Investing money in real estate investment trusts (REITs) could be a sound means of obtaining a generous passive income. In some cases, their prices have fallen in recent months so that they now offer high yields relative to other income-producing assets.

Furthermore, investing in a REIT provides significant diversification and risk reduction. The wide range of properties they hold means that you are less reliant on a small number of assets for your income, which is often not the case with direct property investment.

In the long run, REITs could offer worthwhile capital returns as investor confidence improves and the economic outlook strengthens.

Making a passive income

The yields on offer from REITs are relatively appealing at a time when it is increasingly difficult to make a passive income elsewhere. The uncertain economic outlook has led many companies to reduce or even cancel their dividend payouts. Many others could follow in the coming months.

Meanwhile, low interest rates mean that other income-producing assets such as cash and bonds offer returns that are lower than inflation in some cases. Therefore, holding them could lead to a loss of spending power in the coming years that negatively impacts on your financial prospects.

As such, buying a range of REITs today could be a simple means of obtaining a worthwhile passive income from your capital. Many of them have a long track record of dividend growth that could prove to be relatively resilient in the coming years.

Reducing risks

Some investors may have previously bought property directly to make a passive income. While this may have been a successful strategy, it can carry a significant amount of risk. The high cost of property means that building a diverse portfolio is a difficult aim for most investors. Therefore, they become reliant on a small number of assets for their income.

By contrast, a REIT has a vast amount of assets. Often, they operate in different segments, such as leisure, retail and office properties. And, many REITs have exposure to different regions that further reduces their overall risk. This high level of diversification could mean that you enjoy a more robust income return that is less volatile over the long run.

Capital growth possibilities

Since many REITs offer generous passive incomes while interest rates are low, they could become more popular in future. This could catalyse their share prices and lead to capital growth for investors.

With the economic outlook being challenging at the present time, many REITs may also trade on low valuations. This may further improve their return prospects, and allow investors to benefit from their growth opportunities as well as their generous income return. As such, now could be the right time to buy REITs and hold them for the long run.

More reading

• Top brokers name 3 ASX shares to buy today
• Is the Telstra (ASX:TLS) share price undervalued?
• The ResApp (ASX:RAP) share price is soaring 10% today. Here’s why.
• 3 reasons you should buy Amazon stock before there’s a coronavirus vaccine
• Here’s why the Clover (ASX:CLV) share price crashed 20% lower 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. 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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Many of Australia’s top brokers have been busy adjusting their financial models again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

Afterpay Ltd (ASX: APT)

According to a note out of Morgan Stanley, its analysts have retained their overweight rating and lifted the price target on this payments company’s shares to $115. The broker notes that Afterpay has formed a partnership with Westpac Banking Corp (ASX: WBC) that will see it offer savings accounts and cash flow tools. It feels this will give Afterpay valuable data and opportunities to innovate further in the industry. Outside this, it estimates that Afterpay ended the first quarter with 11.3 million active customers and is forecasting strong growth during the important second quarter. I agree with Morgan Stanley and would be a long-term buyer of its shares.

CSL Limited (ASX: CSL)

A note out of UBS reveals that its analysts have retained their buy rating and $346.00 price target on this biotherapeutics company’s shares. This follows the company’s research and development update on Tuesday. It appears pleased with the products under development and expects it to support growth in the coming years. And while it notes that its shares are trading at a premium to its peers, it points out that this premium is still lower than its five-year average. I think UBS is spot on and CSL would be a quality option for investors.

Woolworths Group Ltd (ASX: WOW)

Analysts at Citi have upgraded this retail conglomerate’s shares to a buy rating with an improved price target of $44.50. The broker made the move after it increased its earnings estimates to reflect favourable trading conditions in the grocery market and positive earnings momentum. Citi is forecasting double-digit comparable store sales for Woolworths in the first quarter. While I would buy one of its rivals ahead of it, I still think Woolworths is a top option.

More reading

• Here’s how much Coles (ASX:COL) and Woolworths (ASX:WOW) are benefiting from COVID-19
• ASX 200 flat: Big four banks push higher, Afterpay drops, Megaport sinks 10%
• 3 ASX shares I’d buy for summer 2021
• 5 things to watch on the ASX 200 on Wednesday
• CSL (ASX:CSL) share price and 2 other ASX stocks among latest broker “buy” ideas

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 CSL Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Woolworths Limited. 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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Is the Telstra Corporation Ltd (ASX: TLS) share price undervalued today?

At the time of writing, Telstra shares are going for $2.80. Last week’s bump which pushed the Telstra share price to $2.89 has evidently faded. At $2.80, Telstra shares are back near their 52-week low of $2.76 that the company made just 2 weeks ago. It’s been something of a fall from grace for the ASX telco.

Back in July and August, Telstra was trading around the $3.50 mark, not to mention the $3.94 52-week high we saw back in January. The levels we see today are even below the depths that Telstra shares saw during the March share market crash.

So are Telstra shares undervalued today? Or is the market onto something here?

Why Telstra shares have been tanking

We can trace Telstra’s share price decline back to the company’s FY2020 earnings report that was released back in mid-August. Although Telstra reported an earnings drop of 9.7% and income fell by 5.9%, the market was largely expecting those kinds of numbers. What really riled investors though, was the company’s guidance for FY2021. Telstra has a ‘payout ratio policy’ of 70-90% of earnings when it comes to its cherished dividend. In 2019 and 2020, Telstra has paid out 16 cents per share, fully franked, in dividends to investors. However, Telstra also told investors that it expects a ~$400 million hit to earnings in FY2021 as a result of the pandemic. If that eventuated, it would threaten the 16 cents per share dividend, as that would no longer comfortably fall into 70-90% of earnings.

Investors don’t normally buy Telstra shares for anything other than hefty dividend income. So it’s understandable why the Telstra share price fell 18% over the 2 months after the earnings report was released.

However, when Telstra recently held its annual general meeting, the company changed its tune somewhat. In acknowledging the importance of its dividend to shareholders, the Telstra chair told investors that the company was “prepared to temporarily exceed our capital management framework principle of paying an ordinary dividend of 70- 90% of underlying earnings to maintain a 16c dividend”. That sounds like a virtual guarantee that shareholders will be receiving 16 cents per share again in FY2021 to me.

Happy days… you would think anyway. Telstra shares indeed popped on this news (around 4%). But since then, the company has slid back to the levels we see today.

Is Telstra undervalued right now?

On current pricing, a 16 cents per share dividend gives Telstra both a trailing and forward dividend yield of 5.71%. That’s a whopping 8.16% grossed-up with Telstra’s full franking credits. Even if the Telstra share price goes nowhere over the next few years, that’s a pretty decent return just from dividends and franking credits (provided there are no dividend cuts of course). But given what the company has said about its dividend, I don’t think this is likely.

Further, I happen to think there are a few avenues for Telstra to increase its earnings outside the traditional fixed-line and mobile spheres over the next few years. Apple Inc. (NASDAQ: AAPL) has just released a new iPhone range – the first offering 5G connectivity. Since Telstra on-sells new phones, this is good news in my view. Telstra is also investing heavily in its own 5G network, which I think has a good chance of offering the best coverage in Australia. This could add to earnings growth down the road.

Foolish takeaway

Overall, I do think the Telstra share price is undervalued today. The company seems to be priced for a low-growth future filled with dividend cuts, which I don’t think will come to pass. Thus, I would consider buying Telstra as a value share today, especially if an 8% dividend catches your eye.

More reading

• How to tell if an ASX share is a bargain or a dog
• 3 high quality blue chip ASX shares to buy now
• Here’s why I think these 2 ASX shares are bargain buys right now
• Is Apple’s iPhone 12 good news for the Telstra (ASX:TLS) share price?
• 3 small cap ASX dividend giants

Motley Fool contributer Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Apple. 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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The ResApp Health Ltd (ASX: RAP) share price has surged today following a positive announcement on a partnership agreement.

At the time of writing, shares in the digital health company are 10% higher at 11 cents. This compares to the All Ordinaries Index (ASX: XAO) which is flat at 6,399 points.

New partnership

ResApp advised it has signed a 12-month marketing agreement with Australia’s largest consumer healthcare network, HealthEngine. The new partnership will see HealthEngine integrate its booking network into ResApp’s mobile medical application, SleepCheck.

The easy to use, direct-to-consumer mobile application assesses a person’s risk of obstructive sleep apnoea by analysing breathing and snoring. It requires no accessories or hardware other than the user’s smartphone to make an assessment.

If SleepCheck identifies a person is at risk of obstructive sleep apnoea, the application will direct them to see a doctor. HealthEngine’s integration helps patients find and connect with healthcare service providers through a dedicated landing page.

Under the agreement, ResApp will retain all revenues generated from the app download. In addition, for every new patient referred through the Sleep Check application, ResApp will received a portion of the revenue.

Both companies did not state any forecasted earnings as the partnership is in its early stages. However, ResApp was confident of a significant consumer uptake in SleepCheck, unlocking a new revenue stream.

The new partnership has the flexibility to be extended beyond the 12-month agreement.

What did management say?

ResApp CEO and managing director Tony Keating welcomed the collaboration, saying:

This partnership is a tremendous achievement for ResApp and highlights SleepCheck’s potential in the Australian market. The agreement with HealthEngine provides us with access to a trusted and reliable consumer healthcare network, which will further improve our offering by allowing users to immediately progress the treatment journey.

This agreement is further evidence of ResApp’s ability to attract large, industry leading partners that it can leverage to drive growth well into the future. The company has a number of partnerships pending, which will provide it with a solid foundation to scale.

ResApp share price summary

Despite the uplift in its share price today, ResApp shares have been on a downhill trend for a rolling 52 weeks. Reaching a low of 5.5 cents in March, the ResApp share price has somewhat recovered, up 100%. But the numbers are still a long way off its share price high of 41.5 cents achieved this time last year.

More reading

• WISR (ASX:WZR) share price jumps higher on strong trading update
• Why did the Forbidden Foods (ASX:FFF) share price tumble 5% today?
• ASX 200 Weekly Wrap: Promises of easy money push ASX 200 to post-crash high
• Why the Nickel Mines (ASX:NIC) share price is up 16% today
• Why the MyFiziq (ASX:MYQ) share price is falling 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. 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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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.

Without question, COVID-19 has made an impact across the economy, particularly with retailing. The contagion appeared to benefit companies like Amazon (NASDAQ: AMZN), simply because it allows for shopping while greatly reducing the risks associated with going to crowded stores.

Conversely, this might also create investor fears that a coronavirus vaccine could hurt the consumer discretionary stock as it could result in pre-pandemic buying patterns returning.

Such an occurrence may create questions about Amazon sales (and the potential effect it might have on the company’s stock price) in the near term, but prospective buyers have three good reasons to ignore those worries and buy Amazon stock despite the concerns. 

1. Amazon’s sales history

Indeed, consumer reaction to COVID-19 gave Amazon’s retail sales a significant bump. In the second quarter of 2020, sales increased by almost 42% from the same quarter last year. This compares to the second quarter of 2019 when sales rose by around 18% from year-ago levels.

Investors should notice though that sales likely still increased without the help of a pandemic. The one benefit to these pandemic sales is that they have given Amazon a reprieve from potential sales growth slowdowns that could have occurred had the pandemic not happened. In 2019, the sales growth of its retail operations rose by 18.5% from year-ago levels. That was actually a slowdown from the yearly increases of approximately 29% in 2018 and 30% in 2017.

Hence, COVID-19 looks to have given Amazon’s retail sales a temporary bump. And although sales growth rates may again fall below 20%, investors need to remember that double-digit sales increases will probably continue for a long time to come.

2. The power of Amazon Web Services

The retail sales figures referenced above are not directly related to activity from Amazon Web Services (AWS), its cloud computing unit. AWS is still a relatively small portion of the company’s overall revenue, but AWS accounts for most of Amazon’s profits.

At just over $10.8 billion in sales in the most recent quarter, AWS made up only about 12% of overall sales. However, thanks to high gross margins, its almost $3.4 billion in operating income accounted for more than 57% of the company’s operating income.

Despite all of the talk about remote work moving tasks to the cloud, earnings growth dropped slightly. In the most recent quarter, revenue increased by about 29% over year-ago levels, a decline from the 37% year-over-year increase reported for AWS in the second quarter of 2019.

Nonetheless, investors should probably take the slightly slower growth in stride. According to the hosting platform Kinsta, AWS leads the infrastructure segment of the cloud computing industry. Also, Grand View Research forecasts that the cloud industry will grow at a compound annual growth rate of about 15% through 2027. AWS’s growth far exceeds that rate, strongly positioning the company both now and after the pandemic ends.

3. Amazon is reasonably valued

Admittedly, calling Amazon “inexpensive” may seem outrageous, given its forward price to earnings (P/E) ratio of around 64. However, net income increased by 97% in the most recent quarter. Also, analysts project 38% profit growth for this year. In 2021, when most analysts expect the pandemic to have receded, they are forecasting a profit increase of 40%.

At $1.7 trillion, Amazon’s market cap only lags behind that of Apple at the time of this writing. Normally, companies that size would struggle to produce high-percentage earnings increases.

However, as mentioned before, the relatively small percentage of revenue earned by AWS generates the majority of the company’s profits. As long as this part of the company can maintain its high growth rate, Amazon stock should continue to benefit. Knowing this, it is little wonder why some analysts see a “massive upside” in Amazon.

Amazon has shown it can generate significant growth regardless of how coronavirus affects the company. Hence, those wanting to buy Amazon stock before a vaccine comes out have no reason to wait.

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

More reading

• Amazon Earnings: What to Watch on Thursday, Oct. 29
• 3 ASX tech shares that pay dividends
• Is Apple (NASDAQ:AAPL) stock overvalued?
• Why the Buddy (ASX:BUD) share price is up today
• Where will Facebook (NASDAQ:FB) be in 5 years?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy 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 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. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Clover Corporation Limited (ASX: CLV) share price is having a day to forget on Wednesday.

At one stage today the specialist ingredients company’s shares were down as much as 20% to $1.63.

The Clover share price has recovered slightly in afternoon trade but is still down a disappointing 14.5% to $1.75 at the time of writing.

Why is the Clover share price crashing lower?

Investors have been selling the company’s shares today following the release of a trading update after the market close on Tuesday.

That update reveals that Clover has experienced reduced demand since the release of its full year results in September. This has been driven by lower than originally forecast orders from infant formula manufacturers during the first quarter.

Management believes this is the result of the market’s recalibration following a significant increase in fourth quarter FY 2020 orders in China due to re-filling after stockpiling by consumers at the height of the pandemic.

Outlook.

In light of its soft start to the new financial year, management is forecasting a decline in sales for the first half.

It commented: “As a consequence of this continuing uncertainty, Clover now expects revenue for the first half of FY2021 to be down 15% to 25% on the first half FY2020.”

No guidance has been provided beyond the first half. Though, a further update will be given at its annual general meeting in late November.

In the meantime, the company revealed that its market position remains strong and that it will continue to pursue a number of growth projects.

This news also appears to be weighing on the shares of A2 Milk Company Ltd (ASX: A2M) and Bubs Australia Ltd (ASX: BUB) today. The infant formula producers’ shares are both trading approximately 2% lower on Wednesday afternoon.

More reading

• 2 ASX dividend shares raising their dividends like clockwork
• 2 ASX growth shares I’d buy today for growth and income
• Where I’d invest $10,000 into ASX dividend shares
• Could these small cap ASX shares be the next Afterpay (ASX:APT) or Zip (ASX:Z1P)?
• Is the Soul Patts (ASX:SOL) share price a buy?

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 Clover Limited. The Motley Fool Australia owns shares of and has recommended A2 Milk and BUBS AUST FPO. 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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Wax on.

Wax off.

These were Mr Miyagi’s daily instructions to his martial arts pupil Daniel in the 1984 film, The Karate Kid as he applied, removed, and reapplied wax to an antique car.

The exercise in discipline was as tedious for Daniel as parts of the film were for many viewers. (Apologies if you’re a Karate Kid fan.)

But it came to mind this morning when an all too familiar pattern from the past weeks repeated once again. And like the Hollywood movie, this one also stems from the United States.

Stimulus on.

Stimulus off.

With each positive signal on a new multi-trillion-dollar US stimulus package, traders drive US share markets higher. And the share prices of ASX 200 companies tend to follow.

Then it all goes into reverse when negotiations hit a new snag and rumours spread that the stimulus is off.

Yesterday, overnight Aussie time, it was once again ‘stimulus on’.

US Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi hinted they hope to reach an agreement next Tuesday. While any agreement still needs to pass the more fiscally conservative Republican dominated Senate, President Donald Trump now says he’ll support a spending package in excess of US$2.2 trillion (AU$3.1 trillion).

As we’ve come to expect, this news saw all the major US indices close in the green, with the S&P 500 Index (INDEXSP: .INX) gaining 0.5%.

As we’ve also come to expect, this morning we were greeted by headlines like this one from the Sydney Morning Herald, ‘ASX set for gains as Wall Street jumps on stimulus deal’.

And indeed, the S&P/ASX 200 Index (ASX: XJO) is up 0.1% in late morning trading.

But here’s the important takeaway.

In my opinion, it doesn’t matter.

Ignore this noise

Sure it’s nice when shares on the ASX 200 move higher on any given day.

But as I’ve written before, and will surely write again, unless you’re a trader hoping to make gains from daily share price swings, you’re better off keeping your eyes on the horizon rather than these sorts of daily market moving news bites.

In the case of the next major round of US stimulus spending, it will come. The only question is when.

Personally, I believe it will still come before the 3 November election. Not because the Democrats are eager to throw Trump a bone. But because if Trump loses, I believe he might stonewall any new stimulus package, preferring to hand over an ailing economy to Joe Biden and team.

So both sides have an incentive to get new spending measures passed.

But that’s just my forecast. I could very well be wrong. And that’s just fine.

As a long-term investor it doesn’t much matter if a $3 trillion US stimulus package gets passed tomorrow, or mid-November, or not until next February.

Whenever it does get the green light, US and Australian share markets will benefit.

It’s the same the world over

The Australian Government’s own massive fiscal stimulus spending alongside the Reserve Bank of Australia’s (RBA) accommodative monetary policies effectively lifted consumer and business confidence in the wake of the coronavirus pandemic. Investors’ revived animal spirits have seen the ASX 200 rocket 37% higher since the 23 March trough.

The same is true for most major European indexes.

The EURO STOXX 50 (INDEXSTOXX: SX5E) reached its low on 18 March. Fuelled by unprecedented actions from the European Central Bank (ECB) and government stimulus packages, it’s up 35% since then.

And with a heavy second wave of infections sweeping the European continent, more stimulus is almost certainly coming. (Just don’t worry about when!)

Addressing France’s Le Monde earlier this week, ECB President Christine Lagarde said, “The options in our toolbox have not been exhausted. If more has to be done, we will do more.”

That sentiment isn’t lost on Aaron Barnfather, European equities portfolio manager at Lazard Asset Management in London.

As reported by the Australian Financial Review (AFR) Barnfather said:

Effectively the worse that COVID gets, the more that monetary policy is stepped up and the more fiscal policy is also ramped up as well. That is clearly good for equity markets. When you see lockdowns, you should effectively face into it rather than run away from it.

Scott Haslem, the chief investment officer at Crestone Wealth Management, also points to additional monetary and fiscal stimulus as one of the reasons ASX shares can outperform.

Writing in the AFR, Haslem points out:

Australia has just unleashed another wave of fiscal support, with tax cuts hitting peoples’ bank accounts over coming weeks, and various stimulus packages promoting capex and housing incentives… The additional 4 per cent growth stimulus over the next couple of years takes our total fiscal stimulus to 17 per cent, one of the highest in the world.

Just like the US Federal Reserve, it seems that the RBA is of the view that the risks of policy intervention are asymmetric, with the risks of doing nothing outweighing the risks of doing what little remains.

The RBA meets in less than 2 weeks, on 3 November.

The US presidential election and Melbourne Cup Day, both on the same day, may garner more headlines. But the RBA’s decisions on a slender 0.15% rate cut and, more importantly, on expanding its quantitative easing QE program will be eagerly watched by ASX share investors.

I’ll be watching as well. But as a long-term investor, I’ll keep focused on where I believe ASX 200 share prices will be in 2023, rather than next month.

More reading

• ASX 200 flat: Big four banks push higher, Afterpay drops, Megaport sinks 10%
• 3 ASX shares I’d buy for summer 2021
• Warning: Here’s why keeping your savings in the bank is hurting your financial future
• 5 ASX 200 events to watch for this week
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Bernd Struben 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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It’s no secret that the ASX shares to actually benefit from the coronavirus pandemic of 2020 include the supermarket giants. I’m sure we all remember, in the first months of COVID-19, the stripped-bare shelves of our local Coles and Woolies. It was a scary and unprecedented thing to see of course, like something from the war years of days gone by.

But the reality was that, with most retail stores shut around the country throughout March and April, Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) were experiencing record sales.

2020: The year of home cooking

Now, a report from BusinessInsider shows us just how much these companies benefited – and are still benefiting. According to the report, which was commissioned by Coles and Woolworths’ arch-rival Aldi, 75.4% of Australians are spending more on groceries in 2020.

Perhaps surprisingly, Tasmania led the charge with an 81% increase. Tassie was followed by Western Australia and the Northern Territory at 80% apiece.

The lowest 2 states/territories were South Australia with 66% and the Australian Capital Territory with 65%.

Contrary to some popular belief, however, this spike in grocery consumption was not just driven by ‘panic buying’. The report quotes Queensland University of Technology Business School Professor Gary Mortimer, a researcher in retail marketing and consumer behaviour:

Certainly from March onwards, some of that lift was underpinned by panic buying during times of uncertainty… We saw shoppers flock to supermarkets and stock up and stockpile.

However, he added:

We’ve seen consumers what we refer to as ‘cocooning’ or staying home [and] avoiding the crowds… we still see restaurants and bistros and pubs restricted to their numbers… So even if you want to go out to your favourite restaurant or bistro, you may find it difficult to get in and hence, we’re still cooking at home.

What does this mean for Coles and Woolworths shares?

What conclusions can we draw form this report? Well, it looks as though grocers like Coles and Woolworths are sitting in a semi-permanent tailwind. And this tailwind looks likely to last until at least the coronavirus is consigned to history.

And who knows, changing trends like these have more chance of becoming permanent the longer they are forced upon us. Perhaps Australians will be permanently cooking at home more often from now on. That spending is being directly transferred from restaurants and pubs to supermarkets. And that can only be a good thing for Coles and Woolworths (and their shareholders).

However, a final caveat: the research also found that 72.5% of Aussies are looking to cut down on how much they spend on groceries so that they can stick to their budget. I guess its not all sunshine and rainbows for the ‘big 2’.

More reading

• 3 ASX shares I’d buy for summer 2021
• Buy Coles (ASX:COL) and this dividend share before the next RBA meeting
• 5 ASX 200 shares that just received share price upgrades
• 3 things to tell someone who has never invested in ASX shares
• Brokers believe these record high ASX stocks can run higher

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. 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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At lunch on Wednesday the S&P/ASX 200 Index (ASX: XJO) is fighting hard to stay in positive territory. The benchmark index is currently up a fraction to 6,185 points. 

Here’s what has been happening on the market today:

Big four banks push higher.

The big four banks are on form on Wednesday and are doing a lot of the heavy lifting on the ASX 200. While all four banks are recording gains, the best performer in the group has been the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price with a 1.5% gain. Hopes that a U.S. stimulus package will soon be signed appears to be lifting the sector.

Tech shares out of form.

It has been a rare off-day for the technology sector. At lunch, the S&P/ASX All Technology Index (ASX: XTX) is down a disappointing 1.1%. The likes of Afterpay Ltd (ASX: APT) and Appen Ltd (ASX: APX) are weighing on the index with declines of approximately 2%. After U.S. markets closed, Netflix released a quarterly result which fell well short of analysts’ expectations.

Megaport Q1 update disappoints.

Another tech share which is falling heavily today is Megaport Ltd (ASX: MP1). Investors have been selling the elastic interconnection services provider’s share following the release of its first quarter update this morning. Although Megaport delivered further growth in customer and recurring revenues, it was much slower than the market is used to. One positive was a strong rise in port numbers during the quarter. This is a leading indicator for growth, which could mean Megaport bounces back in the second quarter.

Best and worst ASX 200 shares.

The best performer on the ASX 200 on Wednesday has been the Orora Ltd (ASX: ORA) share price with a 6.5% gain. This follows the release of a positive trading update at the packaging company’s annual general meeting. The worst performer on the index has been the Megaport share price with a disappointing 10% decline following its Q1 update.

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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 MEGAPORT FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. The Motley Fool Australia has recommended MEGAPORT FPO. 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.

The post ASX 200 flat: Big four banks push higher, Afterpay drops, Megaport sinks 10% appeared first on 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.

Netflix Inc (NASDAQ: NFLX) has been one of the best-performing stocks of the last decade, returning 2,400% as the company has successfully transitioned from DVDs by mail to a streaming giant. Nonetheless, it’s had its fair share of detractors along the way, and their complaints are familiar at this point.

Bears have long argued that Netflix’s streaming advantage will eventually be eroded by new competition, which will steal market share as they make streaming a priority. In the same line of reasoning, they tend to believe that most of Netflix’s original content is mediocre, implying that the leading streamer isn’t even particularly good at what it does and that it would easily be surpassed by a dedicated competitor.

Netflix has faced a wave of new streaming competition in the U.S. as services like Walt Disney Co‘s (NYSE: DIS) Disney+, Apple Inc‘s (NASDAQ: AAPL) Apple+, Comcast Corporation‘s (NASDAQ: CMCSA) Peacock, and AT&T Inc‘s (NYSE: T) HBOMax have all come on the market in the past year. There are signs that Netflix has ceded market share as it encounters new competition, though it’s still the biggest piece in what is an ever-growing pie.

But the biggest thing Netflix bears seem to be missing with these arguments is that they are almost all focused on the U.S. market, which now accounts for only about one-third of Netflix’s total subscribers. The company’s business is maturing in its home market, where more than half of all households in the country subscribe to the service, and it’s already reached its target range of 60 million to 90 million subscribers. Its biggest growth opportunities are abroad, and that’s also where Netflix has its greatest advantage.

Signs of strength abroad

Netflix recently showed its confidence in Canada by raising monthly subscription prices for the first time in two years, boosting the price by a Canadian dollar to CA$14.99 ($11.38) on standard plans and by CA$2 on premium plans to CA$18.99.

Netflix dominates the Canadian market since the company has historically faced less competition north of the border, though content tastes are nearly the same as in the U.S. For example, Disney’s Hulu is over a decade old now, but never made the trip north, and is still only available in the U.S. 

According to eMarketer, 52% of Canadian households subscribe to Netflix, making it the clear leader over No. 2 Amazon.com Inc‘s (NASDAQ: AMZN) Prime at 25% and No. 3 Disney+ at 17%. The research firm also sees the number of Canadian Netflix viewers rising from 14.6 million in 2019 to 18.4 million in 2024.

In Australia, meanwhile, Netflix said it would raise prices by a similar amount on its two lowest tiers. Canada and Australia are among the markets most similar to the U.S., and they attest to the company’s belief that it has added value to warrant the price increase. The price hikes also seem to indicate that subscriber growth has continued to be brisk despite tamped-down expectations for the third quarter.

The international advantage

While competitors may be leveling the playing field in the U.S., Netflix has a huge head start over competitors in the international market. Hulu, HBOMax, and Peacock aren’t even available outside the U.S. right now.

While Amazon Prime Video is offered all over the world, the Prime package that Americans are familiar with, which is best known for free two-day delivery, is only available in about 20 countries. So the primary incentive to join the service doesn’t exist in much of the world.

And Disney+ has expanded rapidly into Europe and elsewhere, but the company has currently staked its business almost entirely on legacy content since The Mandalorian has been its only original series to get much attention.

On the other hand, Netflix regularly releases new local-language content at a pace that its competitors simply aren’t equipped to match, and has generated foreign-language hits like Money Heist and Roma.

Despite setbacks from the coronavirus pandemic, Netflix had restarted production on 22 shows in 11 countries in Europe by July, and the company never stopped in countries like South Korea. That puts Netflix in a better position than rivals to emerge from the crisis with a steady pipeline of content, and it also isn’t facing the challenges of not being able to release movies in theaters.

But most importantly, Netflix’s robust growth abroad and the content production infrastructure it’s built outside the U.S. give the company a significant advantage over its new competitors, which are only just starting to expand into foreign markets. Overvaluing the domestic market and ignoring its international potential is a mistake. That edge is unlikely to go away anytime soon and will drive the company’s growth over the coming years. 

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

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Jeremy Bowman owns shares of Amazon, Netflix, and Walt Disney. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Comcast and recommends the following options: long January 2021 $60 calls on Walt Disney, long January 2022 $1920 calls on Amazon, and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon, Apple, Netflix, and Walt Disney. 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.

The post The biggest mistake Netflix (NASDAQ:NFLX) bears are making appeared first on Motley Fool Australia.

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

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