There are a few reasons why Kogan.com Ltd (ASX: KGN) shares may resonate with some investors.

What does Kogan.com do?

Kogan.com is an online marketplace company that sells a wide variety of products including TVs, phones, computers, appliances, clothes, furniture and office supplies.

It’s run by the founder, Ruslan Kogan, and it has grown significantly during 2020. In FY20 it grew gross sales by 39.3% to $768.9 million. In the annual general meeting (AGM) update it said that gross sales increased by 99.8% in the financial year to date for the four months of July 2020 to October 2020, compared to the prior corresponding period.

Kogan.com also sells a number of different household services including mobile plans, internet, energy, credit cards, insurance, pet insurance, life insurance, health insurance and so on.

Here are some reasons why investors may like Kogan.com shares: 

Reason one: New Zealand acquisition

Kogan.com just announced a large acquisition for the expansion into New Zealand. It’s buying Mighty Ape, which is one of New Zealand’s leading online retailers which has a focus on gaming, toys and other entertainment categories.

Before the impact of synergies, Mighty Ape has FY21 forecast revenue of AU$137.7 million, forecast gross profit of AU$45.7 million and forecast earnings before interest, tax, depreciation and amortisation (EBITDA) of AU$14.3 million. This would represent year on year growth in revenue, gross profit and EBITDA of 43.7%, 58.1% and 254.1% respectively.

Kogan.com is paying AU$122.4 million with the purchase payable over four tranches through to the delivery of the FY23 result. Mighty Ape is founder-led, and the founder and executive team will be retained with incentives until at least FY23.

Kogan.com is expecting “significant revenue and cost synergies” across numerous areas of the business.

Reason two: Rising profit margins

When a business can increase its profit margins, it means that more of the revenue will help the net profit after tax (NPAT) line of the financials. Seeing growing profit is one of the main reasons that share prices grow over time and may influence Kogan shares.

Kogan.com can point to a steadily-rising EBITDA margin over the last few years. In FY17 it had an EBITDA margin of 4.3%, in FY18 it had an EBITDA margin of 6.3%, in FY19 the margin was 6.9% and in FY20 the margin was 9.3%.

The e-commerce business said that this demonstrates improving operating leverage and it continues to deliver significant projects to grow its products and services offering, while heavily investing in the platform.

Reason three: Kogan First members and extra services

Kogan First is a membership program that provides a range of consumer benefits, which includes access to free shipping. The idea is also for the business to create stronger loyalty from customers.

The ASX share explained that Kogan First members purchase on average much more often than non-members, which also demonstrates the significant savings available through the loyalty program. The number of paying Kogan First members increased significantly during FY20.

Kogan.com also wants more of its customers to sign up to the other extra services it offers like mobile plans, superannuation or home loans. If a customer signs up to additional services then they become more profitable to Kogan.com on a per-customer basis and it’s cheaper to ‘acquire’ them to use extra services than winning new external customers.

Valuation

At the current Kogan.com share price of $17.30 it’s valued at 27x FY23’s estimated earnings, according to Commsec. It also offers a trailing grossed-up dividend yield of 1.7%.

More reading

• Brokers name 3 ASX shares to buy right now
• Why Cashrewards, Doctor Care Anywhere, Kogan, & Treasury Wine are pushing higher
• Why Flight Centre, Fortescue, Kogan, & Telix shares are racing higher
• Kogan (ASX:KGN) share price storms higher on $122m Mighty Ape acquisition
• After a record November, what’s next for ASX 200 shares?

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com 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 Janus Henderson Group CDI (ASX: JHG) share price is having a fantastic day today. Janus Henderson shares are up 7.17% at the time of writing to $41.99 a share.

That came after a very strong open for the company, which saw the Janus Henderson share price spike all the way up to $43.08 – almost 9% higher than the $39.37 price the company closed at yesterday.

At $43.08, it’s also the new 52-week high and the highest level this company has traded at since mid-2018. It also means the Janus Henderson share price is up almost 98% from the lows the company reached in March. However, we’re still a long way away from the ~$64 a share levels we saw back in late 2015.

So who is Janus Henderson? And why are the shares spiking so enthusiastically today?

Janus Hender-who?

Janus Henderson is in the business of asset management. It’s a funds management company that is actually dual-listed, hence the ‘CDI’. It (of course) appears on the ASX under the ticker JHG. But it is also listed on the New York Stock Exchange as Janus Henderson Group PLC (NYSE: JGH).

Despite these two listings, it is actually headquartered in the United Kingdom (explaining the PLC on the end there). So we have a real globetrotter here! This is explained by the fact that Janus Henderson used to be 2 separate companies – you guessed it, Janus Capital Group and Henderson Group. Janus was an American company, and Henderson, British before the two merged in 2017.

So, as we just touched on, Janus Henderson is a fund manager. The company states that: “Our individual, intermediary and institutional clients span the globe and entrust us with… their assets”.

It offers both mutual funds (managed funds) and exchange-traded fund (ETF), although its Australian offerings are more or less restricted to ‘wholesale’ (read ultra-wealthy) clients. Even so, its funds’ are available in many, if not most countries in the world in varying degrees. This includes the United Kingdom, Europe and the United States and Canada, as well as most of South America and the Middle East.

It’s North American funds under management (FUM) is the company’s crown jewel, housing US$208.8 billion (or 56%) of the total FUM of US$374.8 billion (as of the 2019 annual report). Europe, the Middle East, Africa and Latin America account for another US$111.6 billion, with the Asia Pacific making up another US$54.4 billion in turn.

Why is Janus Henderson rocketing today?

Strangely, there is no immediately-obvious reason why Janus Henderson shares are rocketing today. There are no newsworthy announcements that the company has made recently, and certainly none with any earth-shattering, share price-moving potential that one would deem obvious.

However, if we dig a little deeper, something interesting does bubble up to the surface. Janus Henderson has been buying back its own shares. With gusto.

The company has posted a daily share buyback notice almost every trading day for months now. In fact, just today, the company did the same thing, telling the markets that the company has bought back and cancelled almost 4,000 shares. Same as yesterday, and the same as the day before that.

Perhaps investors (or one giant investor) have noticed.

Share buybacks are accretive to shareholder value. If a company buys-back its own shares, it reduces the pool of shares that its profits (and dividends) have to be split between. Thus, a share buyback increases the earnings per share that an investor can expect to receive from their investments. Even if the company isn’t actually growing its profits in the conventional manner. A buyback is often compared to a dividend in how it returns value to the shareholders.

It’s possible that these buybacks have led to the spike in Janus Henderson today. Or it’s possible that someone knows something good about the company that hasn’t been released to the markets just yet.  Either way, it’s been a good day for Janus shareholders!

More reading

• ASX 200 up 0.3%: Premier Investments update, big four banks rise, gold miners tumble

Motley Fool contributor Sebastian Bowen 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 Rhythm Biosciences Ltd (ASX: RHY) share price was an outstanding performer on Friday.

At one stage, the medical device company’s shares were up 28% to a record high of 95 cents.

The Rhythm Biosciences share price eventually ended the day 17.5% higher at 87 cents.

Why is the Rhythm Biosciences share price rocketing higher?

Investors were buying the company’s shares this week due to the release of a positive announcement.

Earlier this week, Rhythm Bioscience revealed that it has appointed France-based Biotem as the global manufacturer of its ColoSTAT test-kit.

Management advised that Biotem was chosen following a robust due diligence process to select a manufacturer for the product that could execute on its ambition to address the global unmet need for the early detection of colorectal cancer.

With over 40 years of immunoassay development and manufacturing experience, it feels Biotem has the capability to deliver the optimisation and process validation of the manufacturing procedure. It also believes it has the ability to economically produce large-scale quantities of the ColoSTAT test-kit.

What now?

The company advised that the initial design transfer and the broader core technology transfer is currently underway.

It expects that small-scale manufacturing of ColoSTAT prototype test-kits will have commenced by the end of the 2020 calendar year.

After which, the initial batches of test-kits will undergo quality assurance and ongoing product verification testing by Rhythm. They will then be used for testing on cancerous and healthy blood samples, forming Study 6, which is on track for completion by the third quarter of FY 2021.

Rhythm CEO, Glenn Gilbert, commented: “Following our recent completion of the ColoSTAT protype test-kit, the appointment of Biotem as our global manufacturer now sets a clear pathway to bring ColoSTAT to the market. We are focused on an exciting few months ahead as we scale up our development plan activities.”

Globally, over 850,000 people die from colorectal cancer each year. This cancer is typically diagnosed at a later stage when there is a poor prognosis for long-term survival. The number of annual unscreened 50 to 74-year olds is estimated to be +130 million for the US, Europe and Australia alone. Combined, this represents a market opportunity of over $6.5 billion.

More reading

• These small cap ASX shares delivered more than 100% returns in November

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 S&P/ASX 200 Index (ASX: XJO) went up by 0.3% today to 6,634 points.

Here are some of the highlights from the ASX:

Initial public offerings (IPOs) go off with a bang

There have been a number of IPOs hit the market recently. Two of the IPOs that went onto the market went up strongly. 

Nuix Limited (ASX: NXL) is an Australian technology company that has a software platform for indexing, searching, analysing and extracting knowledge from unstructured data. It has services relating to digital investigation, cybersecurity, information governance, email migration and privacy.

The Nuix share price finished the day higher by 53.5% to $8.15.

Another business to list today was Doctor Care Anywhere Group Plc (ASX: DOC). It’s a telehealth business that allows patients and doctors to connect via video call rather than actually attending a clinic.

The Doctor Care Anywhere share price finished higher by 19%.

Premier Investments Limited (ASX: PMV)

Premier Investments held its annual general meeting (AGM) today.

The ASX 200 company reminded investors about the difficulty of the initial COVID-19 impacts earlier in 2020. Retail store sales were down 78.4% and global sales were down $131.1 million compared to the prior corresponding period between 11 March 2020 and 15 May 2020.

However, in the first 18 weeks of FY21 it has seen Premier Retail online sales grow by 70% compared to the prior corresponding period. Premier reminded investors that these online sales come with significantly higher earnings before interest and tax (EBIT) margins compared to its physical stores.

Premier said that through a combination of board experience and outstanding management leadership the business is “exceptionally well positioned” as the holiday trading period gets closer.

The Premier share price went up by around 1% today in reaction.

Cimic Group Ltd (ASX: CIM)

The ASX 200 engineering business announced that its UGL business has been awarded more than $112 million in utilities contracts.

The contracts cover several projects. One of those projects is the design and construction of a 300kV switchyard at Maragle in the Snowy Mountains, NSW for TransGrid. The contract includes building 10 kilometres of 330kV transmission lines to connect the switchyard and the Snowy 2.0 pumped-hydro project cable yard.

Another task is the installation of a 52MW/78MWh Tesla battery for Transgrid at the Wallgrove Substation in Sydney’s West.

The next one is the design and construction of a 132kV/33kV substation to support the connection of a solar farm in Gunnedah, NSW, to TransGrid’s network in the state.

Cimic’s UGL is also going to do design and construction work for Powerlink’s substations at Lilyvale and South Gladstone, Queensland.

Finally, Cimic has been tasked for the design and construction work for United Energy, including the installation and replacement of feeder schemes at substations and the installation of safety mechanisms.

Cimic Group CEO Juan Santamaria said: “We’re proud to work with these clients to connect future renewable projects to the grid and supply new energy into the network. In doing so, we’ll also create job and procurement opportunities for regional communities.”

UGL managing director Doug Moss said: “These new contracts in the utilities sector highlight UGL’s power and renewables capability and expand on our well-established relationships with TransGrid, Powerlink and United Energy. We look forward to carrying out these contracts in a safe and reliable manner.”

The Cimic share price fell 0.4% today.

More reading

• Elixinol (ASX:EXL) share price tumbles on capital raising update
• Are ASX stocks about to get an earnings upgrade boost in the new year?
• The Nuix (ASX:NXL) share price zoomed 69% higher following its IPO
• Why the Woodside (ASX:WPL) share price is edging higher today
• Doctor Care Anywhere (ASX:DOC) share price rockets 37% higher after its IPO

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments 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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The Allegra Orthopaedics Ltd (ASX: AMT) share price shot up 137.5% today on positive test results. The company advised that testing of its revised spinal cage device showed significant improvement in strength, compared to its previous design.

The Allegra share price jumped as high as 61 cents at the news today, before retreating to close at the current price of 44 cents.

About the test results

The spinal cage device is Allegra’s flagship innovation project, a unique biodegradable cervical fusion device to be used as a human bone substitute.

The medical device company has engaged an accredited testing facility in the United States to confirm the effectiveness of a revised design to the device. Today’s results showed a significant improvement in strength. Specifically, the revised device has a compressive strength of  60kN. This is significantly above human physiological load (1.2kN), and sheep physiological load (3-4kN).

It is also double the compressive strength of the previous design, and above the 95th percentile for published data on FDA approved cages.

Allegra said the same facility conducted dynamic compressive testing to determine the fatigue life of the spinal cage. The testing passed the regulatory-required 5 million dynamic cycles without any signs of fracture or failure.

Due to these positive results, Allegra will now go ahead with the new design. The company plans to start a pilot animal study in January 2021 in Australia. This will be a confirmatory study to be followed by a large animal study, as per FDA requirements.

Today’s announcement marks one year since the company started its initial preclinical large animal study.

The Allegra share price in 2020

The Allegra share price spiked in July by as much as 500% to 53 cents after it acquired Sr-HT-Gahnite patents from the University of Sydney. This is the material used for its spinal cage device.

After today, the Allegra share price is closing in on that high, and currently commands a market cap of $21 million.

More reading

• Here’s why the Home Consortium (ASX:HMC) share price is in a trading halt
• Creso Pharma (ASX:CPH) share price up 8% today, 200% in a week
• Elixinol (ASX:EXL) share price tumbles on capital raising update
• Brokers name 3 ASX shares to buy right now
• Are ASX stocks about to get an earnings upgrade boost in the new year?

Motley Fool contributor Eddy Sunarto 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 Home Consortium Ltd (ASX: HMC) share price isn’t going anywhere on Friday after it requested a trading halt.

Why is the Home Consortium share price in a trading halt?

The property company requested a trading halt this morning so it could undertake an equity raising to fund a number of new acquisitions.

According to the release, Home Consortium is aiming to raise a total of $125 million via a fully underwritten placement at an issue price of $3.80 per new share.

This represents a discount of just 2.6% to its last close price of $3.90.

What is Home Consortium acquiring?

The company has agreed terms to acquire a portfolio of 6 health, education, and Government services properties for a total initial investment of $62 million. This will increase to $131 million including fund-through contributions.

Management notes that the acquisitions are consistent with its strategy to increase its exposure to health, wellness, and Government assets.

In addition to this, Home Consortium has entered into an agreement to acquire Gregory Hills Home Centre in New South Wales. The company has agreed to acquire the centre for a total consideration of $32 million. Management notes that this increases its exposure to the Western Sydney growth corridor.

These acquisitions increase Home Consortium’s Health, Wellness, and Government exposure to over $400 million of assets. Management also believes they provide the scale to establish a second standalone fund which will be managed by the company in the first half of 2021.

Home Consortium’s Executive Chairman & CEO, David Di Pilla, commented: “The acquisitions announced today are an exciting step for HomeCo and increases our exposure to the opportunity rich Health, Wellness & Government sectors. Importantly, the establishment of the HealthCo REIT in early 2021, today’s $125 million placement and HomeCo’s newly formed Capital Partnerships Group will set the foundation for HomeCo to accelerate growth in assets under management.”

More reading

• HomeCo Daily Needs REIT (ASX:HDN) on debut today as largest IPO in 2020
• Why BlueScope, Home Consortium, IAG, & Kogan shares 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. 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 been rocketing higher over the last few days of trading, driven by positive updates. These included an announcement yesterday that the United Nations (UN) will reclassify cannabis as a less dangerous drug. 

The Creso share price has risen by 200% since 27 November, including a 65% price rise yesterday, and today’s increase of 8.25%. At the time of writing, Creso shares are trading at 10.5 cents.

UN landmark announcement

Creso announced yesterday that it is set to benefit from a landmark UN decision to reclassify cannabis as a less dangerous drug.

The vote was cast by the UN on 2 December 2020, after a series of recommendations were put forward by the World Health Organisation (WHO).

The decision will see the UN Commission on Narcotic Drugs withdraw cannabis from Schedule IV classification. Schedule IV substances are considered the most dangerous and addictive drugs.

The UN says that cannabis will now be reclassified as a Schedule I substance, which is the least restrictive drug classification.

Creso said its business is extremely well positioned to benefit from this ruling, which will unlock multiple near-term opportunities.

What else is driving the Creso share price higher?

Two days ago, Creso announced it has received three new purchase orders from Europe for its anibidiol line of animal health products. 

According to Creso, the new orders take total purchase orders generated through the company’s animal health segment to around $975,000 for 2020, reflecting the strong demand for its products.

Creso said these purchase orders are a major achievement for the company during the challenging regulatory situation and COVID-19 pandemic. The company expects to receive more orders over the next few months from the growing European animal health market.

In another positive development last month, Creso reported it was waiting for a Therapeutic Goods Administration (TGA) decision in late December that will be a game-changer for cannabidiol (CBD) products.

The TGA is making a decision that could see CBD products sold over the counter at pharmacies without the need for a prescription.

Creso said this decision could potentially open up a significant, new opportunity for the company, with the Australian market estimated to be worth around $200 million every year.

How has the Creso share price performed in 2020?

With its recent stellar gains, the Creso share price has almost regained its losses in 2020 and is now down 8.5% for the year. After a fantastic few days of trading for Creso, the company currently commands a market capitalisation of around $65 million.

More reading

• Elixinol (ASX:EXL) share price tumbles on capital raising update

Motley Fool contributor Eddy Sunarto 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 Elixinol Global Ltd (ASX: EXL) share price tumbled after management issued an update to its share purchase plan (SPP) today.

The EXL share price lost 7.6% to 24 cents in after lunch trade when the S&P/ASX 200 Index (Index:^AXJO) gained 0.5%.

Other ASX medicinal cannabis stocks are faring better. The Creso Pharma Ltd (ASX: CPH) share price gained 10.3% to 11 cents and the Auscann Group Holdings Ltd (ASX: AC8) share price stayed flat at 17 cents at the time of writing.

Elixinol share price well above offer price

But Elixinol shareholders may not be too perturbed as the stock is still up 33% since the company emerged from a trading halt.

The trading halt was called as management undertook an $8.2 million placement and launched a SPP to raise another $2 million.

Management said today that its SPP has secured $1.3 million ahead of the 11 December closing date for the SPP.

Unusual SPP update

It’s quite unusual for management to issue an update to the SPP, but I take it that management is very eager to get the cash.

This was evident as the ASX statement “strongly encourages” shareholders who haven’t put in their applications to do so before next week’s deadline.

The fact is, there is no incentive for shareholders to lock in bids for the raise so far out from the SPP closing date.

Why it’s better to wait

Between now and then, the Elixinol share price could drop below the offer price of 17 cents a share. If that were to happen, it would be cheaper for shareholders to purchase shares on market instead.

If management really wanted shareholders to consider applying to the SPP earlier instead of later, it would have offered a discount to the five-day volume weighed average price (VWAP).

This means SPP applicants will either pay 17 cents or the small discount to the VWAP, whichever is lower.

Foolish takeaway

The update also worked against the company, in my view. Shareholders now know they are likely to get their full allocation.

If they thought that there is a good chance they will be scaled back (meaning they only get part of what they applied for), shareholders may be tempted to apply for more than what they really wanted.

Of course, there could be a late surge in applications as there normally is to such programs, but today’s update puts the oversubscription theory in doubt.

Sometimes more is less.

More reading

• Are ASX stocks about to get an earnings upgrade boost in the new year?
• Why the Woodside (ASX:WPL) share price is edging higher today
• ASX 200 up 0.3%: Premier Investments update, big four banks rise, gold miners tumble
• Goldman says buy the Metcash (ASX:MTS) share price ahead of next week’s results
• Will ASX kick out companies that don’t have board diversity?

Motley Fool contributor Brendon Lau 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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Australia’s top brokers have been busy adjusting their estimates and recommendations again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

CSL Limited (ASX: CSL)

According to a note out of UBS, its analysts have retained their buy rating and $346.00 price target on this biotherapeutics giant’s shares. The broker has been looking at its plasma collection openings and is confident CSL will achieve its target of 20 to 30 new centres in FY 2021. It expects this to offset a portion of the decline it is facing with collections from COVID-19. And while these COVID headwinds are not easing, the broker notes that trading conditions are not as bad as they were at the peak of the pandemic. Overall, it appears comfortable CSL will achieve its forecasts this year. The CSL share price is trading at $294.51 this afternoon.

Healius Ltd (ASX: HLS)

Analysts at Credit Suisse have retained their outperform rating and $4.00 price target on this healthcare company’s shares. This follows the completion of its Medical Centre sale to private equity firm, BGH Capital. The broker believes that the company could return some of the proceeds to shareholders in the form of a special dividend and an increase in its payout ratio. It also sees potential for margin expansion in the near future thanks to favourable industry conditions. The Healius share price is changing hands for $3.62 on Friday.

Kogan.com Ltd (ASX: KGN)

Another note out of Credit Suisse reveals that its analysts have upgraded this ecommerce company’s shares to an outperform rating with an improved price target of $20.60. The broker made the move after Kogan announced the $122 million acquisition of online retailer Might Ape. It believes this is a quality acquisition and expects its to boost its private label offering. It also envisages notable synergies from the deal. The Kogan share price trading at $17.32 this afternoon.

More reading

• Why Cashrewards, Doctor Care Anywhere, Kogan, & Treasury Wine are pushing higher
• Why Flight Centre, Fortescue, Kogan, & Telix shares are racing higher
• Kogan (ASX:KGN) share price storms higher on $122m Mighty Ape acquisition
• After a record November, what’s next for ASX 200 shares?
• CBA (ASX:CBA) and the ASX banks just had an amazing month

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 CSL Ltd. and Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com 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 spectacular 10% jump in the S&P/ASX 200 Index (Index:^AXJO) in November prompted doomsayers to predict an imminent violent crash.

The ASX 200 is trading at around 20 times forward price-earnings (PE) compared to its historical average of around 16 times.

Some experts believe a day of reckoning is just around the corner as too much good news is priced into the market.

ASX stocks about to receive an earnings upgrade

But there’s one thing that these pessimists aren’t counting on. This is a consensus profit upgrade as the economy tries to escape the pull of the COVID‐19 recession.

I know it sounds a little far fetched but the ASX being in a cum-upgrade cycle may not be such a crazy thought, according to Macquarie Group Ltd (ASX: MQG).

“We still suspect analyst forecasts are too conservative, as ASX 200 earnings rose just 1% even as stock prices rose 10%,” said the broker.

“All else being equal, by bringing forward the end of the pandemic, we think the positive vaccine news should have led to earnings upgrades for the December half of Calendar 2021.

“The PE spike in Covid-19 losers is likely the market signalling that EPS [earnings per share] upgrades are coming.”

ASX COVID losers on an earnings upgrade path

The COVID-19 losers refer to ASX stocks that have taken the brunt of the market sell-off since the pandemic.

These include the Webjet Limited (ASX: WEB) share price, the Flight Centre Travel Group Ltd (ASX: FLT) and the Unibail-Rodamco-Westfield CDI (ASX: URW) share price.

Why ASX miners will also get upgraded

Another group of ASX stocks that is almost certain to be upgraded is mining. The price of iron ore spiked yesterday after Vale SA downgraded its 2020 and 2021 production guidance.

The supply shortfall is a boon to the BHP Group Ltd (ASX: BHP) share price, Rio Tinto Limited (ASX: RIO) share price and Fortescue Metals Group Limited (ASX: FMG).

Analysts had been expecting the iron ore price to weaken from current levels. But the new demand-supply imbalance means this view will need to be revisited. This spells earnings upgrades for our iron ore producers.

Other tailwinds supporting the Santa Rally

But earnings upgrades aren’t the only reasons to feel bullish about the near-term performance of ASX stocks.

“After the strong returns last month, there is a fear of a near-term pullback, but we could still see a Christmas rally,” added Macquarie.

“Australia is well positioned with RBA QE on automatic pilot (i.e. at least $5bn per week), plus fiscal stimulus and a lack of domestic Covid-19 cases.”

Ho Ho Ho, fellow Fools!

More reading

• Why the Woodside (ASX:WPL) share price is edging higher today
• ASX 200 up 0.3%: Premier Investments update, big four banks rise, gold miners tumble
• Goldman says buy the Metcash (ASX:MTS) share price ahead of next week’s results
• What do big brokers think about soaring commodity prices and ASX mining shares?
• Will ASX kick out companies that don’t have board diversity?

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Rio Tinto Ltd., and Webjet Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel 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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