder, Danny Lessem, believes the acquisition of Webexpenses is an exciting and significant step for the company’s growth.

He commented: “The acquisition of Webexpenses is an exciting and significant step in ELMO’s growth journey. The Webexpenses platform is highly complementary to ELMO’s existing offering. Customers will have the ability to manage employee expenses effectively and efficiently as part of our convergent HR and payroll solution.”

Mr Lessem also sees the opportunity for cross-selling between the two companies’ customer bases.

“The cross-sell opportunity for ELMO’s comprehensive product suite into Webexpenses’ large customer base is substantial. ELMO’s market opportunity has increased markedly, and our strategic positioning is further strengthened,” he added.

FY 2021 guidance.

The acquisition of Webexpenses has led to ELMO increasing its guidance for FY 2021.

It now expects annualised recurring revenue (ARR) of $81.5 million to $88.5 million and an EBITDA loss of $2.4 million to $7.4 million. This compares to its previous guidance for ARR of $72.5 million to $78.5 million and an EBITDA loss of $3.5 million to $7.5 million.

More reading

• Why all eyes will be on the ELMO Software (ASX:ELO) share price on Thursday
• 3 ASX growth shares to buy for 2021
• 2 ASX growth shares to buy in December
• These ASX tech shares have been tipped for big things
• 3 small cap ASX tech shares growing at a rapid rate

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia has recommended Elmo Software. 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 Orthocell Ltd (ASX: OCC) share price is edging higher today. This comes after the company announced it has completed an important step to obtaining its commercial licence in Australia for its CelGro medical device.

During market open, the Orthocell share price reached as high as 43.5 cents. However, at the time of writing, the company’s shares have slightly retreated to 42.5 cents, up 1.2%.

Quick take on Orthocell

Orthocell focuses on the development and commercialisation of novel collagen medical devices and cellular therapies.

Its lead product, CelGro, facilitates tissue repair and healing in a variety of orthopaedic, reconstructive and surgical applications. This includes treating defects in areas of the body such as tendons, bones, nerves and cartilage.

Orthocell recently received European regulatory approval for CelGro, allowing the collagen medical device to be sold within the European Union. In addition, the company is striving for approval in the United States and Australian markets.

What’s moving the Orthocell share price today?

The Orthocell share price is in positive territory today as investors appear pleased with the company’s latest update.

According to its release, Orthocell has successfully completed the Therapeutic Goods Administration (TGA) conformity assessment process for CelGro .

The regulatory application looked at the safety and performance of CelGro in dental bone and tissue regeneration procedures. Furthermore, the conformity assessment reviewed the company’s management system and manufacturing process.

What’s next for Orthocell?

Following the positive outcome announced today, Orthocell has begun its application for market authorisation from the TGA to commercialise CelGro. The company anticipates the application will be completed within the first quarter of the new calendar year.

Orthocell has also progressed its application to the Prostheses List Advisory Committee for an inclusion on the prostheses list. This will enable the company to be reimbursed for its products by private health insurance agencies when patients have hospital cover. This application is expected to be finalised towards the last quarter of 2021.

Lastly, based on the successful completion of the conformity assessment, Orthocell believes it’s well placed to obtain US approval for CelGro next year.

What did management say?

Mr Paul Anderson, Orthocell managing director, commented on the achievement, saying:

This is an important milestone for the Company as we continue to commercialise our collagen medical device platform and I am excited to complete this important step towards gaining Australian and US FDA regulatory approval.

About the Orthocell share price

The Orthocell share price is hovering around 15% below the 50 cents level at which it commenced 2020. Orthocell shares have, however, strongly recovered from their 52-week low of 18 cents seen in March, up 136%.

More reading

• Orthocell (ASX:OCC) share price jumps 17% on positive clinical trials

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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If you’ve grown tired of reading about new record highs on the Nasdaq Composite (NASDAQ: .IXIC) you may want to skip ahead a bit.

But don’t skip too far!

We’ll get back to the increasingly positive outlook for shares on the S&P/ASX 200 Index (ASX: XJO) shortly.

First, however, the tech-heavy Nasdaq gained 0.5% yesterday (overnight Aussie time). That means…wait for it…it closed at yet another new all-time high.

Year to date the Nasdaq is now up 41%. That’s despite the index crashing 30% from 19 February through to 23 March.

In case you’re wondering, following yesterday’s gains, it’s now up 85% from the 23 March low.

“Buy stocks”

The US Federal Reserve provided some of the tailwinds pushing the Nasdaq to new record highs.

Yesterday, at the Fed’s last meeting in 2020, the world’s most influential central bank opted to continue with its monthly bond purchases to the tune of at least $120 billion (AU$160 billion).

Fed Chair Jerome Powell said the bank will continue its unprecedented level of bond purchases until inflation and employment demonstrate “substantial further progress”.

Commenting on the Fed’s meeting, Neil Dutta, head of US economic research at Renaissance Macro Research, said (quoted by Bloomberg):

The Fed marked up growth in each of the next two years, marked down unemployment, and marked up core inflation. Despite this, they don’t expect to move rates. Good for risk appetite. Buy stocks.

Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey, also pointed to the expectation of low rates for longer supporting share prices (quoted by the Australian Financial Review):

To the extent that we are seeing a slight rise post the meeting, it likely reflects continued confidence on the part of investors who believe low rates for an extended period provides support to stock prices even at these elevated levels.

Here in Australia (if you skipped ahead, you should start reading again!), we can expect similar long-term share market support from the Reserve Bank of Australia (RBA).

Governor Philip Lowe has repeatedly indicated that interest rates will most likely remain at rock bottom levels for the next 3 years. And the RBA’s own quantitative easing (QE) program continues apace.

Which helps support the growing consensus that next year will be a very different year for the ASX 200. And that perhaps, in 2021, US investors may be waking up to regular headlines trumpeting yet another new record high for Australia’s top 200 listed companies.

ASX 200 share price and dividend growth forecasts

It’s more than low rates, QE, and continuing fiscal support from the Australian Government that has many analysts forecasting an outperformance from the ASX 200 next year.

It’s also that the ASX 200 is far less dominated by technology shares and far more populated with cyclical shares. These are shares, like the banks and miners, that tend to do well when the economy is growing.

With expectations that the rollout of COVID vaccines will drive a strong global economic recovery in 2021, and with Australia’s own economy well-positioned for growth, ASX 200 shares could take the spotlight.

As Bloomberg reports:

Strategists from AMP Capital Investors Ltd. and [Commonwealth Bank‘s] Commsec expect the local benchmark [ASX 200] to reach a record high in 2021, while Macquarie Group Ltd. forecasts double-digit returns amid a recovery in earnings on economic stimulus and rising commodity prices.

The ASX 200 reached its previous record close on 20 February. Although it’s gaining again today, the index is still down 6% from that all-time high.

Morgan Stanley and Macquarie are also both bullish on their outlook for the ASX 200 in 2021. They forecast average earnings for the top 200 companies will increase 20% year on year.

According to Shane Oliver, the head of investment strategy at AMP Capital:

Just as 2020 was dominated by the pandemic and this determined the relative performance of investment markets and stocks, 2021 is likely to be dominated by the recovery.

Oliver added that ASX shares are “likely to be relative outperformers”.

And in good news for ASX income investors, Oliver forecasts, “The dividends will start to go up again as we go through 2021, as banks and others say ‘well, things haven’t been as bad as we thought’.”

Emilio Gonzalez, CEO of global investment management firm Pendal Group Ltd (ASX: PDL) has a laundry list of reasons for investor optimism in 2021. That includes Australia’s enviable position with very limited virus cases as the world moves to reopen.

In the AFR’s annual Chanticleer CEO Outlook Poll, Gonzalez says:

Whilst it has been an extraordinary and tough year, there is every reason to be optimistic for 2021. Australia is on the path to recovery and ahead of the world in that respect. We should seize the opportunity and not be too risk averse despite the current uncertainties.

Companies with strong balance sheets and in a strong cashflow position should demonstrate the courage of their convictions and invest where they see an opportunity to grow their business.

As 2020 winds to an end, here’s hoping that this time next year investors around the globe will be waking to yet another headline announcing new all-time highs for the ASX 200.

More reading

• Some things ASX investors should watch out for in 2021
• ASX 200 up 0.7%: Zip capital raising, A2 Milk trading halt, Sydney Airport dividend update
• Citigroup picks the best ASX retail stocks to own for 2021
• Why the Bapcor (ASX:BAP) share price is rocketing 9% higher today
• Why 2021 may be an even better year for ASX investors

Motley Fool contributor Bernd Struben 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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Many of today’s cheap shares could hold appeal for investors such as Warren Buffett. His focus on achieving a discount to a company’s intrinsic value when purchasing shares could provide scope for capital appreciation over the long run.

With many other mainstream assets such as bonds and cash offering low returns at the present time, undervalued stocks may prove to be a profitable long-term investment.

Weak investor sentiment towards today’s cheap shares

Despite the stock market’s rebound since its March lows, many cheap shares are currently available to buy. Investors have a downbeat view of a number of sectors that face challenging operating conditions in the short run.

Where companies within those sectors have solid financial positions and competitive advantages, they may be likely to survive difficult current circumstances to benefit from a likely economic recovery.

Warren Buffett has previously purchased cheap stocks to generate high returns in the long run. Buying a company for less than it is worth may also reduce an investor’s overall risks. They will obtain a wider margin of safety in case its future performance is less positive than expected.

Recovering share prices

Of course, there is no guarantee that today’s cheap shares will recover from their current low prices. The economic outlook could worsen, while some companies may be unable to adapt their business models to changing operating conditions.

However, the track record of investors such as Warren Buffett shows that a long-term recovery is likely. He has benefitted from the world economy’s persistent return to impressive levels of GDP growth following a variety of crises.

For example, over the past 20 years, the early 2000s recession and the global financial crisis caused some stocks to trade at extremely low levels for a period of time. Following them, the world economy returned to positive growth over the long run, which prompted improving operating conditions and stronger investor sentiment towards previous cheap shares.

A lack of relative appeal

Cheap shares may also be appealing today because of a lack of opportunities available elsewhere. Low interest rates mean that cash and bonds have disappointing returns.

Therefore, they are unlikely to make up the majority of an investor’s portfolio. Meanwhile, high house prices may mean that the returns on property investment may be less impressive than those made on undervalued shares.

Of course, there may be further challenges ahead for the stock market. Risks such as the ongoing coronavirus pandemic and Brexit may limit the scope for stock markets to rise in the short run.

Therefore, diversifying across a range of cheap stocks could be a sound move. It may limit risk and allow an investor to follow in Warren Buffett’s footsteps to outperform the stock market as it delivers likely further growth in the coming years.

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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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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