Xero Limited (ASX: XRO) shares have opened the week strong today, banking a 2.5% rise to $77.19 at the time of writing. Even so, the Xero share price is still down 7.6% over the past week.

Xero is one of those shares that doesn’t seem to ever dip too much, so is this a rare buying opportunity?

Why has the Xero share price dipped?

Xero shares fell last week after the company released its FY20 results to the market. Xero reported some strong numbers, including a 26% increase in subscribers, a 30% increase in revenues and an inaugural profit of NZ$3.3 million. Free cash flow also increased by 320% to NZ$27.1 million.

But despite these numbers, investors were clearly expecting a little more out of this WAAAX market darling. Xero shares dipped in response, falling from nearly $84 on Wednesday to around $75 by the end of the week.

Does this mean Xero is a buy today?

Although the Xero share price has come off the boil, I’m still not convinced it’s at a compelling level today.

Xero is a company investors are pricing for a high growth future and it does have a long growth runway, for sure. Governments around the world are pushing for their taxpayers to switch to digital providers like Xero, which is a great long-term tailwind for the company to enjoy. Further, Xero has shown its product is extremely sticky, with most customers remaining on its platform after onboarding.

But with a current price-to-earnings ratio over 3,500, I think investors are seeing a little too much future potential based on current levels. Remember, this is a company that has just turned its first profit of NZ$3.3 million, yet has a market capitalisation of nearly $11 billion.

Furthermore, I still have concerns that Xero might run into increased competition which, in turn, may slow the astronomical rate of its subscriber growth. Intuit Inc. (NASDAQ: INTU) is one of Xero’s major competitors and has also been growing its market share in North America.

Perhaps on current prices, the market is treating Xero like a future monopoly in its cloud accounting space, rather than one of several strong players.

Foolish Takeaway

Xero is a high-quality company to be sure, and one I wouldn’t mind owning shares in at some point. But I think the current market environment is not one we should be making high-growth bets in. Therefore, today’s Xero share price is still a little out of my comfort zone. Call me if the Xero share price falls back to under $60 where it was a year ago and we might have a different conversation!

More reading

• 5 ASX 200 winners and 5 losers of the week
• ASX 200 up 0.25% this week, CBA reveals Q3
• Top brokers name 3 ASX 200 shares to sell next week
• Top brokers name 3 ASX shares to buy next week
• ASX 200 finishes up 1.4%, gold miner share prices surge

Sebastian Bowen 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 Intuit. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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One of the best performers on the S&P/ASX 200 Index (ASX: XJO) on Monday has been the Fortescue Metals Group Limited (ASX: FMG) share price.

At one stage today the iron ore producer’s shares were up as much as 8% to a record high of $13.53.

When its shares reached that level, it meant they had gained a sizeable 25% since the start of the year.

Not bad when you consider that the ASX 200 is down over 18% during the same period.

Why is the Fortescue share price at a record high?

Investors have been buying the iron ore producer’s shares on Monday after the price of the steel making ingredient climbed higher on Friday night.

According to CommSec, the benchmark iron ore price rose by US$2.50 or 2.8% to US$93.25 a tonne. This brought its weekly gain to a solid US$4.80 or 5.4%.

Iron ore prices have been increasing thanks to solid demand in China and production disruptions from key Brazilian miners.

Pleasingly, analysts at Goldman Sachs appear confident that iron ore prices will remain solid for some time to come. They recently ruled out a crash in the base metal’s price.

What else is supporting Fortescue’s shares?

In addition to this, with the interest rates on offer with savings accounts and term deposits at ultra low levels, income investors have been attracted to Fortescue for its generous yield.

Especially given how countless dividend favourites such as Australia and New Zealand Banking GrpLtd (ASX: ANZ) have been deferring or even outright cancelling dividend payments during the pandemic.

According to a note out of Macquarie Group Ltd (ASX: MQG) on May 1, it expects Fortescue to pay a 73.3 cents per share dividend in FY 2021. This implies a 5.5% fully franked forward dividend yield.

While that is very generous already, I suspect that if iron ore prices remain at these levels for longer, Fortescue’s free cash flows will be strong enough to pay an even bigger dividend next year.

Overall, I think this yield and its positive outlook makes it worth considering Fortescue along with fellow mining giant BHP Group Ltd (ASX: BHP).

More reading

• ASX 200 up 1.35%: Gold miners and Fortescue rocket higher, big four banks tumble
• Beat falling rates with these strong ASX dividend shares
• Are these China-exposed ASX shares in danger in 2020?
• Get paid huge amounts of cash to own these ASX dividend shares
• Goldman Sachs names 5 reasons iron ore prices won’t crash

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

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I think the smartest shares to buy if you have $2,000 are ones that are seeing an acceleration of growth.

In light of the ongoing coronavirus pandemic and the share market decline, I think there are three groups of shares.

There’s one group that have seen their earnings and share prices smashed. Think of industries like retail and travel. There may be a few shares to buy in that group, but I don’t think the Flight Centre Travel Group Ltd (ASX: FLT) share price will be back above $30 any time soon.

There’s another group of shares that generally don’t seem to be significantly affected either way for the medium-term. I’m thinking of eesource shares like Rio Tinto Limited (ASX: RIO), supermarkets like Coles Group Limited (ASX: COL) and energy infrastructure like APA Group (ASX: APA). I think you need to decide if you’re happy to invest in these names, when other shares have fallen hard in price.

Finally, I think there’s another group where growth has been, or will be, accelerated by the current conditions. This largely describes business that have an important digital element to their service. I think it’s within this group that could be the smartest shares to buy if you have $2,000.

Two of the smartest shares to buy with $2,000

Pushpay Holdings Ltd (ASX: PPH) is a compelling smaller business that provides electronic donation services to not-for-profits, predominately US churches.

In this period of social distancing, having the ability to donate digitally to the church is extremely useful. Pushpay also enables churches to livestream the church service to the congregation.

The company generated excellent growth in FY20 and in FY21 it’s expecting earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) to approximately double.

I think Pushpay is one of the smartest shares to buy because people are shifting to electronic giving much faster than what would have happened otherwise.

Magellan High Conviction Trust (ASX: MHH) is a listed investment trust (LIT) that invests in high quality globally listed shares which have very strong economic moats. This trust has a small portfolio of names that it has high conviction in. Those businesses generally provide most of their services digitally.

Some of the shares within the trust’s holdings are Alibaba, Alphabet, Microsoft, Facebook and Visa. I think these are some of the smartest shares to buy in the world. We can get exposure to all of them with a single investment in Magellan High Conviction Trust.

Even the advertising businesses like Alphabet and Facebook could be good picks because whilst total marketing spend is obviously down, digital advertising is the best way to reach customers at the moment.

As a bonus, the trust targets a 3% distribution yield each year.

Foolish takeaway

I really think both of these shares will see stronger underlying user growth and this will help generate stronger long-term growth. At the current prices I think Pushpay could be one of the smartest shares to buy on the ASX. Magellan High Conviction Trust could be another great idea, particularly if the Australian dollar keeps strengthening.

More reading

• Why I would buy these exciting ASX growth shares right now
• ASX shares can help millennials retire before their parents
• These 4 ASX shares are at 52-week highs. Time to invest?
• Take advantage of ASX share market volatility
• Double your money with these high quality ASX shares

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. 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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