The Sandfire Resources Ltd (ASX: SFR) share price has dropped 9% this morning to $4.04 before recovering slightly to $4.08 at the time of writing. This came as the copper producer denied media speculation that China is set to ban Australian copper imports.

What did the company say?

Sandfire Resources said it was aware of reports in the international media that China was seeking to impose a ban on imports of Australian copper. Questioning the reliability of the media reports, Sandfire Resources said it was in contact with key customers and was not aware of any reason for a ban. 

The company also stated it was confident that it could increase sales to existing and new customers in non-Chinese markets if required. According to Sandfire, global copper concentrate markets for high quality copper concentrate were highly competitive.

The company advised its Degrussa operations have remained in full production in the December quarter. It will maintain its production guidance for the 2021 financial year of 67,000–70,000 tonnes of copper and 36,000–40,000 ounces of gold.

Sandfire settles lawsuit

Sandfire Resources also announced this morning that it had settled its legal claim against Adriatic Metals PLC (ASX: ADT). The company previously brought a claim against Adriatic Metals in July over dilution of its shareholding in the company. Sandfire Resources argued that Adriatic Metals had failed to adhere to its anti-dilution right set out in the collaboration and strategic partnership deed agreed to by the 2 companies. 

According to the announcement, the case was finalised with an agreement that Sandfire Resources would be allowed to purchase 4,830,156 Chess depository interests in Adriatic Metals for $1.79 per share. Shares in Adriatic Metals were last trading for $2.28 at the time of writing. 

About the Sandfire Resources share price

Sandfire Resources is a minerals exploration and production company with assets in Australia, the United States and Africa. Sandfire Resources has been listed on the ASX since 2004. 

Earlier in October, Sandfire Resources announced that it had acquired an 85% interest in the Red Bore copper project. The project is adjacent to the company’s existing DeGrussa Copper-Gold asset in Western Australia.

In the quarter to 30 September 2020, Sandfire Resources had record copper production of 19,400 tonnes and gold production of 11,683 ounces. C1 cash costs in the September quarter were 53 cents per pound. 

The Sandfire Resources share price is up 48.36% since its 52-week low of $2.75. However, it is down 30.85% since the beginning of the year. The Sandfire Resources share price is down 31.66% since this time last year.

More reading

• Why the OZ Minerals (ASX:OZL) share price hit a 10-year high today

Motley Fool contributor Chris Chitty 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 may have been high growth tech stocks that have dominated in 2020, but the latest ASX “buy” idea from a leading broker may be what’s needed for 2021.

The fact is, the price-earnings (P/E) expansion trade may have largely run its course and yield could be the soup du jour for the new year.

New ASX winners for 2021?

It was the collapsing interest rates and liquidity pump from global central banks that fuelled the P/E expansion trade.

But rates are approaching the lows in the cycle. And while we could still see more stimulus injected into the global economy, I suspect high yield stocks won’t be playing second fiddle for much longer.

If this comes to pass, Macquarie Group Ltd’s (ASX: MQG) latest “buy” pick will be even better placed to outperform the S&P/ASX 200 Index (Index:^AXJO) over the next 12-months

Deterra share price is the latest buy idea from Macquarie

The broker initiated coverage on the Deterra Royalties Ltd (ASX: DRR) share price with an “outperform” recommendation today.

“The stock offers the unique combination of lower sensitivity to iron ore price movements than its peers and a strong production growth outlook, with volumes expected to increase 2.5-fold over the next three years,” said Macquarie.

“Our positive view on DRR is underpinned by the company’s firm dividend policy of 100% earnings payout, with dividends expected to be fully franked.”

Rivers of gold in iron ore

Deterra is paid royalties from BHP Group Ltd’s (ASX: BHP) South Flank project. While Deterra is only expected to pay a modest dividend this calendar year, this is expected to ramp up over the next few years as South Flank reaches full production.

Macquarie is forecasting dividends to total 13 cents a share in FY21, 22 cents in FY22 and 26 cents the year after.

This means the DRR share price could be yielding 6.5% in FY23, or around 9.3% if franking is included.

Why Deterra could be a 10% yield stock

But Macquarie’s estimates may prove to be too conservative if the iron ore price holds around current levels for the next few years.

“Buoyant iron-ore prices underpin strong earnings upgrade momentum for DRR,” explained the broker.

“At spot prices DRR’s dividend yield rises to 4% for CY21, 8% in CY22 and ~9-10% for CY23 and beyond.”

High-yield in a low rate environment

These estimates do not include franking, so investors who qualify for the tax refund will be laughing to the bank.

While the growth rate in fiscal and monetary stimulus may have peaked, ultra-low interest rates are likely to stay for a few years, at least.

I think high-yield stocks will experience strong demand for the foreseeable period.

More reading

• How to prepare your portfolio for economic recovery
• 5 things to watch on the ASX 200 on Tuesday
• What is the best US election outcome for ASX shares?
• Westpac (ASX:WBC) reports FY20 result, ASX 200 up 0.4% today
• Why the CSR (ASX:CSR) share price is climbing today

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Deterra Royalties Ltd. Connect with me on Twitter @brenlau.

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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October proved to be a volatile month for the S&P/ASX 200 Index (ASX: XJO) and All Ordinaries Index (ASX: XAO) with both indices giving up most of their gains. Many ASX 200 tech shares, however, were able to outperform the market, partly due to positive quarterly business updates. Here are some of the top ASX 200 tech share performers in October. 

Audinate Group Ltd (ASX: AD8)

The Audinate share price is eyeing its pre-COVID levels following the company’s capital raising in July and positive October AGM. Audinate believes it is driving transformation in the audio visual industry as networked digital connectivity is replacing traditional, point-to-point analogue cabling and software-based systems are replacing hardware systems. Audinate values the digital media networking market at more than $1 billion in size and reports its products as having more than eight times the adoption rate of their closest competitors. 

Audinate’s presentation provided the market with a much needed 1Q21 trading update. Its revenue chart points to a gradual recovery with August-September revenues returning to pre-COVID levels. The company’s unaudited revenue for 1Q21 amounted to USD$5.2 million and unaudited earnings before interest, tax, depreciation and amortisation (EBITDA) of AUD$0.3 million. With the business largely getting back on track, the Audinate share price delivered an almost 24% return in October. 

Praemium Ltd (ASX: PPS) 

Praemium was a standout ASX 200 tech share performer after the company’s strong quarterly update saw its share price surge more than 22% in October. The quarterly highlighted a surge in Praemium’s Australian platform funds under management (FUA) to $15 billion with the inclusion of its Powerwrap acquisition. Also reported was a record FUA level of $3.5 billion for its international platform following an increase of 7% over the quarter as well as FUA for its Virtual Managed Accounts of $12.8 billion, an increase of 12% for the quarter. 

The market was pleased with the company’s results and continued investment into platform enhancements. However, as the ASX 200 started to give back its gains in the latter half of October, so did the Praemium share price. Praemium finished October with a return of around 22% from a peak of almost 40%. 

Afterpay Ltd (ASX: APT)

The Afterpay share price is the gift that keeps on giving, delivering a 20.88% return in October. The company announced a first of its kind partnership with Westpac Banking Corp (ASX: WBC) to offer savings accounts and cash flow tools to customers. This is another milestone in building out Afterpay’s financial service ecosystem and potentially taps into Westpac’s rich customer data.

Afterpay also announced its highly anticipated quarterly update. Many big brokers were impressed with its figures and business updates. Macquarie Group Ltd (ASX: MQG) raised its Afterpay share price target from $90.00 to $97.50 and Morgan Stanley (NYSE: MS) retained its overweight rating and price target of $115. 

More reading

• Glory days of ASX bank shares are gone: fundie
• What to expect from the NAB (ASX:NAB) FY 2020 result
• 5 things to watch on the ASX 200 on Tuesday
• 2 exciting small cap ASX shares that should be on your watchlist
• Westpac (ASX:WBC) reports FY20 result, ASX 200 up 0.4% today

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO and Praemium Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended AUDINATEGL FPO and Praemium 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 Senex Energy Ltd (ASX: SXY) share price is soaring higher today following the announcement the company has sold its Cooper Basin business.

At the time of writing, shares in the Australian oil and gas exploration company are up 7.02% to 30.5 cents.

Cooper Basin sale

Senex advised that it has entered a binding agreement with Beach Energy Ltd (ASX: BPT) to sell its South Australian Cooper Basin assets.

The sale will result in Senex’s exit from Cooper Basin after operating there for more than 20 years. Proceeds of the sale will be used to support its plans to accelerate the development of its Surat Basin natural gas assets. This will allow the steady flow of increasing the natural gas supply to the east coast of Australia.

Senex has so far invested more than $400 million in its Surat Basin project, to which the sale will strengthen its balance sheet. A proforma net cash position of roughly $30 million is forecast.

The company said that it was well-positioned to grow shareholder value through its Surat Basin production due to its expansion opportunities, capital management initiatives and strong cash flow generation.

The agreed sale amount of $87.5 million is expected to be completed by early 2021. Senex will provide an updated FY21 guidance and outlook at its scheduled investor briefing on November 5.

What did management say?

Commenting on the milestone agreement, Senex managing director and CEO Ian Davies said:

The sale of our Cooper Basin assets will strengthen Senex’s balance sheet to accelerate the development of our material Surat Basin natural gas asset position.

Senex is uniquely positioned to increase supply of affordable natural gas to the domestic market. Our hub-and-spoke infrastructure operating model is established in the Surat Basin, and we have a diverse portfolio of low-risk, high-return investment opportunities to pursue from our extensive gas reserves position.

The sale of our Cooper Basin assets follows a deliberate and considered strategic review of Senex’s asset portfolio. Beach’s existing operations and experience in the Cooper Basin, including as joint venture partner in our western flank oil assets, means it is ideally placed to acquire these assets and ensure a smooth transition and ongoing stewardship, as well as providing a number of ongoing employment opportunities.

More reading

• Leading brokers reiterate buy rating on this ASX healthcare share
• Why the Brambles (ASX:BXB) share price is surging higher today
• Vortiv (ASX:VOR) share price up 6% on quarterly update
• How to prepare your portfolio for economic recovery
• 3 100% franked ASX dividend shares going ex-dividend in November

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 Ansell Limited (ASX: ANN) share price has received a series of big broker share price updates following its trading update. Ansell has been a standout performer among ASX200 healthcare shares given its market leading position within the personal protective equipment sector. 

Ansell’s trading update 

Ansell provided a trading update ahead of its 2020 AGM that should take place this week. The update upgraded its guidance for FY21, with the company experiencing continued strength in its business despite the continued uncertainties arising from COVID-19.

The update highlighted better than anticipated production volumes and sales across all five of its strategic business units, supplier cost increases being successfully managed, capex investments including capacity increases progressing to plan and more favourable exchange rates. Based on these developments, the company is now expecting organic growth to be in double digits and earnings per share (EPS) to be in the range of 135 to 145 cents (up from previous guidance of 126 to 138 cents). 

From an earlier capital markets presentation on 15 October, Ansell highlighted that global demand for exam and single use products had tripled. This was driven by healthcare, frontline workers and new hygiene protocols in other industries. It cited an estimated 370 billion gloves were currently produced annually, However, an estimated 585 billion gloves were needed, resulting in capacity increases taking place. 

Big broker upgrades 

Ansell was previously an underperforming ASX200 healthcare share that delivered minimal shareholder return throughout 2015 to 2020. COVID-19 has been a huge turning point for the business’ growth trajectory.

Ansell has since received a series of broker upgrades as of Monday.

Citi retained its buy rating and a price target of $41.00. It was pleased with the better guidance on earnings and that company costs are under control. 

Credit Suisse raised its Ansell share price target from $43.00 to $45.00 and retains an outperform rating. It reacted positively to the FY21 upgrade, and upgrades expected earnings by 7% for FY21. 

Morgan Stanley retained an overweight rating and price target of $43.50. It notes solid progress on Ansell’s costs despite increasing manufacturing capacity. 

Finally, UBS raised its Ansell share price target from $39.00 to $41.75 and retains a neutral rating. It was pleased with the company’s increased operational efficiencies, organic growth and growth potential. However, it is cautious at its current valuation. 

More reading

• 6 major events for ASX shares this week
• Here’s why the Ansell (ASX:ANN) share price hit a record high today

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ansell Ltd. 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 Brambles Limited (ASX: BXB) share price is surging higher today following the release of its quarterly update for FY21.

At the time of writing, shares in the supply-chain logistics company are up 6.2% to $10.15.

Let’s see what Brambles recorded for the three months.

Trading update

For the period ending September 30, Brambles reported a solid growth, underpinned by increased sales, particularly in the Americas market.

Revenue grew to US$1.18 billion, representing a 6% gain on the same FX rates over the prior corresponding period. This was underpinned by a 5% uplift in group sales which was driven by customer demand and ongoing price realisation.

Overall demand for pallets in grocery supply chains such as such as beverages, cleaning products and home DIY remained strong. Retailers have increased inventory levels in preparation of the holiday season and potential COVID-19 second-wave lockdown.

Further weighing down the positive results, its automotive and Kegstar businesses declined by 20% in revenue. As expected, the pandemic severely impacted the automotive industry and out-of-home consumption on beer.

Management commentary

Commenting on the update, Brambles CEO Graham Chipchase said:

Trading conditions in the first quarter were characterised by stronger than expected demand for consumer staples. Our teams continue to show resilience and dedication, overcoming challenges to successfully provide customers with uninterrupted supply of pallets, crates and containers.

Mr Chipchase said demand patterns were constantly changing, thus elevating business costs. In addition, labour shortages, lack of third-party transport and strong demand in the United States lumber market resulted in inflationary cost pressures.

However, he said the rising costs were offset by higher pricing and surcharges:

Our teams continue to focus on the delivery of strategic supply chain initiatives such as the US automation programme and further productivity improvements across our operations to offset higher operating costs in this environment with the clear aim of delivering operating leverage in this financial year.

What’s ahead for the Brambles share price?

Brambles updated its FY21 outlook to reflect the sales and cash flow performance achieved for the first quarter. The company narrowed its guidance within the upper end considering the ongoing economic, operating and COVID-19 developments.

For the remaining financial year, Brambles is forecasting sales revenue growth between 2% and 4% at constant FX rates.

Underlying profit is predicted to improve within 3% and 5%, and free cash flow is expected to fund business expenditure.

Brambles reported that its dividend pay-out ratio would be consistent with its policy of 45% to 60% for FY21.

In addition, the company will look to continue its share buy-back program subject to funding and liquidity requirements.

Brambles anticipates a U-shaped economic recovery, with headwinds to persist for the duration of FY21. Furthermore, the company is calculating a progressive turn-around in its automotive and Kegstar business over the next 12 to 18 months.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 5 things to watch on the ASX 200 next week

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 Vortiv Ltd (ASX: VOR) share price is on the rise this morning after the company announced its quarterly update for September. At the time of writing, the Vortiv share price is trading 6.25% higher at 17 cents. Shares in Vortiv have enjoyed a positive year so far, however the financial services provider has been on a sharp downward trend in recent months.

What Vortiv does

Vortiv is a technology company involved in IT management services. Currently, it owns Cloudten Industries and Decipher Works which provide IT and cyber security services for many large firms in Australia. Although this situation looks set to change as discussed further below.

The company also holds a 24.89% interest in TSI India. This is a company that provides solutions in the payments, electronic surveillance and managed services spaces. TSI India owns and manages around 14,000 ATMs in India.

What’s moving the Vortiv share price?

Investors are today driving the Vortiv share price higher after the company announced it has achieved its targeted financial results for the quarter. In doing so, Vortiv achieved revenue of $3.2 million, which was up 45% compared to the prior corresponding period. This result was on the upper end of the company’s expectations.

Furthermore, Vortiv’s earnings before interest and tax (EBIT) came in at $0.43 million. This represented the seventh straight quarter that the company has been EBIT positive.

In terms of new business opportunities, Vortiv announced it had won approximately $2.9 million during the quarter. This included contracts with existing and new clients.

Sale of cybersecurity business

It was recently announced that Vortiv is planning to sell its cybersecurity businesses (Cloudten and Decipher) for a cash consideration of $25 million. The proposed transaction is subject to shareholder approval, but with the board’s backing, the transaction is expected to be completed in December.

In addition, the company is finalising the application for a proposed buyback to return approximately $20 million to shareholders. After the sale, Vortiv intends to remain an ASX listed company with interest in TSI India.

More reading

• How to prepare your portfolio for economic recovery
• 3 100% franked ASX dividend shares going ex-dividend in November
• Better buy: Zoom Video Communications vs. Alphabet
• Bigtincan (ASX:BTH) share price on watch after new contract win
• Why the Webjet (ASX:WEB) share price tumbled 12% lower in October

Motley Fool contributor Daniel Ewing 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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So we’re in the midst of a COVID-19 recession.

Millions have lost their jobs and interest rates are virtually at zero. Many others only have employment because of unprecedented government support.

This is a stark contrast to the 10-year run of good times investors had between the global financial crisis and the coronavirus.

But eventually the economy will recover. Bad times don’t last forever, just as good times don’t.

“We are only months into the start of a new economic cycle and it indicates a period of opportunity to get positioned for years of economic growth ahead,” said Citi Australia chief investment strategist Simson Sanaphay.

“However, it did not start with a typical euphoric end to a boom/bust cycle. This time round, we started with a pandemic and unprecedented government and central bank stimulus. We are not in ordinary times.”

So how do investors prepare their portfolios to take advantage of the recovery?

A recession like no other

The current economic downturn is strange in that share markets have still gone gangbusters, thanks to the strength of growth stocks.

For example, the Nasdaq Composite Index (NASDAQ: .IXIC) is up almost 60% since the March trough, despite some corrections in the past few weeks.

Despite this, Citi has a mid-2021 target of 6,200 points for the S&P/ASX 200 Index (ASX: XJO), which is currently 6,019.6 points.

And Simson is expecting this climb to be driven by other shares, rather than already overvalued tech companies.

“We expect sector rotation from COVID-19 beneficiaries such as the tech and health sector to the cyclical sectors that includes resources and industrials, especially if there is firmer footing in a broad economic recovery.”

Even though value shares have lost a running battle against growth shares for more than a decade, Simson believes this is where the investment opportunity lies.

“We remind investors to remain open minded to adding cyclical and value-driven stocks to their portfolio, particularly if they are under-allocated to equities after selling down their portfolios in response to the chaos caused by the virus.”

Betashares senior investment specialist Cameron Gleeson shared that sentiment in an interview with The Motley Fool earlier this year.

“If the global economy shifts to a reflationary environment it is broadly expected that value will outperform and growth will lag.”

While interest rate increases might be on ice for the next couple of years, from a base of zero or negative there is only one direction they can go in the long term.

“Expectations of increasing inflation and re-opening of economies may be triggered by the announcement of an effective COVID-19 vaccine, for example,” Gleeson said.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• What is the best US election outcome for ASX shares?
• Westpac (ASX:WBC) reports FY20 result, ASX 200 up 0.4% today
• Why the CSR (ASX:CSR) share price is climbing today
• Top brokers just upgraded the ResMed (ASX:RMD) share price and this other ASX stock

Motley Fool contributor Tony Yoo 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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Every month, there are shares going ex-dividend which are worth reviewing and thinking about. In November, 3 companies are going ex-dividend with reasonable yields for this one payout alone. Not only that, but the 3 ASX dividend shares are all 100% franked. Meaning the tax on them has already been paid. Let’s take a look.

ASX dividends in mining

Rand Mining Ltd (ASX: RND) is a multi operation gold mining company in Western Australia. The company specialises in gold exploration and development. Nonetheless, it also owns 12.25% of the East Kanowna Joint Venture with other ASX shares Northern Star Resources Ltd (ASX: NST) and Tribune Resources Ltd (ASX: TBR). During the first quarter FY21, Rand received 4,687 oz of gold as part of this deal.

The company is paying an ASX dividend of 10 cents, which at today’s price is a dividend yield of 4.22% for this payment alone. Rand goes ex-dividend on 11 November. Grossed up, including the tax already paid, this ASX dividend would be 13 cents, or a yield of 5.4%.

Investment company

WAM Capital Limited (ASX: WAM) is an investment company paying a final ASX dividend of 7.8 cents. On today’s price that is a yield of 3.43% for this payment only. At the time of writing, the company has a trailing 12 month dividend yield of 6.86%. WAM is currently involved in two hostile takeovers on the ASX. The first involves the Concentrated Leaders Fund Ltd (ASX: CLF) of which WAM now holds 24.63%. The second is the Contango Income Generator Ltd (ASX: CIE), of which WAM now owns 38.22%. 

These two issues are still playing out. However, the company indisputably has a majority controlling interest in the Contago Income Generator at least. WAM Capital goes ex-dividend on 27 November. Grossed up, this ASX dividend would be worth 10.1 cents, or 4.47%.

ASX manufacturing

Joyce Corporation Ltd (ASX: JYC) recently increased its dividend from 2.7 cents to 5 cents per share, increased on 30 October. This has been attributed to the success of cash management initiatives. The company increased its annual revenues by 4% and partner sales by 10.1%. This has led to an increase in earnings per share (EPS) of 35%. In fact, the company closed the year out with 52.6% more cash.

The house furnishings company owns brands like Bedshed and Kitchen Connection. Through FY20, the company has focused on increasing efficiency. Specifically through portfolio rationalisation, process improvement, and systems improvement.

Joyce is paying a dividend of 5 cents per share, which is a yield on this payment alone of 3.23%. Grossed up, this ASX dividend would be worth 4.19%. 

More reading

• Takeovers will continue to rock ASX shares
• Virtual AGMs rob retail investors: fundie
• New WAM Alternative Assets LIC appoints portfolio manager

Motley Fool contributor Daryl Mather 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.

Zoom Video Communications‘ (NASDAQ: ZM) stock soared about 660% this year as the COVID-19 crisis brought millions of new users to its video conferencing platform. Just as Google became a verb for online searches, Zoom became synonymous with video calls.

Meanwhile, shares of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), the parent company of Google, rose just over 10% this year as companies purchased fewer ads during the coronavirus pandemic.

Zoom had a great run, but will it continue to outperform Alphabet over the coming year? Let’s dig deeper into both companies to find out.

Zoom: Breakneck growth with a cloudy future

Zoom operates a “freemium” business model, in which free users can upgrade to paid tiers to remove time limits, host more people per meeting, gain cloud storage tools, and unlock other perks.

Zoom’s revenue rose by 88% in fiscal 2020, which ended in January, and its adjusted earnings per share (EPS) soared 483%. But in the first half of fiscal 2021, its revenue jumped 270% year-over-year as more people used Zoom for remote work, online education, and staying in touch with friends and family members.

That triple-digit revenue growth easily outpaced its operating expenses, and its adjusted EPS grew tenfold. Zoom expects its full-year revenue to rise 281%-284% as its adjusted earnings rise sevenfold. After that growth spurt, analysts expect Zoom’s revenue and earnings to rise 31% and 15%, respectively, next year.

Those growth rates are impressive, but Zoom faces three main challenges. First, a growing number of competitors – including Cisco‘s Webex, Google Meet, and Facebook‘s Messenger Rooms – could pull users away from Zoom. These larger competitors can all afford to undercut Zoom’s prices, or even offer the same services for free.

Second, Zoom struggled with several security and privacy debacles over the past year. It’s resolved most of those issues, but future blunders could tarnish its brand and benefit its competitors.

Lastly, it’s unclear if Zoom’s usage rates will remain stable after the pandemic passes, or if they’ll fall off a cliff after people return to work and school. This makes it difficult to tell if Zoom’s frothy forward price-to-earnings (P/E) ratio of 159 is sustainable.

Alphabet: A temporary slump with a clearer future

Alphabet’s revenue rose 18% last year as its earnings grew 12%. But in the first half of 2020, its revenue only rose 6% year-over-year and its earnings declined 16%.

That slowdown was caused by Google’s sluggish ad sales, which grew less than 1% year-over-year in the first half of the year but still accounted for 80% of Alphabet’s overall revenue. The loss of that higher-margin revenue, along with the growth of lower-margin segments like YouTube and Google Cloud, reduced Alphabet’s margins and profits.

Analysts expect Alphabet’s revenue to rise 7% this year, but for that margin pressure to reduce its earnings by 9%. But looking further ahead, they expect its revenue and earnings to grow 21% and 27% respectively, as the pandemic passes and ad purchases accelerate again.

That outlook seems clearer than Zoom’s, but Alphabet also faces three main challenges. First, it faces several antitrust probes across the world, which could result in hefty fines and throttle its ability to expand its search, advertising, and mobile ecosystems.

Second, Google still faces intense competition in the advertising market from Facebook, which leads the social media market, and Amazon.com, which is turning its e-commerce marketplaces into advertising platforms. Google has repeatedly failed to crack both the social media and e-commerce markets.

Lastly, Google controlled just 6% of the cloud infrastructure market in the second quarter of 2020, according to Canalys, putting it in a distant third place behind Amazon Web Services (AWS) and Microsoft‘s Azure. To remain competitive, Google will likely need to ramp up its cloud spending – which could dent its margins.

Alphabet’s stock trades at a reasonable 27 times forward earnings, but it’s easy to see why the bulls didn’t love this stock as much as Zoom.

The verdict

Alphabet is still a sound long-term investment, but I believe Zoom will generate bigger gains over the following year for one simple reason: The COVID-19 pandemic is far from over, and a second wave of infections could shut down businesses and send people home again.

Therefore, Wall Street’s estimates could be too low for Zoom and too high for Alphabet, which will suffer slower ad growth if the pandemic worsens. Zoom’s premium valuation would be justified in this scenario, while Alphabet would deserve to trade at a much lower multiple.

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

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Leo Sun owns shares of Amazon, Cisco Systems, and Facebook. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, Microsoft, and Zoom Video Communications and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Zoom Video Communications. 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 Better buy: Zoom Video Communications vs. Alphabet 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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