The Secos Group Ltd (ASX: SES) share price is soaring higher today after the sustainable package materials company announced a positive sales update. At the time of writing, the Secos share price is trading up 12.9% higher at 18 cents. Let’s take a look.

Sales growth

Secos reported its September quarter sales were $5.8 million, up 19% on the June quarter. Biopolymer sales jumped more than 75% compared to the prior corresponding period. This represented its strongest quarter result on record.

The company said that sales were expected to further increase more than $8 million in the current December quarter. Demand for its Cardia biopolymer resin, film and bags continues to grow with increased awareness of compostable plastics as an effective alternative.

Organic treatment programs

Secos said there were further opportunities for growth in organic treatment programs.

Typically run by councils, food organic, garden organic (FOGO) programs enable the use of compostable biopolymer bags to dispose of household waste.

Secos said that using eco-friendly bags rather than traditional methods significantly reduced cost and the environmental impact. With more than 120 councils in Australia adopting FOGO programs, that amounts to around 20% growth in the sector in the last two years.

Operating highlights

To cater for the increase in customer orders, the group has focused on expanding production capacity during the past few months. Proceeds of a recent $15 million equity placement were invested into new manufacturing assets and working capital.

Capital expenditure investment was made in film and bag lines for local government council food and organic waste bags, and dog waste bags.

In addition, Secos committed to meeting $1.5 million sales orders of resin, by increasing capacity at its Malaysian plant.

Fixed operating costs were well-contained, with a portion of savings from employee and administration expenses redeployed to marketing investments. It’s anticipated that this will support retail store sales as well as its own branded line of products.

FY21 outlook

Secos advised that it expected the robust global demand in its core segments to continue into FY21. However, no guidance was given by the company.

Commenting on the company outlook, Secos CEO Ian Stacey said:

We remain on track to meet or exceed our internal sales targets and are actively expanding capacity to supply current sales commitments and to cater for additional growth opportunities that we see.

About the Secos share price

The Secos share price reached a low of 4.6 cents in April, representing a drop of 269% on today’s price. The company has been making tailwinds in recent months with a raft of positive announcements and a shift in consumer behaviour towards eco-friendlier alternatives.

More reading

• Broker tipping a ~10% jump in the Medibank (ASX:MPL) share price by Tuesday
• 3 shares that have reacted adversely to vaccine news
• Bellevue Gold (ASX:BGL) share price sinks lower: Is this a buying opportunity?
• Why the Dubber Corp (ASX:DUB) share price is surging today
• Top brokers name 3 ASX shares to sell 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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The Medibank Private Ltd (ASX: MPL) share price has yet to recover lost ground from the COVID‐19 crisis, but that could change by next week.

The MPL share price is down by around 10% since the start of 2020 when the S&P/ASX 200 Index (Index:^AXJO) dipped 3.5%.

The private health insurer is at least holding up better than its rival. The NIB Holdings Limited (ASX: NHF) share price shed nearly a quarter of its value over the same period.

Medibank share price health could soon improve

But the Medibank share price might get a chance to play catch-up to the rest of the market as Morgan Stanley thinks it could rally by nearly 10% by Tuesday.

That’s when the Australian Prudential Regulation Authority (APRA) is expected to release its private health insurance (PHI) statistics for the September quarter.

How APRA’s data feeds into Medibank’s stock valuation

The data will not only show the change in people with PHI but also the benefits paid. The first will provide insight into Medibank’s revenue growth (or lack of), while the latter will lend insight into its profit margin.

“We believe membership growth direction and the number of episodes will drive market expectations on MPL’s future earnings,” said Morgan Stanley.

The deferment of elective surgeries due to the pandemic is a boon for PHI companies but a drag for hospital stocks like the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price. This is well understood by the market.

3 possible outcomes for the MPL share price

But the revenue growth outlook for insurers is convoluted by the deferred increase in premiums as the industry moved to help its customers through the recession.

Morgan Stanley believes there is one of three possible outcomes on Tuesday. The data could show a more than 0.5% drop in PHI membership, a flat outcome with no more than a 0.5% change, or a more than 0.5% increase.

The broker rates the probability of the first outcome (contraction) at 10% and the second flat outcome at 20%.

Pumped and primed

Its base case is for memberships to increase, which would add 2% or more to Medibank’s earnings per share in FY21.

More significantly, if this comes to pass, the broker reckons the stock will shoot up to $3.10 on the news.

The MPL share price is trading at $2.85 ahead of the market close.

However, if the data points to a 0.5% or worse decline, the stock could tumble to $2.50. In the flat scenario, the stock will hover around $2.80.

But Morgan Stanley is an optimist. It’s recommending the Medibank share price as “overweight” (or “buy”) with a price target of $3.10.

More reading

• Why the Dubber Corp (ASX:DUB) share price is surging today
• Why are ASX tech shares all over the place today?
• Here’s how ASX investors have reacted to a Biden win
• Why the Aristocrat (ASX:ALL) share price could jump next week
• The Hipages (ASX:HPG) share price jumped 16% after its IPO

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited and Ramsay Health Care 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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The ASX market has been on a high since news of an imminent vaccine for COVID-19 broke out. Before today’s retreat of 0.5% , the ASX 200 index has been on a consecutive day winning streak as investor confidence begins to seep back into the markets. 

However, not all companies have had positive price reactions to the vaccine news. Here we’ll take a look at three ASX growth shares that slid following the vaccine news.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Domino’s Pizza share price had gained more than 60% on a year-to-date (YTD) basis shortly prior to the vaccine news. It has lost 8% of that gain since news of the vaccine was released on Monday, and is currently trading at $78.20. 

The company has been a big beneficiary of the lockdown, as more people dine at home and order food deliveries. Its strong results in 2020 was underpinned by the strong demand on its food delivery network. Traditionally, more than 50% of Domino’s global sales come from digital channels and deliveries. As lockdown restrictions are gradually being lifted and restaurants resume business, this source of revenue for Domino’s is perceived to be gradually weakening. 

Even before the vaccine news, brokers had already downgraded its outlook on Domino’s after its first quarter results came out only slightly better than expected. 

JB Hi-Fi Limited (ASX:JBH)

JB Hi-Fi is a discount retailer of consumer electronics. Its share price had gained 30% leading up to the vaccine news, and has lost 8% since the news hit the markets, and is currently trading at $45.24.

JB Hi-Fi’s business did really well in the past six months as more people were buying home entertainment products as a result of lockdown restrictions. Soon after the vaccine news came out, equity analysts at Macquarie Group Ltd (ASX: MQG) downgraded the company’s shares to a neutral rating and cut the price target on them by almost 10% to $49.50.

Brokers in general have reduced the multiples for shares that it believes are likely to be impacted by a redirection in spending as the world returns to normal. 

Fisher & Paykel Healthcare Corp Ltd (ASX: FPH)

Fisher & Paykel is a manufacturer of devices used in respiratory care, acute care, and the treatment of obstructive sleep apnea. Its share price was travelling well this year, gaining more than 60% just before the vaccine news. In the last four trading days, it has fallen by 8%, and is currently trading at $31.05.

There has been strong demand  for the company’s hospital respiratory care products in the last six months due to the ongoing spread of the coronavirus pandemic around the world, especially in the northern hemisphere. Investors have been reassessing the future demand for Fisher & Pykel’s products, especially its respiratory devices post-COVID.

More reading

• Top brokers name 3 ASX shares to sell today
• Why the Aristocrat (ASX:ALL) share price could jump next week
• Best and worst ASX retail stocks to own in the COVID recovery
• JB Hi-Fi (ASX:JBH) share price sinks lower on broker downgrade
• Why Bingo, Evolution, JB Hi-Fi, & Super Retail shares are dropping lower

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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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The Bellevue Gold Ltd (ASX: BGL) share price is out of form on Thursday and is sinking lower again.

At the time of writing the gold-focused mineral exploration company’s shares are down 6% to $1.32.

This latest decline means the Bellevue Gold share price is now down over 11% since hitting a record high of $1.49 on Monday.

Why is the Bellevue Gold share price sinking lower?

Investors have been selling the company’s shares over the last few days after a meaningful pullback in the gold price.

This has been driven by news of a potentially effective COVID-19 vaccine being developed by Pfizer, which has given risk sentiment a boost and put pressure on safe haven assets.

The impact has been so great that it has overshadowed a positive update by the company this week in relation to its resource estimate at its Bellevue Gold Project in Western Australia.

According to the release, the company’s drilling activities have resulted in its indicated resource increasing by 20% to 1.04 million ounces of gold at 11.4 grams per tonne.

Management believes the increased estimate will further strengthen the baseline economic study now underway on the project, providing scope for longer mine life, an increased production profile, and stronger financial returns.

Bellevue Gold’s Managing Director, Steve Parsons, commented: “This is an outstanding result which demonstrates the exceptional quality of the mineralised system at Bellevue. To have an Indicated Resource of this size and this grade and with such immense scope for further increases highlights the underlying strength of the project.”

Is this a buying opportunity?

One broker that believes the recent weakness in the Bellevue Gold share price is a buying opportunity is Macquarie Group Ltd (ASX: MQG).

This morning its analysts have responded to its updated resource estimate by retaining their outperform rating and lifting the price target on the company’s shares to $1.55.

This price target implies potential upside of over 17% for its shares over the next 12 months.

More reading

• Bellevue Gold’s (ASX:BGL) share price leaps 9% to new record highs
• RED 5 (ASX:RED) share price in focus as gold production nears
• Why the Bellevue (ASX:BGL) share price is dropping lower

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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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The Dubber Corp Ltd (ASX: DUB) share price is surging today. Dubber shares are up 2.93% at the time of writing to $1.58, after closing at $1.51 yesterday and opening at $1.55 this morning.

Even though 2.93% is a hefty one-day gain by any means, Dubber shares were actually doing much better earlier in the day. The Dubber share price climbed as high as $1.64 soon after market open (a rise of nearly 6% and a new 52-week high) before settling at the current share price soon after. For comparison, the S&P/ASX 200 Index (ASX: XJO) is down 0.25% at the time of writing.

So why is this ASX tech share defying the broader market today and climbing high?

Share purchase plan swamped

Today, we got news from Dubber that its share purchase plan (SPP) has been successful – extremely successful, it seems.

In an ASX release to the market this morning, Dubber told investors that it has received over $33 million in applications for the SPP, well over the targeted $6 million initially flagged.

As a result, the company will reportedly endeavour to accept $10 million in applications by scaling back its acceptance of SPP offers. This will result in the issuance of just over 9 million shares.

The initial Dubber retail SPP closed on Friday 6 November and involved the opportunity for ‘eligible shareholders’ in Australia and New Zealand to apply for up to $30,000 worth of new shares each at the price of $1.10 a share.

A preceding SPP for institutional investors also took place last month, which raised another $35 million.

What else has been moving the Dubber share price?

It’s also worth noting that this cloud data company has had a very busy week, and indeed month – in fact, the Dubber share price is up almost 45% over the past month alone.

Last week, Dubber announced that the company had been selected as the recording and data capture platform for big blue itself, IBM (NYSE: IBM). IBM has launched a new service, the IBM Cloud for Telecommunication Services platform, and Dubber is playing a central role.

IBM is a behemoth company with a market capitalisation of ~US$104 billion, so this is obviously big news for the $378 million-sized Dubber. The Dubber share price shot up 8% on the news.

That was on top of the announcement last month that Dubber has launched an artificial intelligence solution for Microsoft Teams, owned by Microsoft Corporation (NASDAQ: MSFT), which sent Dubber shares up 16%.

More reading

• Why are ASX tech shares all over the place today?
• Here’s how ASX investors have reacted to a Biden win
• Why the Aristocrat (ASX:ALL) share price could jump next week
• The Hipages (ASX:HPG) share price jumped 16% after its IPO
• ASX 200 down 0.1%: Xero hits record high, Telstra and Wesfarmers updates impress

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of IBM. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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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On Wednesday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three ASX shares that have just been given sell ratings by brokers are listed below.

Here’s why these brokers are bearish on them:

Commonwealth Bank of Australia (ASX: CBA)

According to a note out of the Macquarie equities desk, its analysts have retained their underperform rating but lifted the price target on this banking giant’s shares to $65.00. This follows the release of Commonwealth Bank’s first quarter update. While Macquarie found things to like in the update, it has concerns over the impact of low interest rates and competitive pressures on its future performance. In light of this, it doesn’t believe its shares offer value for money at the current level. The Commonwealth Bank share price is trading at $72.99 this afternoon.

Computershare Limited (ASX: CPU)

Analysts at Citi have retained their sell rating and $12.00 price target on this share registry company’s shares following the release of its annual general meeting update. Although the broker acknowledges that Computershare has had a better than expected start to FY 2021, it isn’t overly convinced that its outperformance will continue in the second half. Furthermore, it doesn’t believe the company will benefit as greatly from US delinquent mortgage servicing in the coming years. This led to the broker downgrading its future earnings estimates accordingly. The Computershare share price is changing hands for $13.78 on Thursday.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another note out of the Macquarie equities desk reveals that its analysts have downgraded this pizza chain operator’s shares to an underperform rating with a reduced price target of $72.10. The broker made the move in response to the prospect of an effective vaccine being released in the near future. It believes this will lead to consumer behaviour returning to normal in 2021, which could bring an end to Domino’s elevated sales. The Domino’s share price is trading at $78.23 today.

More reading

• Why the Aristocrat (ASX:ALL) share price could jump next week
• Is the Commonwealth Bank (ASX:CBA) share price in the buy zone?
• ASX 200 surges again on Wednesday
• Commonwealth Bank (ASX:CBA) share price higher on Q1 and loan deferral update
• ASX 200 up 1.3%: CBA Q1 update, tech shares rebound, JB Hi-Fi sinks

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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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The S&P/ASX 200 Index (ASX: XJO) is cooling off today. After 5 straight days of shares in the green, the ASX 200 is down 0.7% to 6,405 points at the time of writing.

However, one sector, in particular, is bucking this broad-market trend, if a little inconsistently. ASX tech shares spiked in early morning trade this morning. Note the S&P/ASX All Technology Index (ASX: XTX). It’s up 0.81% at the time of writing, outperforming the ASX 200 handily. But soon after market open this morning, it was as high as 2,740 points – a 2.7% spike from yesterday’s close.

Let’s dig a little deeper.

When most investors think of ‘ASX tech shares’, they probably jump to the WAAAX shares – the collective name for some of the ASX’s highest-flying tech companies. WAAAX stands for WiseTech Global Ltd (ASX: WTC), Altium Limited (ASX: ALU), Appen Ltd (ASX: APX), Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO). All of these companies have made investors a lot of money in recent years. All 5 are up more than 500% over the past 5 years, with a couple (Afterpay and Appen), up more than 2,000%.

WAAAX on for ASX tech shares?

So this morning, Xero hit a new all-time high of $130.95 after jumping almost 5%. The catalyst? Xero released a strong half-year update that was evidently well-received by investors. The update included the relevation that Xero managed to grow its revenue by 23% over the period, and subscribers by 19%. Xero shares have since cooled from these highs, and are trading up 0.93% at $123.85 at the time of writing.

Afterpay shares, however, are having a much more consistent day in the green. Afterpay is up 3.94% to $99.82 at the time of writing, after making a new all-time high of its own earlier this week ($105.80).

Appen shares are also having a pretty nice day of it – up 1.99% to $33.89. That stands in contrast to Altium, which is down 0.7% to $37.10. Unlike most ASX tech shares, Altium is still way off it’s 52-week high that it recorded in February, just before the coronavirus-induced market crash in March. WiseTech Global shares were also missing out on the fun for most of today. After initially spiking all the way up to $32.79 this morning, WiseTech dropped down 0.34% to $32.04. It has since rallied slightly to $32.32 at the time of writing.

Looking outside the WAAAX sphere though, and we see other ASX tech shares making moves as well. Dubber Corp Ltd (ASX: DUB) shares are still very much in positive territory, up 2.93% from open to $1.58 a share at the time of writing. Dubber was as high as $1.64 ealier in the day, but is still very much in the green.

It’s hard to say what’s causing these erratic moves, but it might be a case of ASX tech investors getting FOMO with some shares, or just a rising tech tide trying to lift all boats, with varying degrees of success.

More reading

• Here’s how ASX investors have reacted to a Biden win
• Why the Aristocrat (ASX:ALL) share price could jump next week
• The Hipages (ASX:HPG) share price jumped 16% after its IPO
• ASX 200 down 0.1%: Xero hits record high, Telstra and Wesfarmers updates impress
• Best and worst ASX retail stocks to own in the COVID recovery

Sebastian Bowen 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 Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of AFTERPAY T FPO, Appen Ltd, and WiseTech Global. 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 Nitro Software Ltd (ASX: NTO) shares are trading higher today following its presentation at the JMP Securities small-cap technology forum. At the time of writing, the Nitro share price is trading up 5.56% at $3.04.

First half FY20 results and highlights 

The presentation highlighted the company’s first half results for FY20 which included a 60% increase in revenue to $19.1 million. Annual recurring revenue increased 57% to $20.2 million.

Nitro’s financial performance for the half was able to meet or beat its prospectus forecasts. Its cash balance closed $8.7 million ahead of its prospectus plan of $35.2 million, which provides substantial resources to support working capital requirements and growth, including acquisitions. 

About Nitro 

Nitro is a document productivity software company focused on streamlining the most critical and widely used documents by businesses. The company listed on the ASX on 11 December 2019. The Nitro share price of $3.04 at the time of writing which is more than 100% higher than its initial public offering (IPO) offer price of $1.72 per share. 

Its products include Nitro Pro which addresses common PDF productivity bottlenecks by enabling every worker with the tools to create, edit, convert, sign and secure PDF files. Nitro Sign is a simple, intuitive eSignature product backed by enterprise-grade security and supported by any tablet, desktop or mobile device. It also possess analytics and consulting services to support businesses in their Nitro migration and understanding of its value proposition. The company currently has more than 2 million licensed users across 11,000 business customers. 

Business strategy and outlook 

An independently-assessed combined PDF productivity and eSigning serviceable market was identified to be worth at least US$5.5 billion. The industry is likely to experience continued tailwinds on the back of remote work and digitisation. 

The consumers of Nitro services are largely enterprises that generate predictable and expanding revenues. Based on Nitro licenses purchased by customers, 68% were Fortune 500 companies including GE, Exxon Mobil, BP and Caterpillar. 

Looking ahead, the company reaffirmed its FY20 prospectus revenue forecast of $40.5 million and raises its ARR forecast to $26-27 million from $24.4 million. Nitro is a loss-making company and expects an earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $8.1-8.6 million for FY20, in line with its forecasts.  

More reading

• Nitro Software (ASX:NTO) share price drops lower despite strong Q3 growth
• 5 ASX tech shares that could be the next WAAAX stocks

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Nitro Software 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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Last week’s US presidential elections have resulted in a win for Democratic candidate Joe Biden. Mr. Biden was, of course, running against the incumbent Republican President Donald Trump. After an initially unclear election result, Biden was declared the eventual winner on Sunday (our time), and has since assumed the title of ‘President-elect’.

How has the market reacted to this news? Very well, if the numbers are anything to go by.

Since 4 November (the date of the election in Australia), the S&P/ASX 200 Index (ASX: XJO) is up 6.1%. That’s pretty close to the long-term average the ASX 200 delivers in an entire year (according to State Street Global Advisors, the ASX 200 has returned an average of 7.53% per annum since 2001). And since Biden’s win was called, the ASX 200 is up 4.4%.

So clearly the US election was a major market-moving force. But how exactly have ASX investors really responded to the changing of the guard at the White House?

Reporting in the Australian Financial Review (AFR) this week answers that question.

Biden win leads investors to China… and cannabis

Cannabis and China: not a combination of words we see too often. But that’s where the AFR tells us investors are parking their money at the dawn of the Biden administration.

According to the AFR article, analysis of trading activity on poplar brokering platform Stake over the past week or so has come up with some interesting results. Chief amongst those is that investors are suddenly far more bullish on Chinese companies (at least those listed in the US).

Stake lists Chinese electric car maker Nio Inc (NYSE: NIO) as the most popular share its investors have been buying in the wake of Biden’s win. That displaces long-running favourite Tesla Inc (NASDAQ: TSLA).

It also notes that other Chinese companies like e-commerce giant Alibaba Group Holding Ltd (NYSE: BABA) and electric vehicle company Xpeng Motors (NYSE: XPEV) were also in Stake investors’ ‘top 5’ shares.

Why China? Well, according to the AFR article, investors are likely to be “reacting positively to a potential end to the so-called trade war and the Trump administration’s tough stance on China.”

Stake investors were also giving the green light to cannabis stocks. Canadian marijuana company Aurora Cannabis Inc (NYSE: ACB) was reportedly the second-most popular share on Stake in the wake of Biden’s win, after multiple US states also legalised recreational cannabis in last week’s elections. According to the AFR article, Biden’s attitude towards the sector is also much more lenient than Trump’s.

It will be interesting to see whether these trends hold up over the coming weeks and months, or if this surge in interest in cannabis and Chinese companies is more of a flash in the pan.

More reading

• Why the Aristocrat (ASX:ALL) share price could jump next week
• The Hipages (ASX:HPG) share price jumped 16% after its IPO
• ASX 200 down 0.1%: Xero hits record high, Telstra and Wesfarmers updates impress
• Best and worst ASX retail stocks to own in the COVID recovery
• The Soul Patts (ASX:SOL) share price just hit a 52-week high

Sebastian Bowen owns shares of Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alibaba Group Holding Ltd. and Tesla. 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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Even as the market seems to be losing its puff, the Aristocrat Leisure Limited (ASX: ALL) share price could be poised to rally next week.

The S&P/ASX 200 Index (Index:^AXJO) gave up morning gains and slipped 0.2% during lunch time trade.

The benchmark is up by nearly 9% since the start of the month thanks to news of a potential COVID‐19 vaccine and a Joe Biden US presidency.

Is a market correction looming?

But some experts believe the bounce is an overreaction. The vaccine candidate from Pfizer, as promising as it is, still has some ways to go before it’s available to the general public.

President-elect Biden is also going to face an uphill battle to control the pandemic and execute on his economic agenda.

While experts will continue to debate whether the golden run for COVID beneficiaries like the Afterpay Ltd (ASX: APT) share price and Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price is coming to an end, the stock investors should be watching is Aristocrat.

Why the Aristocrat share price can outperform

The gaming machine maker is set to report its full year results next Wednesday. And if brokers are right, the Aristocrat share price could be set to rally further.

Morgans believes the group’s outlook will give investors something to celebrate over and it reiterated its “add” recommendation on Aristocrat.

“The company’s 2H20 result will have been heavily impacted by COVID-19 but we expect ALL to exit the current environment in a stronger position than competitors,” said Morgans.

“And given an expected sharp deleveraging over the next few years, we see scope for further debt funded acquisitions.”

Is Aristocrat’s weakest business set to recover?

Social distancing and lockdowns to control the spread of COVID have impacted on casinos and gaming venues. These are customers of Aristocrat.

Even then, there are reasons to be optimistic. UBS noted that Aristocrat contributes 28% of net win for casino-owned games despite still having fewer machines than its rivals on the floor.

While that’s encouraging news, make no mistake that Aristocrat’s digital division is really the growth engine for the group.

Digital is the real driver for the ALL share price

“One key positive for the group to come out of COVID-19 has been the significant lift in demand for digital games,” added the Morgans.

“We expect ALL’s digital division to report ~24% (USD) revenue growth in FY20.”

UBS is also optimistic about digital gaming. It estimated that the industry grew by over 30% in the past month.

Why the Aristocrat share price is a “buy”

“For Aristocrat specifically, the digital division appears to be broadly holding share and we feel confident around the 1H21 consensus forecast for +16% growth,” said UBS.

“Looking at individual title performance, Evermerge is now Aristocrat’s second largest social gaming title (behind RAID) and continues to ramp.”

With digital powering ahead and land-based gaming turning the corner, now’s the time to be buying the stock. UBS’s rates the ALL share price as a “buy” with a price target of $34.25 a share.

Morgan’s target on the Aristocrat share price is $36.78 a share.

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Motley Fool contributor BrenLau owns shares of Aristocrat Leisure Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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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