National Australia Bank Ltd (ASX: NAB) is going to be fined another $15 million because of its referral program, according to reporting by the BusinessInsider. This adds further pain with the COVID-19 difficulties. 

NAB previously had an introducer referral program that rewarded people for referring potential customers. If the customer took out a loan then the referrer would get a commission.

The programme generated “a very large number of loans” worth billions of dollars. It operated from at least 2000.

The major bank admitted that it has engaged in conduct that broke the law 260 times. However, the judge said: “I have a nagging feeling of disquiet that the true picture of the extent of the problems with the programme has not been revealed because there was not a real regulatory desire to pursue a thorough investigation as to what in truth occurred.”

It was noted in the judgement that were no requirements for introducers to be from particular industries aligned with the provision of credit activities or to have any particular qualifications or training. There were no uniform processes for the on-boarding of introducers and this was generally done by the individual bankers or the national referral partners (NRPs) and no consequences for non-compliance. There was no formal training for frontline bankers regarding the programme including on what information the introducer could provide.

It was also noted by the judge that the investigation by ASIC was very limited “as to the true scope of what has occurred during the relevant period and the significant reliance by ASIC on the internal work done by NAB in its investigations (by its officers or by a professional services firm it had engaged) as to where the problems were located within NAB and what went wrong.”

The judge said the programmes at times resulted in the bank receiving information from documents about customers from financially interested third parties. At any one time there were at least hundreds of these untrained introducers. “What could possibly go wrong?” the judge said.

The royal commission has been painful for NAB

This is just the latest financial pain for NAB from the royal commission.

When NAB reported its FY19 result it said that its cash earnings included $1.1 billion of additional after-tax charges for customer-related remediation, and it had $2 billion of provisions. In the FY20 half-year result it recognised $400 million of customer-related remediation costs.

NAB has recognised that it had previously done the wrong thing. It said: “An important part of earning trust involves making things right for customers who have been treated poorly in the past…We also need to make sustainable change to avoid the mistakes of the past and get it right for customers every time.”

Reputations can be destroyed quickly in a process like the royal commission. Though it wasn’t just NAB that suffered severe economic pain. Many other financial businesses were dragged through the mud during the Hayne royal commission including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Suncorp Group Ltd (ASX: SUN) and Insurance Australia Group Ltd (ASX: IAG).

More reading

• Up 10% this month: Is the NAB (ASX:NAB) share price a buy?
• Are ANZ (ASX:ANZ) shares a buy for dividend income today?
• ASX 200 Weekly Wrap: Promises of easy money push ASX 200 to post-crash high
• ASX 200 flat: Rio Tinto Q3 update, big four banks higher, GUD impresses
• ASX 200 jumps more than 1%, big ASX banks rise

Motley Fool contributor Tristan Harrison 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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I’m someone who lives and breathes ASX shares, investing and using money to make more money. It’s hard to look at the kinds of returns the S&P/ASX 200 Index (ASX: XJO) has delivered for over 100 years to investors, and imagine not being part of this process. Especially in our modern era of near-zero interest rates. There are few things more depressing in today’s financial world than seeing your hard-earned savings sitting in the bank and losing value in real (inflation-adjusted) terms (in my view anyway).

The answer seems obvious: put your money in ASX shares (or any other growth asset) instead. And yet, for most Australians, the share market remains this mythical casino, where only the rich, the brave and the foolish (and not the ‘capital F’ type foolish) go to get their kicks. It can be frustrating to hear these misconceptions because they are very far from the truth.

How many Aussies invest in shares?

According to a report released by the ASX, and put together with data from the Australian Bureau of Statistics (ABS), there are roughly 19.4 million adults living in Australia today. Of those 19.4 million adults, 9 million are estimated by the ABS and the ASX to own some form of investment outside their super fund and the family home. Of those 9 million, 58% directly hold ASX shares or exchange-traded funds (ETFs).

That’s a lot of room to make up. So what do you say to someone who has never invested in ASX shares? Here are 3 things I would say…

3 things to convince someone to invest in ASX shares

Shares go up most of the time

It’s always the dramatic share market crashes that get the media attention. But the reality is that most years, the ASX 200 records a positive gain. Over the past 10 years (2010-2019), the ASX has given investors 8 years of positive returns and just 2 years when shares went backwards. In 5 out of the 10 years, the annual return was more than 10%, and 3 out of 10 delivered a return of more than 20%.

It’s easy if you want it to be

Many investors think shares are about stock picking and digging through company data. Whilst many of us do enjoy those things, index ETFs are an easy and almost effortless alternative that anyone who doesn’t want to devote any time to the share market can use. Just take the Vanguard Australian Shares Index ETF (ASX: VAS). This ETF tracks the largest 300 companies on the share market and essentially gives you an ‘average’ return of the whole thing. It’s easy, you only have to buy this one investment to benefit from the power of the share market. Now a fund like VAS won’t wake you rich overnight. But it has delivered an average return of 7.33% per annum over the past 5 years. That looks a lot better than 1% in a bank account.

Shares pay you back

When you buy ASX shares, many of them pay you just to hold them. I’m of course talking about dividends. Dividends are a cash payment that many companies pay their shareholders every 6 (sometimes 3 or 12) months. Not all ASX shares pay dividends, but most of the larger ones do. Let’s take Coles Group Ltd (ASX: COL) — a company we’d all probably be familiar with. On current prices, Coles shares are offering a dividend yield of 3.19%. This means that for each $100 you have invested in Coles shares, you can reasonably expect to be paid $3.19 every year. And that’s on top of any share price appreciation you might enjoy as well.

Foolish takeaway

It can be hard convincing your friends and family to invest in ASX shares. But I hope these 3 reasons to invest can help make a difference. Investing is about more than just making money, it’s about making the fruits of your labour work harder for you so you can live the life you want to. I think that’s something everyone deserves a shot at.

More reading

• ASX 200 down 0.2%: Afterpay rockets on Westpac deal, Zip climbs, BHP’s Q1 update
• ASX 200 shares are at a 100-day high. Is now the time to buy?
• Why the Silver Lake (ASX:SLR) share price is one to watch today
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 rises 1%, Cimic (ASX:CIM) up 8% on sale

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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In preparation for its annual general meeting (AGM) today, Tabcorp Holdings Limited (ASX: TAH) has released its first quarter results, FY21. Subsequently it has revealed a continuing downward trend in company revenue. In particular, a 6.9% reduction in lotteries versus the prior corresponding period, and a 55.2% reduction in gaming services pcp. The company’s wagering and media business, however, saw revenues increase by 2.9% pcp.

What went wrong in Q1 results?

Overall group revenue was down by 5.7% pcp in Q1 results. In lotteries, this was due to a series of strong jackpot sequences. For instance, Powerball jackpots of $110 million and $150 million.  In the gaming vertical, it is predominantly due to the closure of venues, in particular in Vitoria. However, in the wagering vertical, Tabcorp has seen increases due to major sports completing suspended seasons. 

This is a continuation of the poor performance seen for FY20 due largely to the impacts of COVID-19. In particular the Fy20 gaming business saw revenues drop by 42.5%, and wagering fell by 19.5% after major sports cancelled seasons. 

However, there were also several positive signs for the remainder of FY21. For instance, the integration of Tabcorp and Tatts is substantially complete. In addition, the company launched $5 million Saturdays from 10 October in an effort to smooth impacts from fewer large jackpots. Finally, the company is seeking to improve efficiency and productivity via a focus on digital for lotteries and wagering, a turnaround program in gaming, and a company wide optimisation program. 

Undeclared in the Q1 results is the windfall in the sale of the company’s 11.6% interest in Jumbo Interactive Ltd (ASX: JIN), for an approximate gross proceeds of $98 million. The company also recently undertook an equity capital raising with gross proceeds of approximately $600m. 

Tabcorp share price performance

The Tabcorp share price is down 25.5% in year to date trading. After today’s release of Q1 results it is trading slightly down by 0.1% at the time of writing. Nevertheless, it presently trades at a price to earnings (P/E) ratio of 24.85 and has a trailing 12-month dividend yield of 6.45%.

More reading

• Jumbo (ASX:JIN) share price on watch after Tabcorp (ASX:TAH) sells its stake
• 5 things to watch on the ASX 200 on Tuesday

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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At lunch on Tuesday the S&P/ASX 200 Index (ASX: XJO) is on course to record a small decline. The benchmark index is currently down 0.2% to 6,216.9 points.

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

Afterpay share price breaks $100 level on Westpac deal.

The Afterpay Ltd (ASX: APT) share price has surpassed the $100 market for the first time after announcing a partnership with banking giant Westpac Banking Corp (ASX: WBC). According to the release, Afterpay will provide Westpac transaction and savings accounts and other cashflow management tools to its 3.3 million customers in Australia from the second quarter of 2021. Management believes this has the potential to facilitate new revenue streams over time, without needing to develop traditional banking or credit products. The new money management services will be provided by Westpac’s new digital bank-as-a-service platform.

Zip share price higher on Tap & Zip news.

Afterpay isn’t the only buy now pay later provider making the headlines on Tuesday. The Zip Co Ltd (ASX: Z1P) share price is pushing higher today following the announcement of its Tap & Zip product this morning. Zip’s new product allows its customers to make purchases in store anywhere that accepts contactless Visa payments. With just 13% of stores in Australia accepting buy now pay later options, management feels this gives it access to a large untapped market.

BHP quarterly update.

The BHP Group Ltd (ASX: BHP) share price is trading lower following the release of its first quarter update. For the three months ended 30 September, the mining giant recorded iron ore production of 66.04 Mt. This was a 1% quarter on quarter decline, but up 7% on the prior corresponding period. Looking ahead, all production and unit cost guidance remains unchanged for the 2021 financial year. This excludes guidance for Cerrejón production, which is under review due to an ongoing strike.

Best and worst ASX 200 performers.

The best performer on the ASX 200 on Tuesday is the Afterpay share price with a gain of 7.5%. Investors have responded very positively to its partnership with Westpac. The worst performer has been the IDP Education Ltd (ASX: IEL) share price with a 5% decline. This follows the release of its annual general meeting update today.

More reading

• 3 ASX 200 shares hit with broker downgrades
• Why Afterpay, Cochlear, Dicker Data, & Zip shares are charging higher today
• How to tell if an ASX share is a bargain or a dog
• Zip (ASX:Z1P) share price defies broader market-sell off. Here’s why
• IDP Education Ltd (ASX: IEL) share price weakens after AGM

James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Idp Education Pty Ltd and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) has been grinding higher recently and managed to reach a new, 7-month high last week. However, some popular ASX 200 shares are not getting the institutional love they want and have been hit with broker downgrades. 

ASX 200 shares hit with downgrades 

1. Woodside Petroleum Limited (ASX: WPL) 

Credit Suisse has lowered the Woodside Petroleum share price target from $25.20 to $24.70 but retains an outperform rating. The broker believes its capex and funding issues are not as imbalanced as the market is expecting.

This follows the recent stability in oil prices to around US$40 per barrel. However, a number of uncertainties continue to put downward pressure on the oil price. These include uncertainty surrounding when an effective COVID-19 vaccine will be available, whether consumer behaviour has changed for good regarding working from home, and the future policies of the OPEC group.

2. Zip Co Ltd (ASX: Z1P) 

Citigroup has lowered the Zip share price target from $6.70 to $6.55 which represents an approximate 10% discount to today’s price (at the time of writing). Citi also retains its sell rating. The broker is impressed with Zip’s recent trading update showing strong growth in merchant sales volumes and subscribers. However, it can’t ignore the downside risks due to increasing competition. 

This follows the 30% increase in the Zip share price in October leading up to the company’s Q1 update. The record Q1 metrics failed to impress the market and the Zip share price was consequently sold off. Buy now, pay later (BNPL) shares appear to be in a constant cycle of ‘buy the rumour and sell the news’. 

Contrary to this statement, today, Zip announced a new product feature that allows Zip Pay users to shop anywhere that accepts Visa. Its share price has pushed up 1.67% to $7.29 at the time of writing. 

3. Rio Tinto Limited (ASX: RIO) 

Macquarie Group Ltd (ASX: MQG) has lowered its Rio Tinto share price target from $112 to $111. The group has retained its outperform rating but downgraded its forecast earnings by around 2% on the back of Rio’s September production report. 

Iron ore prices recently hit a 6-year high of US$123 per tonne. This has been driven by China’s significant infrastructure stimulus to boost the country’s economic growth. China’s demand side consumption combined with supply side challenges from leading iron ore producing countries such as Brazil and India have buoyed commodity prices. 

More reading

• ASX 200 down 0.2%: Afterpay rockets on Westpac deal, Zip climbs, BHP’s Q1 update
• Why Afterpay, Cochlear, Dicker Data, & Zip shares are charging higher today
• Zip (ASX:Z1P) share price defies broader market-sell off. Here’s why
• 5 things to watch on the ASX 200 on Tuesday
• Looking to invest in non-bank lending ASX shares?

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 ZIPCOLTD FPO. 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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) has bounced back from an early decline and is edging ever so slightly higher. At the time of writing, the benchmark index is up at 6,229.8 points.

Four shares climbing more than most today are listed below. Here’s why they are charging higher:

Afterpay Ltd (ASX: APT)

The Afterpay share price is up 5% to $102.42 after announcing a partnership with Westpac Banking Corp (ASX: WBC). This partnership will allow Afterpay to provide Westpac transaction and savings accounts and other cashflow management tools to its 3.3 million customers in Australia from the second quarter of 2021. The company notes that the arrangement has the potential to facilitate new revenue streams over time, without needing to develop traditional banking or credit products.

Cochlear Limited (ASX: COH)

The Cochlear share price has climbed almost 2.5% to $222.83. This follows the release of a first quarter update this morning. That update revealed that the hearing solutions company’s sales have been recovering in FY 2021. For the three months ended 30 September, Cochlear advised that its cochlear implant revenue was 94% of what it achieved a year earlier in constant currency terms.

Dicker Data Ltd (ASX: DDR)

The Dicker Data share price has charged 4% higher to $9.42. Investors have been buying the computer hardware and software distributor’s shares since the release of its third quarter update. For the nine months to 30 September, Dicker Data delivered net profit before tax growth of 28.3% to $60.8 million.

Zip Co Ltd (ASX: Z1P)

The Zip Co share price is up 2% to $7.32. This follows the announcement of its Tap & Zip product this morning. This product allows Zip customers to make purchases anywhere accepting Visa. It notes that just 13% of stores in Australia accept buy now, pay later options. The company feels this gives it a large untapped market opportunity.

More reading

• How to tell if an ASX share is a bargain or a dog
• Zip (ASX:Z1P) share price defies broader market-sell off. Here’s why
• Cochlear (ASX:COH) share price pushes higher on Q1 update
• 5 ASX shares hitting record all-time highs this week
• Afterpay (ASX:APT) share price on watch after announcing Westpac (ASX:WBC) partnership

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 Cochlear Ltd. and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Cochlear 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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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.

Although Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google is primarily a digital company with a minimal physical footprint, it is still negatively affected by the coronavirus pandemic. That’s because many of the businesses that use its platforms for advertising are enterprises that rely on people to leave their homes to consume their products or services. 

Further, some companies in the leisure and hospitality areas are not permitted to reopen to the public. It follows then that such companies would have little need to advertise and, in fact, may need to shut off ad spending completely to conserve cash. That being said, people are spending more time at home and, as a result, more time on their computers or mobile devices conducting searches on Google or watching videos on YouTube. 

Those forces will be on display when Alphabet reports its third quarter results on Oct 29. Here are three critical factors to watch.

Alphabet is searching for an increase in revenue as businesses reopen 

First, you will want to look at the reported revenue growth. In the most recent quarter, revenue decreased by 2%. Even though there was more engagement with its services, the price of the services decreased. Investors will want to know what portion of overall revenue came from its lucrative Google Cloud business. That’s because it’s one of the more profitable areas of the company. An increase in the portion of revenue coming from Google Cloud is more likely to increase profits. 

Speaking of profits, that’s the next important factor shareholders will want to look at in the report. In the most recent quarter, the company’s operating margin decreased to 17% from 24% in the year prior. 

Lastly, those interested in Alphabet will want to observe how many shares of its stock the company purchased in the quarter. The board recently authorized an additional $28 billion of share repurchases, and the company still had $5.4 billion remaining from an existing program. Alphabet has one of the highest quality balance sheets with $121 billion in cash and marketable securities and only $4 billion in long-term debt as of June 30.

What this means for investors

The worst of the pandemic may be behind Alphabet as cities, states, and countries continue to allow more businesses to reopen. Those companies will need to get the word out that they are open and are likely to use Alphabet’s platforms. 

The consensus revenue forecast among analysts on Wall Street is for $42.7 billion in the quarter and earnings per share of $11.09. The tech stock is up about 16% year to date and could have more room to run up if it reports better than expected results on Oct 29.

Additionally, if the stock drops after the report, Alphabet may use that as an opportunity to accelerate share buybacks.

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

More reading

• 3 ASX tech shares that pay dividends
• Is Alphabet thinking of its ‘other bets’ all wrong?
• How to position yourself for the next big surge in technology shares
• Is the Nearmap share price a buy after the tech sell-off?
• Will ASX media stocks get a $1.4 bn Google boost?

Parkev Tatevosian owns shares of Alphabet (C shares). Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

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The phrase ‘cheap ASX shares’ will probably have a similar reaction among the ASX investor community as Pavlov ringing the dinner bell. But if I instead said ‘beaten down ASX shares’, I’m sure the reaction wouldn’t be as enthusiastic. Yet they are 2 sides of the same coin. It’s a dilemma well worth exploring today: how to tell if an ASX share is cheap, or worthless.

Since the dramatic share market crash we saw back in March, much has been made of the recovery trajectories of a number of ASX shares. Take Afterpay Ltd (ASX: APT) for example. Its share price touched $8.01 on 23 March. And yet today, Afterpay has stormed past the $100 a share mark, trading 4.95% up at $102.37 at the time of writing. Investors who bit the bullet and ‘bet big’ on Afterpay on 23 March would be enjoying gains of close to 1,000% right now.

And yet, other ‘cheap’ shares on 23 March haven’t done so well. Take Virgin Australia Holdings. I’m sure there were a few ASX investors who thought they could snare a bargain with Virgin shares back in March. But that was before Virgin went bankrupt and took its shareholders with it down the rabbit hole. Virgin is still around, but not on the ASX anymore. Not such a bargain in hindsight!

Cheap and/or cheerful

Share market crashes are scary events, but the one redeeming thing about them is that all ASX shares (regardless of quality) are usually sold off, not just the ones in real trouble. That’s why we saw companies like Newcrest Mining Limited (ASX: NCM), and Telstra Corporation Ltd (ASX: TLS) sold-off in March, despite the pandemic posing very little threat to a gold miner or a telco. Long story short: the baby gets thrown out with the bathwater in a crash.

This is the thing we investors can use to our advantage.

So ask yourself these 3 questions next time you find yourself a cheap ASX share

• Is this company cheap for a good reason, or is it cheap because of a temporary problem? — Many investors (especially those in the funds management business) will sell a share if they think it has a nasty few months ahead of it, even if the business is fundamentally sound. Thus, those investors with a longer time horizon can take advantage of these dips.
• Does the company have something special that protects it? — A strong brand or a ‘needs-based’ product can go a long way. Just look at how the Apple Inc (NASDAQ: AAPL) share price has performed in 2020. Many investors (myself included) assumed that Apple would have a tough year due to the pandemic-induced global recession. But Apple’s brand is so powerful that it protected the company (and even allowed it to grow) in what has been an exceptionally tough year.
• How much debt does the company have? — The thing that usually causes a company to go bankrupt is too much debt (Virgin is a great example). Put simply, if a company has a large debtload, it is far more at risk from going under during tough times. Airlines by their nature are high-debt businesses, whereas software companies don’t need it to the same extent.

Foolish takeaway

Most ASX shares that are cheap are so for a reason. But if you can find a cheap ASX share that is cheap for a flimsy reason, you might find yourself a bargain instead of a dog. It’s a fine line, but if you can master it, it’s a very lucrative pathway to follow.

More reading

• Afterpay (ASX:APT) share price on watch after announcing Westpac (ASX:WBC) partnership
• 5 things to watch on the ASX 200 on Tuesday
• 3 high quality blue chip ASX shares to buy now
• Brokers believe these record high ASX stocks can run higher
• Here’s why I think these 2 ASX shares are bargain buys right now

Sebastian Bowen owns shares of Newcrest Mining Limited and Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A second stock market crash could realistically occur in the coming months. A number of risks continue to weigh on the outlook for the world economy. They include November’s US election, coronavirus and political instability in Europe.

As such, following Warren Buffett’s advice in today’s stock market could be a sound move. His focus on buying cheap, high-quality stocks may reduce your losses in the short run. Meanwhile, copying his long-term horizon could allow you to benefit from a likely recovery in share prices.

Buying cheap stocks

Cheap shares may be less negatively impacted by a stock market crash than companies that are trading on excessive valuations. Their prices may already take into account the potential for weaker economic growth. As such, investors who hold undervalued shares today may experience lower levels of loss in a future market downturn.

Although many stocks have rebounded in recent months after the previous market decline, a number of businesses continue to trade at prices that are significantly below their historic averages. Warren Buffett has always sought to purchase companies when they offer wide margins of safety. Doing likewise could be a good strategy to protect your portfolio’s value, with it being practical at the present time given weak investor sentiment towards a wide range of sectors.

The appeal of high-quality companies in a stock market crash

Stronger businesses may also be less impacted by a second stock market crash. For example, companies that have strong balance sheets and solid market positions may be viewed more positively by investors. They may also be able to deliver more resilient financial performances than their sector peers in what could prove to be a tough period for the economy.

Warren Buffett has always focused his capital on the best businesses he can find. He often buys companies with wide economic moats. This is essentially a competitive advantage, such as a unique product or a strong brand, that differentiates one business from its peers. It can lead to a company commanding a higher valuation over the long run that translates into superior share price performance relative to the wider industry and stock market.

A long-term view

Surviving the next stock market crash may be a priority for many investors at the present time. However, a downturn in stock prices can present numerous buying opportunities when high-quality businesses trade at low prices for a short amount of time.

Therefore, using it to your advantage, rather than seeing it as a problem, could be a profitable move. Warren Buffett has previously used this tactic to gain an advantage over other investors. Doing the same may improve your long-term portfolio returns and boost your financial prospects as the stock market gradually recovers.

More reading

• Why the Lovisa (ASX:LOV) share price is dropping lower today
• Zip (ASX:Z1P) share price defies broader market-sell off. Here’s why
• IDP Education Ltd (ASX: IEL) share price weakens after AGM
• Cochlear (ASX:COH) share price pushes higher on Q1 update
• ELMO Software (ASX:ELO) share price drops lower despite strong Q1 growth

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Lovisa Holdings Ltd (ASX: LOV) share price is edging lower on Tuesday following the release of a trading update.

At the time of writing the fashion jewellery retailer’s shares are down 1% to $8.60.

How is Lovisa performing in FY 2021?

According to the release, Lovisa’s global comparable store sales are still down financial year to date but have been improving in recent weeks.

For the first 16 weeks of FY 2021, its global comparable store sales are down 10.2% on the prior corresponding period.

This is a big improvement on the 19% decline during the first 8 weeks of the financial year. Which itself was a big step in the right direction after a 32.5% decline in comparable store sales during the final quarter of FY 2020.

Management notes that the company has continued to see a stronger performance from those markets that have been re-opened longest and with the least restrictions in place, Australia and New Zealand continues to be its best performing regions.

And while all its European stores remain open at present, it acknowledges that there has been a large increase in COVID-19 cases across a number of markets over the past few weeks. It continues to monitor these situations.

Store expansion continues.

Speaking of stores, COVID-19 hasn’t stopped the company from adding to its network. There are currently 449 stores in the global Lovisa store network, with 14 net new stores opened since the end of FY 2020.

The only stores that are currently closed are its 30 stores in metropolitan Melbourne. They have been closed since 6 August and are expected to reopen again in November.

Management also plans to keep rolling out its stores.

It commented: “Our strategic plans remain in place, we are ready to continue our store roll out and we continue discussions with our landlords globally as we believe current circumstances will create further opportunities for expansion of our store network, which will be supported by our strong balance sheet with a continued net cash position and undrawn cash debt facilities available to support our ongoing investment in growth.”

Online sales explode.

One big positive during FY 2021 has been the performance of its online business.

Management revealed that total online sales are up over 400% for the first 16 weeks of the financial year compared to the prior corresponding period. Though, this is admittedly from a relatively small base. 

It advised that execution online remains a key focus to ensure it can become a meaningful part of its business. Digital store fronts are now in place servicing all eight of its major markets around the world.

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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. 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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