The Pinnacle Investment Management Group Ltd (ASX: PNI) share price was one of last week’s strongest performers on the S&P/ASX 200 Index (ASX: XJO).

Shares in the Aussie listed investment company (LIC) jumped 25.9% higher to close the week at $9.43 per share. That meant the Pinnacle share price closed just shy of its new all-time high of $9.50 set during Friday’s trade.

Why did the Pinnacle share price surge to a new record high?

Shares in the Aussie investment group continue to go from strength to strength. Since bottoming out at $2.37 per share amidst the March 2020 bear market, the Pinnacle share price has been charging higher.

In fact, shares in the Aussie LIC are up nearly 300% since that 52-week low 11 months ago. Broader market strength and lots of money looking to invest in equities have certainly helped.

However, the big factor for last week’s 25.9% surge was a quarterly update from Pinnacle.

Pinnacle announced net profit after tax (NPAT) attributable to shareholders up 120% to $30.3 million. Basic earnings per share (EPS) surged 116% to 17.5 cents, up from 8.1 cents in the first half of FY2020. Diluted EPS similarly jumped 117% to 16.7 cents in a strong turnaround in the first half.

Those strong earnings numbers have given Pinnacle the chance to increase dividends to shareholders. In fact, the Aussie investment manager announced a 70% increase in its interim dividend from this time last year.

Pinnacle will pay a fully franked dividend of 11.7 cents per share which represents 1.25% dividend yield at Friday’s closing price.

The Aussie investment manager noted strong investment performance as markets rebounded in the second half of 2020 alongside strong retail and institutional inflows that boosted total funds under management (FUM). Pinnacle’s ending FUM totalled $70.5 billion including $16.7 billion from retail and $53.8 in institutional funds.

The market responded positively to this latest update, with the Pinnacle share price gaining more than 25% to end the week’s trade as one of last week’s top ASX 200 performers.

More reading

• Why the News Corp (ASX:NWS) share price is at multi-year highs
• Oil’s recovery is happening faster than you think: Citigroup
• Afterpay (ASX:APT) share price cracks $151 record high
• 2 ASX 200 shares to buy for income
• ASX 200 Weekly Wrap: RBA unleashes ASX’s inner animal

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

The post Why the Pinnacle (ASX:PNI) share price rocketed 25% last week appeared first on The Motley Fool Australia.

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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.

Last weekend, I warned that the worst mistake GameStop (NYSE: GME) investors could make was to assume the party would continue. Almost as if I could tell the future, the very next trading day, GameStop’s shares began a rapid decline. In the space of a week, they fell from $325 a share the trading day before that piece was published to $63.77 by the end of this past Friday’s trading session. That’s a collapse of just over 80% in just five trading days. 

That amazingly prescient timing raises a key question of how I knew GameStop would collapse. Frankly, I could tell it would collapse because the very mechanics that caused its rise were very costly ones that were not self-sustaining. Indeed, it was obvious that GameStop’s shares would reverse course — the only real question was when it would happen.

The signs of its collapse were clearly there

What drove the last stages of GameStop’s massive rise before its crash was something known as gamma squeeze. Those typically get triggered when an options market is forced to buy shares to offset the risk of holding short call options on that same stock. In essence, as a stock’s price rises, the market maker needs to increase the size of that hedged position, which can fuel the price rise even further. That squeeze from forced buying can cause a company’s stock to shoot far past any semblance of fair value.

The reason that market maker is forced to buy those shares is the same reason gamma squeezes eventually come to an end. That’s because a call options contract requires the seller of that contract to deliver shares of stock to a buyer at a certain price on or before a certain date. Whenever the contract is in the money, the options seller needs to be able to deliver on it. If an options contract expires while in the money, automatic exercise rules also mean that seller will be required to deliver on it.

Options contracts are usually based on 100 shares of stock. When GameStop’s shares were above $300 apiece, each contract involved over $30,000 worth of stock. During trading on Jan. 29, there were thousands of open, expiring, and in the money contracts around that level.  When a market maker delivers on a short call options contract, that market maker does turn over stock, but gets cash in return.

Savvy options investors understand that’s how options work  and frequently close options positions before they expire. In GameStop’s case, it appears many of the options investors were not all that savvy — instead buying the options specifically to “troll Wall Street” and/or force the squeeze. The problem is that when you buy an options contract, the obligations associated with that contract are still there, including the obligations created by automatic exercise at the time of obligation.

It might have only cost $500 to buy a $300 options contract that factored into forcing the gamma squeeze, but when that contract expired, that same buyer had to fork out another $30,000. Throwing a few hundred dollars at a cause you think you believe in is one thing. Being forced to buy tens of thousands of dollars of a financial asset being held up only by forced buying? Well, that’s something else entirely.

On top of that reluctance to make that large of an investment, chances are good that many of those people didn’t have enough cash or margin buying power to make good on that commitment. In that case, their brokers would still have let the transaction gone through, and then triggered a margin call. That would have forced the sale of those newly acquired GameStop shares.

When a broker triggers a margin call sale, that broker doesn’t care what the price of the underlying asset is, only how much of it needs to be sold to get the account back in contractual or regulatory compliance. That’s forced selling of a stock — the exact opposite of the forced buying that triggered GameStop’s astronomical rise — and it has the same potential to force a company’s share price down.

Why I wasn’t sure when it would happen

While the mechanics of the options situation should have been perfectly clear to any savvy investors who were paying attention, there was still plenty of mania surrounding the company last weekend. The New York Times and The Wall Street Journal had both recently run pieces on the phenomenon, and it was all over the television and internet news.

It was unclear how many additional people were going to be sucked into the GameStop vortex by those news pieces that trumpeted how ordinary investors were taking down hedge funds. Despite the very real financial overhang and incredible risks priced into the stock and its options, it was very possible that all that news could have pulled even more people and money into the stock. That could have caused the stock to continue rising, even further disconnected from the company’s underlying financials.

The problem is that fulfilling those options contracts only gets more expensive the higher the stock price reaches. While a $300 options contract costs $30,000 to fulfill, a $600 options contract costs $60,000. The higher the price, the less likely that an investor has that much spare cash lying around to successfully take possession of those shares. That meant the gamma squeeze mania had to end at some point, even if more people had gotten sucked into it. It just wasn’t clear when it would end.

What I would have done had the mania continued

Motley Fool trading rules require me to not write about any company where I’m actively buying or selling investments. Had the GameStop party continued into last week, it would have been enough to persuade me to keep my trap shut for a long enough time to make an investment of my own. I would have invested in a way that provided profit once the stock eventually dropped.

Directly shorting the stock would have been out of the question because of restrictions on the shares, but the options market still looked open. I would have freed up every penny I could have to buy out of the money put options on the stock and then wait for the inevitable collapse to happen.

Even with the high time value premiums its put options fetched at the top of the mania, it was clear that GameStop’s stock price had gotten way too far ahead of the company’s intrinsic value. At an even higher stock price, it would have been worth it to buy those pricy put options and simply wait for the collapse. It’s rare that the market offers up such a soft pitch, but with GameStop amid the gamma squeeze, it was.

Be careful out there

Options are incredibly powerful tools that offer people an opportunity to magnify the impact of their investing choices. If you’re going to consider them as part of your investing arsenal, you should get a handle on how that leverage works before putting your money at risk with them.

As GameStop options investors found out this past week as the gamma squeeze reversed itself, that leverage can cut both ways. It’s easy to take more risks and commit more capital than you realize. So be careful with your use of options, and limit your exposure so that when the market moves against you, that leverage doesn’t end up putting you in financial ruin.

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

More reading

• ASX 200 Weekly Wrap: RBA unleashes ASX’s inner animal
• Should short selling be banned?
• To short or not to short? GameStop (NYSE:GME) ripple effect endures
• Short sellers doubling down on these ASX stocks despite the GameStop saga
• GameStop, AMC trades temporarily blocked on Square’s Cash App

Chuck Saletta 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 How I knew GameStop would collapse 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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ASX energy shares have bounced and may have more room to climb as the market is underestimating the strength of oil’s recovery.

This analysis by Citigroup that was reported by Bloomberg would come as a relief to investors fretting that this is as good as it gets for the oil price.

The price of crude is trading just under US$60 a barrel after it staged a spectacular turnaround from the COVID-19 mayhem.

As good as it gets for ASX energy shares recovery?

The WTI benchmark even crashed into negative territory for the first time in history last April, while Brent bottomed around US$20 a barrel.

Oil-exposed ASX shares have also seen a dramatic turnaround in their fortunes. The Woodside Petroleum Limited (ASX: WPL) rallied by two-thirds since the S&P/ASX 200 Index (Index:^AXJO) bottomed in March 2020.

The Santos Ltd (ASX: STO) share price surged 151%, Oil Search Ltd (ASX: OSH) share price jumped 124% and Worley Ltd (ASX: WOR) share price recouped 114% of its value.

Huge surplus of oil dampens outlook

It’s been nothing short of an extraordinary year for ASX energy shares. The virtual grounding of international travel and a shock global economic recession brought oil demand to its knees.

Bloomberg reports there are still more than a billion barrels of surplus oil slushing around the world despite the economic recovery.

The amount of excess oil is concerning to some. It comes even in the face of the rebound in Chinese economic activity, OPEC supply discipline and increasing transportation demand.

Why oil could surprise on the upside

This might be why some investors are reluctant to buy ASX energy shares out of fear they have already missed the boat.

But this sentiment could be furthest from the truth.

“The recovery is proceeding at a faster rate than people perceived,” Ed Morse, head of commodities research at Citigroup Inc. told Bloomberg.

“The demand recovery is going to look stellar. The inventory draw is significantly greater than what many people thought.”

Backwardation fuels the bulls

Morse is backing up his bullish claim by pointing to an uncommon pricing event in commodity markets. The oil market is in backwardation.

This is when the near-term futures price for oil is higher than the longer-term price. The difference in contracts for oil to be delivered in December 2021 has surged to a two-year high of US$2.84 compared to contracts to be settled a year after.

During normal times, markets are in contango. This means the price of a commodity is lower for nearer-term delivery than it is for longer-term deliver.

A key reason for this is to reflect storage costs plus a premium for future uncertainty.

But when markets are in backwardation, it reflects usually high near-term demand for the commodity.

The effect of oil being in backwardation is that producers have a financial incentive to deplete inventories as quickly as they can.

That massive surplus of oil may not last as long as some might believe.

More reading

• Afterpay (ASX:APT) share price cracks $151 record high
• 2 ASX 200 shares to buy for income
• ASX 200 Weekly Wrap: RBA unleashes ASX’s inner animal
• 5 things to watch on the ASX 200 on Monday
• Why ASX miners will get a double tailwind from Biden’s US$1.9tn stimulus

The post Oil’s recovery is happening faster than you think: Citigroup appeared first on The Motley Fool Australia.

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Investing in growth shares has been a sound means of generating high returns for many years. Such companies offer the potential for strong profit growth that has often translated into a rising share price.

Of course, unearthing the best growth opportunities to buy now may be a tough task. The world economy faces a challenging future, but one that could be filled with opportunity.

By focusing on sectors with long-term growth appeal, and companies that have large competitive advantages, it is possible to earn 100%+ returns from an initial investment in the coming years.

Doubling an investment in shares

While doubling the value of an investment in growth shares may sound unlikely at first glance, the stock market’s track record shows that it could be very achievable. For example, indexes such as the FTSE 100 Index (FTSE: UKX) and S&P 500 Index (SP: .INX) have delivered annualised total returns that are in the high-single digits in recent decades. Assuming a similar return in future would mean that an investment in the stock market that tracks the wider index could double in value within a decade.

Of course, buying companies with strong growth characteristics may help to generate higher returns than the stock market. Investors who buy such companies at fair prices may enjoy impressive returns that provide them with a significantly improved financial outlook.

Unearthing the best growth shares

Finding companies that can deliver higher growth rates than the wider stock market is a challenging task at the present time due to the uncertain economic outlook. However, by focusing on industries benefitting from growth trends, it is possible to unearth attractive growth stocks. For example, sectors such as healthcare and online retail could benefit from long-term trends such as an ageing global population and a shift in consumption from in-store to online.

Within appealing growth sectors, it could be a good idea to focus on companies that have a clear competitive advantage versus their peers. For example, they may have a unique product that can provide them with higher margins and a more resilient sales profile in the coming years. Similarly, businesses with strong brand loyalty may become more dominant in growth industries. This may lead to a rising market share and higher profitability.

Building a portfolio of stocks

As ever, diversification is crucial when building a portfolio of growth shares. Some businesses will inevitably fail to live up to expectations. Therefore, it is important to have a wide spread of holdings to limit the impact of a small number of failures on a wider portfolio.

Furthermore, buying stocks with appealing growth prospects when they trade at a fair price could be crucial to doubling an initial investment. Even if a stock has an attractive growth outlook, there should also be a margin of safety so there is scope for capital growth to match its rising bottom line.

More reading

• How I knew GameStop would collapse
• Oil’s recovery is happening faster than you think: Citigroup
• Afterpay (ASX:APT) share price cracks $151 record high
• CBD to be sold in pharmacies, ASX cannabis shares react
• Why the Little Green Pharma (ASX:LGP) share price will be on watch 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 How I’d find growth shares to buy today to double my money appeared first on The Motley Fool Australia.

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The Afterpay Ltd (ASX: APT) share price continues to surge higher in 2021. Shares in the Aussie buy now, pay later (BNPL) provider jumped above $150 per share on Friday to close the week at a new record high of $151.30.

Afterpay share price hits a new record high

With last week’s gains in the Afterpay share price, the company now has a market capitalisation of $43.1 billion. This means Afterpay is now sitting firmly among the ASX’s heavy hitters by size.

For context, Afterpay’s current value makes it worth more than Telstra Corporation Ltd (ASX: TLS) and Transurban Group (ASX: TCL).

That’s despite Telstra recording $23.7 billion in total income for FY2020 compared to Afterpay’s $519.2 million total income for the same period.

Why is the BNPL share surging higher?

The Afterpay share price has been something of a phenomenon since listing in May 2016. Back then, shares in the BNPL group were worth $1 each with a $125 million market capitalisation.

That means a $10,000 investment in the Afterpay initial public offering (IPO) would have netted early investors a whopping $1,513,000 today.

A successful international expansion while maintaining low bad debts has been key to Afterpay’s success. That has seen the company continue to build strong underlying sales and broaden its merchant network across Australia, the United States and the United Kingdom.

The catalyst for last week’s new record high was an update from international payments giant PayPal. On Friday PayPal released its fourth quarter results including an update on its growing BNPL operations.

Despite a strong update from a growing competitor, Goldman Sachs noted that PayPal’s update bodes well for demand in the US market. That means despite increasing competition, there remains a potentially lucrative market capable of sustaining many BNPL operators.

Foolish takeaway

The Afterpay share price continues to climb in 2021 as the BNPL share hit yet another record high by Friday’s market close.

That means the Aussie company is now amongst the largest companies within the S&P/ASX 200 Index (ASX: XJO), sitting just outside the top ten as at the close of last week’s session.

More reading

• 2 ASX 200 shares to buy for income
• ASX 200 Weekly Wrap: RBA unleashes ASX’s inner animal
• 5 things to watch on the ASX 200 on Monday
• Could these exciting small cap ASX shares be the next big thing?
• Why ASX miners will get a double tailwind from Biden’s US$1.9tn stimulus

Ken Hall 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 PayPal Holdings and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings. 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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Australia’s medical marijuana industry was celebrating last week, as it became legal to sell cannabidiol (CBD) products in chemists and pharmacies. A decision by the Therapeutics Goods Administration (TGA) to approve the sale of low-dose CBD products over-the-counter means adults will be able to purchase these products without a prescription.

CBD, which occurs naturally in marijuana plants, can help relieve pain, anxiety, insomnia and reduce cancer-related symptoms and side effects. Unlike THC, which is the main psychoactive cannabinoid found in marijuana, CBD does not make users ‘high’. 

The TGA’s decision means adults will be able to purchase a maximum daily dose of 150mg of CBD over-the-counter in oral and sublingual formulations. CBD topical creams and vaping products will continue to require a doctor’s prescription.

The change is a positive development for ASX cannabis shares, which have been lobbying for easier access to medical marijuana products. But don’t rush out to your nearest pharmacy just yet — no specific CBD products have been approved for sale so far. 

Australian cannabis companies are working hard to get products approved for sale, and sales of CBD products are expected to boom over the coming months as products come to market. This will create a significant opportunity for ASX cannabis shares. We take a look at how some of the largest ASX cannabis shares are performing in light of this development. 

Althea Group Holdings Ltd (ASX: AGH) 

Althea is a producer, supplier, and exporter of pharmaceutical-grade medicinal cannabis products. Currently operating in Australia, the United Kingdom, and Germany, the company has plans to expand into emerging markets throughout Asia and Europe. The Althea share price has been on the rise since the TGA’s decision was announced in December, gaining 23% from a low of 42 cents. Shares in Althea are currently trading at 52 cents apiece. 

Althea has welcomed the TGA’s decision and is exploring registration options for current and future products. Even before the decision, Althea was performing strongly. In the company’s December quarter, Australian revenues increased 29% (compared to the September quarter), and UK revenues grew 90% month on month in December. 

Germany’s health department granted all necessary licences for the sale and distribution of Althea products in Germany late last year. An initial shipment of products is en route to the country. Althea also operates a manufacturing plant in Canada, which entered an agreement to manufacture three cannabis-infused beverages during the December quarter.

Expansion into South Africa is on the cards, with a wholesale supply agreement signed under which Althea-branded products will be imported for sale and distribution in the country. The first shipment of products under the agreement is expected to be delivered in the second quarter of 2021. This represents a significant opportunity for Althea, with the South African legal medicinal cannabis industry expected to be worth US$667 million by 2023. 

Auscann Group Holdings Limited (ASX: AC8) 

Auscann has a pipeline of proprietary cannabinoid-based pharmaceutical products in development and has voiced its support for the TGA decision to make cannabinoid products available over the counter. The decision means a number of Auscann’s CBD products in development have the potential to be registered as pharmacy-only medicines.

CEO Nick Woolf has said, “the TGA decision is a positive outcome for the industry. We are well advanced in developing compliant CBD-only products that could be registered as over-the-counter medicines.” 

Auscann is in the process of acquiring Cannpal Animal Therapeutics Ltd (ASX: CP1), a move that will add breadth and depth to the product line.

In the December quarter, Auscann completed a restructuring program to reduce cash burn, with expenditure focused on value-adding R&D. Utilising its state-of-the-art medicinal cannabis facility in Western Australia, Auscann is advancing the development of a hard-shell capsule product containing up to 150mg of CBD. This CBD-only product candidate is being formulated for approval as a pharmacy-only medicine.

Auscann’s share price has also risen off the back of the TGA decision, gaining 28% since 1 December 2020. Auscann shares are currently trading at 18 cents a share. 

Zelira Therapeutics Limited (ASX: ZLD)

Zelira is a therapeutic medicinal cannabis company with a portfolio of proprietary revenue-generating products and a pipeline of products undergoing clinical development.

In the December quarter, Zelira launched its HOPE products in Australia, which are targeted at patients with autism. Available through the TGA’s special access scheme, the products are now working their way via authorised prescribers into the market. A new licencing deal was also announced to distribute HOPE products in Washington DC late last year. Washington has reciprocity arrangements in place with 32 other US states, meaning patients in these states will be able to legally purchase HOPE products at an approved Washington dispensary. 

Zelira announced the launch of its proprietary CBD toothpaste in December, which will be distributed in the USA through retail stores such as Bed Bath & Beyond and e-commerce platforms such as Amazon. Discussions regarding distribution in networks outside the US are ongoing.

Sales of Zelira’s products have been in line with forecasts, although they were impacted by COVID lockdowns. Increasing sales are forecast as the company builds market awareness of its products and market conditions improve thanks to the roll-out of the COVID vaccine internationally.

Zelira’s share price spiked late last year following the TGA’s announcement but has since fallen back to levels seen in November 2020, with shares currently trading at 7.6 cents. 

What’s next for the medical marijuana industry? 

The availability of CBD products over the counter is a step towards increasing social acceptance and reducing the stigma often associated with medical marijuana products.

CBD products are expected to start to become available in the coming months – each product that goes on sale requires individual approval by the TGA. The market is expected to be competitive, with early entrants potentially benefiting from a first-mover advantage.

For ASX cannabis shares, the race is on to make a mark in the over-the-counter CBD space. 

More reading

• Up in smoke! Why ASX cannabis shares are having a bleary day
• What does the Biden administration mean for ASX shares? 
• The sector that’ll grow 480% this year, expert says
• Why the Althea (ASX:AGH) share price is flying high this morning

Motley Fool contributor Kate O’Brien 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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Little Green Pharma Ltd (ASX: LGP) shares will be on watch this morning after the company announced its first exports of cannabis flower medicines to Germany late Friday. The Little Green Pharma share price closed last Thursday’s session at 93.5 cents prior to entering a trading halt pending this announcement. 

How will the Little Green Pharma share price respond?

The Little Green Pharma share price will be in focus this morning after the company updated the ASX with this positive announcement shortly after market close on Friday.

According to its release, the company advised that it has shipped its first commercial shipment of cannabis flower medicines to Berlin-based Demecan.

Demecan is a company focused on the cultivation, importation and wholesale of medicinal cannabis in Germany.

The delivery, due to be completed some time this week, comprises 500 x 15g units of high-THC cannabis flower medicines. When the shipment arrives, the cannabis medicine will undergo ‘batch-testing’ before being released to the German public.

Previously, both companies conducted a 12-month audit and qualification process to ensure compliance with European and German regulations.

The purchase agreement in detail

Under the agreement, Little Green Pharma will supply Demecan with up to 1,000 kilos of cultivated dried cannabis flowers or 48,000 units of medicinal cannabis oil products per year. Either of the units can be combined during the course of the arrangement.

The 3-year deal, which begins on receipt of the first shipment delivery, excludes any minimum purchase quantities from Demecan.

Little Green Pharma noted that it does not consider the value of its initial shipment to be material.

Success on the horizon?

Little Green Pharma joins an exclusive group of international cannabis producers which can supply cannabis flower medicines to the German market. The company highlighted that it is only the second producer not requiring its cannabis flower medicines to be further treated upon delivery.

As published by ‘The Germany Cannabis Report’, Germany is Europe’s largest medical-grade cannabis market. It’s estimated that the sector will grow to 7.7 billion euros by 2028, with flower sales accounting around 21% in Germany.

Little Green Pharma plans to expand its revenue streams by offering cannabis flower medicines to Australian prescribers and patients this year.

Management commentary

Little Green Pharma managing director Fleta Solomon hailed the company’s progress, saying:

Our partnership with DEMECAN represents a significant foundation on which to build LGP’s access to the German market. For the past year, we have worked closely with DEMECAN through a highly rigorous audit and qualification process, to ensure LGP’s cannabis flower medicines meet all applicable EU GMP and German quality requirements.

In a particularly pleasing achievement, our cannabis flower medicines passed all microbiological testing without requiring irradiation; a testament to LGP’s ability to successfully cultivate and manufacture consistently high-quality cannabis flower medicines under indoor GACP and GMP conditions.

Share price snapshot

The Little Green Pharma share price has surged nearly 170% since its initial public offering (IPO) in February 2020. This is despite the company’s shares falling as low as 17 cents during the March 2020 crash. 

Based on the current Little Green Pharma share price, the company has a market capitalisation of around $77 million.

More reading

• Little Green Pharma (ASX:LGP) share price whiskers near all-time high
• What does the Biden administration mean for ASX shares? 

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.

The post Why the Little Green Pharma (ASX:LGP) share price will be on watch today appeared first on The Motley Fool Australia.

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There are some S&P/ASX 200 Index (ASX: XJO) dividend shares that are very interesting ideas for dividend income including:

APA Group (ASX: APA)

This ASX dividend share is one of the largest ASX 200 shares, it’s focused on energy infrastructure investments.

APA owns a large network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets and delivers half the nation’s natural gas usage.

The business has increased its distribution to investors every year in a row for a decade and a half. At the current APA share price, it has a distribution yield of 9.25%.

In FY20 it reported growth across the business. It said that total revenue increased by 4.8% to $2.13 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) grew 5.1% to $1.65 billion, operating cashflow went up 8.3% to $1.1 billion and net profit after tax (NPAT) grew by 10.1% to $317.1 million. APA decided to increase the FY20 distribution by 6.4% to 50 cents.

In December the company announced an estimated FY21 interim distribution of 24 cents per share for the six-months to 31 December 2020, which was an increase of 4.3%.

The ASX 200 dividend share funds its distributions from its operating cashflow. APA has announced new projects in recent months which could lead to higher distributions.

In November it announced that it’s investing up to $460 million to construct a new 580km pipeline in Western Australia to connect emerging gas fields in the Perth Basin to the Goldfields region, forming an interconnected WA gas grid. This is expected to be operational around the middle of the 2022 calendar year.

Premier Investments Limited (ASX: PMV)

This ASX 200 dividend share owns a number of different retail brands including Smiggle, Peter Alexander, Portmans, Just Jeans, Jay Jays, Jacqui E and Dotti. It also owns around 28% of Breville Group Ltd (ASX: BRG).

Using the FY20 annual dividend of $0.70 per share, it has a grossed-up dividend yield of 4.5%.

COVID-19 was disruptive for the company’s retail store network, particularly overseas. However, the online sales and the operating leverage that brings, has more than made up for the bricks and mortar stores.

In a trading update for the first 24 weeks of the first half of FY21, online sales were up 60% to $146.2 million and contributed 20.4% of total group sales (up from 13.4% last year). Premier said that its online sales deliver a significantly higher earnings before interest and tax (EBIT) margin.

In the same 24-week period, total global sales were only up 5% to $716.9 million.

Premier said that there was exceptional growth of gross profit across the business, with a particular good performance by Peter Alexander, Just Jeans and Jay Jays.

The ASX 200 dividend share now expects Premier Retail EBIT for the first half of FY21 will be in a range of $221 million to $233 million, up between 75% to 85%.

Premier Investments said that it has and continues to maintain a strong balance sheet.

At the current Premier Investments share price, it’s trading at 15x FY21’s estimated earnings.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 ASX 200 shares to buy for income appeared first on The Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) has just capped off its best week since November 2020 and risen to its highest level in 11 months.

The index surged a significant 3.5% last week, propelling the ASX 200 to 6,840 points. That’s its highest level since the coronavirus-induced market crash in March last year. It also puts the index within a whisker of the psychologically-important 7,000 point mark, which was briefly crossed in 2020 before the pandemic struck.

The almost-singular reason for last week’s dramatic surge in value? The Reserve Bank of Australia (RBA).

RBA lights ASX’s fire

The RBA held its monthly meeting on Tuesday last week, as it does on the first Tuesday of every month. No one was expecting the RBA to announce a change in interest rates, given the Bank has previously flagged that rates will be ‘lower for longer’. And, as predicted, it didn’t.

However, what did come as a surprise was a doubling down of the Bank’s quantitative easing (QE) program, with another $100 billion of government bonds to be purchased by the RBA. Also unexpected was the news the RBA is not ‘expecting’ to increase interest rates until 2024. Yet that’s precisely the update investors received on Tuesday.

This unexpectedly dovish outlook on monetary policy was more than enough to get investors hot under the collar. This is because they know low interest rates and QE is generally a recipe for higher share prices, and such a long-barrelled commitment from the RBA essentially means this powerful tailwind isn’t going away any time soon.

The result was a party all round for ASX shares. ASX 200 blue chip shares, particularly the ASX banks, had a fantastic week, with National Australia Bank Ltd (ASX: NAB) topping the big four with a 7.18% rise over the week. Wesfarmers Ltd (ASX: WES) was also a strong blue chip performer, reaching a new record high on Friday.

ASX growth shares, especially in the tech space, did even better. Afterpay Ltd (ASX: APT) rose 12% over the week to close on Friday at a new record high of $151.30. That helped push the entire S&P/ASX All Technology Index (ASX: XTX) to its highest level ever.

How did the markets end the week?

We’ve already established that the ASX 200 had a phenomenal week, but let’s dig a little deeper.

Monday started the week off with a rise of 0.84%. Tuesday backed this up with a hefty 1.5% rise on the back of the RBA announcement. Then Wednesday saw investors pile on with another 0.92% gain. Thursday saw the only red day of the week with a 0.87% fall, but this was quickly forgotten on Friday when the index delivered another 1.11% rise. Since the ASX 200 started the week at 6,607.4 points and finished up at 6,840.5, it recorded a vigorous 3.53% gain for the week.

Meanwhile, the All Ordinaries Index (ASX: XAO) also finished up strong (and back well over 7,000 points), starting at 6,870.9 points and finishing up at 7,112.9 points, up 3.52% for the week.

Which ASX 200 shares were the biggest winners and losers?

Time for our most salacious segment, where we gossip over last week’s biggest winners and losers. So put the kettle on and fetch the biscuits while we start with the losers:

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Sebastian Bowen owns shares of National Australia Bank Limited, Newcrest Mining Limited, and Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO, CSL Ltd., and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET, Transurban Group, Wesfarmers Limited, and Woolworths Limited. The Motley Fool Australia has recommended Service Stream Limited. 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 Weekly Wrap: RBA unleashes ASX’s inner animal appeared first on The Motley Fool Australia.

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Very few things get people fired up more than short selling.

To many investors, it’s a mechanism available only to elite professionals that profit from the misery of others.

And it’s not just retail investors that feel this way.

“Every company has a team of people working hard to make it a success,” Frazis Capital Partners portfolio manager Michael Frazis told The Motley Fool.

“It’s infinitely more rewarding to spend your days being positive and supportive of other people.”

The angst against short selling really climaxed the past week as the GameStop Corp (NYSE: GME) saga came to a head in the United States.

That chaos was triggered by a group of retail investors who mobilised to wreck hedge funds that were financially rooting for the retailer to sink.

u can’t sell houses u don’t own
u can’t sell cars u don’t own
but
u *can* sell stock u don’t own!?
this is bs – shorting is a scam
legal only for vestigial reasons

— Elon Musk (@elonmusk) January 28, 2021

https://platform.twitter.com/widgets.js

Those that are running publicly listed companies also understandably hate shorting.

“Short selling should be illegal,” said Tesla Inc (NASDAQ: TSLA) boss Elon Musk on Twitter in 2019.

Then as the GameStop frenzy took place last week, he reiterated his disdain.

“U can’t sell houses u don’t own. u can’t sell cars u don’t own. But u *can* sell stock u don’t own!?” he tweeted.

“This is bs – shorting is a scam. Legal only for vestigial reasons.”

In Australia, tech companies like Tyro Payments Ltd (ASX: TYR) and WiseTech Global Ltd (ASX: WTC) have had their problems too with short sellers.

If it’s so bad, should short selling simply be banned?

The defence for short selling

According to UNSW Business School associate professor Mark Humphery-Jenner, shorting has an important function in a free and open market.

“Short selling is fundamental to ensuring correct market prices,” he said. 

“Short sellers make market prices more efficient and incorporate more information more quickly into market prices so that prices reflect firms’ true values.”

Shorting ensures what’s labelled “market efficiency”, Humphery-Jenner added. It assists companies to raise capital by providing confidence to investors that they’re not outrageously overpaying for shares.

“Short selling is not manipulative per se, because the costs involved in manipulating prices through shorts are often prohibitive, and regulatory scrutiny is ample enough to prevent it.”

Frazis and his fund used to short until they shifted to long-only a couple of years ago. He agreed that shorting is an expensive activity. 

“It costs a fortune to run a short book. Shorts can cost 2% to 4% to hold a year, and sometimes a lot more,” he said.

“We plan to be in business for 30 years, so that adds up to a staggering amount. The real money in life is made by owning successful businesses for extended periods of time.”

But doesn’t shorting hurt companies and workers?

Shorting and short reports can certainly be stressful to the target business and its shareholders.

But Humphery-Jenner pointed out the act of shorting itself doesn’t hurt the business or people.

“Short sellers do not impact corporate fundamentals. Short sellers do not cause company bankruptcies. Short sellers do not cause lower earnings. Short sellers do not cause unemployment,” he said.

“Indeed, it is not even clear that the presence of short-sellers is per se related to lower returns.”

He added short selling doesn’t “generally place long term downward pressure on [stock] prices”.

“Rather, it is plausible that because short sellers can be active, people have more confidence in prices, causing more pricing accuracy and higher returns.”

Even if it has no long term financial impact, there’s no doubt short selling can feel icky to many.

Frazis told The Motley Fool that it’s not a sustainable investment strategy anyway.

“We’ve noted before that when bearish investment professionals heavily short a widely loved company, the love tends to win out,” he said.

“Shorting changes your mindset. It brings out your cynicism. You do well when others do not.”

More reading

• To short or not to short? GameStop (NYSE:GME) ripple effect endures
• Short sellers doubling down on these ASX stocks despite the GameStop saga
• GameStop, AMC trades temporarily blocked on Square’s Cash App
• RBA stimulus to fuel ‘raging bull market’ in ASX shares. Should you go all in?
• Did Robinhood lose its investor base forever?

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

The post Should short selling be banned? appeared first on The Motley Fool Australia.

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