Last week saw a large number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

Afterpay Ltd (ASX: APT)

According to a note out of Morgan Stanley, its analysts have retained their overweight rating and $101.00 price target on this buy now pay later provider’s shares. Morgan Stanley notes that Afterpay has announced an agreement with Apple Pay and Google Pay for in-store payments in the United States market. The broker believes this could accelerate adoption and protect its first mover advantage in the rapidly growing buy now pay later market. I think Morgan Stanley is spot on and feel Afterpay could be a great buy and hold investment.

Altium Limited (ASX: ALU)

Another note out of Morgan Stanley reveals that its analysts have retained their overweight rating and $40.00 price target on this electronic design software company’s shares. This follows the release of Altium’s FY 2020 sales update. While Altium’s sales fell short of its original target of US$200 million, they were ahead of the broker’s expectations. And while the broker believes that the market’s margin expectations are too optimistic given the tough finish to the year, it remains upbeat on its long term growth prospects. I agree with Morgan Stanley on this one as well and would buy Altium shares.

Beach Energy Ltd (ASX: BPT)

Analysts at Morgans have upgraded this energy producer’s shares to an add rating with a $1.66 price target. According to the note, the broker believes recent weakness in the Beach share price has created a buying opportunity for investors. In addition to this, it appears optimistic on its long term prospects and is expecting a positive five-year outlook released with its full year results. While I think Morgans makes some good points, I would suggest investors wait for demand for oil to improve before considering an investment.

More reading

• 3 five-star ASX shares to buy
• Is Altium a millionaire maker share at this price?
• How I’d build a $100,000 ASX portfolio of growth shares
• Has the Temple & Webster share price peaked?
• Are these the best ASX tech shares to buy right now?

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 Altium. 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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Some ASX shares could be good for protection against a recession.

Are all shares good for recession protection?

Not every share will prove to be defensive. Indeed some industries like banking are known to suffer during recessions. That’s why the share prices of shares like National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) have fallen so much over the last few months. Though you may be able to pick up a bargain during a recession. 

Share prices aren’t guaranteed not to fall, that’s what makes the share market so unpredictable. But there are some shares that may not see much of an earnings hit during a recession:

Here are four ASX shares I’d buy to protect against a recession:

Share 1: Coles Group Limited (ASX: COL)

We all need to keep eating whether we’re in a booming economy, a recession or a global pandemic. So a supermarket seems like an obvious idea for protection as people need to keep buying their groceries. Indeed, Coles could see more volume if people are buying food less from restaurants, cafes and takeaways.

The ASX share has been solid during this COVID-19 period. In the FY20 third quarter it reported that its supermarket sales were up 13.1%. Costs were higher too due to health and safety measures. But it showed that supermarkets are resilient businesses.

The Coles share price has been steadily rising over the past few weeks. But it still offers a solid dividend, with a projected FY20 grossed-up yield of 4.5%. In terms of valuation, it’s trading at 26x FY20’s estimated earnings.

Share 2: TPG Telecom Ltd (ASX: TPG)

TPG is now one of the largest telcos in Australia after merging with Vodafone Australia. The combined business has a lot of synergy potential, both on the cost side and revenue side.

I don’t know about you, but I view my internet connection as an essential service for my household. I’d keep paying for it over most other things if I were low on money.

The ASX share receives pleasingly consistent monthly income from its customers. The company also has growth potential with the upcoming 5G technology that could lead to a number of new services like automated cars.

The telco is expected to pay high ordinary dividends now that the merger has been successful.

Share 3: Rural Funds Group (ASX: RFF)

This is a real estate investment trust (REIT) which owns farmland across a variety of sectors including cattle, almonds, vineyards, cotton and macadamias.

It actually has very reliable rental income and profit because of its leases to high-quality tenants. The regular rental cashflow means Rural Funds shareholders get a lot of earnings and distribution visibility.

Like I said with Coles supermarkets, we all need to eat food. Rural Funds’ tenants should still be fairly resilient in a recession.

Rural Funds aims to increase its distribution by 4% each year for unitholders. That’s comfortably more than inflation. The ASX share is able to achieve that distribution growth through two key factors. The first is that there’s rental indexation included in all of its contracts – rent growth is either a fixed 2.5% increase or it’s linked to CPI inflation, plus market reviews.

At the current Rural Funds share price, it offers a FY21 distribution yield of 5.5% based on the distribution guidance of 11.28 cents per unit for this financial year.

Share 4: Bubs Australia Ltd (ASX: BUB)

Nutrition is one of the most important things. Bubs, an infant formula producer, provides an essential product for consumers.

The ASX share is experiencing very strong growth. In the quarter ending 31 March 2020, both its Chinese revenue and infant formula revenue more than doubled. So not only does it offer potentially defensive earnings, but its revenue is growing at a very fast rate.

In the next few years I think Bubs will be able to capitalise on the international market opportunity, particularly in places like Vietnam.

Bubs is an exciting small cap. I like that it’s now cashflow positive which makes it a safer investment so that it doesn’t need external funding for its day to day operations.

Foolish takeaway

I think Bubs can produce good returns over the next five years. However, for defensive income I think Rural Funds could be the best pick for yield – it has already proved itself during this COVID-19 period.

More reading

• How to create a yearly income of $65,000 in dividends
• BKI Investment share price rises despite 35% drop in FY20 profit
• Brokers name 3 ASX shares to buy right now
• Top ASX dividend shares to buy in July 2020
• Coles share price hits record high: Is it too late to invest?

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 4 ASX shares I’d buy to protect against a recession appeared first on Motley Fool Australia.

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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Cochlear Limited (ASX: COH)

According to a note out of UBS, its analysts have retained their sell rating and $160.50 price target on this hearing solutions company’s shares. UBS has concerns over rising coronavirus cases and the impact this could have on elective surgeries. In light of this and concerns that the market is expecting too much from its sales growth in the medium term, it holds firm with its sell rating. Cochlear shares were changing hands for $191.91 at the end of the week.

Whitehaven Coal Ltd (ASX: WHC)

A note out of the Macquarie equities desk reveals that its analysts have retained their underperform rating but lifted the price target on them to $1.40. Although it was impressed with its very strong fourth quarter production, it notes a significant build up in inventory due to subdued coal markets. As a result, it has concerns that its full year results could disappoint the market in August. The Whitehaven Coal share price closed the week at $1.55.

Zip Co Ltd (ASX: Z1P)

Analysts at UBS have downgraded this payments company’s shares to a sell rating with an improved price target of $5.70. According to the note, the broker was pleased with the company’s sales growth during FY 2020. However, it does appear a little concerned by a rise in its bad debts during the fourth quarter. In light of this and its strong share price gains over the last few months, UBS doesn’t believe this risk/reward on offer is sufficient. The Zip share price ended the week at $5.90.

More reading

• How I’d build a $100,000 ASX portfolio of growth shares
• Why Cann, Flight Centre, Helloworld, & Zip shares are dropping lower
• How to pick an ASX 200 share market bubble
• Why the Zip Co share price sank 11% lower today
• Top brokers name 3 ASX 200 shares to sell right now

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. and ZIPCOLTD FPO. The Motley Fool Australia has recommended Cochlear Ltd. 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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Investors are flying blind into the ASX profit reporting season, which officially kicks off in two weeks, but there are three things we are likely to encounter.

I am not talking about volatility, although you can expect a lot of turbulence as the COVID-19 pandemic creates a thick fog of war.

It doesn’t help that the market is pricing in a “V” shape recovery either when a number of key S&P/ASX 200 Index (Index:^AXJO) sectors look to be stuck in an “L” instead.

Not just about profits

While travel stocks like the Qantas Airways Limited (ASX: QAN) share price are the obvious profit season sinners, the outlook for a wide range of industrial and financial stocks are still up in the air.

But the profit figures are only but one thing that impacts on ASX share prices. There are a number of other developments that will drag on stocks, and some of these are easier to predict than earnings.

Capital raising on the rise (again)

One thing I am expecting that will leave a big mark on the earnings season is capital raisings. While we have seen several high-profile companies rattling the can for cash since the start of the coronavirus pandemic, I think we will see more.

My view was reinforced by the share market operator ASX Ltd (ASX: ASX) extending its temporary emergency capital raising relief.

The relief, which is aimed at helping cash-strapped ASX entities hit by CIVID-19 to raise urgent capital, was meant to expire by the end of this month. But it will now be extended to the end of November 2020.

This means we could see more companies take advantage of this window, especially if their auditors are reluctant to sign off on their accounts.

More big write-downs to come

Another likely feature of this reporting season to watch for are write-downs. Companies hit by a sharp downturn in trading conditions will be pressured to devalue assets.

We have already seen this happening in the energy sector. The dramatic crash in the oil price this year forced Woodside Petroleum Limited (ASX: WPL) and Origin Energy Ltd (ASX: ORG) to write-down the value of their assets.

Property groups have also been shaving down the value of their portfolios, although I don’t think they are quite done yet.

I also think that ASX stocks in other sectors will also be contemplating such a move. While the devaluation of assets does not usually impact on cash, the move will impact on bottom lines. It could also endanger debt covenants for companies that have put up assets as collateral.

Limited guidance for FY21

The third feature of the reporting season is earnings guidance – or the lack of it. Any company that was feeling a little more confident about their outlook would likely be pulling their head in after Melbourne went into a second COVID-19 lockdown.

What’s worse, a small but growing number of coronavirus cases in New South Wales will be adding to the suspense.

It will take a brave board to be giving any predictions for FY21 in this climate. As I have reported before, Macquarie Group Ltd (ASX: MQG) is predicting that only half of ASX companies that usually gives guidance will do so this time round.

That figure might even prove to be too optimistic.

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More reading

• How you could have turned $20,000 into $850,000 in 10 years with ASX shares
• These were the worst performing ASX 200 shares last week
• How I’d build a $100,000 ASX portfolio of growth shares
• ASX 200 finishes up 0.4%, Rio Tinto grinds higher
• These ASX stocks are among the most popular buy ideas from brokers today

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. Connect with me on Twitter @brenlau.

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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When it comes to investing, a portfolio rebalance or rebalancing might be a concept you’ve heard of. It’s usually within the boundaries of a professional fund manager’s parlance though, and not something that many ordinary retail investors like you or I might be accustomed to.

So what is meant by a portfolio rebalancing? And more importantly, is it something we should all do?

A rebalancing act

At its core, a portfolio ‘rebalancing’ revolves around the concept of target allocation. In its simplest form, this involves allocating each investment in your portfolio a ‘target size’. If you have 5 ASX shares in your portfolio, it might be 20% each – or 30%, 30%, 20%, 10% and 10% if you so choose. All shares are volatile to an extent, but some tend to be inherently more volatile than others. And this is the concept that rebalancing rests on.

Rebalancing intends to capture profits and mitigate losses – it’s a way of automating the process of ‘buying low and selling high’.

Here’s how it works if you start with 5 ASX shares with the 20% target weighting. If 6 months pass, and one of your shares has appreciated in value so it makes up 25% of your portfolio, while another has lost some value and is sitting at 15%, shares of the winner are sold to return the position to 20%. The profits from this sale can then be used to pull the 15% holding back up to 20%. If you consistently follow this process, it can be a great way to easily manage the emotional difficulties of buying and selling shares.

The rebalancing methodology can be extrapolated out as well. Many investors like to use it with entire asset classes, like shares against bonds, cash or gold (e.g. 80% shares, 10% gold, 10% cash). It’s relatively easy to do with ASX exchange-traded funds (ETFs) that simply track these entire sectors.

Is this strategy worth doing?

Whilst I think there are many merits to investing using a rebalancing strategy, it is by no means a perfect system. If you rebalance too often, it’s likely to be detrimental to your portfolio’s returns because of higher fees and taxes. Taking this one step further, it might not be worth it at all if your portfolio is relatively small.

Many investors don’t like to ‘sell out of winners’ as well. If you had bought CSL Limited (ASX: CSL) shares 20 years ago, for example, you’d be sitting on a far smaller pile of gains today if you gave your position a haircut every 6 months or so.

Foolish takeaway

At the end of the day, it’s your call as an investor whether a rebalancing strategy is right for you. It has many inbuilt advantages, particularly in the fraught area of emotional investing. But equally, it won’t serve the needs of all investors and may not be the right fit for your strategy or portfolio. Over to you!

More reading

• 2 easy ASX shares for beginners
• Where to invest $1,000 into ASX shares immediately
• Why these excellent ASX healthcare shares could be long-term market beaters
• 5 ASX shares with huge moats to own today
• 3 outstanding ASX 200 shares for retirees to buy today

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 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.

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