In early afternoon trade the S&P/ASX 200 Index (ASX: XJO) is on course to record a solid gain. At the time of writing the benchmark index is up 0.5% to 6,122.3 points. 

Four shares that are climbing more than most today are below, Here’s why they are zooming higher:

The Baby Bunting Group Ltd (ASX: BBN) share price has jumped 8% to $4.06 following the release of its full year results. In FY 2020, the baby products retailer posted an 11.8% increase in total sales to $405.2 million despite the pandemic. And thanks to margin expansion, Baby Bunting delivered a 34.1% increase in pro forma net profit after tax to $19.3 million. Importantly, this was achieved without the company receiving any COVID-19 assistance from the government.

The Evolution Mining Ltd (ASX: EVN) share price is up 5% to $6.02. This appears to have been driven by a rebound in the gold price overnight. It isn’t just Evolution pushing higher today. A number of gold miners are on the rise for the same reason. This has led to the S&P/ASX All Ordinaries Gold index rising 1.5% at the time of writing.

The Mesoblast limited (ASX: MSB) share price has rocketed 38% higher to $4.66. Investors have been fighting to get hold of the biotech company’s shares after a very positive outcome from its meeting with the Oncologic Drugs Advisory Committee (ODAC) overnight. This meeting was to discuss its remestemcel-L product candidate as a treatment for paediatric steroid-resistance acute graft versus host disease (paediatric SR-aGvHD). While the company still needs the U.S. FDA to approve the product, the odds look to be very much in its favour now.

The Xero Limited (ASX: XRO) share price is up 3.5% to $92.50. This appears to be in response to the business and accounting software provider’s annual general meeting update on Thursday. That update revealed that Xero has added 96,000 net subscribers to its platform since the start of April. This lifted its subscribers to a total of 2.38 million at the end of the period.

More reading

• ASX 200 up 0.3%: NAB Q3 update, Mesoblast rockets, Newcrest guidance disappoints
• Mesoblast share price rockets 57% higher on FDA breakthrough
• Baby Bunting share price in focus after strong FY 2020 profit growth despite the pandemic
• Mesoblast share price on watch after US regulatory approval
• 5 things to watch on the ASX 200 on Friday

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 Xero. 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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Our market looks like it will close the week on a strong footing. This is more than what we can say for the Telstra Corporation Ltd (ASX: TLS) share price and two other ASX stocks that got slugged with a broker downgrade.

The S&P/ASX 200 Index (Index:^AXJO) gained 0.3% in late morning trade and if it closes at this level, it would have advanced by a decent 1.7% pace for the week.

That’s not a bad effort given we are nearing the half-year point for what has been described as the worst reporting season in recent history.

Dividend disconnect

But the August cheer isn’t universally shared. Just ask shareholders in Telstra Corporation Ltd (ASX: TLS) with the stock slumping again today on a broker downgrade.

Morgans cut its rating on the stock to “hold” from “add” after Telstra posted its full year results yesterday.

The broker questions whether the stock is as dependable an income stock as investors like to believe as management’s outlook was more downbeat than expected.

Telstra’s 25% dividend cut risk

“TLS also reduced their FY23 return on capital target from 10% to now being greater than 7%,” said Morgans. “This has implications for EPS and DPS sustainability.”

That assessment will strike fear in shareholders as dividend sustainability is the key (if not only) reason to be holding the stock.

Morgans believes Telstra will need to cut its dividend by a quarter to 12 cents a share from this financial year onwards. Its price target drops to $3.21 from $3.73 a share.

Shares in our largest telco fell 1.8% to $3.06 at the time of writing and is likely to shed around 10% of its value over the week.

Good news baked in

Another stock licking its wounds this week is the Breville Group Ltd (ASX: BRG) share price. Bell Potter lowered its recommendation on the small kitchen appliance maker to “hold” from “buy” even though its results proved to be resilient to COVID-19.

Breville’s underlying earnings before interest and tax (EBIT) jumped 14.3% to $111.1 million in FY20 over last year due to strong sales in key markets. But the good news is arguably reflected in the current share price.

“We have a positive view on BRG on several fronts: growth prospects in several large markets, flexible cost structure and strong balance sheet,” said Bell Potter.

“However, given the strong share price run, and mindful of near-term uncertainties, we believe BRG is now fair-value.”

The broker’s price target on Breville is $26 a share.

Flying blind

It’s uncertainties from COVID-19 that also prompted Citigroup to downgrade its call on the Flight Centre Travel Group Ltd (ASX: FLT) share price.

The travel agent released a trading update that forecasted a pre-tax loss of $474 million to $525 million for FY20. This is significantly below Citi’s estimate of a $145 million loss.

Management tried to off-set the bad news by pointing to its strong liquidity position. Flight Centre can go for 18 months with the $800 million in its tank.

That should give plenty of time for the world to recover from the COVID-19 shutdown.

Second capital raising?

“We acknowledge the potential upside on a three-year view, albeit with very limited visibility,” said Citi.

“The risk of a second capital raising also exists within twelve months given the lack of leisure and corporate travel expected over the near term.”

The broker cut its recommendation on the stock to “hold” from “buy” with a price target of $13.50 a share.

More reading

• ASX 200 up 0.3%: NAB Q3 update, Mesoblast rockets, Newcrest guidance disappoints
• How investing in ASX shares could help you grow $10,000 into $100,000
• Why Flight Centre, Navigator Global, Newcrest, & Whitehaven Coal are dropping lower
• Is the Telstra dividend in danger? This leading broker thinks it’s safe
• Iluka share price on watch as half-year profit falls 17%

Motley Fool contributor Brendon Lau owns shares of Breville Group Ltd and Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Flight Centre Travel 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 National Australia Bank Ltd. (ASX: NAB) share price was up 0.61% at the time of writing to $18.12 after the company released its quarterly report for the 3 months ended 30 June 2020.

What was in the announcement?

NAB announced unaudited statutory net profit of $1.50 billion for the June quarter.  Unaudited cash earnings were $1.55 billion with cash earnings, down 7% compared to the 3rd quarter of 2019.

The bank recorded credit impairment charges of $570 million versus impairments of $976 million in the second quarter of 2020.

NAB’s common equity tier one ratio was 11.6% at 30 June.

The bank also reported that 12.3% of the balance of all home loans outstanding were deferred in June 2020.

NAB CEO Ross McEwan commented on the result, stating:

The COVID-19 pandemic continues to challenge our customers and our bank, with varied impacts across industries and communities. The outlook remains highly uncertain, but decisive actions in April to strengthen our balance sheet allow us to support customers, while keeping our bank safe.

Our repayment deferrals are providing vital assistance to customers, in combination with significant relief from governments and regulators. Encouragingly, about 16% of home loan deferral customers contacted via our check-ins have recommenced repayments. However, many customers still face an uncertain future. Where it makes sense, we will offer them extra support to help manage through the pandemic, but providing further credit won’t always be the right thing to do.

He confirmed the bank still has a long-term view despite the current challenges, adding:

Our 3Q20 result is reflective of the current operating environment, characterised by volatile markets, subdued credit demand, low interest rates, cost pressures and deteriorating asset quality. In navigating these near-term challenges, we have not lost sight of the need to invest for NAB’s long term future.

About the NAB share price

National Australia Bank is one of Australia’s big four banks and was formed by a merger in 1982. NAB offers business banking, personal banking, online banking and private banking to its customers.

In May, NAB raised $4.25 billion from investors through an institutional placement and a retail share purchase plan. The issue price was $14.15 per share.

The NAB share price is up 37.27% since its 52 week low of $13.20, however, it is down 26.43% since the beginning of the year. The NAB share price is down 34.46% since this time last year.

More reading

• ASX 200 up 0.3%: NAB Q3 update, Mesoblast rockets, Newcrest guidance disappoints
• Qantas share price is facing this new challenge in FY21
• As CBA slashes its dividend, the brutal reality is bank shares have been dogs for 5 years, with more pain ahead
• Is the Bank of Queensland share price a better buy than Bendigo and Adelaide Bank?
• Flight Centre and Zip Co were among the most traded shares on the ASX last week

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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At lunch on Friday the S&P/ASX 200 Index (ASX: XJO) is on course to end the week on a high. The benchmark index is currently up 0.3% to 6,107.4 points.

Here’s what has been happening:

NAB update impresses.

The National Australia Bank Ltd (ASX: NAB) share price is pushing higher following the release of its third quarter update. The banking giant posted unaudited cash earnings of $1.55 billion, which was down 7% on the prior corresponding period. Though, cash earnings before tax and credit impairment charges was up 5%. NAB ended the period with a CET1 ratio of 11.6%.

Mesoblast rockets on FDA update.

The Mesoblast limited (ASX: MSB) share price rocketed as much as 57% higher to a new record high this morning. This follows a very positive outcome from its meeting with the Oncologic Drugs Advisory Committee (ODAC) overnight. This meeting was to discuss its remestemcel-L product candidate as a treatment for paediatric steroid-resistance acute graft versus host disease (paediatric SR-aGvHD). Given the positive feedback, the likelihood of the U.S. FDA approving the drug on 30 September looks strong.

Newcrest guidance disappoints.

The Newcrest Mining Limited (ASX: NCM) share price has come under pressure after a solid full year profit result was overshadowed by weak guidance for FY 2021. The gold miner is guiding to gold production of 1.95 million ounces to 2.15 million ounces, which will be down from 2.2 million in FY 2020. This guidance also remains subject to there being no COVID-19 disruptions.

Best and worst ASX 200 shares.

The best performer on the ASX 200 by some distance has been the Mesoblast share price. It is up 38% at lunch after the ODAC voted in favour of its remestemcel-L product for paediatric SR-aGvHD. The worst performer with a 3.5% decline is the Whitehaven Coal Ltd (ASX: WHC) share price. It has come under pressure amid news that a group of shareholders are trying to shut down the business.

More reading

• Why Baby Bunting, Evolution, Mesoblast, & Xero shares are zooming higher
• Brokers just downgraded the Telstra share price and these other ASX 200 stocks
• NAB share price lifts on quarterly report
• How investing in ASX shares could help you grow $10,000 into $100,000
• Why Flight Centre, Navigator Global, Newcrest, & Whitehaven Coal are dropping lower

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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The 3P Learning Ltd (ASX: 3PL) share price has this morning exploded higher after a takeover offer was released to the market. 3P Learning also released its full year results. The 3P Learning share price has smashed its 52-week high and is currently trading 22.4% higher at $1.34.

Takeover bid

This morning, it was announced that 3P Learning is set to be taken over by rival IXL Learning. IXL is a privately owned, global online learning player. Founded in 1998 and headquartered in California, it is active around the world and already has an existing presence in Australia.

Under the terms of the scheme, each 3P shareholder will receive cash consideration of $1.35 for every 3P Learning share held. The consideration values 3P Learning’s equity at approximately $189.0 million with an enterprise value (EV) of $166.7 million, implying an EV/EBITDA multiple of 11.4. The price represents a 23.3% premium to the last closing price. Furthermore the 3P Learning board is fully behind the takeover and suggests that shareholders vote in favour of the scheme.

Nevertheless, shareholders should note that the scheme is subject to certain conditions which must be satisfied before it is implemented.

How did 3P Learning perform in FY2020?

3P learning performed well in FY2020 despite the effects of the pandemic. The company managed to increase its revenue by 1% to $54.9 million despite challenging market conditions.

Revenue growth from licence sales was modest, as expected, with the Americas up 11% and Europe, the Middle East and Africa (EMEA) up 1%. Other revenue increased 12% due to an increase in copyright revenue.

Expenses were up 11% due to the increased average headcount in the Americas and increased product development to support the company’s growth agenda. As a result, NPAT was down $4.3 million to $1.6 million. Moreover, as a result of increased expenses, profit for the year was down 73.8% to $1.55 million.

In terms of the balance sheet, 3P Learning has cash of $27.1 million with no bank debt. 

FY2021 outlook

3P Learning has announced that it expects double-digit revenue and EBIDTA growth in FY21. The cost base is now set and the company is aiming to deliver revenue growth with increased operating leverage. This increased leverage is set to drive growth at high margins similar to other software-as-a-service (SaaS) businesses.

3P Learning CFO, Dimitri Aroney, was optimistic looking forward and stated:

“In FY2021 we expect the EMEA market to deliver strong revenue and EBITDA growth as a result of the deal with a National Ministry of Education in the Middle East. In the APAC market, we expect single digit revenue and EBITDA growth for the full year. In the Americas market, we expect continued market uncertainty due to funding challenges as a result of COVID-19 however there is a pipeline of enterprise opportunities with an expectation of licence revenue growth for the full year.”

More reading

• This ASX share has surged 40% in 3 weeks

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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If you have a spare $10,000 sitting in your account, putting it to work by buying ASX shares could help you substantially increase your returns over a short amount of time.

Sure, you could leave your spare change in your savings account and accumulate a paltry 1% interest per annum. However, choosing to invest could net you a tidy amount and make life that little bit easier.

Just rewind to the start of the year. Had you chosen to invest that $10,000 in ASX shares like Afterpay Ltd (ASX: APT) or Fortescue Metals Group Limited (ASX: FMG), you’d be sitting on a profit of 151% and 68%, respectively (at the time of writing).

These are just 2 examples of ASX shares that have soared in recent memory. I think that there are a number of long-term opportunities in the S&P/ASX 200 Index (ASX: XJO) and if I had a spare $10,000 to invest, here is where I would put my money to work.

Appen Ltd (ASX: APX)

A global leader focused on providing language technology data and services, Appen has shot for the stars these past few months. The Appen share price has jumped 69% since the beginning of 2020, and if you had bought and held Appen shares 5 years ago, you would have been rewarded with gains of almost 4,500%. Buying $5,000 of Appen shares in 2015 would have netted you an astonishing $217,108.

The company has been an integral partner to the biggest tech names in the world. Without Appen, I doubt Apple and Google would have become very successful with their digital voice assistants. The artificial intelligence (AI) industry has been booming during the coronavirus pandemic with sectors such as education, manufacturing and health increasing the use of AI applications. With its addressable market forecasted to grow exponentially over the next decade, Appen is in prime position to reap the rewards.

Appen reported that with over 1 million contractors mostly working from home, it expects to meet this year’s earnings before interest, taxes, depreciation and amortisation (EBITDA) guidance of $125–$130 million. The company has advised it will release its FY20 results on 27 August. I would happily snap up Appen shares at today’s price (at time of writing) of $36.97.

Megaport Ltd (ASX: MP1)

This exciting mid-cap ASX share operates in the network-as-a-service space, providing bandwidth to allow customers to connect to cloud services and data centres, and has been gaining attention at an incredible rate. In the last 12 months, Megaport has seen its share price rise 72% and I think it won’t stop there. Demand for its services has been exceptionally strong due to its cloud offering.

Megaport’s most recently quarterly update included revenue growth of 66%, year-on-year. The company is focused on attaining profitability, and it is expected that the EBITDA break-even will be achieved by the end of FY21. Megaport does have healthy cash balance of $166.9 million to see it through any unexpected turbulence.

The company’s FY20 results will be announced on 19 August. Megaport shares are currently trading at $12.98, up 0.7% for the day. I would class Megaport as a buy at today’s price.

Pointsbet Holdings Ltd (ASX: PBH)

The Aussie wagering group has been on tear recently with a number of positive announcements, sending the Pointsbet share price up more than 33% in the last 3 months. Last week, the company advised the market that it secured a raft of multi-year partnerships with Pacers Sports & Entertainment, Kroenke Sports & Entertainment (KSE) and an agreement with Twin River Management Group.

As the sporting industry slowly starts to come back to life, these lucrative arrangements will no doubt set PointsBet on a pathway to profitability. With its FY20 results expected to be released later this month, I think that today could be a great time to pick up some shares. At the time of writing, Pointsbet shares are valued at $6.23 and I would pick up shares without hesitation.

Foolish takeaway

Regular investing in high-quality ASX shares can reap big rewards in the future. I think that all of these shares are trading at attractive prices for a long-term diversified investor. I would snap up all 3 today and hold for at least a decade.

More reading

• Brokers just downgraded the Telstra share price and these other ASX 200 stocks
• ASX 200 up 0.3%: NAB Q3 update, Mesoblast rockets, Newcrest guidance disappoints
• Iluka share price on watch as half-year profit falls 17%
• Mesoblast share price on watch after US regulatory approval
• 5 things to watch on the ASX 200 on Friday

Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended MEGAPORT FPO and Pointsbet Holdings 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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is on course to end the week on a positive note. At the time of writing the benchmark index is up 0.3% to 6,105.1 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are dropping lower:

The Flight Centre Travel Group Ltd (ASX: FLT) share price is down 1.5% to $12.10. This appears to have been driven by a broker note out of Citi this morning. According to the note, the broker has downgraded the travel company’s shares to a neutral rating with a $13.50 price target. This follows its update on Thursday which revealed expectations for a major loss in FY 2020.

The Navigator Global Investments Ltd (ASX: NGI) share price has crashed almost 10% lower to $1.74. This appears to be down to profit taking after some strong gains following the release of its FY 2020 full year results earlier this week. One broker that sees this share price weakness as a buying opportunity is Macquarie. This morning it put an outperform rating and $2.23 price target on the investment company’s shares.

The Newcrest Mining Limited (ASX: NCM) share price is down almost 1% to $34.23. Investors have been selling the gold miner’s shares after its guidance for FY 2021 underwhelmed and offset a rise in the gold price overnight. Newcrest expects another decline in production this year. This follows a 13% decline in production in FY 2020.

The Whitehaven Coal Ltd (ASX: WHC) share price has fallen 3.5% to $1.32. This follows news that a group of shareholders are trying to shut down the business. A group of shareholders, led by activist shareholder Market Forces, will propose shutting down the business and returning capital to investors at the miner’s next annual general meeting.

More reading

• Brokers just downgraded the Telstra share price and these other ASX 200 stocks
• ASX 200 up 0.3%: NAB Q3 update, Mesoblast rockets, Newcrest guidance disappoints
• Newcrest Mining share price lower after FY 2020 result
• 5 things to watch on the ASX 200 on Friday
• Here’s why the Navigator Global share price surged 39% today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel 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 Mesoblast limited (ASX: MSB) share price has been the best performer on the S&P/ASX 200 Index (ASX: XJO) on Friday.

In morning trade the biotechnology company’s shares rocketed as much as 57% higher to a record high of $5.30.

Why is the Mesoblast share price rocketing higher?

Investors have been fighting to get hold of the company’s shares after a very successful outcome from its meeting with the Oncologic Drugs Advisory Committee (ODAC) overnight.

That meeting was to discuss its remestemcel-L (RYONCIL) product candidate as a treatment for paediatric steroid-resistance acute graft versus host disease (paediatric SR-aGvHD).

The ODAC is an independent panel of experts that evaluates efficacy and safety of data and makes appropriate recommendations to the United States Food and Drug Administration (FDA).

What happened at the meeting?

This morning the company revealed that the ODAC voted overwhelmingly in favour that the available data supports the efficacy of remestemcel-L in paediatric patients with SR-aGvHD.

Mesoblast’s Chief Medical Officer, Dr Fred Grossman, commented: “Steroid-refractory acute graft versus host disease is an area of extreme need, especially in vulnerable children under 12 years old where there is no approved therapy.”

 “We are very encouraged by today’s outcome and are committed to working closely with the FDA as they complete their review of our submission regarding approval of RYONCIL for this life-threatening complication of an allogeneic bone marrow transplant.”

What now?

While the FDA will seriously consider the recommendation of the panel, the final decision regarding the approval of the product is made solely by the regulator. This means the recommendations by the panel are non-binding.

The RYONCIL product has been accepted for Priority Review by the FDA, with an action date of 30 September 2020. If approved, Mesoblast plans to launch RYONCIL in the United States in 2020.

Paediatric transplant physician Dr Joanne Kurtzberg appears hopeful this will go to plan. She sees a major need for a treatment for this condition.

Dr Kurtzberg commented: “This devastating condition has an extremely poor prognosis and there are no FDA-approved options for children under the age of 12. The clinical studies I have directed have demonstrated the potential for this treatment to fill a significant unmet medical need.”

More reading

• Mesoblast share price on watch after US regulatory approval
• 5 things to watch on the ASX 200 on Friday
• Broker reveals its expectations for the Mesoblast FDA meeting
• Down 37% in 2 days! Is the Mesoblast share price a buy?
• Why Mesoblast, Northern Star, SEEK, & WiseTech Global shares are sinking lower

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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Here at Motley Fool we’re always about long-term investing.

The idea is simple: Holding quality shares for a long time reduces your exposure to the wild short-term whims of the herd.

But authorities are worried that average Australians in COVID-19 lockdown this year have ignored that advice and have sought to make a quick buck via ASX shares.

The Australian Securities and Investments Commission (ASIC), for example, warned retail investors back in May that high-frequency “day trading” in volatile markets could see them lose their life savings. 

“Retail investors chasing quick profits by playing the market over the short term have traditionally performed poorly – in good times and bad – even in relatively stable, less volatile market conditions,” stated ASIC.

“For retail investors [it] is particularly dangerous, and likely to lead to heavy losses – losses that could not happen at a worse time for many families.”

COVID-19 ASX share trading dwarfs gambling

Astounding figures have been revealed about how new retail investors are diving in.

Corporate advisory firm Vesparum Capital found that between late February and middle of May, retail traders bought $9 billion of Australian shares.

Compare this with the first quarter of this year – before the coronavirus pandemic really took hold – when $4 billion was gambled on lotteries, poker machines and sports betting, according to Roy Morgan.

You might think diverting money away from gambling into shares is a positive outcome from the COVID-19 lockdown.

But high-frequency trading is just another form of punting.

“This is an alternative to gambling,” said UTS academics David Michayluk, Warren Hogan and Gerhard Van de Venter on The Conversation. 

“While it’s risky, it’s arguably no riskier than sports betting, casinos or poker machines.”

During the same period that retail investors were net buyers of $9 billion, institutional investors sold off $11 billion of shares. Yikes.

Small and mid-cap punting is rife

Not only is high-frequency trading among retail investors a worry, they are going for big wins (and big losses) with high-risk stocks.

A joint University of New South Wales (UNSW) and University of Melbourne study has shown amateur investors have been moving away from blue-chip shares to deliberately put their money on smaller cap companies.

UNSW professor Carole Comerton-Forde and University of Melbourne senior lecturer Zhuo Zhong reported that retail investors were not just buying up large-cap ASX shares such as BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA), but diving into highly volatile shares such as AMP Limited (ASX: AMP) and Webjet Limited (ASX: WEB).

Retail investors were also buying “highly leveraged stocks” such as Domino’s Pizza Enterprises Ltd (ASX: DMP) and Seek Limited (ASX: SEK), as well as ASX shares that had seen their share prices falling before the lockdown such as Myer Holdings Ltd (ASX: MYR) and Flight Centre Travel Group Ltd (ASX: FLT).

Comerton-Forde and Zhong added that, in contrast, institutional investors were net sellers of these stocks.

Why are Australians gambling on small cap shares?

While Comerton-Forde and Zhong don’t have any academic evidence of the reasons behind the speculative purchases, they have an opinion.

“It may be due people looking for entertainment in the absence of usual leisure activities. This has been dubbed the ‘Boredom Markets Hypothesis’,” they wrote.

“It might also just be another form of gambling – ‘taking a punt’ in the absence of sports betting opportunities.”

Chief executive of US finance firm Omega Advisors, Leon Cooperman, told NBC in June that things would end badly for amateurs jumping in for a thrill.

“From my experience, this kind of stuff will end in tears.”

More reading

• Mesoblast share price rockets 57% higher on FDA breakthrough
• AGL share price fall a warning for the LNG sector
• Is the Telstra dividend in danger? This leading broker thinks it’s safe
• Sydney Airport share price down slightly after raising $1.3 billion
• Iluka share price on watch as half-year profit falls 17%

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited, Flight Centre Travel Group Limited, and SEEK 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 AGL Energy Limited (ASX: AGL) share price fell on Thursday after a disappointing FY20 result. Moreover, this was worst day for the AGL share price since 2007. In summary, the company saw its annual profit fall by 22% and expects a further fall in earnings during 2021. Managing Director and Chief Executive Officer, Brett Redman, commented various times that the company was starting to run into headwinds, and that the COVID-19 pandemic had hastened their onset. 

What moved the AGL share price?

On the same day, Woodside Petroleum Limited (ASX: WPL) published a half year report with a net loss of ~US$4 billion. However, it only saw a fall in share price of less than 1% because of forewarning. In contrast, the AGL share price saw a drop of 9.5%. While the company’s profit after tax, of $816 million, was within guidance, it was close to the lower end. Moreover, yesterday we learned that ‘headwinds’ means a drop in underlying profit after tax to between $560 – $660 million. At best, this is a reduction of 19.1%, at worst a reduction of up to 31.4%. 

The company suffered through a pretty dramatic year. Specifically, it has had to deal with the impacts of bushfires and drought as well as the coronavirus pandemic. In addition, there was a forced, unplanned outage at AGL’s Loy Yang power station.

Lastly, the company has had to deal with a pandemic-related reduction in gas volumes, as well as a collapse in wholesale gas prices. AGL provides approximately 5% of New South Wales’ gas requirements via its Camden Gas Project. However, it also had to write down renewable assets as part of the Powering Australian Renewables Fund. This has been attributed to the combined impacts of grid congestion problems, and falling prices accelerated by COVID-19. This congestion is part of the convergence of issues that have led to lower wholesale energy prices.

While this is only a $14 million dollar write down, there are many companies having difficulties in the renewables sector. Additionally, it is also likely to impact the company’s future plans for 850 megawatts of grid scale batteries, as well as a further 350 megawatts in renewables for demand response assets.

Guidance for FY21

In relation to the drop in earnings for FY21, Mr Redman said “FY21 will be a year of considerable uncertainty as we navigate the COVID-19 pandemic and its economic impact. Market and operating headwinds to AGL’s margin from the maturing of lower cost gas supply contracts and sharp falls in wholesale prices for electricity and renewable energy certificates have accelerated as a result of the pandemic.”

Both of these issues will weigh down the AGL share price, and are linked to the coronavirus pandemic.  Furthermore, they are caused in part by the Saudi/Russian oil feud, renewable energy, as well as the incoming recession. Additionally, the company expects to see increased customer hardship, and potentially increased operating costs at AGL’s generation plant.

However, all is not lost. The company saw an increase in its users across both its energy business, and its phone and broadband business. In addition, it has made a recurring saving of $135 million due to systems implementation. 

Foolish takeaway

While the AGL share price displays many characteristics of a company under strong management, as evidenced by its cost reductions, I believe it is in very serious trouble. Its dominant issue is that gas hedging is coming to an end, resulting in lower prices. This is at exactly the same time as wholesale prices for gas have almost collapsed. The company’s diversification into the telecommunications industry remains mysterious. AGL has spoken several times about energy and data converging, but has yet to lay out a concrete plan.

One of the pillars of the company’s strategy is transformation. To me personally, it seems to be transforming into a structurally smaller company.

More reading

• 5 things to watch on the ASX 200 on Friday
• Metcash share price and these ASX stocks just got upgraded by leading brokers
• Woodside share price edges lower on half year results
• Why AGL, Breville, CBA, & Telstra shares are dropping lower today
• ASX down 0.55%: Telstra maintains its dividend, Treasury Wine shoots higher, AMP’s special dividend

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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