There are some ASX tech shares that are delivering strong growth over the years. They could be worth looking over.

Here are some ideas:

Redbubble Ltd (ASX: RBL)

Redbubble is an online marketplace business for customers to buy artist-produced products from one of two websites – Redbubble.com or TeePublic.com.

The company sells a variety of product lines including apparel, stationery, housewares, bags, wall art, masks and so on.

There has been a large shift to e-commerce over the past 12 months as a result of the global COVID-19 pandemic. Redbubble has been one of the beneficiaries of this trend.

FY20 saw marketplace revenue grow by 36% to $349 million. Gross profit increased by 42% to $134 million. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 141% to $15.3 million and reported EBITDA rose by 358% to $5.1 million. It made $38 million of free cashflow in that year.

The ASX tech share subsequently gave a trading update for the first quarter of FY21. It said that, after a positive delivery adjustment was removed from the figures, marketplace revenue went up 98% to $139.3 million, gross profit grew 118% to $59.6 million and it generated $17.2 million of earnings before interest and tax (EBIT).

At the time of the FY21 first quarter update, Redbubble CEO Martin Hosking said: “The strategic priority for the group now is to ensure we extend the market leadership we have established. We intend to invest in the customer experience to improve loyalty and retention and ensure long-term higher levels of growth. The company has the resources to undertake the anticipated investments and margin structure to ensure it can do so while remaining profitable.”

Joseph Kim from Montgomery Investment Management said: “While Redbubble has clearly been a “stay-at-home” trade, we believe the business has the opportunity to emerge a longer-term structural winner from COVID-19 should it capitalise in the recent spike in user and customer interest as a result of recent lockdown measures.”

Betashares Asia Technology Tigers ETF (ASX: ASIA)

This exchange-traded fund (ETF) is invested in many of Asia’s biggest technology businesses, outside of Japan.  

The ASX tech share has a total of 50 holdings, with some of the biggest positions being: Samsung, Taiwan Semiconductor Manufacturing, Tencent, Meituan, Alibaba and JD.com.

Betashares said that due to its younger, tech-savvy population, Asia is surpassing the West in terms of technological adoption and the sector is anticipated to remain a growth sector.

It has an annual management fee of 0.67%. Betashares Asia Technology Tigers ETF has delivered elevated returns over the past year with a net return of 62%. Since the ETF’s inception, it has delivered an average return of 33.5% per annum. Over the past five years, the index that the ETF tracks has delivered a return of 24.6% per annum.

Altium Limited (ASX: ALU)

The Altium share price has dropped by 19.4% over the past month. The electronic PCB software business wants to be the world leader of its industry.

However, the company is currently going through difficulties because of COVID-19 impacts. FY21 first half revenue fell by 3% to US$89.6 million. Within that update, there were a couple of positives. Electronic manufacturing has rebounded with Octopart benefitting from the recovery and achieving 19% revenue growth for the half. Management said that this is a positive leading indicator for PCB design growth that should drive Altium sales in the second half.

The ASX tech share continues to pivot towards the cloud with its Altium 365 product which could unlock other revenue growth avenues for the company.

According to Commsec, the Altium share price is valued at 38x FY23’s estimated earnings.

More reading

• 2 outstanding ASX ETFs to buy
• These were the worst performing ASX 200 shares last week
• 2 fantastic ASX shares to buy and hold until 2031
• 2 ASX ETFs to buy for 2021 and beyond
• Are these 2 beaten-up ASX shares turnaround ideas?

Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Last week saw a number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

Healius Ltd (ASX: HLS)

According to a note out of Credit Suisse, its analysts have retained their outperform rating and $4.30 price target on this healthcare company’s shares. The broker believes that Healius is well-placed to benefit from increased demand for COVID testing. Combined with a reduction in costs and smart investments, it is expecting strong earnings growth in the near term. The Healius share price ended the week at $3.88.

Nuix Ltd (ASX: NXL)

Analysts at Morgan Stanley have initiated coverage on this investigative analytics and intelligence software provider’s shares with an overweight rating and $11.00 price target. The broker believes Nuix is a long term structural growth story with a long runway ahead of it. And although it sees some risks from much larger competitors, that isn’t enough to stop it from rating it as a buy at the current level. The Nuix share price last traded at $9.08.

Premier Investments Limited (ASX: PMV)

A note out of the Macquarie equities desk reveals that its analysts have retained their outperform rating and lifted the price target on this retail conglomerate’s shares to $28.00. This follows the release of its guidance for the first half, which was significantly higher than the broker was forecasting. In fact, it was more than its estimates for the full year. The positive trends driving this outperformance have led to Macquarie upgrading its earnings estimates for the coming years. The Premier Investments share price ended the week at $24.31.

More reading

• Top brokers name 3 ASX shares to sell today
• Why BrainChip, Pilbara Minerals, Premier Investments, & Tyro shares are dropping lower
• Is it too late to buy Premier Investments (ASX:PMV) shares?
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises 0.1%

Motley Fool contributor James Mickleboro 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 has recommended Nuix Pty 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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As a big fan of growth shares, I feel very fortunate that the ASX is not short of quality options for growth investors.

But with so many to choose from, which ones should you buy? Two top growth shares for investors to look at today are listed below. Here’s what you need to know about them:

ELMO Software Ltd (ASX: ELO)

The first growth share to look at is ELMO. It is a growing cloud-based human resources and payroll software company that provides businesses in the ANZ and UK markets with a unified platform that streamlines a wide range of everyday processes.

ELMO has been growing at a very strong rate over the last few years and looks set to build on this in FY 2021. Especially given the recent acquisitions of complementary businesses Breathe and Webexpenses. It is forecasting annual recurring revenue (ARR) of $81.5 million to $88.5 million in FY 2021. This will be up 47.9% to 60.5%, respectively, on FY 2020’s ARR of $55.1 million,

Morgan Stanley is a fan of the company and has an overweight rating and $9.70 price target on its shares. The ELMO share price ended the week at $6.60.

Kogan.com Ltd (ASX: KGN)

Kogan could be an ASX share to buy, especially if you’re looking for long term options. This ecommerce company could be a great buy and hold option due to the structural shift to online shopping that is being accelerated due to the pandemic.

Kogan looks well-positioned to profit from this shift due to the growing popularity of its website and its recent acquisitions. The latter includes its recent purchase of Mighty Ape for $122 million. The New Zealand-based online retailer has a focus on gaming, toys, and other entertainment categories. At the last count it had more than 690,000 unique customers and around 900,000 subscribers.

Analysts at Canaccord Genuity are very positive on Kogan’s prospects, particularly given the Mighty Ape acquisition. Its analysts believe there is potential for significant revenue and cost synergies from the deal.

In light of this, the broker has put a buy rating and $25.00 price target on Kogan’s shares. This compares to the current Kogan share price of $20.06.

More reading

• What’s in store for the ASX tech sector in 2021?
• What does 2021 hold for ASX retail shares?
• 2 rapidly growing ASX ecommerce shares to buy
• 3 highly rated ASX growth shares to buy now
• 2 of the best ASX shares to buy this month

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Elmo Software and Kogan.com 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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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

AGL Energy Limited (ASX: AGL)

According to a note out of Morgan Stanley, its analysts have retained their underweight rating and slashed the price target on this energy company’s shares to $10.68. The broker sees notable electricity price weakness ahead and expects the rise of renewable energy to weigh heavily on the company’s earnings in the coming years. The AGL Energy share price ended the week at $12.00.

Pact Group Holdings Ltd (ASX: PGH)

Another note out of Morgan Stanley reveals that its analysts have downgraded this packaging company’s shares to an underweight rating with a $2.60 price target. The broker made the move largely on valuation grounds and notes that there are more attractive options for investors in the industry. And while it sees positive catalysts such as its turnaround plans and asset sales, it isn’t enough to maintain its equal-weight rating. The Pact share price last traded at $2.65.

QBE Insurance Group Ltd (ASX: QBE)

Analysts at Macquarie have retained their underperform rating and cut the price target on this insurance giant’s shares to $7.70. According to the note, Macquarie has concerns that the company is going through a tough period without a permanent CEO. In light of this, it sees risks ahead in FY 2021. In addition to this, the broker is expecting the company to make a big dividend cut due to the large loss that it is forecasting for FY 2020. The QBE share price ended the week at $8.57.

More reading

• Why ASX energy shares are under pressure right now
• Which ASX 200 shares have been slapped with price downgrades this week?
• The AGL (ASX:AGL) share price just hit a 12-year low
• Leading brokers name 3 ASX shares to sell today
• Why the QBE (ASX:QBE) share price is in focus today

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

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ASX miners have been sitting high on the dividend throne but their reign is under threat as bank stocks are forecast to overtake them in 2022.

While high yielding ASX stocks were forced to slash their dividends in 2020 due to COVID-19, our biggest miners were flushed with cash.

The surprising surge in commodities, like the iron ore price, helped the sector become the dividend king.

Passing of the dividend baton to ASX banks

The Fortescue Metals Group Limited (ASX: FMG) share price, BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price were yielding 7% or more if you included franking.

What’s more, they are well placed to increase their dividend payments in 2021 as the commodity price tailwinds continue to blow.

However, the headwinds that have been buffeting the big ASX banks are turning into tailwinds and this sector is rapidly playing catch-up.

Tailwinds driving dividend recovery

The banking regulator has released the banks from a dividend leash as our economy bounces back from COVID.

The property market is also roaring back, which will lower the need for bad-debt provisioning. This assumption is one of the key underpinnings to Credit Suisse’s bull case scenario for ASX banks.

“Our bull case for the bank sector is predicated on recovery with the heavy lifting (capital and provision build) having been done in 2020,” said the broker.

“This scenario sees dividend growth in 1H21 followed by provision releases beginning in 2H21 as realisation of bad debts come in below modelled economic scenarios.

“At the same time credit growth builds over FY21 on the back of low rates, relaxation of lending standards and government stimulus.”

Bull versus bear case

Of course, this bullish forecast will be derailed if the vaccine roll-out hits unexpected hurdles and if our cities reimpose lockdowns.

But Credit Suisse thinks the bull case is a more likely outcome than the bear case. It increased its dividend payout forecast for the sector to 60% from 50% in FY21. The payout goes up to 65% in FY22 and FY23.

Further, the broker highlighting the prospects that the banks will undertake a capital management program as soon as FY22.

The dividend yield from ASX banks is tipped to increase from 3% in 2021 to circa 4.5% in 2022 (before franking). The yield in the materials sector, which is dominated by miners, is expected to go from a little over 5% to around 3.5% (excluding franking) over the same period.

ASX Banks are the Largest Dividend Recovery Play

Is it time to buy ASX bank stocks?

Credit Suisse has a “buy” recommendation on three of the big four ASX banks. This includes the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price, National Australia Bank Ltd. (ASX: NAB) share price and Westpac Banking Corp (ASX: WBC) share price.

The Commonwealth Bank of Australia (ASX: CBA) share price is rated “neutral”.

More reading

• 4 ASX shares that helped this fund outperform in December
• Brokers name 3 ASX shares to buy right now
• This broker calls ANZ (ASX:ANZ) shares as the preferred bank pick
• ASX 200 up 0.4%: Afterpay hits record high, bank shares rise, Resolute disappoints
• Why Afterpay, BHP, Objective, & Pro Medicus shares are charging higher

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, BHP Billiton Limited, Commonwealth Bank of Australia, National Australia Bank Limited, Rio Tinto Ltd., and Westpac Banking. Connect with me on Twitter @brenlau.

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

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If you’re looking to make some additions to your portfolio in January, then the three ASX shares listed below could be great options.

They have been tipped as shares that could generate strong returns for investors in the future.

Here’s why they could be five-star stocks:

CSL Limited (ASX: CSL)

This biotherapeutics giant could be a five star stock. This is due to the quality of its CSL Behring and Seqirus businesses, their leading therapies and vaccines, its growing plasma collection network, and burgeoning research and development pipeline. In respect to the latter, CSL’s pipeline contains a number of products, such as Clazakizumab, that have the potential to generate billions of dollars of sales in the future. UBS is a fan of the company and last week reiterated its buy rating and $346.00 price target on CSL’s shares.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another potential five-star stock is Domino’s. This is due to the pizza chain operator’s strong market position and bold growth targets over the next decade. At the end of FY 2020, Domino’s had a network of 2,668 stores and is now aiming to more than double this to 5,500 stores by 2033. At the same time, the company is targeting organic same store sales growth of 3% to 6% per annum over the medium. Delivering on these targets would result in strong top line growth over the 2020s. One broker that is a fan of these plans is Goldman Sachs. The broker has a conviction buy rating and $88.00 price target on its shares.

BetaShares NASDAQ 100 ETF (ASX: NDQ)

A final potential five-star option is the BetaShares NASDAQ 100 ETF. This is due to the fact that this fund is home to a large number of the highest quality companies that the world has to offer. Among its holdings you will find the likes of Amazon, Apple, Facebook, Microsoft, Nvidia, Starbucks, and Tesla, to name just a few. This group of shares have been tipped to grow strongly in the future and could help drive outsized returns for the BetaShares NASDAQ 100 ETF.

More reading

• 3 blue chip ASX growth shares to buy
• 2 stellar ASX growth shares to buy this week
• Fund managers are buying Domino’s (ASX:DMP) and this ASX share
• 3 quality ETFs for ASX investors to buy today
• Top brokers name 3 ASX shares to buy today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS and CSL Ltd. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS and Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Exchange traded funds (ETFs) continue to grow in popularity with Australian investors.

So much so, according to the AFR, Vanguard has reported its best year since entering the Australian market two decades ago.

The world’s second-largest asset manager pulled in a total of $5.7 billion into its exchange traded funds in 2020 after Australian investors sought diversified exposure during a volatile time for share markets because of COVID-19.

If you’re interested in joining these investors by adding an ETF or two to your portfolio, then you might want to take a closer look at the two listed below. Here’s what you need to know about them:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The first ETF to look at is the BetaShares Asia Technology Tigers ETF. As its name implies, it gives investors exposure to a number of the biggest and brightest tech shares in the Asia market. Among the fund’s holdings you will find the likes of Samsung, Alibaba, JD.com, Tencent, and Baidu.

In respect to the latter, Baidu is the dominant search engine in China and widely considered to be the country’s version of Google. But like its US peer, Baidu is so much more than just a search engine. It has a keen focus on artificial intelligence and is aiming to be an autonomous vehicle powerhouse.

Another company you’ll be owning a slice of is Tencent. It is one of the world’s largest tech companies with a focus on video games and social media. It is best known as the company behind the WeChat app, which is used by over 1.2 billion people for messaging, e-commerce, digital payments, and entertainment.

BetaShares Global Cybersecurity ETF (ASX: HACK)

The BetaShares Global Cybersecurity ETF is another ETF to look closely at. This ETF aims to track the performance of an index providing investors with exposure to the leading companies in the growing global cybersecurity sector.

BetaShares notes that with cybercrime on the rise, demand for cybersecurity services is expected to increase strongly in the future. And given how this side of the market is heavily under-represented on the ASX at present, this ETF give investors an easy way to invest in the theme.

Included in the fund are both global cybersecurity giants and emerging players from a range of global locations. Among its holdings you’ll find Accenture, Cisco, Cloudflare, Crowdstrike, and Okta.

More reading

• 2 ASX ETFs to buy for 2021 and beyond
• US decides against delisting Tencent and other Chinese giants
• 3 quality ETFs for ASX investors to buy today
• 2 quality ETFs for ASX investors in January
• 3 great ASX tech shares to 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 BETA CYBER ETF UNITS. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Some small cap ASX shares may be able to make good returns over the longer-term.

There are smaller businesses that have interesting characteristics, which may be of interest to some investors:

Volpara Health Technologies Ltd (ASX: VHT)

Volpara is a medical technology business. Its main service is providing software to help detect breast cancer early on by increasing the quality of screening using AI.

The small cap ASX share reported its FY21 half-year result a couple of months ago. Subscription revenue went up 71% to NZ$8.8 million, though total revenue only grew by 38% to NZ$9.5 million. Annual recurring revenue (ARR) went up from NZ$18 million to NZ$19.9 million.

One of the metrics that Volpara likes to boast about to investors is that the gross profit margin reached 92%, up from 89% in the prior corresponding period.

The company recently won two contracts. The first was a five-year software as a service (SaaS) contract with BreastScreen Queensland to use VolparaEnterprise, which could expand to include VolparaDensity and VolparaLive. 

Volpara also announced that its breast health platform has been selected by US Radiology Specialists, which comprises of more than 280 radiologists, 3,100 team members and 145 outpatient imaging centres across 14 states in the US.

City Chic Collective Ltd (ASX: CCX)

City Chic is one of the small cap ASX shares in the retail space that is growing online sales at a fast rate. In FY20 online sales rose by 113.5% and this represented 65% of City Chic of total sales. Fund manager Chris Prunty from QVG Capital thinks that the e-commerce theme will continue to grow after COVID-19 has passed.

The company is made up of a variety of different retail brands. It sells plus-size clothing, footwear and accessories to women. It has a number of brands including City Chic, Avenue, CCX, Hips & Curves and Fox & Royal. City Chic has around 100 stores across Australia and New Zealand. It has websites for local and US customers, it has marketplace and wholesale partnerships with major US retailers such as Macys and Nordstrom, and a wholesale business with European and UK partners such as ASOS and Zalando.

City Chic recently acquired Evans for $41 million from Arcadia Group, which has gone into administration. Evans is a UK-based retailer of women’s plus-size clothing with a longstanding customer base and sizeable market position.

The Evans website made £23 million of sales with 19 million visits for the financial year to August 2020. The wholesale business also made £3 million of sales. The overall Evans group of businesses, including the stores and franchise, made £60 million of annual sales before COVID-19 came along. The small cap ASX share’s management are hoping it can capture some of the physical sales that Evans used to make. 

According to Commsec, the City Chic share price is valued at 23x FY23’s estimated earnings.

More reading

• 2 great ASX growth shares to buy for January
• 2 exciting small cap ASX shares to watch
• 3 quality SaaS ASX shares to buy
• Why Galaxy (ASX:GXY) and these ASX shares just hit 52-week highs or better
• 3 small cap ASX shares to buy for 2021

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 and recommends VOLPARA FPO NZ. The Motley Fool Australia has recommended VOLPARA FPO NZ. 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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With the interest rates on offer with term deposits falling to such low levels, you would have to invest millions into them to earn a sufficient income.

In light of this, the share market looks set to remain the place to earn a passive income for the foreseeable future.

But which shares should you buy? Here are two ASX dividend shares that are rated as buys:

Accent Group Ltd (ASX: AX1)

The first dividend share to look at is Accent. It is a leading leisure footwear-focused retailer which owns a number of popular retail store brands. It also has a rapidly growing online business that has been performing exceptionally well during the pandemic.

A recent update reveals that the company has been performing very strongly in FY 2021. After an impressive start to the year, the company followed this up with an excellent holiday period. For the two months to 27 December, the company’s total sales were up 12.3% and like-for-like sales grew 7.4%.

This means that excluding the closure of Auckland, Victoria, and Adelaide stores, like-for-like sales grew 12.3% during the first half.

Analysts at Citi were impressed with its update and put a buy rating and $2.60 price target on its shares. The broker is also forecasting a 11 cents per share dividend from Accent in FY 2021. Based on the current Accent share price, this represents a fully franked 4.8% dividend yield.

Coles Group Ltd (ASX: COL)

Another dividend share to look at is Coles. As with Accent, the supermarket operator has been a strong performer during the pandemic.

This has been driven by its defensive qualities, strong market position, and favourable changes in consumer spending.

Pleasingly, this strong form has continued in FY 2021 even as COVID headwinds ease and appears to have put Coles in a position to deliver a strong full year result.

Analysts at Citi are confident on Coles as well. The broker has a buy rating and $21.20 price target on its shares. It is also forecasting a 63.5 cents per share fully franked dividend this year. This represents a fully franked 3.5% dividend yield.

More reading

• Got money to invest for income? Here are 3 ASX 200 dividend shares
• The Accent Group (ASX:AX1) share price just got hit by a broker downgrade
• Retail sales rose 7% in November to boost ASX retail shares
• 2 ASX dividend shares for income investors
• 3 ASX dividend shares with yields above 4%

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended Accent Group. 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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Buying gold today may seem to be a better idea than investing money in dirt-cheap shares. After all, the world economy faces an uncertain outlook in 2021. The coronavirus pandemic may cause further disruption, while political challenges may have a negative impact on GDP growth.

However, buying undervalued stocks and holding them for the long run could be a more profitable move versus holding the precious metal. Their recovery prospects, low prices and track record of performance suggests that they could outperform gold in the coming years.

Gold’s uncertain future

While gold may outperform dirt-cheap shares in the short run due to the aforementioned risks to global economic growth, its long-term prospects may be less impressive. Since global GDP growth has always returned to relatively high levels in the past, it seems likely that investor sentiment will strengthen in future. This may mean that demand for defensive assets, such as gold, weakens to some degree in the coming years. The end result may be a poor performance from the precious metal on a relative basis.

Furthermore, gold may not offer good value for money at the present time. It has traded higher in 2020, while many high-quality companies continue to offer wide margins of safety. Its current price may fully factor in threats to the world economy. Therefore, even if there is a period of further uncertainty for investors, the gold price may lack scope to make further gains.

Buying dirt-cheap shares for the long run

By contrast, buying dirt-cheap shares today could be a profitable long-term move. The stock market has a long track record of recovering from its various challenges to post new record highs. In doing so, stock valuations have historically reverted to their long-term averages. This means that today’s undervalued stocks could make gains as investors become more upbeat about their operating environments in a growing world economic environment.

Investors who have purchased cheap shares in high-quality businesses have generally benefitted from market cycles. In other words, buying equities at low prices and holding them for the long run allows an investor to capitalise on the ups-and-downs of the stock market. Over time, this may mean they can outperform the returns of indices such as the S&P 500 Index (INDEXSP: .INX) and FTSE 100 Index (INDEXFTSE: UKX).

Opportunities to buy cheap stocks today

Even though many of 2020’s dirt-cheap shares have enjoyed strong recoveries, a number of companies continue to offer good value for money. Investors are concerned about the prospects for a number of sectors in 2021, including industries such as banking, hospitality and energy. As such, there may be opportunities to buy undervalued stocks in those, and other, sectors at the present time.

Over time, a diverse portfolio of such companies can deliver high returns that outperform other assets such as gold. In doing so, they could provide an investor with an improving financial outlook.

More reading

• Got cash to invest? Here are 2 ASX shares to buy
• 3 reasons why Xero (ASX:XRO) shares could be a buy
• These were the best performing ASX 200 shares last week
• This fund manager names 2 surging ASX shares to watch
• These were the worst performing ASX 200 shares last week

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.

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