Given the level of volatility in the market in recent weeks, it would be unrealistic to assume we’re now in a totally ‘risk-off’ environment. But with forced selling having left the S&P/ASX 200 Index (ASX: XJO) down 20% since the start of 2020, it’s starting to look like bottom is now behind us.

Did you miss the bottom? Don’t panic, so did the most of the chief investment officers, who are paid a lot more than you to get it right.

That’s not to say heightened volatility isn’t here to stay for a while. However, while we’ll still see spreads of 2–3% on a given day’s trading, the expectation of the market moving another major leg down – which most institutional buyers are still praying for – now looks less bankable.

But if you’ve been brave enough to take positions in stocks over last few weeks, congratulations. Three years from now your entry point will (with the wisdom of hindsight) look compelling.

Did fund managers drink too much of their own Kool-Aid?

Ironically, it is fund managers, many of whom still refuse to admit how much they were zigging when the markets were zagging, who’ve been the last to heed their own advice. Namely, start accumulating oversold stocks. Assuming they reluctantly admit that the bottom has now passed, institutional buying over the coming weeks should provide a much needed kicker to the stocks you recently bought.

With COVID-19 affecting fundamental assumptions on blue-chip stocks we previously thought were bankable, like Flight Centre Travel Group Ltd (ASX: FLT), only the truly brave want to shout about the market bleeding value. After all, COVID-19 has delivered an existential shift to the earnings of many stocks.

However, the COVID-19 impact appears to have been overstated. Many stocks have been forced to re-emerge from the ashes with better, leaner and more profitable business models.

Swing back to value

With market dynamics being more impacted by central bank policy than fundamentals, it’s been hard for investors to draw a meaningful bead on value. However, with stocks in the value bucket now looking (at face value anyway) decidedly cheap, it could be time for active value-based fund managers to finally shine.

The resurfacing of value plays should offer strong clues as to where institutional money will find a home over the next few weeks. Riding the coat-tails of this buying strategy may not be such a silly idea, especially with the phased easing of COVID-19 lockdowns acting as an inflection point for a full economic recovery.

Assuming the likelihood of a second wave of COVID-19 is alleviated, Australia should – courtesy of the government’s $214 billion fiscal response – emerge strongly from our low-point of economy activity in April.

Here are 3 ASX 200 shares that make good value plays in the current environment, in my opinion.

Crown Resorts Ltd (ASX: CWN)

The late April decision by private equity firm Blackstone Group Inc to take a 9.99% stake in Crown Entertainment at $8.15 a share, provides some insight into what sectors are attracting the attention of institutional investors. While the stock has bounced up to $9.11, it’s still trading at a 32% discount to its 52 week high of $13.40.

Despite the coronavirus, Crown is still on track for the progressive completion of its new jewel, Crown Sydney, from late 2020.

The company recently secured $1 billion in fresh debt to weather the coronavirus shutdown. After paying its half-year 30 cents a share dividend, and $203 million to 95% of employees who were stood down, the company still has around $500 million in cash on hand.

Star Entertainment Group Ltd (ASX: SGR)

Crown’s rival Star Entertainment also benefitted from a vote of confidence in both the wagering sector at large, and its mid-April COVID-19 response. While the share price is now up around 62% after dipping as low as $1.62 in late March, it’s still trading at a 46% discount to its 52-week high of $4.93.

It’s too early to put definitive numbers around Star’s future earnings, but the market is clearly excited over its $3.6 billion Queens Wharf joint venture, which it plans to open late in 2022. While the Brisbane River development is being marketed as an ‘integrated resort’, it is expected to hold up to 2,500 poker machines.

Within its COVID-19 response, Star revealed that it stood down over 90% of its workforce in response to the shutdown of its activities in Sydney, the Gold Coast and Brisbane. In the meantime, after recently raising $200 million in fresh debt, the company has available cash and undrawn debt facilities of around $700 million.

The company is also advancing a business interruption claim through its insurer. The outcome of this claim hasn’t been factored into its cost and cash flow expectations. Based on a commitment not to pay a cash dividend until gearing is below 2.5 times, its lender has agreed to waiver debt covenants for the next testing date of 30 June.

Aristocrat Leisure Limited (ASX: ALL)

Unsurprisingly, slot machine group Aristocrat has witnessed similar share price falls to gaming stocks since early March. But after tumbling as low as $15.44, Aristocrat shares have now bounced back up to $25.58.

Aristocrat stood down 1,000 staff until the end of June, following the decision by virtually all its land-based customers globally to suspend operations. It also cut 200 roles permanently from the business, and moved another 200 full-time roles to part-time.

Aristocrat has a conservatively geared balance sheet with $1 billion in liquidity and no near-time refinancing requirements. This should allow it to rebound quickly once customers start to ramp up their patronage.

Foolish takeaway

Given the speed with which Australia (and the world) want to return to normalcy, Star, Crown and Aristocrat should be early beneficiaries once COVID-19 restrictions begin to lift. This also bodes well for the resumption of regular dividends.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 drops over 1% at the market close
• Short sellers are going after Afterpay’s rivals and these ASX shares
• 3 top-notch ASX shares on my May watchlist
• Is this ASX healthcare share about to soar?

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

The post 3 ASX 200 value plays for an economy hell-bent on recovery appeared first on Motley Fool Australia.

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The coronavirus is still affecting share markets. Overnight the S&P 500 (INX) fell by 2% on infection worries.

It isn’t as though the infection numbers are still growing exponentially in the US in terms of the total number. New York is certainly over the worst of it, it was perhaps the main entry port of the virus into the US. But now it’s spreading across the country, so whilst the daily number is staying between 20,000 to 30,000 it’s decreasing in the original states and growing elsewhere.

Some in the US are keen to lift restrictions and get the economy going again. Overnight there was a particular warning that spooked US investors.

Dr Fauci, the boss of the National Institute of Allergy and Infectious Diseases, warned if restrictions are lifted too soon it could mean “suffering and death”. According to media reports, he said:

“It would almost turn the clock back rather than going forward. There is a real risk that you will trigger an outbreak that you may not be able to control, which in fact, paradoxically, will set you back, not only leading to some suffering and death that could be avoided but could even set you back on the road to get economic recovery.”

That’s the real danger. A second (and a third and so on) wave. The US hasn’t even gotten over the first wave yet. Will the US go into lockdown again? Will it just spread through the country relatively uncontrolled and cause the public’s confidence to spend to stay low?

It’s a tough situation in the US with different groups having different views.

How does the coronavirus affect the ASX share market?

Thankfully Australia’s infection numbers are incredibly low compared to many other countries. But our share market generally follows the US share market on a day to day basis. Some of the ASX’s biggest companies like CSL Limited (ASX: CSL) earn a large portion of earnings in the US.

If the US economy goes into lockdown again then it could cause much more economic damage. Not many households or businesses have many months of cash on hand. 

But it won’t be like this forever, the world will get through the coronavirus whether it disappears naturally or a treatment can be developed.

I’m going to keep investing during this period of volatility. Over the longer-term, things are more likely to work out than not.

More reading

• Is this ASX healthcare share about to soar?
• Where to invest $10,000 in ASX 200 shares immediately
• 3 must-read investing books for new investors
• Is ‘buy-and-hold’ the best way to invest in ASX shares?
• In a post-COVID world, could Australia be the next superpower?

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 CSL Ltd. 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 Why the coronavirus is still affecting share markets appeared first on Motley Fool Australia.

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With the cash rate at the record low of 0.25% and tipped to remain at this level until at least the end of 2023, I think the share market remains the best place to earn a passive income.

Three top blue chip ASX dividend shares that I would buy for income are listed below. Here’s why I think they are great options right now:

Coles Group Ltd (ASX: COL)

I think this supermarket operator’s shares could be a good option for income investors because of its solid growth prospects and favourable dividend policy. In respect to its growth prospects, Coles look well-placed thanks to its cost reductions program, expansion opportunities, defensive qualities, and the return of rational competition. And with the company aiming to pay out between 80% and 90% of its earnings to shareholders, I estimate that its shares currently provide a fully franked forward 3.8% dividend.

Telstra Corporation Ltd (ASX: TLS)

Another option to consider buying for income is Telstra. I think Telstra is a great option due to its defensive qualities and improving outlook. In respect to its defensive qualities, these have been on display this year, with Telstra one of only a handful of companies that has been able to reaffirm its guidance. Looking further ahead, I believe Telstra’s outlook is greatly improved and a return to growth could be on the horizon. This is because the NBN headwind is easing and peak pain is expected to be reached within the next 18 months. In the meantime, I expect a dividend of 16 cents per share in FY 2020, which equates to a fully franked 5.2% dividend yield.

Wesfarmers Ltd (ASX: WES)

A final dividend share I would buy is Wesfarmers. I like the conglomerate due to its high quality portfolio, solid growth potential, and sizeable cash balance. The latter is likely to be used by the Bunnings and Kmart owner to add to its portfolio in the coming years and underpin further growth. For now, I estimate that Wesfarmers’ shares will provide a dividend yield of approximately 4% in FY 2021.

More reading

• Why high yield dividend shares can be detrimental to your wealth
• Is it time to buy ASX small caps for your portfolio?
• 3 ASX dividend kings to buy and hold forever
• UBS picks the real ASX winners from the COVID-19 grocery boom
• 3 safe and strong ASX dividend shares to buy today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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