It has been a subdued day of trade for the big four banks on Tuesday despite some very positive industry news.

At the time of writing, Australia and New Zealand Banking GrpLtd (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) shares are trading flat, whereas National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) shares are trading slightly lower.

What was announced?

This morning the Australian Prudential Regulation Authority (APRA) has provided updated capital management guidance to authorised deposit-taking institutions (ADIs) and insurers.

This replaces its recommendation in July this year for banks to retain at least half of their earnings.

According to the release, from the start of 2021, APRA will no longer hold banks to a minimum level of earnings retention. This means the banks will be able to pay out as much as their earnings to shareholders as they see fit.

Though, it is worth noting that the regulator wants the banks to be vigilant when it comes to dividends.

APRA commented: “Since July, there has been an improvement in the economic outlook, bank capital and provisioning levels have strengthened, and the majority of loans that were previously granted repayment deferral have recommenced repayments. However, a high degree of uncertainty remains in the outlook for the operating environment.”

“In determining the appropriate level of dividends, APRA expects ADIs and insurers to remain vigilant, regularly assess their financial resilience through stress testing, and undertake a rigorous approach to recovery planning. The onus remains on boards to moderate dividend payout ratios to ensure they are sustainable, taking into account the outlook for profitability, capital and the broader environment,” it added.

Extensive stress testing.

APRA made the decision after looking at the results of extensive stress testing since the onset of COVID-19. These tests indicate that Australia’s banking system is strong and could withstand a very severe economic downturn and still continue to support the economy by supplying credit to households and businesses.

The test included a Severe Downside scenario, which involved a 15% fall in gross domestic product (GDP), a rise in unemployment to over 13%, and a fall in national house prices of over 30%.

The result of the Severe Downside scenario was a 5 percentage-point fall in the CET1 capital ratio of the banking system from 11.6% to 6.6%.

However, the regulator notes that this remains well above the 4.5% minimum capital requirement. Furthermore, it does not factor in mitigating actions that would inevitably be undertaken to offset this impact.

APRA’s Chair, Wayne Byres, commented: “A decade-long process of increasing capital levels and bolstering resilience in the banking system has put Australian banks in their current position of strength, allowing the sector to support customers and the broader economy at a time of crisis.”

“The results of APRA’s extensive ADI stress testing provide reassurance that the banking system remains well positioned to absorb the impact of a severe economic shock and retain the capacity to continue supplying credit into the economy,” he added.

More reading

• ANZ (ASX:ANZ) share price dips following joint-venture agreement
• Why ASX oil stocks could replace the ASX tech boom in 2021
• ASX 200 rises on Monday
• ASX stock of the day: Afterpay (ASX:APT) hits yet another new all-time high
• ASX 200 up 0.55%: Altium update, Afterpay jumps, NAB given ACCC approval

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price has dipped slightly this morning after the banking giant announced a joint-venture agreement with Worldline.

Worldline is the largest European – and fourth largest in the world – provider of payment services. The company has more than 20,000 employees based in more than 50 countries, offering customers highly-secured transactions on an array of platforms.

The ANZ share price finished from yesterday’s market close at $23.18 and is now trading at $23.15, down 0.13%.

Joint-venture agreement

ANZ today advised it will partner up with Worldline to provide its small business, commercial and instructional customers in Australia with the latest point-of-sale and online payments technology. The new deal will see users be able to process payments that are fast, reliable and more secure than traditional services.

ANZ stated that the new joint venture arrangement will form a -new merchant acquiring group. Under the terms, the bank will hold a 49% interest in the group, with the remaining 51% going to Worldline. The agreed contract will last for an initial 10 years.

As part of the deal, ANZ will exclusively refer new merchants to the group. In return, the joint venture will refer merchants back to the bank’s products including specific financing facilities.

ANZ believes once the transaction is finalised, its level 2 CET1 capital ratio will increase by around 5 basis points.

The formal arrangement is due to be completed sometime late next year, pending regulatory and other approvals.

What did management say?

ANZ group executive of Australia retail and commercial, Mark Hand, welcomed the collaboration, saying:

Receiving fast and secure payments is key to running a successful business, and this partnership will provide our customers with access to some of the most advanced payments technology currently available, as well as future innovations, to improve the speed and security of point-of-sale and online payments.

The partnership also responds to the fast-changing way that consumers want to pay for goods and services, particularly in a post-COVID environment.

Worldline chair and CEO Gilles Grapinet added:

The strategic alliance with ANZ is a landmark transaction for Worldline.

In a rapidly changing industry Worldline will be at ANZ’s side to leverage focused technical capabilities to provide the best customer proposition and user experience across all segments. Our long-term and exclusive joint venture is based on our shared vision to deliver value added merchant acquiring products and services in Australia.

About the ANZ share price

The ANZ share price has been climbing since hitting a multi-decade low of $14.10 in the March coronavirus rout. Its shares are still down 7% since the start of the year.

The company has a market capitalisation of $65.2 billion and a price-to-earnings (P/E) ratio of 14.1.

More reading

• Why ASX oil stocks could replace the ASX tech boom in 2021
• ASX bank shares surge after NAB (ASX:NAB) gets green light to sell MLC
• ASX 200 Weekly Wrap: ASX 200 hits a 6! Thank iron ore
• 5 things to watch on the ASX 200 next week
• Australia’s money supply rises 12%, but it’s only going to a few

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Cochlear Limited (ASX: COH) share price is trading slightly higher on Tuesday despite being dealt a blow in relation to its US patent dispute.

In morning trade, the hearing solutions company’s shares are up slightly to $196.20.

What did Cochlear announce?

This morning Cochlear announced that the United States Supreme Court has denied the company’s petition for a review of the US Federal Circuit’s decision which upheld a judgment of US$280 million in patent infringement damages against Cochlear.

This followed a lawsuit by the Alfred E. Mann Foundation for Scientific Research (AMF) and Advanced Bionics (AB) which dragged on for several years.

What now?

This is officially the end of the saga and there is no higher power that Cochlear can turn to now.

The good news, though, is that this won’t impact Cochlear’s future results. This is because Cochlear paid the full amount of the US$280 million judgment to AMF and AB in FY 2020.

Furthermore, as the patent at issue in the litigation has now expired, no further infringement damages can accrue, and this judgment will not disrupt Cochlear’s business or customers in the United States.

It is also worth noting that in August Cochlear reached an agreement with AMF and AB regarding the settlement of the two remaining issues in this case. These were AMF’s and AB’s request for prejudgment interest and attorney fees of US$75 million.

The settlement of those claims was contingent upon the outcome of Cochlear’s Supreme Court appeal.

Since Cochlear’s Supreme Court appeal is now finished, the agreed settlement amount that was placed into escrow will be paid to AMF and AB and the settlement will be final.  As with the US$280 million, the payment of this settlement liability was provided for in Cochlear’s FY 2020 financial statements and won’t impact its future financial results.

More reading

• 2 outstanding blue chip ASX shares to buy in 2021
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• 2 ASX 200 healthcare shares that outperformed in November 
• 2 ASX blue chip shares tipped as buys
• Is the Cochlear (ASX:COH) share price a long term market beater?

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. The Motley Fool Australia has recommended Cochlear Ltd. 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 Mesoblast limited (ASX: MSB) share price has come under pressure on Tuesday after the release of an announcement.

At the time of writing the allogeneic cellular medicines developer’s shares are down 11% to $4.03.

What did Mesoblast announce?

This morning Mesoblast announced the top-line results from the landmark DREAM-HF Phase 3 randomised controlled trial of its allogeneic cell therapy rexlemestrocel-L (REVASCOR) in 537 patients with advanced chronic heart failure.

According to the release, after a 30-month follow-up, patients with advanced chronic heart failure who received a single endomyocardial treatment with rexlemestrocel-L on top of maximal therapies had a 60% reduction in the incidence of heart attacks or strokes and a 60% reduction in death from cardiac causes when treated at an earlier stage in the progressive disease process.

However, despite this reduction in the pre-specified endpoint of cardiac death, there was no reduction in the recurrent non-fatal decompensated heart failure events. This was the trial’s primary endpoint.

Management believes this suggests that rexlemestrocel-L reduces mortality by mechanisms that are distinct from those of existing drugs that reduce hospitalisation rates but do not significantly impact cardiac mortality.

Mesoblast’s Chief Executive, Dr Silviu Itescu, commented: “There is an urgent need for new therapies that can reduce the high death rates in heart failure patients by different modes of action from existing drugs which reduce hospitalization rates but have not significantly reduced mortality rates.”

“The reduction in mortality seen with rexlemestrocel-L in advanced chronic heart failure underlines the power of this technology and the commitment of Mesoblast to address diseases in patients with high unmet need which are refractory to existing therapies,” he added.

What now?

While the primary endpoint may not have been achieved, management still sees potential for the therapy.

Mesoblast’s Chief Medical Officer, Dr Fred Grossman, explained: “We expect the mortality benefit observed in this seminal Phase 3 trial will support a potential path for approval of rexlemestrocel-L in patients with advanced chronic heart failure. We are planning to meet and discuss potential pathways to approval based on mortality reduction with the United States Food and Drug Administration.”

More reading

• These are 8 of the best performing ASX healthcare shares of 2020 so far
• Which shares will benefit from trillions of dollars in new global stimulus?
• Why the Mesoblast (ASX:MSB) share price is charging higher today
• Why Fisher & Paykel Healthcare, Mesoblast, Splitit, & WiseTech are dropping lower
• The Mesoblast (ASX:MSB) share price jumped 33% in November and could go even higher

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 Zip Co Ltd (ASX: Z1P) share price is pushing higher on Tuesday morning following the release of a positive announcement.

At the time of writing, the buy now pay later provider’s shares are up 1.5% to $5.35.

What did Zip Co announce?

Investors have been buying Zip Co’s shares this morning after it announced a partnership with one of Australia’s largest retailers.

According to the release, the company has entered into a partnership with the franchisees of Harvey Norman Holdings Limited (ASX: HVN) and its subsidiaries Domayne and Joyce Mayne.

The partnership will see the retailers offer their customers the ability to pay with Zip’s BNPL payment solutions.

Zip’s Co-Founder and Chief Operations Officer, Peter Gray, was pleased with the partnership.

He said: “We are thrilled to partner with such iconic brands. We look forward to providing customers with additional choice and better ways to pay as they ‘Shop with Confidence’ at Harvey Norman, Domayne, and Joyce Mayne.”

Management also notes that the partnership with Harvey Norman continues to deliver on the company’s strategic vision of providing customers with convenience and choice in how they choose to pay.

Furthermore, it supports Zip’s bold mission to be the first payment choice everywhere and every day.

Where now for the Zip share price?

Despite today’s gain, the Zip share price is still down ~50% from its 52-week high of $10.64.

This underperformance has been driven by concerns over increasing competition in the US buy now pay later market following launches by PayPal and Shopify. There is also speculation that the company may need to raise capital in the near future, which is adding to the negative sentiment.

Nevertheless, a recent broker note out of Ord Minnett reveals that its analysts believe this share price weakness is a buying opportunity. Earlier this month the broker put an accumulate rating and $6.50 price target on its shares.

More reading

• 3 ASX growth shares to add to your portfolio in 2021
• ASX 200 drops on Friday
• ASX 200 down 0.3%: CSL sinks, Zip’s Facebook deal, IGO rockets
• Why Eagers Automotive, IGO, Marley Spoon, & Zip shares are charging higher
• Aussie dollar breaking to new 30-month high will boost these ASX stocks

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 ZIPCOLTD FPO. 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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With the end of the year almost upon us, we asked our Foolish contributors to compile a list of some of the ASX shares experts are saying to Buy in 2021.

Here is what the team have come up with…

Tristan Harrison: A2 Milk Company Ltd (ASX: A2M)  

In addition to my December ASX share pick, A2 Milk could be another potential growth share to find its feet again after a strong first half of 2020 but weaker second half. COVID-19 impacts and Chinese concerns have sent the A2 Milk share price down to around the $13 mark. But at that price, it’s valued at 23x FY22’s estimated earnings.

The local Chinese business is growing quickly to compensate for lost daigou sales and the United States business is gaining traction. A2 Milk has also started generating earnings from Canada. Furthermore, the company has (or had, prior to announcing its proposed $385 million purchase of Mataura Valley Milk in August) close to NZ$1 billion of cash on its balance sheet. 

Motley Fool contributor Tristan Harrison does not own shares of A2 Milk Company Ltd.

Sebastian Bowen: Treasury Wine Estates Ltd (ASX: TWE) 

My ASX share pick for 2021 is Treasury Wines. Treasury, which owns brands like Wolf Blass and the famous Penfolds, is an ASX company that has had a difficult year in 2020.

At the time of writing, Treasury shares remain down around 42% year to date. This company had a major focus on exporting to the Chinese market, which is now in shreds thanks to new Chinese tariffs. However, it’s possible that the market has overreacted here, given Treasury’s strong brands and a plethora of remaining export opportunities. Thus, Treasury could be a potentially lucrative turnaround play next year. 

Motley Fool contributor Sebastian Bowen does not own shares of Treasury Wine Estates Ltd.

Bernd Struben: Brickworks Limited (ASX: BKW)

Brickworks focuses on property, investments, and supplying building products for the residential and commercial markets in Australia and the United States. Both the Australian and US Governments are supporting infrastructure and building construction in 2021.

Brickworks has a long history of share price appreciation (though not in a straight line!). In 2020, at the time of writing, the Brickworks share price is up 3.2% for the year thanks to a 57% surge since 22 April. It trades at a trailing price-to-earnings (P/E) ratio of 9.09 times.

Brickworks is also a reliable ASX dividend share, paying out both dividends this year for a yield of 3.1%, fully franked.

Motley Fool contributor Bernd Struben does not own shares of Brickworks Limited.

James Mickleboro: Appen Ltd (ASX: APX)

Appen is a leading provider of solutions to the artificial intelligence (AI) market. Through its team of over 1 million skilled contractors across the world, the company provides and prepares the data that goes into AI models. Among its customer base you will find the likes of Amazon, Facebook, Google, and Microsoft.

While FY2020 has been underwhelming because of COVID-19 headwinds, Appen’s management is confident the company’s performance will rebound strongly in 2021. After which, increased spending on AI is expected to underpin strong demand for Appen’s services over the long term. This sentiment has been echoed by analysts at Macquarie. Macquarie believes the recent weakness in the Appen share price presents a buying opportunity and has held firm with its outperform rating and $43.00 price target.

Motley Fool contributor James Mickleboro does not own shares of Appen Ltd.

Brendon Lau: Ansell Limited (ASX: ANN)

The Ansell share price has corrected by around 20% since hitting a record high in early November. Ansell has been one of the big COVID winners this year and news of promising COVID-19 vaccines has prompted some investors to lock in profits.

But one could argue demand for gloves is unlikely to abate even as vaccines are rolled out since people are likely to remain more safety conscious than prior to the pandemic. Furthermore, with no vaccine guaranteed to be 100% effective, consumers may be reluctant to throw away their protective consumables just yet.

Motley Fool contributor Brendon Lau owns shares of Ansell Limited.  

Regan Pearson: Pushpay Holdings Ltd (ASX: PPH)

Payments platform company Pushpay was one of the big winners of 2020. As public gatherings were restricted, new churches rushed to sign up and move donations away from cash to digital platforms. Not only did Pushpay increase its customers by 38% in the first half of FY21, its revenue jumped by a huge 51% to US$86.6 million.

Although this growth was spurred by lock-downs and will likely slow in 2021, the healthy free cash flow Pushpay has built will put the company on a strong footing to reinvest into sales or prepare for larger acquisitions to keep up momentum in 2021.

Motley Fool contributor Regan Pearson does not own shares of Pushpay Holdings Ltd. 

Rhys Brock: Pointsbet Holdings Ltd (ASX: PBH) 

Back in March, things were looking pretty bad for online sports betting company Pointsbet. Sports leagues across the world were grinding to a halt due to COVID-19 restrictions, and the company’s share price was in freefall.  

However, Pointsbet has still found a way to achieve several key milestones in 2020, not least of which was signing a new five-year marketing contract with US sports media giant NBC Universal.  

Pointsbet is also heading into 2021 with a significant war chest. After a round of capital raisings from institutional and retail investors, Pointsbet now has over $430 million in total corporate cash and cash equivalents on its balance sheet. 

Motley Fool contributor Rhys Brock owns shares of Pointsbet Holdings Ltd.

More reading

• Should you buy the Appen (ASX:APX) share price dip?
• These are 8 of the best performing ASX healthcare shares of 2020 so far
• Why the Pushpay (ASX:PPH) share price is in a trading halt
• Why I’m sticking with my Afterpay shares: fundie
• Leading brokers name 3 ASX shares to buy today

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, Facebook, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd, Pointsbet Holdings Ltd, and PUSHPAY FPO NZX and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of and has recommended A2 Milk, Brickworks, Macquarie Group Limited, and Treasury Wine Estates Limited. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Ansell Ltd., Facebook, Pointsbet Holdings 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.

Any investor expectations for 2020 were soundly destroyed by March, when the COVID-19 pandemic started to spread in earnest across the United States. Shutdowns forced everyone to rethink their priorities — simply getting the basic things you needed to shelter in place proved a challenge in itself.

The coronavirus pandemic is still with us, but the world and its consumers have adapted. Look for people to start applying their new preferences to how they think and shop. Four trends, in particular, are poised to take centerstage. Investors would be wise to note them for the year to come.

1. Private-label mania

So-called store brands have been gaining traction for years, when retailers stopped treating them like mere white-label goods and starting putting them in packages that look more like the national brands they compete with. But the economic fallout from the COVID pandemic sparked something of an awakening among consumers. A poll taken by marketing and branding agency Ketchum in the middle of the year indicated that 63% of U.S. consumers intend to purchase more private-label goods in the future after a lack of availability of their usual brand of goods forced them to try the alternative.

Big grocers like Costco and Walmart have done well with private-label goods, leaning heavily on their flagship brands Kirkland Signature and Great Value, respectively. Target can do the most with the growing disinterest in recognized brand names and has created almost 50 of its own in-house brands of food, clothing, and home goods.

Data from market-research outfit Numerator indicates more than 13% of U.S. households bought one of Target’s Good & Gather branded food items in 2019, though the label only launched in August of that year. Just a couple of months ago, Target unveiled premium versions of Good & Gather items to appeal to consumers seeking above-average quality but who are not interested in paying above-average prices.

2. Corporate responsibility matters more than ever

The public has always kept a fairly close eye on corporate behavior. But in the wake of this year’s social and political turbulence, consumers have become keenly aware that some corporations may be doing the world more harm than good. Brand-management agency Zero Group’s “2020 Strength of Purpose” study quantifies the premise, suggesting that consumers are four times more likely to do business with a company with a strong purpose no matter what that (presumably good) purpose may be.

Investors looking for a simple way to find ethically oriented companies don’t necessarily have to dig into every available data nugget about every organization. Environmental, social, and corporate governance, or ESG, ratings are readily available for most companies, easily indicating a corporation’s contribution to society beyond its bottom line. It will therefore come as little surprise that stocks with strong ESG scores tend to outperform stocks of less-responsible companies.

3. Direct-to-consumer is getting traction

The rise of direct-to-consumer (D2C) shopping and shipping has been deemed a threat to Amazon.com for years now, but it hasn’t yet rattled the king of e-commerce. Market-research company eMarketer estimated earlier this year that D2C sales would only reach a little less than $18 billion this year, en route to $21 billion next year. For perspective, Amazon’s generated around $350 billion worth of revenue over the course of the past four reported quarters.

The D2C market may be poised to expand much faster much sooner than one might expect, however, thanks to this year’s COVID-19 nudge. Consumer-monitoring outfit Diffusion reports that 30% of U.S. consumers purchased an item directly from the manufacturer within the past year. It’s not a lot, but that proportion is growing.

This trend puts names like Shopify and BigCommerce in the spotlight, as both companies help small and large manufacturers sell directly to consumers outside of Amazon’s ecosystem.

4. Beyond omnichannel, into personalization

Finally, most major brick-and-mortar retailers also offer online shopping and at-home delivery. Many offer at-store pickup of items bought via the internet, as well. These multiple paths to a purchase and pickup are the seamless omnichannel experiences so many chain stores have been working to build for several years. But consumers expect more now.

Shoppers are no longer impressed by being able to buy and receive products in any imaginable way (sometimes getting their online order delivered the same day it’s placed). They increasingly expect retailers to also act as service providers and even predict what they’ll need and how they’ll want to get it.

What this looks like in practice depends on the consumer and the company in question. For Amazon, it’s teaching its Alexa-powered assistant technology to think proactively about what a particular person might want to buy in the future based on that person’s current vocalized requests. For athletic-apparel name Nike, it’s the ability to fabricate a shoe that’s custom-designed online exclusively for and by that consumer. For Walmart, it’s the use of in-store tech that turns a shopper’s smartphone into a tour guide of sorts to create “an instant omni-shopping experience in the customer’s mind.”

However it manifests, the companies that can deliver a seamless, customized, hassle-free shopping experience for consumers stand to win market share.

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

More reading

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• Why Berkshire Hathaway is a retiree’s dream stock
• Why the Afterpay (ASX:APT) share price is not the only rising star this year
• These are 8 of the best performing ASX healthcare shares of 2020 so far
• Is the Altium (ASX:ALU) share price in the buy zone?

James Brumley has no position in any of the stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, 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 Amazon, Nike, and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon and Nike. 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.

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The Appen Ltd (ASX: APX) share price has struggled on all fronts of late. Not only has it underperformed the S&P/ASX 200 Index (ASX: XJO) in recent weeks, but it’s also been subject to the rotation away from tech shares into cyclicals, and delivered an earnings downgrade.

Could the recent weakness in the Appen share price be a buying opportunity? Here’s what Citigroup Inc (NYSE: C) is thinking. 

What’s been impacting the Appen share price? 

Appen previously advised the market back in April that the pandemic may dampen its 2020 performance. This was expected to play out through a slowdown in digital ad spending, a reduction in IT/digital spending, the reduction or cancellation of services from Appen’s smallest customers, interruptions to global hardware supply chains, and suspension of face-to-face projects such as audio data collection. 

The business remained resilient throughout the first half of FY20 with strong growth despite a slowdown in new business development and deferred revenues. While third quarter (Q3) revenue came in lower than expected, its major customers released strong Q3 results and online advertising bounced back. This raised the company’s optimism for Q4, especially taking into consideration how Q4 revenue has historically averaged 30% of Appen’s full year results.

However, after finalising Q4 performance, the pandemic has clearly disrupted and reshaped the priorities and activities of Appen’s customers and the traditional ramp up in Q4 has not occurred. 

The company now expects FY20 underlying earnings before interest, taxes, depreciation and amortisation (EBTIDA) to be in the range of $106 million to $109 million compared to the $125 million to $130 million outlined in its half year results. 

Appen cites that its major clients are reprioritising resources towards new product areas that enhance their long-term resilience and value which is currently impacting work volumes on some large mature projects. 

The company reiterates that the long-term trends for its business are positive with spending on artificial intelligence (AI) growing rapidly at 28% annually and the expectation that AI adoption should accelerate in a post-pandemic environment. 

Broker update

Citi reacted negatively to Appen’s profit guidance by lowering its price target from $45.00 to $32.60 but retains its buy rating. The broker notes that the company is in a strong position to take advantage of the expected increase in expenditure on AI and earnings growth could return to circa 20% if pandemic conditions in the United States ease. This price target represents a 30% upside to Monday’s closing Appen share price of $25.25. However, it makes a number of assumptions including the US flattening its COVID curve. 

More reading

• Leading brokers name 3 ASX shares to buy today
• These are 10 of the best performing ASX tech shares of 2020 so far
• 2 of the best ASX tech shares to buy and hold
• ASX 200 Weekly Wrap: ASX 200 hits a 6! Thank iron ore
• Top brokers name 3 ASX shares to buy next week

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 Appen Ltd. 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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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.

There’s no denying that the past couple of years have been relatively disappointing ones for Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shareholders. Stock in the Warren Buffett-led multinational conglomerate has soundly outperformed the broader market since its inception (as we know it) in 1964. But since the end of 2018, the S&P 500 index has gained nearly 48%, while Berkshire is up less than 12%. The fund has also merely — and uncharacteristically — matched the broad market’s performance over the course of the past 10 years.

Before jumping to sweeping conclusions about a bleak Berkshire future, though, take a breath and take a step back. This stock is still a great pick for pre-retirees looking to build a nest egg, and it’s still a solid pick for retirees who have room in their portfolios for a non-dividend-paying growth holding.

Berkshire Hathaway’s subpar performance

It would certainly be easy to fear the worst. At 90 years old, Warren Buffett is certainly no spring chicken. Much has changed about the market since he began using the textile company called Berkshire Hathaway as a holding vehicle more than five decades ago. Everything moves much faster now, and it’s more difficult to identify the value he’s sought out for so many years.

One also has to wonder how much stock-picking Buffett is actually doing these days. Apple has been Berkshire’s biggest stock holding for some time now, in conflict with the Oracle of Omaha’s long-standing stance that he won’t own a company he doesn’t fully understand. That’s largely been technology stocks — mostly growth names, which have led the overall market for several years.

BRK.A data by YCharts

Except, comparing Berkshire’s results in recent years to the broad market’s performance is in itself an unfair comparison. The past few years have decidedly rewarded growth stories rather than actual earnings, at the expense of value stocks that continue to crank out cash regardless of the environment. The idea bears out in the data. The iShares S&P 500 Growth Fund has outperformed the iShares S&P 500 Value Fund by a margin of more than two to one since 2014.

This weakness hits Buffett’s value-focused strategy close to home, in a manner of speaking, but it’s not a permanent headwind.

Environmental change afoot

Superficially, the disparity makes sense. Growth names are by definition meant to offer growth, even if that also means greater risk and more volatility. Value stocks, on the other hand, offer more reliability and impose less risk.

Largely lost in the noise of the recent growth-stock mania, however, is how growth and value names take turns leading the market. Not once in the modern market era have value stocks as a group failed to eventually catch up with gains from growth names.

Not once.

It’s also worth mentioning that cyclical periods of leadership (and laggardship) can last for several years, as has growth’s leadership since 2014.

That’s not to suggest value’s rebound and growth’s demise is slated to materialize in 2021. It is to say, however, that it’s likely to happen sometime. And for retirees or near-retirees playing the odds, it’s likely to happen sooner than later. That’s when Berkshire and Buffett’s acolytes should really start to shine as they have in the past.

Berkshire’s most unique edge is still intact

As for Buffett’s day-to-day involvement in Berkshire Hathaway’s stock-picking, he’s probably not all that involved anymore. He and Charlie Munger appear to have mostly passed the torch to Todd Combs and Ted Weschler, while relatively new board members Ajit Jain and Gregory Abel have been pegged as potential successors to Buffett. They all bring their own viewpoints to the table, which seemingly poses a threat to Berkshire’s long-standing investment approach.

This sort of style drift need not be a major concern for current and prospective retirees, however.

For good or ill, Warren Buffett has become bigger than life — a rockstar investing icon almost everyone respects, even if they don’t follow his advice. It would be difficult for any manager or Berkshire chief to assume such a role and not strive to continue doing what Buffett himself would most likely do. The Oracle of Omaha’s legacy is worth keeping alive.

Then there’s perhaps the most overlooked (but most important) nuance of the Berkshire Hathaway portfolio — it’s not all stocks. The fund only owns about a quarter of a trillion dollars’ worth of the same equities any other investor can own. But it’s got around twice that amount’s worth of privately owned, cash-generating companies like See’s Candies, Duracell batteries, GEICO auto insurance, Pampered Chef kitchenware, Acme bricks, and more. These are makers of consumer goods that people tend to buy over and over again.

This is the sort of flexible, cash-driving portfolio that allows any manager to prioritize bigger-picture value creation. Not only does Berkshire not have to worry about stock price volatility for those organizations, it can buy, sell, and manage companies as needed so retirees don’t have to worry about doing the same.

Bottom line

It’s admittedly tough to keep faith in what Buffett and his proteges are doing when it feels like they’re underperforming the overall market. As the old saying goes, though, things are always darkest before dawn. Berkshire Hathaway is still unlike any other investment opportunity out there, even if it can take years for it to pan out and pay off. Retirement planning should focus on the years ahead rather than months or even weeks.

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

More reading

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• Want to invest like Warren Buffett? This ASX ETF is all about ‘the moat’
• Here are the stocks Warren Buffett has been buying and selling
• Warren Buffett bought 4 pharma giants in Q3

James Brumley 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 Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short December 2020 $210 calls on Berkshire Hathaway (B shares), and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why Berkshire Hathaway is a retiree’s dream stock 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 Afterpay Ltd (ASX: APT) share price surged higher on Monday as the Aussie tech share looks set to join the S&P/ASX 20 Index (ASX: XTL) in 2021.

Afterpay shares closed up 8.8% at $109.93 per share, 258.9% higher than where they started the year.

Most ASX investors would be familiar with the Afterpay story, but what about the other rising stars of the ASX? Let’s take a look at some of the top performers ahead of 2021.

Why the Afterpay share price isn’t the only rising star

While the Afterpay share price has grabbed many of the headlines, there have been plenty of top stocks climbing higher.

That’s been recognised in the latest ASX 20 rebalancing, with Afterpay joining Fortescue Metals Group Limited (ASX: FMG), Coles Group Ltd (ASX: COL) and Aristocrat Leisure Limited (ASX: ALL) in the top stocks club.

It’s been a big year on the markets with the S&P/ASX 200 Index (ASX: XJO) currently on track for one of its best quarters in the last 20 years. 

Strong iron ore prices have been supportive of the Fortescue share price in 2020. In fact, the Fortescue share price has rocketed 105.6% higher this year to a market capitalisation of $68.2 billion.

The Coles share price has jumped 21.0% higher this year to $18.18 per share on the back of strong sales and profitability.

The outlier is Aristocrat, with the Australian gambling machine manufacturer actually seeing a 12.3% decline to $30.01 per share.

The wagering sector has been hit hard by coronavirus restrictions which has reduced demand for new machines. That makes the addition of Aristocrat into the exclusive ASX 20 club a curious one.

However, that’s more to do with some of the current constituents. Insurance Australia Group Ltd (ASX: IAG) has been turfed out of the index with a market capitalisation of $12.5 billion compared to Aristocrat’s $19.2 billion.

Foolish takeaway

It’s always worth keeping an eye on both the rising stars and “fallen angels” in an index rebalancing. That’s especially the case given the meteoric rise of Afterpay and other ASX tech shares in 2020.

More reading

• These are 8 of the best performing ASX healthcare shares of 2020 so far
• How the 21st century actually started in 2020
• Sell now or hold forever? What to do with shares like Afterpay (ASX:APT)
• Here’s why Bubs (ASX:BUB) and this ASX share are underperforming in 2020
• 5 things to watch on the ASX 200 on Tuesday

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Afterpay (ASX:APT) share price is not the only rising star this year appeared first on The Motley Fool Australia.

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