Even though the stock market has rallied since the 2020 market crash, the economic outlook remains very uncertain. Therefore, it could be prudent to seek dividend shares that offer defensive characteristics and a solid track record of paying shareholders a rising passive income.

Furthermore, buying dividend stocks that have improving outlooks could be a sound move. Successful growth strategies implemented by a business can make a very positive impact on the level of shareholder payouts over the long run.

Dividend shares with defensive characteristics

Dividend shares could offer an appealing means of generating a passive income in today’s low-interest-rate environment. However, they can be significantly riskier than other income-producing assets – especially with the challenging outlook that remains in place for the world economy.

As such, buying dividend stocks that have defensive characteristics could be a sound move. It may mean that an investor’s holdings have a greater chance of offering a rising passive income irrespective of economic conditions. This could mean searching for dividend stocks in sectors such as utilities and tobacco, where sales and profitability may be less impacted by the prospects for the economy than other industries.

A track record of dividend growth

Dividend shares that have strong track records of growing shareholder payouts could be relatively appealing. For example, they may have been able to grow, or at least maintain, their shareholder payouts in previous periods of economic turmoil. This could indicate that they have the capacity to adapt their strategies to evolving operating conditions.

The track records of dividend stocks can be easily accessed by searching their annual reports. They show detailed information of their previous payouts, as well as their reasoning behind specific strategy shifts. They could also provide guidance as to how a company has been able to evolve to meet changing consumer tastes, and how it plans to do so in future after what has been a very disruptive period for many industries.

An improving financial outlook

When searching for the most appealing dividend shares to buy today, it could be a good idea to check their growth strategies. This could provide an indication of the likelihood of them being able to increase profitability so they can afford a rising dividend in the coming years.

Clearly, assessing any company’s financial outlook or strategy is very subjective. Even if its prospects seem to be bright, there is never any guarantee that they will produce rising profitability or a growing dividend.

However, through buying such companies, an investor may be able to increase their chances of holding successful businesses that make attractive dividend shares. A wide range of such companies in a diverse portfolio could lead to attractive income returns that grow at a relatively fast pace in the long run.

More reading

• 4 ways to make your money work harder in 2021
• These were the worst performing ASX 200 shares last week
• Should you buy ASX shares in this volatility? Here’s Morgan Stanley’s view
• 2 COVID-19 amplified ASX shares to buy
• Why the Murray River Group (ASX:MRG) share price lifted today

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 3 steps I’d take to find top dividend shares to buy in March and beyond appeared first on The Motley Fool Australia.

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The last 12 months has seen huge changes to the way we live our lives due COVID-19 and the associated impacts. There have been lots of changes in the money world too.

A few months ago, money website Canstar published a piece that the average household is saving around $854 a month according to ME Bank, which equates to about $10,250 a year. A lot of individuals (26%) are saving up to 10% of their after tax income each month and 7% of people are saving more than 40%. However, 21% of people aren’t saving anything.

Canstar then raised the question of how much should you save? It went on to say:

How much you should save really depends on your circumstances. Things like your employment history, your current debt levels, where you live and your short- and long-term goals and timeframes are some of the factors that could influence this.

There are a number of budgeting models you might like to consider. One well-known model is the ‘50/30/20 rule’, which was popularised by US Senator Elizabeth Warren. According to the rule, you should divide your after tax income into three parts: 50% for needs (like rent, food, utilities and transport), 30% for wants (such as new clothes or dining out) and 20% for your savings or to pay down debt.

How can you improve your savings rate?

Every household’s money circumstances are different. Some may have high levels of spending on the basics, whereas others may have a low level of spending. And then there’s wide differences when it comes to income as well.

Less than a month ago, Citi shared seven ways that people can reach their savings goals. Earning more and spending less are two of the key factors for people, so Citi shared some of the following tips:

Start a budget

Citi suggested downloading an online budgeting tool, such as the one provided by Moneysmart. Budgeting can lead to opportunities to find ways to improving savings. It can also help you ensure that you don’t forget about any particular expenditure that’s going to occur.

Separate your rainy day fund from your savings goal

Another point was about ensuring that if you have a savings goal that you create a plan on how to get there. For example, if you plan to go on an annual vacation then a smart way to save could be to split that savings goal into 12 equal monthly amounts throughout the year.

In terms of an emergency fund, Citi suggested that people should have at least three to six months of income set aside.

Could you make extra money?

‘Make extra money’ may sound like it’s easier said than done, particularly in this current uncertain economic environment.

Citi made the point that your existing job could be the main way to increase your earnings through training and boosting your skillset. This could make you the best candidate for a promotion.

There are also plenty of other options to consider such as AirBnB, selling items on eBay or car-sharing on Car Next Door, according to Citi.

Cut wasteful spending

This last tip is about being mindful about spending with money.

Citi pointed out that Aussies spend billions of dollars of things that we don’t end up using such as food, clothes, gym memberships and so on. It could be an idea to review these types of spending, whilst ensuring that you get value for money, not just a ‘bargain’.

More reading

• These were the worst performing ASX 200 shares last week
• Should you buy ASX shares in this volatility? Here’s Morgan Stanley’s view
• 2 COVID-19 amplified ASX shares to buy
• Why the Murray River Group (ASX:MRG) share price lifted today
• UK antitrust agency investigating apple over app store practices

Motley Fool contributor Tristan Harrison 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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Last week was a very volatile one for the S&P/ASX 200 Index (ASX: XJO). However, despite a poor finish to the period, the benchmark index recorded a weekly gain of 0.6% to end at 6,710.8 points.

Four ASX shares that were unable to follow the index higher last week are listed below. Here’s why they were the worst performers on the ASX 200:

IDP Education Ltd (ASX: IEL)

The IDP Education share price was the worst performer on the ASX 200 last week with a 13.6% decline. This appears to have been driven by a number of factors. One of those was its shares trading ex-dividend for its interim dividend on Thursday. In addition to this, profit taking after some very strong gains appears to have weighed on its shares. Especially given the concerns about rising bond yields.

Gold Road Resources Ltd (ASX: GOR)

The Gold Road share price wasn’t far behind with an 11.9% decline over the five days. Investors were selling Gold Road and other gold mining shares last week after rising bond yields put pressure on the gold price. This led to the S&P/ASX All Ords Gold index falling a disappointing 6% over the period.

Cimic Group Ltd (ASX: CIM)

The CIMIC share price was out of form last week and dropped 11.2%. This was despite the engineering company revealing that its UGL and CPB Contractors businesses have entered into an early contractor involvement contract with CuString. The agreement is for works relating to the Copperstring 2.0 project.

IGO Ltd (ASX: IGO)

The IGO price was a poor performer over the five days and tumbled 9.5% lower. Investors were selling the nickel, gold, and lithium producer’s shares despite analysts at UBS putting a buy rating and $8.00 price target on them. Weakness in gold and nickel prices sent investors to the exits last week. At one stage, the latter was down 16% in the space of just one week. This was driven by concerns over rising nickel stockpiles and higher supply.

More reading

• ASX 200 drops again, Zip sinks, Worley wins
• This was the week that ASX dividend shares proved their worth
• Why these 3 ASX mining shares are crashing today
• Crown (ASX:CWN) share price facing double Royal Commission trouble
• Tilt Renewables (ASX:TLT) share price falls despite wind farm news

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 Idp Education Pty Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Global investment bank Morgan Stanley has shared its view on whether it’s a good idea to buy (ASX) shares in this market volatility.

Morgan Stanley’s Lisa Shalett, chief investment officer of wealth management, says whilst buying the dip could be an attractive idea, a better approach could be to take a “more nuanced approach”.

Ms Shallet said that although share market benchmarks fell in the second half of February 2021 – such as the tech-focused NASDAQ index which dropped 6.4% from the peak in mid-February – Morgan Stanley doesn’t think it’s a buying opportunity at the moment.

Interest rate expectations

There has been a lot of talk about interest rates in recent weeks. Potential inflation is leading to worries that interest rates are going to rise sooner than expected, even though the RBA governor Dr Lowe has said interest rates probably aren’t going to move for three years.

But Morgan Stanley thinks that the interest rate dynamics may mean that market conditions are fundamentally changing.

A key number that investors focus on is the US Treasury 10-year bond yield, which has gone as high as 1.6% in recent times. In August 2020 it went as low as 0.5%.

Indeed, over the last 24 hours the US Treasury 10-year yield went back above 1.5% as the US Federal Reserve boss Jerome Powell mentioned that inflation may temporarily jump higher, according to reporting by CNBC.

Getting back to the views of Morgan Stanley, it noted that the market may be taking action based on the fact the US economy is recovering faster than expected. The investment bank has been increasing its estimates for economic growth.

Morgan Stanley warned that interest rate rises could come sooner if the economy gets back to the growth level of before COVID-19 came along.

So what does this mean?

The investment bank said that growth share valuations have benefited from expectations that ultra low interest rates would persist for longer, supporting “sky-high” price / earnings ratios (p/e ratios).

Ms Shalett explained:

Growth stocks are often valued against the yield on a low-risk Treasury bond—the wider the spread, the larger premium that an investor is expected to pay for the added risk of growth. As rates move higher, stock prices often adjust to reflect that narrowing gap. That may be a big reason why tech stocks, in particular, got hit so hard last week.

Morgan Stanley isn’t confident that this level of inflation is temporary.

The investment bank believes there are a few different reasons why inflation could be higher than the Federal Reserve is expecting, which may mean that the Fed has to respond.

What are some of those factors? Morgan Stanley reeled off a list including: “money-supply growth, higher wages and increased fiscal stimulus, against a backdrop of pent-up demand for consumer services”.

Ms Shalett said that investors may now be expecting an interest rate rise in early 2023 rather than the end of 2023.

In terms of which ASX shares that Morgan Stanley thinks is a buy, you’ll just have to keep an eye on the broker articles that my Fool colleagues and I write about its latest buy recommendations.

More reading

• 2 COVID-19 amplified ASX shares to buy
• Why the Murray River Group (ASX:MRG) share price lifted today
• UK antitrust agency investigating apple over app store practices
• ASX 200 drops again, Zip sinks, Worley wins
• Leaving growth? Don’t get caught by value traps when value investing

Motley Fool contributor Tristan Harrison 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 Should you buy ASX shares in this volatility? Here’s Morgan Stanley’s view appeared first on The Motley Fool Australia.

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There are some ASX shares that have seen much higher levels of demand over the last year because COVID-19 has impacted both supply and demand in certain situations.

Obviously there are industries like travel and large events that are still struggling.

However, there are other businesses that are involved in e-commerce that are still seeing much stronger customer attention. There are also other companies that are directly involved in the healthcare response in some way.

Here are two ASX COVID-19 shares that could be worth looking at:

Ansell Limited (ASX: ANN)

Ansell is a business that is involved in manufacturing an array of safety items for people, including gloves and protective clothing.

The business is seeing customers from around the world wanting its products.

In the recent reporting season, Ansell reported that in the first half of FY21 its healthcare division saw strong volume growth across all business units, with a favourable price and mix impact, mainly in exam and single use products. The healthcare unit experienced organic growth of 37.3%.

Overall, Ansell HY21 sales went up 24.5% to US$937.8 million. This was driven by total organic growth of 22.9%, split between 12.3% volume growth and 10.6% from the price and mix.

Other growth statistics went up even more for the COVID-19 ASX share – earnings before interest and tax (EBIT) grew 64.3% to US$60.6 million and earnings per share (EPS) rose 64.7% to US$0.829.

Ansell Chair John Bevan said:

The first half of 2021 financial year continued to be dominated by the impacts of COVID-19, whether it was the need to ensure the safety of our employees, increased demand for enhanced personal protective equipment by end-users or the flow-on effects of lockdowns on the global economy. The company was able to successfully navigate through these to deliver record organic sales.

Ansell is now targeting a dividend payout ratio of between 40% to 50%, leading to a dividend increase of 52.6% to US$0.332 in the result.

According to Commsec, the Ansell share price is trading at 17x FY21’s estimated earnings.

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is an online-only furniture and homewares business that is experiencing high levels of demand as consumers shift to e-commerce.

The COVID-19-amplified ASX share says that it’s benefiting from multiple tailwinds at the moment. There’s the ongoing adoption of online shopping, an acceleration of these trends due to COVID-19, an increase in discretionary income due to travel restrictions and the recovery of the housing market and unemployment levels.

In the first six months of FY21, Temple & Webster saw revenue grow by 118% year on year to $161.6 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) shot higher by 556% to $14.8 million and net profit after tax (NPAT) surged higher by 320% to $12.2 million.

There were a number of other pleasing statistics including active customers rising by 102% to 678,000 and the trade and commercial division growing by 89%. The operating leverage was also shown with the fixed cost as a percentage of sales decreasing from 11.6% to 7.5%.

Temple & Webster said that the second half has started strongly, with year on year revenue growth of 118% to 23 February.

The Temple & Webster share price has fallen by over 20% since 15 February 2021. That means the COVID-19 amplified ASX share is now trading at 40x FY22’s estimated earnings.

More reading

• ASX 200 slides lower, A2 Milk surges, Gold Road sinks
• Here’s why Warren Buffett prefers buybacks to dividends
• ASX 200 up 0.3%: Mesoblast raises US$110 million, tech shares rebound
• Ansell (ASX:ANN) share price jumps on share buyback news
• Temple & Webster (ASX:TPW) share price sinks 8% despite 550% profit increase

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Ansell Ltd. and 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 Murray River Organics Pty Ltd (ASX: MRG) share price was trading more than 3% higher at 31 cents when the market closed today.

Shares in the food producer share price rose after the company announced it was selling one of its properties and appointing a new CEO.

Today share price lift compared well against the 0.8% drop in the S&P/ASX All Ordinaries Index.

Let’s take a closer look at what’s driving the Murray River Group share price.

CEO appointment

The company advised that interim chief executive officer Birol Akdogan has been appointed its new CEO.

Mr Akdogan has also spent time in the position of group chief financial officer. Before his employment at Murray River Group, he held positions as CFO at Ansell Limited (ASX: ANN) and CPI Group.

Commenting on the appointment, Murray River Group chair Andrew Monk said:

We believe that Birol has the necessary vision and skills to navigate [Murray River Group] through the next evolution of our business. His experience in tight cost control management in the [fast-moving consumer goods] market sector and his [mergers and acquisitions] experience in a large international company combine to give him the skill set to progress [Murray River Group]’s strategic plans.

Mr Akdogan added:

I am excited about the challenges that this opportunity affords me and look forward to reshaping the business to deliver value and profitability to shareholders and to see our branded products. grow and gain even more recognition on the shelves of our supermarkets and health stores.

Property sale

In today’s second announcement, the group advised it has sold its Gol Gol Property for $5 million, being $4.75 million for the property and $250,000 for the citrus crop within. The unconditional sale will be settled by the end of March 2021. Under the terms, Murray River Group will continue farming the land until the end of the harvest season, 15 May 2021.

The group said it expected to sign a 5-year grower supply arrangement with the new owner.

New CEO Akdogan said of the deal:

The Gol Gol property is predominantly a conventional citrus farm. The sale represents a great outcome for our shareholders with management now better able to focus on our fast-growing MRO branded organic retail products.

Over the last 6 months, we have secured over $15m of non-core asset sales as part of our ongoing turnaround strategy. With interest rates low, there is strong demand for Australian farming assets, and we are assessing opportunities to maximise shareholder value through our asset realisation program.

Murray River Group share price snapshot

The Murray River Group’s share price has been on a downward trajectory over the past 12 months, falling 44.5%. This time last year, shares in the company were swapping hands at 55 cents.

Given today’s closing price of 31 cents, shares would need a 94% gain to draw level with that price.

Murray River Group’s market capitalisation is $13.5 million.

More reading

• What’s lifting the Fonterra (ASX:FSF) share price today?
• The Liontown (ASX:LTR) share price is surging 17% today. Here’s why
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• Here’s why the Senex Energy (ASX:SXY) share price is 8% higher
• ASX 200 Weekly Wrap: ASX lower despite bumper dividends

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ansell 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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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.

Apple Inc‘s (NASDAQ: AAPL) App Store is attracting more controversy. On Thursday, the Competition and Markets Authority (CMA), an antitrust arm of the UK government, disclosed that it has launched an investigation into the US tech giant’s business practices with the online store.

The CMA said it was doing so in the wake of both complaints from developers about those practices and the agency’s own work in the digital sphere. These allege that Apple’s fairly strict terms for developers to get their software into the App Store are not fair and possibly in violation of the country’s competition law.

In other jurisdictions, such as the US, Apple has come under fire for the way it partners with developers in that marketplace. It takes a commission of 30% of all App Store sales and reaps similar fees for in-app purchases made by users. As the CMA pointed out in the press release announcing its investigation, the App Store is the only legitimate means for developers to distribute their offerings for Apple devices. It is also the only platform for Apple users to access them.

The CMA said that its investigation will focus on whether Apple’s terms and conditions are unfair or anti-competitive to developers. It will also take into consideration whether user choice is consequently being restricted or if those customers are paying unacceptably high prices for apps and add-ons.

“Millions of us use apps every day to check the weather, play a game or order [takeout food],” the CMA quoted its chief executive Andrea Coscelli as saying.

“So, complaints that Apple is using its market position to set terms which are unfair or may restrict competition and choice – potentially causing customers to lose out when buying and using apps – warrant careful scrutiny.”

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

More reading

• Why is everyone talking about bond yields?
• Nasdaq slumps overnight, ASX 200 shares to open weaker
• Warren Buffett’s share portfolio revealed!
• Why this ASX tech ETF is in the buy zone
• Apple investors shouldn’t ignore these 3 weaknesses

Eric Volkman owns shares of Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post UK antitrust agency investigating apple over app store practices appeared first on The Motley Fool Australia.

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

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The S&P/ASX 200 Index (ASX: XJO) dropped by 0.7% today to 6,710 points.

Investors continue to sell off various businesses on the share market. Volatility is rising again. 

Here are some of the highlights today:

ASX tech shares sold off again

The share prices of many ASX tech shares dropped again today in reaction to concerns about rising bond yields.

Looking at some of the biggest names, the Afterpay Ltd (ASX: APT) share price dropped 2.5%, the Xero Limited (ASX: XRO) share price fell 2.4% and the Zip Co Ltd (ASX: Z1P) share price declined by 5.25%.

Costa Group Holdings Ltd (ASX: CGC)

Food business Costa announced that it has signed conditional agreements to buy the farming operations of KW Orchards citrus farm and the packing operation called EJT citrus packing facility. Both of these assets are in south west New South Wales and are within the Sunraysia region.

This acquisition will increase Costa’s citrus plantings in the Sunraysia region to around 700 hectares, with KW Orchards having 600 hectares of land of which 312 hectares is citrus planting and 45 hectares is wine grapes.

Costa said that KW Orchards has an attractive varietal mix well suited to the export market, and it will play an important role in our capacity to take further advantage of strong export demand.

The ASX 200 food business explained that the acquisition is expected to be slightly earnings accretive in 2021, with year on year yield growth providing forecast growth of earnings in future years.

The company has started a preliminary plan for making a large, advanced citrus packing facility in Mildura, Victoria, which is also located in the Sunraysia region. It will have the ability to pack both Costa and third-party volumes from the Sunraysia region.

Costa said that the acquisition brings the total farmland to 3,435 hectares in the South Australian Riverland and Sunraysia region.

This acquisition will be funded by debt facilities and is expected to be completed in late March 2021.

The Costa share price ended the day down 1.1%.

Worley Ltd (ASX: WOR)

The Worley share price fell around 0.2% today despite announcing a contract extension win.

Worley said that INEOS has extended its master services agreement for its Grangemouth, UK site where it produces core chemical products such as ethylene, polyethylene and ethanol.

The ASX 200 company will provide small capital engineering services for ongoing maintenance and upgrades to the INEOS assets.

Worley CEO Chris Ashton said:

Worley has been at Grangemouth for more than 20 years and this extension of our master services agreement reinforces the strong relationship the Worley team has developed with INEOS O&P UK. We look forward to continuing our relationship and helping INEOS O&P UK achieve its sustainability goals.

Fonterra Shareholders’ Fund (ASX: FSF)

The Fonterra share price went up 1.5% today in reaction to an announcement about its farmgate milk price.

Fonterra said that it’s lifting its forecast farmgate milk price to a range of NZ$7.30 to NZ$7.90 per kilo of milk solids, up from a range of NZ$6.90 to NZ$7.50 per kilo of milk solids.

This is due to consistent strong demand for New Zealand dairy, with global dairy trade prices continuing to rise since February.

The midpoint of the range, where farmers are paid at, has increased to NZ$7.60 per kilo of milk solids.

More reading

• This was the week that ASX dividend shares proved their worth
• Crown (ASX:CWN) share price facing double Royal Commission trouble
• Tilt Renewables (ASX:TLT) share price falls despite wind farm news
• What’s lifting the Fonterra (ASX:FSF) share price today?
• Why is everyone talking about bond yields?

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post ASX 200 drops again, Zip sinks, Worley wins appeared first on The Motley Fool Australia.

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You might have noticed recent downward pressure on equity markets. One step further, you may have picked up on the downright obliteration of many riskier growth shares, such as the technology sector.

The S&P/ASX All Technology Index (ASX: XTX) has fallen over 13% in the last month. No doubt interest is increasing in the classic Ben Graham/Warren Buffett ‘value investing‘ approach.

Due to bond yields rising (which if you’re interested in that – have a look at this article), the market is beginning to make the cyclical shift into value. The reason partly being high risk just isn’t as appealing in a high-interest rate environment.

A word of warning – This is often when investors give up potential high growth investments for wealth eroding value traps.

What is a value trap?

Have you ever come across a company that has a ridiculously low price-to-earnings (P/E) ratio and a juicy high yield dividend? The share price has retreated, and it looks like it’s prime for an entry point. It all seems too good to be true, right?

Well, you know what they say – if it seems too good to be true, it probably is.

Not every ‘cheap’ share with a high yield will be a dud, but I’m not afraid to admit that I’ve succumbed to this trap. In one case I’m still expecting a turnaround, but in the other, I’m considering cutting my losses.

So, in order for me to help you have the best shot avoiding making the same mistakes when ‘value investing‘ – I’ll run through a handful of past value traps. From there, I’ll explain my approach towards value in this market.

Past performance of some value traps

Now, this is by no means stating the following shares are poor investments looking forward. As always, past performance is not an indicator of future performance. However, these shares are fairly good examples of what a value trap can look like and how it can turn out.

Vita Group Limited (ASX: VTG) operates 104 Telstra retail stores. Not exactly a huge growth avenue, but it could be considered a fairly steady business.

Three years ago, Vita had a P/E of roughly 7. At that time, the company was also offering a dividend yield of 11.7%. Now that sounds phenomenal, doesn’t it? A cheap steady business, with a hefty dividend. Well, three years later, shareholders have lost 27.5% even when including dividends.

To put salt in the wound – Vita is now expected to lose its biggest revenue stream, as Telstra shifts to a full ownership model.

Another example is Abacus Property Group (ASX: ABP). This is a diversified Australian real estate investment trust (REIT). They own Storage King storage assets, along with 24 office space assets.

Glancing into the past, three years ago it was trading on a reasonable earnings multiple of 13. Meanwhile, the dividend yield was at an attractive 5.2%. Considering the high returns on offer for the fairly stable business – you’d be forgiven for wanting in.

However, at present, the shareholder returns for the past three years have been a loss of 6.7% including dividends.

Striking a balance when investing in value

The point being of this article is not to say don’t invest in ‘value’ plays. Instead, it’s to emphasise that value without growth is just expensive in disguise.

The takeaway is to not jump blindly into an investment based on metrics that change at the drop of a hat. Ensure that the business still has a plan for improving and expanding into the future.

Matured companies can make fantastic investments, but a business cannot rest on its laurels. Sure, earnings might be steady now, but without the ambition to improve those earnings will be diminished by competition.

Lastly, earnings multiples can be extremely deceiving. Once upon a time in 2015, Amazon.com Inc (NASDAQ: AMZN) had an earnings multiple of 720. At the time the share price was US$512. At present, Amazon’s share price is US$2978 with a P/E of 71.

My thinking is to focus on where the company could be 3, 5, even 10 years from now based on what it does, more so than what it’s valued at now. Value traps tend to disappear when thinking in broader terms like that.

More reading

• This was the week that ASX dividend shares proved their worth
• Why is everyone talking about bond yields?
• Nasdaq slumps overnight, ASX 200 shares to open weaker
• Takeaways from Bell Asset’s post-COVID investment webinar
• Why this ASX tech ETF is in the buy zone

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Mitchell Lawler owns shares of Vita Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon. 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 Ramsay Health Care Limited (ASX: RHC) share price was out of form again on Friday following the market volatility.

The private healthcare company’s shares fell 1% to $64.23. This meant the Ramsay Health Care share price lost 4% for the week.

While this is disappointing, it may have created a buying opportunity for investors.

According to a note out of Goldman Sachs, its analysts have a conviction buy rating and $75.00 price target on its shares.

Based on the current Ramsay Health Care share price, this price target implies potential upside of almost 17%.

Why is Goldman Sachs positive on the Ramsay Health Care share price?

While there are a number of reasons that the broker thinks the Ramsay Health Care share price is good value, I have picked out three key reasons below.

They are as follows:

European business is improving

Goldman notes that the performance of its European business is improving and sees limited downside risk in near term.

“Whilst uncertainty persists in Europe (35% of EBIT), much of the downside risk is limited by existing government support, and we see clear scope for improving near-term trends. Mid-term, we see a greater need/urgency for the private sector to command a larger share of public sector work (across all markets).”

Asia-Pacific margin resilience

The broker has been pleased how well Ramsay’s margins have held up despite the tough operating environment.

“Despite numerous challenges, we estimate the comparable APAC margin declined only -20bps in the period. Following an encouraging start to CY21, we expect to see positive trends continue into FY22: 1) elevated utilisation profile: 2) improving cost absorption; 3) tapering of cash ‘covid costs’; 4) improving sales mix (non-surgical); and 5) improving surgical mix (higher-acuity).”

Good value for money

A final reason Goldman believes the Ramsay Health Care share price can go higher is its current valuation. The broker doesn’t believe the market is valuing it correctly given its positive outlook.

“The stock is trading at 8.7x EBITDA for a 7% EBITDA CAGR (FY21-24E), towards the bottom of its 5-year range. We believe the improvement in near-term fundamentals is still not reflected in consensus forecasts or current trading multiples. We raise our 12-month TP to $75 and reiterate our Buy (on CL).”

More reading

• 2 high quality ASX shares to buy for your retirement portfolio
• Why investors are cheering for the Ramsay Health Care (ASX:RHC) dividend
• Is it time to buy these 2 hot ASX healthcare shares?
• Top ASX shares to buy in March 2021
• Why the Ramsay Health (ASX:RHC) share price is up 8% today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 3 reasons the Ramsay Health Care (ASX:RHC) share price could be great value appeared first on The Motley Fool Australia.

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