The 2020 stock market crash could provide opportunities to buy the best shares at cheap prices to benefit from a long-term stock market recovery.

Through identifying sectors with strong long-term growth prospects, it is possible to unearth companies with sound prospects. Furthermore, concentrating on company fundamentals may allow an investor to find businesses with solid market positions that can lead to higher profitability in the coming years.

Buying such companies at discounts to their peers may mean higher returns in the long run after the 2020 stock market crash.

Identifying the most attractive sectors to find the best shares

The best shares to buy today could be those companies that operate in industries with strong long-term growth outlooks. Certainly, many sectors are likely to experience fast-paced change in the coming years, as the full impact of the coronavirus pandemic on consumer trends becomes clearer. However, some industries may have clearer paths to growth than others.

For example, trends in the healthcare and retailing sectors may provide growth opportunities for businesses operating within them. In healthcare, factors such as a growing world population and an ageing population may mean that demand for products and services increases over the coming years. Similarly, online retailers may be able to produce higher rates of sales and profit growth than their bricks-and-mortar peers.

Of course, market trends may be difficult to identify when seeking to find the best shares to buy today. However, investing money in a diverse range of sectors that have positive long-term growth outlooks may lead to relatively high returns in the coming years.

Focusing on high-quality stocks

Some of the best shares to buy today may be those companies with sound financial positions, as well as wide economic moats. They may be better able to survive a period of uncertain economic performance. They may even strengthen their positions relative to peers by investing in cheap assets or in developing new products and services to react to changing consumer demand.

Company fundamentals can provide guidance on the financial strength of a business. For example, low debt levels within a company’s balance sheet suggest sound finances. Meanwhile, an economic moat can be identified by considering factors such as the uniqueness of a company’s products, as well as its degree of customer loyalty.

Buying cheap shares for a stock market recovery

The best shares within a specific sector may be those that trade at cheap prices relative to their peers. For example, a company that has a better financial position and a wider economic moat than its peers, but that trades at a discount to its rivals, may provide greater scope for capital appreciation over the long run.

Therefore, considering a wide range of companies within a specific sector could be a useful step to find the best shares to buy today. It may provide an insight into which stocks offer the best value for money on a long-term basis.

More reading

• Is the a2 Milk (ASX:A2M) share price in the buy zone after last week’s 22% decline?
• Why the City Chic (ASX:CCX) share price is rocketing 15% higher
• Why the Creso Pharma (ASX:CPH) share price is jumping 9% higher
• Forecast double-digit surge in Aussie dollar could put brakes on ASX rally in 2021
• Why I didn’t go all in on the Airbnb IPO

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.

The post The 2020 stock market crash: 3 steps I’d take to buy the best shares now appeared first on The Motley Fool Australia.

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In morning trade the City Chic Collective Ltd (ASX: CCX) share price is rocketing higher.

At the time of writing, the fashion retailer’s shares are up 15% to $3.65.

Why is the City Chic share price rocketing higher?

Investors have been buying the company’s shares this morning after it announced a binding asset purchase agreement to acquire the Evans brand and its eCommerce and wholesale businesses for 23.1 million pounds (A$41 million) in cash.

According to the release, Evans is a UK-based retailer of women’s plus-size clothing with a longstanding customer base and strong market position. The Evans assets will be acquired from Evans Retail Limited and certain other entities within the Arcadia group, which entered into administration on 30 November 2020.

Management expects the acquisition to complete on 23 December 2020, subject only to payment of the cash consideration.

Why Evans?

City Chic’s Chief Executive Officer and Managing Director, Phil Ryan, revealed that he has been following Evans closely for over a decade.

During this time he has seen the brand evolve from a dominant high street retailer into a more digitally focused business. The company also knows the brand very well, as it has had a successful partnership with Evans for many years.

Overall, Mr Ryan believes Evans ticks a lot of boxes in regard to the type of acquisition he is looking for.

He explained: “The acquisition meets our strategic objective of growing through global customer acquisition, digitally, and in the $50 billion curvy apparel market. In addition to providing a launching pad into a new market, we are confident we can deploy our lean, customer-centric operating model to drive revenue growth and cost efficiencies in the existing business. We have a great opportunity ahead of us to develop the third major region for the City Chic Collective.”

The acquisition will be funded from City Chic’s existing cash balance. The company’s pre-acquisition cash balance as at 30 November 2020 was A$121 million. Its A$40 million debt facility will remain undrawn.

More reading

• Why the Creso Pharma (ASX:CPH) share price is jumping 9% higher
• Forecast double-digit surge in Aussie dollar could put brakes on ASX rally in 2021
• Why I didn’t go all in on the Airbnb IPO
• Why the QBE (ASX:QBE) share price has been given a conviction buy rating
• These are the 10 most shorted shares on the ASX

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

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The Creso Pharma Ltd (ASX: CPH) share price has started the week on a positive note.

In early trade the cannabis company’s shares are up over 9% to 17.5 cents.

Why is the Creso Pharma share price jumping higher?

This morning Creso Pharma announced that it has secured regulatory approval from the Ministry of Agriculture and Animal Feed in Uruguay through its commercial partner Adler Laboratories for its line of animal health products, anibidiol.

According to the release, the company expects the first purchase order for anibidiol 8 (worth A$89,000) to be delivered in the first quarter of 2021. Management notes that this underpins the company’s growing revenue profile in the Latin America (LATAM) region.

What is anibidiol?

Anibidiol is a cannabidiol (CBD) hemp-based complementary feed for pets which the company claims promotes well-being by supporting the immune system and natural response.

The company also claims that it supports behaviour balance, overall vitality, the nervous system, and contributes to the reduction of tiredness and fatigue.

Today’s news means it is the first product of its kind that has been approved for pets in LATAM. Management believes this represents a ground breaking milestone from a regulatory and business perspective.

The approval also represents a key strategic milestone, which broadens the company’s global footprint.

Management believes the LATAM market provides a large opportunity for Creso Pharma and unlocks potential access to over 24 million pets across Uruguay, Argentina, Paraguay and Bolivia and further countries.

Creso Commercial Director, Jorge Wernli, commented: “The approval of anibidiol as the first CBD hemp complementary feed in Uruguay, with a simultaneous purchase order is a major achievement for Creso Pharma. “The Company’s entry into the Latin American market more broadly represents a major strategic development and significant growth opportunity, with potential access to millions of pets across several Latin American countries.”

“We look forward to working with our established, in country representatives to target rapid expansion across the region. We anticipate a number of follow up purchase orders will materialise in the coming months, as we rapidly scale up in Latin America,” he concluded.

More reading

• Creso Pharma (ASX:CPH) share price lower despite supply agreement news
• Creso Pharma and Nuix were among the most traded shares on the ASX last week
• ASX pot stocks have been skyrocketing in December
• Why the Creso Pharma (ASX:CPH) share price crashed 33% lower today
• Why the Creso Pharma (ASX:CPH) share price is rocketing 96% higher today

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

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Investors who have yet to factor the Australian dollar into their ASX investment decisions should pay heed.

The Aussie dollar is poised to exit the year on a 30-month high and experts believe it could rally another 12% to hit US85 cents in 2021.

I am expecting a lot more stocks on the S&P/ASX 200 Index (Index:^AXJO) to talk about the exchange rate headwind at the February reporting season. The Aussie puts a handbrake on earnings.

Lucky Aussie dollar not lucky for some

Currency strategists are struggling to keep up with our rallying dollar, reported the Australian Financial Review.

We are the lucky country, but it’s this “luck” that’s likely to inflict earnings pain on many large cap stocks. Around a third of ASX stocks on the top 200 index have material exposure to currency movements, especially from the Australian-US dollar pair.

The Aussie battler is racing higher as our economy is outperforming, thanks to our ability to control the COVID‐19 outbreak.

A$ could hit US90 cents

Australia’s rebound from COVID surprised everyone. The federal government recently upgraded their GDP growth forecast to 0.75% for 2020 compared to earlier predictions of a contraction.

What’s more, the outlook for 2021 is looking bright. Consumer confidence is strong, employment conditions are buoyant and the commodity price boom is re-filling the government’s depleted coffers faster than expected.

National Australia Bank Ltd. (ASX: NAB) thinks a move towards US90 cents is not out of the question even though their official forecast is for US80-US85 cents, reported the AFR.

Other factors driving the Aussie higher

It doesn’t help that the US dollar is expected to stay on a back-foot for 2021 either. The country needs another massive stimulus injection to help it stay ahead of the COVID economic shock. This spells bad news for the greenback.

Also, the expected rebound in global GDP as vaccines are rolled out will prompt investors to dump safe haven assets, like the US dollar, for growth assets like the Aussie.

Outperforming ASX stocks impacted by the Aussie

The higher Australian dollar will impinge on overseas income when translated back into the local currency here.

Several large cap ASX stocks that have outperformed in 2020 might find it harder to maintain momentum in the new year due to this.

Examples include the James Hardie Industries plc (ASX: JHX) share price, the Resmed CDI (ASX: RMD) share price and Breville Group Ltd (ASX: BRG) share price.

On the flipside, ASX stocks that import goods from overseas and pay in US dollars will benefit. These include the Wesfarmers Ltd (ASX: WES) share price and Premier Investments Limited (ASX: PMV) share price.

More reading

• ASX 200 Weekly Wrap: ASX hits new post-March high
• 5 things to watch on the ASX 200 on Monday
• 2 of the best ASX growth shares to buy for 2021 and beyond
• How useful is the P/E ratio in assessing ASX shares?
• How to turn $20,000 into over $250,000 in 10 years with ASX shares

Motley Fool contributor Brendon Lau owns shares of Breville Group Ltd, James Hardie Industries plc, and National Australia Bank Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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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.

In an article published on Dec. 7, I named Airbnb (NASDAQ: ABNB) as my top initial public offering (IPO) stock to buy in December. It has been years since an IPO intrigued me so much, and I took the rare step of selling other stocks in my portfolio in order to buy more shares of the prominent online rental marketplace.

When the initial pricing range for the Airbnb IPO was announced, I planned to make its stock my biggest purchase of the year and one of my biggest holdings. However, my view of the deal eventually changed, and I avoided making a big investment. Here’s why.  

The hype was overwhelming, but valuation still matters

Airbnb is a great company. With an easy-to-use platform that connects travelers and renters with property owners, it has already disrupted the hotel and vacation-rental industry and has plenty of room for long-term expansion. When the initial price range for Airbnb stock was announced at between $44 and $50 per share, valuing the company at as much as $35 billion, my eyes saw dollar signs.

My basic expectation was that shares would probably follow the trend for tech IPOs this year and be bid up well above the IPO price in early trading. However, I still saw plenty of opportunity for big gains on day one and beyond if I could get shares early. In fact, I figured the company had a good chance of reaching a valuation of $100 billion within the next six months.

Then, Airbnb increased its projected IPO pricing range to between $56 and $60 per share — valuing the company at about $42 billion. My thesis held with this first bump, and the news didn’t come as a surprise. Many high-profile tech companies that went public this year also raised their pricing ranges following the initial announcement.

However, things started to look different by the time Airbnb revealed on Dec. 9 that it would be pricing the IPO at $68 per share. The implied valuation of roughly $47 billion was still well below my near-term target level, but warning signs that the IPO was becoming too hot for me were starting to pile up. 

Tech IPOs have been extraordinarily hot this year

By the time Airbnb’s first day of trading rolled around — Dec. 10 — reports emerged that the stock would likely open with shares trading in the range of $150 per share. It’s important to understand how the company’s valuation could more than double before shares even became available to the average investor.

Companies seeking to go public typically turn to large financial institutions to function as underwriters that help with the process. These financial institutions distribute shares to large institutional investors at the IPO price, who then sell shares to smaller but still very large investors before the stock becomes available to the typical retail investor.

In Airbnb’s case, Morgan Stanley and Goldman Sachs functioned as the lead underwriters in the IPO. These institutions apportioned shares to large investors, who then offered the shares in a round of early auction trading that wasn’t available to most of the public. Retail investors like me had to contend with the fact that they are at the bottom of the IPO food chain. 

The market for tech IPOs has been strong, and many companies saw their stocks bid well above their initial listing price before the average investor could get their hands on any shares. The following table looks at some other notable tech IPOs this year and compares their IPO price with their opening price when the stock finally began trading on the market:

Company	IPO price	Opening stock price	Difference
Snowflake	$120.00	$245.00	104%
Palantir*	$7.25	$10.00	38%
Unity Software	$52.00	$75.00	44%
C3.ai	$42.00	$100.00	138%
DoorDash	$102.00	$182.00	78%

Data sources: company filings and Yahoo! Finance. *Palantir went public via direct listing.

Predictably, Airbnb followed suit. Shares opened at $146 per share — 115% higher than the actual IPO price and 192% higher than the top of its original pricing range. That meant the company opened with a market capitalization of roughly $102 billion.

I’m still a big believer in the company, and the hype was tempting. But I opted not to buy in at a level that exceeded my target valuation, at least not to the extent I had planned. 

What happens next?

I wound up passing on Airbnb stock on its first day of trading, but I did purchase a very small number of shares the following day. I was able to buy significantly below opening-day trading prices, but my purchase was small enough to be largely symbolic. 

I think Airbnb has the potential to post strong long-term growth and significantly exceed a valuation of roughly $100 billion. However, I knew that I’d have been getting caught up in hype and ignoring my initial analysis if I went through with making a large investment in the company. My small purchase was a nod to the company’s potential and a psychological anchor to provide extra motivation to follow the business closely and monitor ongoing opportunities to buy the stock. 

Greed can be good, but it pays to be principled

With 471 companies having gone public on the U.S. market year to date, there have been more IPOs this year than ever before. The size of this year’s IPO class surpassed the record previously set in 1999, and more companies have opened trading at double their IPO price than any time since that much-studied year.  

Analysts and market watchers have compared IPO trends across these record years and noted that 1999 was the height of the dot-com bubble, which raises some red flags. The case can be made that the tech economy is at a much more advanced stage than it was roughly two decades ago, while also having a future that’s brighter than ever. At the same time, it’s clear that some valuations in the tech sector have become stretched, and investors buying on momentum has played a big role in IPO performance.

I still love Airbnb as a company and rate its prospects higher than most of this year’s other notable tech IPOs. Despite challenges brought on by the coronavirus pandemic, the business has a promising growth outlook. Strong gross margin, a leadership position in its service category, and unmatched brand strength point to huge potential. 

On the other hand, I made the decision not to follow through with a large investment, because it would have meant throwing out key foundations of my investing thesis to chase market buzz. It’s possible that Airbnb will go nowhere but up from current prices and that I’ll come to regret my decision. However, restraint can be a virtue, and I’m confident that sticking to the principles that shaped my decision will lead to better long-term performance across my portfolio.

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

More reading

• With the high Aussie dollar, is now a good time to buy US shares?
• Here are the US shares ASX investors are buying
• How Aussie tech investors snapped up Airbnb (NASDAQ:ABNB) IPO
• How to get free Airbnb (NASDAQ:ABNB) shares

Keith Noonan owns shares of Airbnb, Inc. The Motley Fool Australia’s parent company owns shares of and recommends Snowflake Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why I didn’t go all in on the Airbnb IPO appeared first on The Motley Fool Australia.

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

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The QBE Insurance Group Ltd (ASX: QBE) share price was a very poor performer on Friday.

The insurance giant’s shares crashed 12.5% lower on the day to end the week at $8.71.

Why did the QBE share price crash lower?

Investors were selling QBE’s shares on Friday after it released an update on its expectations for FY 2020.

That update revealed that the insurer expects to report an adjusted net cash loss after tax of approximately $780 million. This was driven by a combination of COVID-19 costs, elevated catastrophe costs, an increase in prior accident year claims development, and a non-cash write-down in its North American business.

Is this a buying opportunity?

One leading broker believes that investors should be taking advantage of the weakness in the QBE share price to invest.

According to a note out of Goldman Sachs, its analysts have maintained their conviction buy rating and trimmed their price target on the insurance giant’s shares to $10.67.

While it was disappointed with the above, it was encouraged by a number of things. This includes premium rate acceleration, further attritional loss ratio improvement in the second half, consistent COVID cost estimates, and its capital remaining at the upper end of the 1.6x to 1.8x PCA ratio range in FY 2020.

Goldman believes “these elements alongside progress on efficiency (program tracking to plan) continue to point to a solid growth/margin trajectory into FY21/FY22.”

It also sees a lot of a value in the company’s shares at the current level.

The broker explained: “While a disappointing end to a particularly troubled FY20, at 12x our FY21 earnings we continue to think QBE looks attractive relative to growth we forecast and remain broadly comfortable with our thesis given a mix of 1) the hardening global market, 2) more meaningful evidence of operating leverage in FY21+ 3) bottoming investment earnings and 4) solid balance sheet. Maintain our Buy rating (on CL).”

More reading

• 5 things to watch on the ASX 200 on Monday
• Why Mesoblast, Paradigm, Qantas, & QBE shares are tumbling lower
• The QBE (ASX:QBE) share price has plummeted 9% today. Here’s why
• Why ASX shares are in awesome shape vs overseas markets
• Revealed: Shares that’ll shoot up with a COVID-19 recovery

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

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Every Monday I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Webjet Limited (ASX: WEB) remains the most shorted share on the ASX with short interest of 14.9%. The online travel agent’s shares tumbled lower last week after an outbreak in New South Wales led to border closures. This may delay the recovery of the domestic travel market.
• Western Areas Ltd (ASX: WSA) has seen its short interest reduce to 10.5%. Short sellers appear to be closing positions after the nickel producer’s shares rebounded following a recent crash. That crash was related to its downgraded production guidance.
• Tassal Group Limited (ASX: TGR) has seen its short interest rise to 10.1%. Short sellers have been targeting the salmon producer amid concerns that salmon could be another item that China puts tariffs on.
• Speedcast International Ltd (ASX: SDA) still has short interest of 9.3%. The communications satellite technology provider’s shares have been suspended for almost the entire year as it undertakes a recapitalisation.
• Flight Centre Travel Group Ltd (ASX: FLT) has seen its short interest remain flat at 8.9%. Short sellers appear to believe the market is expecting too much from the travel agent giant. Particularly given the recent outbreak in New South Wales.
• AVITA Therapeutics Inc (ASX: AVH) has 8.9% of its shares held short, which is up week on week once again. Short sellers have been targeting the company this year after COVID-19 impacted its sales. This poor form has put significant pressure on its shares and led to them being dumped out of the ASX 200 at the December quarterly rebalance.
• InvoCare Limited (ASX: IVC) has short interest of 8.7%, which is up slightly week on week. Concerns that this funerals company has been losing market share appear to be weighing on investor sentiment.
• Myer Holdings Ltd (ASX: MYR) has seen its short interest fall to 8.5%. This department store operator’s shares have halved in value in 2020. Investors have been selling its shares after the pandemic impacted its sales materially.
• Inghams Group Ltd (ASX: ING) has 8.2% of its shares held short, which is flat week on week. Short sellers don’t appear to believe the worst is over for the poultry producer after a terrible performance in FY 2020.
• A2 Milk Company Ltd (ASX: A2M) re-enters the top ten with 8.1% of its shares held short. This certainly was great timing by short sellers. The dairy and infant formula company’s shares crashed lower last week after downgrading its guidance for FY 2021.

Finally, I feel it is worth noting that Mesoblast limited (ASX: MSB) shares narrowly missed out on the top ten with short interest of 8%. The biotech company’s shares crashed over 40% lower last week after a series of disappointing updates.

More reading

• ASX 200 Weekly Wrap: ASX hits new post-March high
• Synlait Milk (ASX:SM1) share price on watch after halving guidance due to a2 Milk (ASX:A2M) update
• What’s going on with the Mesoblast (ASX:MSB) share price in 2020?
• These were the worst performing ASX 200 shares last week
• Why did the Synlait (ASX:SM1) share price drop 2% then enter a trading halt today?

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited. The Motley Fool Australia owns shares of and has recommended A2 Milk and Webjet Ltd. The Motley Fool Australia has recommended Avita Medical Limited, Flight Centre Travel Group Limited, and InvoCare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Are you looking to invest in some growth shares in 2021? Then you might want to take a look at the ones listed below.

They have been tipped as buys and tipped for big things in the future. Here’s what you need to know:

Altium Limited (ASX: ALU)

The first growth share to look at is Altium. It is a printed circuit board (PCB) design software provider which is aiming to dominate its industry. Management believes it can achieve this thanks to the quality of its software and especially its new cloud-based Altium 365 platform. If it delivers on this, then the future will be very bright for Altium due to the Internet of Things and artificial intelligence booms. These markets are underpinning exceptionally strong demand for electronic design software and are expected to continue growing strongly for a long time to come. Analysts at Morgan Stanley are confident on its future. They have an overweight rating and $40.00 price target on the company’s shares.

Kogan.com Ltd (ASX: KGN)

This ecommerce company has been performing positively in recent years. However, its growth went to the next level this year when the pandemic accelerated the shift to online shopping. This led to significant customer, sales, and earnings growth in FY 2020 and has continued into the new financial year, even after bricks and mortar stores reopened. Kogan also undertook a capital raising earlier this year. But unlike other companies that needed the funds to ride out the storm, these funds were to make acquisitions. Kogan has just acquired Mighty Ape in New Zealand and could have more value accretive options in its sights. Credit Suisse is a fan of Kogan. It recently put an outperform rating and $20.60 price target on its shares.

Pushpay Holdings Group Ltd (ASX: PPH)

A final growth share to look at is Pushpay. It is a leading donor management and community engagement platform provider for the faith sector. Management has plans to win a 50% share of the US medium to large church market in the future, which represents a US$1 billion opportunity. Given that FY 2020’s revenues increased 32% to US$129.8 million, this clearly shows that still has a very long runway for growth over the 2020s. Due to the quality of its platform and last year’s US$87.5 million acquisition of church management system provider Church Community Builder, analysts at Goldman Sachs appear to believe it can achieve this. The broker has a conviction buy rating and ~$2.59 price target on Pushpay’s shares.

More reading

• Got cash to invest? Here are 2 ASX shares to buy
• Top brokers name 3 ASX shares to buy next week
• 3 top ASX shares to buy for 2021
• 4 leading ASX growth shares to buy for 2021
• These are the 7 best ASX retail shares in 2020

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and PUSHPAY FPO NZX. The Motley Fool Australia has recommended Kogan.com ltd and PUSHPAY FPO NZX. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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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.

What a wild ride it’s been for Big Tech. After decades of Washington applying a relatively soft-touch regulatory approach to the sector’s leaders, there’s been a sharp turn toward much fiercer rhetoric over the last two years. The sentiment that it’s time to rein in those companies is widespread. Big Tech has drawn the ire of congresspeople on both sides of the aisle, and it is increasingly taking heat from officials at the state level as well.

However, one mega-cap tech company has been noticeably absent from the list of those that are earning lawmakers’ ire: Microsoft (NASDAQ: MSFT).

Lawsuits and regulatory pushback

Facebook (NASDAQ: FB) has been the most visible target of governmental scrutiny and pressure of late. President Trump has been aggressive in his efforts to overturn social-media friendly Section 230 of the Communications Decency Act, first by issuing an executive order in May and then threatening to veto the annual National Defense Authorization Act if the provision’s repeal is not included in it.

However, the executive order has been challenged in court on legal and constitutional grounds. Meanwhile, the bill Trump was threatening has passed both houses of Congress with veto-proof majorities.

An antitrust lawsuit originating at the state level with 46 state attorneys general and the FTC challenging Facebook’s earlier acquisitions of Instagram and WhatsApp appears to be the bigger risk to the company at the moment.

Apple‘s (NASDAQ: AAPL) biggest legal challenges relate to its App Store marketplace’s policies. The first is a lawsuit from Fortnite creator Epic Games, which does not want to keep paying Apple a 30% cut of the revenue that the popular title generates through in-app transactions.

More recently, Cydia has sued Apple. Similarly to the Epic suit, it alleges that the iOS App Store model is an illegal monopoly. In a federal court filing, Cydia claims its own (unauthorized) iPhone app store existed before Apple’s, and that due to Apple’s anticompetitive conduct, it has essentially been shut out of the iOS distribution market. 

Amazon is facing a similar marketplace-related class-action lawsuit. Plaintiffs allege it uses its monopoly power to essentially dictate prices on third-party products. Finally, in October, the U.S. Justice Department and 11 state attorneys general filed a lawsuit alleging Alphabet‘s search business constitutes an illegal monopoly. A recent report from The Wall Street Journal suggests there are additional lawsuits in the works against the search giant.

How does this help Microsoft?

There are a few ways that keeping out of the courtroom benefits Microsoft. The first is that legal problems are a bandwidth issue. The more time C-suite occupants spend responding to government inquires and ensuring that their company is complying with injunctions, the less time they have to think about high-level strategy. The second is that court cases carry the possibility of monetary penalties. Ultimately, both of these tend to be minor concerns for the largest tech companies, but they are risks nonetheless.

The biggest risk appears to be that the results of court cases could force changes to some Big Tech business models, most notably on the mergers-and-acquisitions front. The multistate lawsuit against Facebook is interesting in that it seeks to revisit acquisitions that were sealed five or more years ago. While this may portend a more hostile environment toward all acquisitions in tech, Microsoft has been aggressively snapping up businesses recently with no pushback from regulators.

The company spent $9 billion on 20 acquisitions in its fiscal 2019 — though most of that sum went toward its $7.5 billion acquisition of GitHub — and tacked on another dozen acquisitions in its fiscal 2020 (which ended June 30). It’s likely that fiscal 2021’s M&A outlays will exceed 2019’s, as Microsoft announced in September that it was spending $7.5 billion to buy ZeniMax Media.

What should you do if you own these companies?

Investors generally employ one of two approaches when evaluating legal and regulatory risk, and both tend to be overreactions. The first is to quickly sell stocks at the prospect of a legal or regulatory challenge without knowing its full ramifications. The second — which has admittedly been an effective strategy over the last decade — is to haphazardly wave off any concern without applying proper due diligence.

The better long-term approach is to critically evaluate these risks in their proper perspective. Ironically, we can draw from Microsoft’s history for some context about how stronger regulation might impact today’s tech powerhouses. In 2000, a federal judge initially ruled that Microsoft’s tactics in bundling Internet Explorer with its Windows operating system had violated antitrust laws. He ordered the company to be broken up.

On appeal, the breakup order was rescinded. That led the Department of Justice to settle its case in exchange for a host of concessions from Microsoft, including an agreement to share its APIs with third-party developers. Use of the Internet Explorer browser plunged and — for a host of reasons not all related to the legal loss — a “lost decade” followed for Microsoft investors. I don’t expect such an aggressive result for the current targets of governmental ire, but some in Washington are looking to make a statement to Big Tech. Microsoft, though, is clearly out of their crosshairs.

While legal and regulatory risks have been minimal for this sector in recent years, investors now need to be more alert to them when doing their due diligence. Ultimately, your investment decisions should not be dictated by these concerns, but they are definitely worth keeping an eye on.

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

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Jamal Carnette, CFA owns shares of Amazon. 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. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Microsoft and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Bapcor Ltd (ASX: BAP) share price has steadily grinded higher this year, currently up 20% year to date. While the COVID-19 pandemic and resulting government imposed restrictions in Australia, New Zealand and Thailand had an adverse impact on its financial performance in FY20, the business expects to bounce back strongly in FY21. 

Resilient FY20 performance 

Despite the circumstances, Bapcor delivered a resilient FY20 performance with proforma earnings before interest, taxes, depreciation and amortisation (EBITDA) down 4.1% and proforma net profit after tax 5.5% below the record earnings achieved in FY19. 

Looking ahead, the company believes the fundamentals of the vehicle aftermarket are as strong as ever. COVID-19 has resulted in record sales of second hand vehicles as travellers sought social distancing and moved away from public transport. According to Bapcor, there is also the likely flow-on effect of more people spending their holidays domestically utilising their vehicles. 

FY21 trading update 

Last week, Bapcor provided a pleasing first quarter FY21 trading update in which revenue for the first five months to the end of November was up 26% on the prior corresponding period (pcp).

For the first half of FY21, the company anticipates it will achieve revenue growth of at least 25% over the prior corresponding period. It also expects net profit after tax to increase by at least 50% over the pcp which was $45.6 million. 

In the update, Bapcor also reported that the construction of its new Victorian Distribution Centre is progressing well. The building is expected to be handed over in February 2021, and an automated picking system operational in the following six months. 

This update was well received as the Bapcor share price jumped as high as 10% on the day of the announcement. However, Bapcor shares were unable to hold onto all of the day’s gains and closed just 3% higher. 

Upgraded Bapcor share price after trading update

Citi has raised its Bapcor share price target from $8.80 to $8.85 and retains its buy rating. The broker was pleased with the company’s trading update to the end of November but expects group sales to slow to 23% growth in Q2 compared to 27% in Q1. It rates Bapcor as a top pick in the automotive sector. 

Macquarie Group Ltd (ASX: MQG) has raised its Bapcor price target from $8.50 to $8.75 and retains an outperform rating. It notes strong trading across all business segments and expects solid growth to continue. 

Morgan Stanley has raised its price target for Bapcor from $8.45 to $9.00 with an overweight rating. The broker says that further upgrades may follow as trends in auto spending continue. 

UBS Group retained its buy rating with a price target of $8.55. The broker upgraded its expected FY21 NPAT to $120 million, above Bapcor’s own guidance range. 

Credit Suisse was the only broker to lower its Bapcor share price target from $8.75 to $8.60 despite retaining its outperform rating. Its commentary was also positive, saying sales growth as reported in November was better than expected.  

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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor and Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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