The Commonwealth Bank of Australia (ASX: CBA) share price rocketed 2.32% higher yesterday, but is the ASX bank share in the buy zone?

Why the CBA share price climbed higher

Commonwealth Bank was a big part of the S&P/ASX 200 Index (ASX: XJO) gains on Monday. And the Big Four bank shares all climbed higher yesterday despite Treasurer Josh Frydenberg confirming Australia is headed for a technical recession in 2020.

The Aussie dollar had reached a new, 5-month high of 69.83 US cents on Wednesday before slipping back to 69.3 US cents by the end of the day. Whilst we learned the Aussie economy shrank by 0.3% for the March quarter, it marginally outperformed expectations of a 0.4% decline.

Hopes of a swifter than expected rebound from the coronavirus economic fallout could have been behind the CBA share price move. There’s plenty of money being poured into ASX shares right now, but should you be buying CBA?

Is now the time to buy CBA?

The CBA share price is certainly rebounding strongly. Having hit a 52-week low of $53.44 on 23 March, CBA is now valued at $66.11 per share.

This means the Aussie bank is worth $117 billion right now. With a price to earnings (P/E) ratio of 11.99, CBA could be worth buying.

However, I still think there’s plenty of uncertainty ahead. This means the ASX bank share could be volatile so waiting and watching might not be a bad strategy.

Of course, timing the market is basically impossible. If you’re a believer in the Big Four banks and their role in the Aussie economy, CBA could be good value.

After all, it’s still down 27.39% from its 52-week high of $91.05 per share. There are certainly some headwinds but I think CBA may have been oversold in recent months.

Foolish takeaway

The CBA share price could be in for more volatility in 2020 but I don’t think it’s overpriced right now.

Personally, I won’t be buying until I see more corporate earnings in August, but bullish investors could get CBA shares for a steal at today’s price of $66.11 per share.

More reading

• Meet the ASX stocks to benefit from the new $688m home stimulus
• Should the Xero share price have a P/E ratio of 4,000?
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 jumps 1.8%, Australian headed for recession
• These ASX 200 shares could be perfect for a retirement portfolio

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

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This week is turning out to be a great week to buy international shares. Or any ASX shares that hold international shares or assets for that matter.

Why?

Well, because our Australian dollar has been on a tear this week, that’s why.

On Monday, the Aussie dollar was buying around 67 US cents. Yesterday, our dollar hit 69.83 US cents before dropping back to 69.3 US cents – an extraordinary rally over just 2 days. We’re now back at a pre-coronavirus level against the greenback.

Why a higher Aussie dollar is significant for international shares

A higher Aussie dollar has many effects across the economy. Imports are cheaper, whilst exports become more expensive.

By extension, any assets that are defined in US dollars are now less valuable in Australian dollar terms. That’s why we’ve been seeing US-dominated investments like some exchange-traded funds (ETFs), listed investment companies (LICs) and listed investment trusts lose some steam over the past 2 days, despite a rising share market in both countries.

Take the iShares S&P 500 ETF (ASX: IVV). This ETF tracks the largest 500 companies over in the United States. Over the past week, IVV has lost 3.33% whilst the actual S&P 500 Index has risen 1.47%.

We can see the effects of this currency swing by looking at the iShares S&P 500 (AUD) Hedged) ETF (ASX: IHVV), which takes the impact of currency fluctuations away from its returns. This ETF is up 1.4% over the past week.

Whilst these movements are painful for anyone already holding US-based or international shares, by the same logic, it’s a good time to buy.

Buying a US-listed investment when our currency is at 69 US cents will make for a profitable investment on currency alone if the Aussie dollar heads back down towards the lows of ~55 US cents that we saw back in March.

Thus, I think this week is a great time to think about adding some international shares or ASX-listed ETFs, LITs and LICs that hold US investments.

Magellan Global Trust (ASX: MGG) is one such option. It’s an LIT that primarily invests in top US companies like Microsoft, Alphabet and Facebook.

MFF Capital Investments Ltd (ASX: MFF) is another option to consider. It’s a LIC that also invests in US companies with a long-term outlook. Some of its top holdings include the US payment giants Mastercard and Visa. MFF shares are still more than 25% below the highs we saw in February, despite the US markets’ strong rebound.

If those investments still don’t appeal to you, ETFs like IVV or perhaps the Vanguard U.S. Total Market Shares Index ETF (ASX: VTS) are always a solid choice.

Foolish takeaway

For those ASX investors who might desire more diversification in their ASX-dominated portfolios, I think this week is a great time to consider adding some US-based investments. With the Aussie dollar now closer to historically ‘normal’ levels, it’s a chance that may not come back for a while.

More reading

• Should your share portfolio actually be 50% cash right now?
• Why I’m not afraid to invest in shares during this recession
• How teenagers can beat the share pros at investing
• 10 top ASX growth shares to buy in June for strong returns
• How to make $1,000 a month in dividends

Suzanne Frey, an executive at Alphabet, 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. Sebastian Bowen owns shares of Alphabet (A shares), Facebook, Magellan Flagship Fund Ltd, Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Facebook, Mastercard, and Visa. The Motley Fool Australia has recommended Alphabet (A shares), Facebook, and Mastercard. 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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If you are looking to invest in dividend shares, then you’re in luck. I believe there are a large number of quality options for investors to choose from right now.

Three ASX dividend shares that I would buy are listed below. Here’s why I like them:

BHP Group Ltd (ASX: BHP)

I believe that BHP would be a great dividend share for income investors that are looking for exposure to the resources sector. I think the Big Australian is well-positioned to deliver strong free cash flows this year thanks to high iron ore prices. This has been driven by supply disruptions in Brazil and robust demand from Chinese steel makers. I estimate that the mining giant’s shares currently provide investors with a forward fully franked 5% dividend yield.

BWP Trust (ASX: BWP)

Another ASX dividend share to consider buying is this real estate investment trust. BWP has a focus on warehouses, with most of them leased to hardware giant Bunnings. I believe Bunnings is a high quality tenant and unlikely to be leaving its properties any time soon. Especially given how the retailer is owned by Wesfarmers Ltd (ASX: WES), which is also a major BWP shareholder with a ~23.6% stake. At present I estimate that it offers investors a forward 5.1% yield.

Rural Funds Group (ASX: RFF)

Another ASX dividend share to consider is Rural Funds. It is a property company which owns a portfolio of agricultural assets across Australia. It generates its revenue from long-term leases across five sectors: almond and macadamia orchards, cattle assets, vineyards, and cotton assets. Pleasingly, the company has not been impacted by the pandemic and remains on course to increase its distribution to 11.28 cents per share next year. This equates to a very generous forward 5.5% distribution yield.

More reading

• Are our ASX big miners on an earnings upgrade cycle?
• JobMaker is coming. These 3 ASX 200 shares could benefit
• Is the BHP share price cheap right now?
• 5 things to watch on the ASX 200 on Wednesday
• Smash low interest rates with these ASX dividend shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia owns shares of 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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The new $688 million grant to stimulate the construction sector is a fillip to a handful of ASX stocks and will add to the euphoria on the market.

The S&P/ASX 200 Index (Index:^AXJO) is set to break above 6,000 points this morning thanks to a strong lead from Wall Street and the federal government’s housing boost that was unveiled last night.

But how much of a boost the new grant can provide remains to be seen as there are a number of disappointing features in the new scheme.

Low end of scale

For one, the $25,000 cash handout is at the low end of estimates. There was speculation that the grant would range between $20,000 and $40,000, with some commentators even tipping it could go higher.

The not as bad as expected GDP figure for the March quarter and early signs of an economic recovery from the COVID-19 shutdown may have persuaded the Morrison government from being so generous.

There are also questions about whether the policy is well targeted or will make as much of a difference to the economy as it could.

Who qualifies for the housing grants?

The grant, which is aimed at protecting construction jobs, can be used by eligible households to renovate or build new homes.

To qualify, singles cannot earn more than $125,000 and couples not more than $200,000 in FY19, according to The Guardian.

The new home that is being built must be used as the principal place of residence and the property value (including land) cannot exceed $750,000.

For renovations, the project must be between $150,000 and $750,000 with the existing property worth not more than $1.5 million.

ASX stocks in the spotlight

Before the details were released, I thought the grant would provide a big support to sagging house prices. Now I am not so sure even though new home developers like Stockland Corporation Ltd (ASX: SGP) and Mirvac Group (ASX: MGR) are likely to benefit.

Hardware retailers like those owned by Wesfarmers Ltd (ASX: WES) and Metcash Limited (ASX: MTS) will also see a sales boost as these are where tradies go to get supplies.

By extension, home fitting suppliers are another group that will benefit from the new stimulus. These include GWA Group Ltd (ASX: GWA) and Reece Ltd (ASX: REH).

Further, construction materials companies like CSR Limited (ASX: CSR) and James Hardie Industries plc (ASX: JHX) should also be excited if the stimulus leads to the construction of 30,000 new homes by Christmas, as intended.

It’s a wasted opportunity that the scheme didn’t target social housing. I think that is a better way to support the construction industry and wider community without distorting the housing market.

More reading

• Is the CBA share price cheap today?
• Should the Xero share price have a P/E ratio of 4,000?
• 5 things to watch on the ASX 200 on Thursday
• These ASX 200 shares could be perfect for a retirement portfolio
• The latest ASX 200 stocks to be upgraded to “buy” amid the recession

Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc and Reece Australia Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of 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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The Australian share market was on form again on Wednesday and raced notably higher.

Some shares climbed more than most, with a few managing to even hit 52-week highs or better.

Three that have achieved this feat are listed below. Here’s why they are scaling new heights:

ASX Ltd (ASX: ASX)

The ASX Ltd share price continued its positive run and hit a record high of $89.71 on Wednesday. Investors have been buying the stock exchange operator’s shares this year due to its defensive qualities and strong share market activity. This morning the company reported a 49% increase in capital raised on the ASX during the month of May compared to the prior corresponding period. It also revealed that the total number of trades on the ASX is up 29% year to date to 423.3 million.

Integrated Research Limited (ASX: IRI)

The Integrated Research share price climbed to a two-year high of $3.66 yesterday. Investors appear confident that demand for the services of this global provider of performance management software for critical IT infrastructure, payments, and unified communications will remain strong during the pandemic. The market has not heard from the company since its half year results in February. This could be a case of no news is good news.

Zip Co Ltd (ASX: Z1P)

The Zip Co share price continued its remarkable run and hit a record high of $6.79 on Wednesday. Investors have been fighting to get hold of the payments company’s shares since it announced an agreement to acquire New York-based buy now pay later provider QuadPay. This deal will see the company go head to head with Afterpay Ltd (ASX: APT) in the United States market. QuadPay is a leading, high growth, instalment provider with 1.5 million customers and 3,500 merchants on its platform. From these it is currently generating annualised total transaction value of over $900 million and annualised revenue of $70 million. This is just the smallest fraction of a U.S. retail market estimated to be worth a staggering $5 trillion.

More reading

• ASX 200 jumps 1.8%, Australian headed for recession
• Sezzle Inc shares and 2 other small cap ASX techs surge higher today
• Why Afterpay, Infigen, Qantas, & Zip Co shares are charging higher
• The Zip Co share price just zoomed to a record high: Is it too late to invest?
• ASX 200 rises 0.3%, Zip rockets higher

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 Integrated Research Limited and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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The Westpac Banking Corp (ASX: WBC) share price will be on watch on Thursday after announcing the results of its investigation into the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance issues. 

This follows the launching of civil proceedings against Westpac by AUSTRAC on 20 November 2019.

Westpac Chairman John McFarlane explained: “In line with the Board’s commitment at the 2019 AGM, we are now making public the results of reviews into the Bank’s AML/CTF compliance failings.”

“It’s been my experience since joining the Bank that Westpac deeply regrets this matter. Indeed, recognising the seriousness of the issues raised by AUSTRAC, the former CEO stepped down and the former Chairman brought forward his retirement. We are all committed to fixing these issues so they don’t happen again.”

What did Westpac announce?

Westpac has blamed its International Funds Transfer Instructions (IFTIs) non-reporting failures on a mix of technology and human error dating back to 2009.

Whereas the failure to properly adhere to AUSTRAC guidance for child exploitation risk occurred due to deficient financial crime processes. This was then compounded by poor individual judgements.

All in all, three primary causes of the AML/CTF compliance failures have been identified by Westpac. They are as follows:

• Some areas of AML/CTF risk were not sufficiently understood within Westpac.
• There were unclear end-to-end accountabilities for managing AML/CTF compliance.
• There was a lack of sufficient AML/CTF expertise and resourcing.

Board governance.

Westpac also released the Advisory Panel Report into Board governance of AML/CTF obligations and the promontory assurance letter on management’s accountability review.

The bank advised that the Advisory Panel has formed a range of views on financial crime related governance.

The report notes that the way the Westpac Board organised its general governance responsibilities was mainstream and fit for purpose.

However, with the benefit of hindsight, it feels that directors could have recognised earlier the systemic nature of some of the financial crime issues Westpac was facing. The Panel also noted that the reporting of financial crime matters to the Board was at times unintentionally incomplete and inaccurate.

Westpac’s new CEO, Peter King, advised that the bank has looked back over ten years and where fault was identified, appropriate action has been taken.

He said: “Consequences that have been applied to individuals include significant remuneration impacts and disciplinary actions. A number of relevant staff had already left the company.”

“A range of remuneration consequences were applied to 38 individuals. Consequences applied to prior year awards, including withheld FY19 short term variable reward, totalled approximately $13.2 million. In addition, cancelled FY20 short term variable reward, including for the CEO and Group Executives, is valued at approximately $6.9 million assuming an outcome of 50% of target opportunity,” he added.

What now?

Mr King has acknowledged the need for cultural change within Westpac.

He commented: “We recognise we need to change. We completely accept that some important aspects of Westpac’s financial crime risk culture were immature and reactive, and we failed to build sufficient capacity and experience in some important areas.”

“We have learned from this and are absolutely committed to making amends for this event,” the CEO concluded.

This brings to an end Westpac’s investigations. It will continue to work with AUSTRAC on the legal process, following the submission of its defence and admissions on 15 May 2020.

More reading

• ASX 200 jumps 1.8%, Australian headed for recession
• ASX 200 up 1%: Big four banks jump, Afterpay hits record high
• Is the Westpac share price a buy?
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 down 0.1%: Big four banks drag ASX lower ahead of RBA meeting

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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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The Xero Limited (ASX: XRO) share price has been a top ASX tech performer for quite some time. Shares in the Aussie software provider are up 11.66% this year while the S&P/ASX 200 Index (ASX: XJO) has slumped 11.11% lower.

But there’s one that thing that really stands out about Xero right now. The Aussie tech group’s shares trade at a price to earnings (P/E) ratio of 4,122.29. That’s a pretty astonishing number, but does it mean Xero is overvalued today?

Is the Xero share price overvalued?

Xero is currently trading at $89.33 per share. A P/E ratio of 4,122 means that for every $4,122 you pay for the share, you can expect the company to generate $1 worth of earnings.

That’s an incredibly high number. Let’s compare that figure that to a strong dividend share like Fortescue Metals Group Limited (ASX: FMG). Fortescue shares are currently valued at $14.66 with a P/E ratio of 6.04.

Of course, we have to compare apples with apples. This means it might be more appropriate to evaluate the Xero share price against that of its WAAAX peers. The Altium Limited (ASX: ALU) share price, for example, currently trades at a P/E ratio of 62.16. Therefore, on the surface it might appear that Xero shares are grossly overvalued.

However, I don’t think it’s that simple. The Xero share price has consistently climbed over the years and investors continue to buy into the company. The group continues to sign big clients and I think small and medium business clients will rely on Xero software throughout the COVID-19 crisis. 

Furthermore, many ASX tech shares don’t actually post positive earnings or ‘profit’. That means the earnings component of the P/E ratio is useless and won’t provide any decisive value. However, if a company posts a 1 cent per share profit, all of a sudden their P/E ratio will be enormous.

Foolish takeaway

I don’t think it’s wise to just use P/E ratios to value the Xero share price, particularly in the current climate. If Xero retains key customers and manages to reduce churn, the ASX tech share could still be a good buy in 2020 and beyond.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 3 high quality ASX shares to buy and hold for decades
• These ASX 200 shares could be perfect for a retirement portfolio
• The latest ASX 200 stocks to be upgraded to “buy” amid the recession
• Why I’m not afraid to invest in shares during this recession

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium and Xero. 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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Is Australia in a recession? According to Federal Treasurer Josh Frydenberg, we are.

Strictly speaking, a recession is defined as two consecutive quarters of gross domestic product (GDP) contraction. This is something Australia has miraculously avoided for 29 years.

But with the Australian Bureau of Statistics reporting a 0.3% contraction in first quarter GDP on Wednesday morning, Mr Frydenberg recognises that a recession is now inevitable.

When quizzed at a press conference about whether the country was now in a recession, Mr Frydenberg said: “Yes, that is on the basis of the advice I have from the Treasury Department about where the June quarter is expected to be.”

Why is GDP certain to contract in the second quarter?

Although there is almost a month before the end of the second quarter, the pandemic-related shutdowns that occurred in March and April are understood to have materially impacted GDP during the quarter.

While the reopening of Australia sooner than many expected will be a boost, it certainly won’t be enough to offset the economy grinding to a halt at the height of the pandemic.

One positive is that Sarah Hunter from BIS Oxford Economics believes the country will escape a Great Depression-like scenario.

In a note, courtesy of the ABC, she said: “With the health outcomes tracking better than expected [which has allowed an earlier-than-anticipated end to lockdown conditions] and the government packages providing a significant support to household income, the decline in GDP in the first half of 2020 will be relatively small when compared to other economies.”

But how small is “small”? Hunter and her team are expecting “the peak-to-trough fall in GDP to be significantly less than 10 per cent.”

When will Australia’s recession end?

The economics team at National Australia Bank Ltd. (ASX: NAB) believe that Australian second quarter GDP will be down 8%. After which, it is expecting a recovery to start from the third quarter, ultimately leading to a 4.3% decline in GDP for the year.

A return to growth is then forecast for 2021, with a full recovery achieved by 2022.

The bank explained: “Looking forward, we expect a much larger fall of around 8% in Q2 where strict containment measures were in place in the first half of the quarter. Beyond that we expect a small rise in GDP in Q3 before a more substantial pickup in growth in Q4. That sees a year average fall in GDP of 4.3% this year, followed by growth of around 4.0% in 2021.”

“Despite the rebound in growth, we do not see the level of GDP fully recovering to its pre-virus levels until mid-2022. Therefore, while we see unemployment improving over 2021 from its peak in coming months, it should remain elevated for some time,” it added.

More reading

• ASX 200 jumps 1.8%, Australian headed for recession
• Is the NAB share price cheap today?
• How to value the big four ASX banks
• How bankable are the big four ASX bank shares in 2020?
• ASX 200 up 0.6%: NAB charges higher, ACCC investigates Qantas acquisition

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. 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 Australia is in a recession: How long will it last? appeared first on Motley Fool Australia.

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