During routine analysis on the weekend, 2 absolute fantastic S&P/ASX 200 Index (ASX: XJO) shares jumped out at me. I had previously written these off as far too expensive and turned my attention elsewhere. Both of these ASX 200 value shares have been among the best performing shares of the decade, increasing their share price by at least 10 times in the past 10 years. 

This is a unique window in time where shares of this calibre are available at what I believe are discount prices. 

Altium Limited (ASX: ALU)

Between 2010 and now, Altium has been one of the outperforming ASX 200 value shares, with its share price returning over 146 times the initial investment. That means a $10,000 investment 10 years ago would have become over $1.4 million today. This is not a company that is built on smoke or vapour – Altium develops software for the printed circuit board (PCB) design industries.

Over a 10-year period, it has achieved compound annual growth rates (CAGR) that are the envy of most organisations. It is clear Altium is a company built on solid technological foundations, managed with steel-like discipline. This includes a 10-year sales CAGR of 16.4%, an 8 year earnings per share (EPS) CAGR of 30.3%, and a cashflow CAGR of 39.3%. Over the past 5 years, using a USD to AUD conversion rate of $0.72, the company has an average return on capital employed (ROCE) of 20%.

This is an organisation that knows how to turn capital into profits. 

The company is sitting on a current price-to-earnings (P/E) ratio of 60, which immediately sounds high. It is way over the company’s 10-year average P/E of 23. However, when you factor in the compound growth rates I have mentioned with a horizon of 10 years, then the share price appears to be at a discount.

Personally, even if it was selling at a small premium I would be interested in owning this ASX 200 value share. Even with the recent hit from the coronavirus, it clearly has a long runway ahead of it. 

Domino’s Pizza Enterprises Ltd. (ASX: DMP)

Everyone knows Domino’s. Most readers have probably bought from Domino’s. We know the taste, the buying experience, the usefulness of the app. And for many of us, we know that we automatically choose Domino’s Pizza. It isn’t a thought-through process. This is what makes it one of the great ASX 200 value shares.

Like Altium, Domino’s was an outperforming share during the past decade, returning 12 times the initial purchase price. It has a sales CAGR of 21.9% and shows no signs of slowing, with last years sales growth exceeding that of the previous 2 years. Its 10-year cashflow CAGR is 22.3% and it has a 10-year EPS CAGR of 21.4%. Also like Altium, the company has demonstrated an ability to turn capital into profits, averaging a ROCE of 19% over the past 4 years.

On paper, its P/E is 39.16. That’s 9 points higher than its 10-year average. However, over a 10-year investing horizon and based on the above CAGRs, I believe it is selling at a discount.

Foolish takeaway

When searching for ASX 200 value shares it is important to dig a bit deeper than the initial summary statistics. If you were to look at headlines and P/E ratios alone, you will never have a full measure of an organisations true worth. 

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• The ASX 200 stocks in the tax-loss selling firing line
• Why didn’t Warren Buffett buy more shares in the recent bear market?
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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 Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) reported its March quarter activity, many investors were shocked to see that Warren Buffett had not put more of his massive cash pile to work. Buffett didn’t make any meaningful buys, despite the S&P 500 Index being down as much as 34%. This included Berkshire’s own stock, which had been trading at a price-to-book value below Buffett’s previously touted buy zone of 1.2 times.

Further to this, it was interesting to see that he had sold down certain shares during the recent bear market. Primarily, the mass exodus from the US airlines.

Why didn’t Warren Buffett buy more shares?

No one other than Buffett (or Charlie Munger) will know why Berkshire acted the way it has recently, but here’s my best guess.

1. Buffett is an investor. He thinks and acts for the ultra long term. Short-term volatility may provide buying opportunities, but with an ultra long-term horizon, investing with so much uncertainty means Buffett doesn’t want to make bets he’s not sure of.
2. The share market is future looking, which is why the market has partially bounced back despite the reporting of increasing unemployment. But, there is an argument that the market has recovered out of line with the economy. We do not yet know the full economic impact of COVID-19, or if there will be a second wave. Warren Buffett doesn’t invest in what he doesn’t know or understand.
3. Berkshire performed so well coming out of the Great Recession in part because of the preferential deals and discounted purchases Buffett could make whilst other businesses were distressed. Many of these deals and purchases weren’t made straight away and Buffett is probably hoping to do the same again as the economy emerges from the effects of the pandemic. It is worth noting that between 1987 and 2016, the average time for the S&P/ASX 200 to reach new highs after a correction of 10% or more was over 3 years.

Why did Buffett sell the airlines?

This one is fairly simple. His thesis was broken and he thinks he can redeploy that capital into other ideas or keep it safe in cash.

What ASX investors should do

Retail investors won’t get preferential deals like Buffett. Dollar cost averaging into great shares is a fantastic way to ensure you don’t miss out on discounts.

The ASX is made up of many shares. Some will be cheap and some will be expensive. Be selective and buy quality businesses with strong balance sheets and long-term prospects. Some quality businesses to consider are Treasury Wine Estates Ltd (ASX: TWE), Aristocrat Leisure Limited (ASX: ALL) and Volpara Health Technologies Ltd (ASX: VHT).

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• The ASX 200 stocks in the tax-loss selling firing line
• 2 unbelievable ASX 200 value shares to buy today
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again

Lloyd Prout owns shares in Aristocrat Leisure Limited and Berkshire Hathaway Inc and expresses his own opinions.. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited and VOLPARA FPO NZ. The Motley Fool Australia has recommended Berkshire Hathaway (B shares). 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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At lunch on Tuesday the S&P/ASX 200 Index (ASX: XJO) looks set to record another strong gain. The benchmark index is currently up 1.8% to 5,716 points.

Here’s what has been happening on the market today:

Big four banks on form again.

The big four banks have continued their positive run and are playing a key role in the ASX 200’s charge higher. All four banks are trading notably higher at lunch as investors pile back into the sector. They appear to believe the banks have been oversold during the pandemic. The best performer in the group today is the Westpac Banking Corp (ASX: WBC) share price with a gain of almost 4%.

Coca Cola Amatil update.

The Coca-Cola Amatil Ltd (ASX: CCL) share price has recovered from a 4% decline and is pushing higher at lunch. This follows the release of a trading update at its annual general meeting this morning. That update revealed that total volume across the company during April declined by approximately 33% compared to the same period last year. And while its volumes have recovered slightly in May, Group Managing Director Alison Watkins warned that conditions could remain tough for a little while to come.

Travel shares taking off again.

Australian travel shares are taking off again on Tuesday. The likes of Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB) have followed up particularly strong gains on Monday with more of the same today. At lunch the two travel bookers are up 10% and 9%, respectively. Investors appear excited at the prospect of travel markets recovering quicker than anticipated.

Best and worst ASX 200 performers.

The best performer on the ASX 200 on Tuesday has been the Smartgroup Corporation Ltd (ASX: SIQ) share price with a 12% gain. This morning analysts at Morgans upgraded the salary packaging company’s shares to an add rating with a $6.95 price target. The worst performer has been the Fortescue Metals Group Limited (ASX: FMG) share price with a decline of just over 1.5% after iron ore prices softened.

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• The ASX 200 stocks in the tax-loss selling firing line
• 2 unbelievable ASX 200 value shares to buy today
• Why didn’t Warren Buffett buy more shares in the recent bear market?

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended 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.

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The S&P/ASX 200 Index (ASX: XJO) is on course to record another strong gain on Tuesday. In late morning trade the benchmark index is up 1.4% to 5,695.1 points.

Four shares that are climbing more than most today are listed below. Here’s why they are storming higher:

The Cann Group Ltd (ASX: CAN) share price has jumped 8.5% higher to $1.13. This morning the cannabis company announced that it has executed two new export supply agreements with European and UK partners. This is for the supply of a range of medicinal cannabis formulated oil and dried flower products for sale in Germany, the United Kingdom, and other European Union markets.

The Insurance Australia Group Ltd (ASX: IAG) share price is up over 2% to $5.74. Investors have been buying the insurance giant’s shares after analysts at Credit Suisse upgraded them to an outperform rating with a $6.40 price target. The broker believes its premiums will more than cover claims inflation and that its shares are trading an attractive level.

The Monadelphous Group Limited (ASX: MND) share price has jumped 11.5% higher to $11.79. The catalyst for this strong gain appears to be a broker note out of Citi this morning. Its analysts have upgraded the engineering company’s shares to a buy rating with a $14.35 price target. Citi likes Monadelphous due to its strong balance sheet and decent medium term prospects.

The Webjet Limited (ASX: WEB) share price has rocketed a further 8.5% higher to $4.51. Investors have been buying Webjet and other travel shares on the belieft that tourism markets could recover quicker than anticipated. This follows the easing of restrictions and speculation that a trans-Tasman travel bubble could soon be created. This would be great news for travel bookers like Webjet which are burning through cash right now.

More reading

• Is it too early to buy Webjet shares?
• ASX 200 jumped higher, rises more than 2%
• These ASX 200 share prices were cut in half. Where are they now?
• Why Flight Centre and Webjet shares are zooming higher today
• ASX 200 up 1.7%: Flight Centre and Webjet rocket, Afterpay hits record high

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet 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.

The post Why Cann, IAG, Monadelphous, & Webjet shares are storming higher appeared first on Motley Fool Australia.

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The National Australia Bank Ltd. (ASX: NAB) share price has been smashed in 2020, but if you’re a Foolish investor, you’re probably thinking longer term.

While the S&P/ASX 200 Index (ASX: XJO) is down around 15% this year, the Aussie bank’s shares have slumped 35%. It’s far from the only ASX bank to feel the heat from investors amid the recent bear market.

But rather than focus on the NAB share price right now, where will it be in 1 year?

Where the NAB share price will be in 1 year

I think there are a lot of factors weighing on the bank’s shares right now. Let’s look at the current situation.

NAB recently announced a soft half-year earnings result headlined by a 51.4% drop in cash profit. The popular measure of profitability fell to $1,436 million or $1,035 million on an adjusted basis.

On top of that, the bank announced $807 million worth of impairments in relation to COVID-19. That’s not good news for the NAB share price which has slumped in 2020.

But let’s look ahead to May 2021. Where will the NAB share price be after  next year’s half-year result?

The economy is already starting to come back to life after the brief coronavirus lockdown period. If Australia continues to flatten the curve, the business impact could be mitigated and the bank’s balance sheets may remain intact.

There is still the issue of real estate valuations. While stimulus measures have helped the economy, Aussies could be under pressure with their home loan repayments.

Add to that the commercial real estate side of things. Shopping centres and CBD office buildings may not be at full capacity by May 2021. This could mean more writedowns and impairments for the Aussie bank which could weigh on the NAB share price.

On the plus side, Australia’s tourism and education sectors may pickup. A weaker Aussie dollar could drive exports in 2020 and mitigate the economic impact of COVID-19.

Foolish takeaway

There’s a lot of weighing up to do for investors right now. I think the Aussie banks will remain in good shape and I believe the NAB share price will recover.

The bank’s shares are trading at $16.03 this morning but that could look like a bargain when we look back in 1 year’s time.

More reading

• The one sector that could experience a V-shape COVID-19 recovery
• Is $1,000 in Scentre shares a good investment?
• Where to invest $5,000 in ASX growth shares today
• 5 things to watch on the ASX 200 on Tuesday
• CSL shares have underperformed the ASX 200 over the past month. What’s going on?

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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is on course to extend its positive run with another solid gain. At the time of writing the benchmark index is up 1.3% to 5,686.7 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are dropping lower:

The Fortescue Metals Group Limited (ASX: FMG) share price is down 1.5% to $13.63. Investors have been selling the iron ore producer’s shares on Tuesday after Chinese iron ore prices dropped lower overnight. Traders may have been taking profit after some stellar gains by the steel-making ingredient over the last few weeks.

The Freedom Foods Group Ltd (ASX: FNP) share price has continued its slide and is down 1.5% to $4.22. The diversified food company’s shares have fallen hard over the last few months. This could be due to concerns over the premium its shares trade at. One broker that believes it deserves the premium is Goldman Sachs. It is forecasting exceptionally strong earnings growth over the coming years and has a buy rating and $6.55 price target on its shares.

The Pushpay Holdings Ltd (ASX: PPH) share price is down 1.5% to $6.55. This decline appears to have been driven by profit taking after the donation platform provider’s shares rocketed higher over the last few months. Pushpay’s shares are up almost 70% year to date thanks to its strong FY 2020 result and positive guidance for the next 12 months.

The QBE Insurance Group Ltd (ASX: QBE) share price has fallen 1.5% to $8.06. The insurance giant’s shares have dropped lower today despite being the subject of a positive broker note this morning. Analysts at Morgan Stanley have retained their overweight rating and sizeable $12.00 price target on QBE’s shares.

More reading

• Where to invest $10,000 into ASX shares immediately
• Got $2,500? I’d buy these 2 ASX shares in a heartbeat
• 5 things to watch on the ASX 200 on Tuesday
• The smartest shares to buy if you have $2,000
• ASX 200 Weekly Wrap: ASX rallies on mining highs

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia has recommended Freedom Foods 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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The Air New Zealand Limited (ASX: AIZ) share price is edging lower this morning after the airline provided a trading update. At the time of writing, Air New Zealand shares are trading 2.06% lower in early trade at $1.19.

What did Air New Zealand announce?

The airline shed light on recent trading conditions this morning, with CFO Jeff McDowall stating that network capacity across March and April was reduced by more than 95% as demand declined to almost zero.

But in more positive news, New Zealand’s recent move to Alert Level 2 has been a welcome reprieve, allowing the airline to, as Mr McDowall puts it, “get the domestic engine turning again”.

Despite this, the airline understands it will take some time for demand to return to pre-COVID-19 levels. As a result, Air New Zealand is preparing for a scenario in which it is still 30% smaller than pre-COVID-19 levels in 2 years’ time.

Looking to the back end of this financial year, Air New Zealand’s network capacity for the second half of FY20 is expected to be around 50% lower than the prior comparative period. This will be driven by a reduction of approximately 90% in the fourth quarter.

This outlook, combined with the fact that there was “very little” revenue coming in during Alert Levels 3 and 4, means that the airline is now expecting to report an underlying loss for FY20. 

For context, Air New Zealand posted a statutory profit of NZ$270 million in FY19 and more recently, a NZ$101 million statutory profit for the half year ending 31 December 2019.

Significant items impacting FY20 results

In today’s update, Air New Zealand also provided details of other significant items for FY20. According to the airline, these items represent events that are not reflective of its underlying financial performance. Therefore, the items will not be included in the airline’s calculation of underlying earnings for FY20.

The estimates, which reflect current expectations and are still subject to further review by both the airline and its auditors, are as follows:

• De-designation of hedges: NZ$85 million to NZ$105 million
• Aircraft impairment charge: NZ$350 million to NZ$450 million non-cash charge
• Reorganisation costs: NZ$140 million to NZ$160 million
• Gain on sale from airport slots: approximately NZ$21 million gain

The top end of these estimates represents a hit of up to NZ$694 million from significant items.

Liquidity position

As at close of business 25 May 2020, Air New Zealand’s short-term liquidity was approximately NZ$640 million. This doesn’t include any funds from the NZ$900 million loan facility with the New Zealand Government.

Commenting on the airline’s liquidity position, CFO Jeff McDowall said:

We have not yet needed to draw down on the government loan facility, as we continue to utilise all available levers to reduce our cash burn and right-size the business to reflect the expectation that, for some time, our airline will be smaller than it was pre Covid-19

The airline has undertaken a number of cost-saving measures across its cost base and capital expenditure portfolio. This includes a 30% reduction in its workforce (around 4,000 employees), deferral or cancellation of almost NZ$700 million in expected capital expenditure to December 2022, salary reduction of the executive team by 30%, and suspension of all short-term incentive schemes for FY20.

More reading

• Is it too early to buy Webjet shares?
• 5 things to watch on the ASX 200 on Tuesday
• Why Flight Centre and Webjet shares are zooming higher today
• Leading brokers name 3 ASX shares to sell today
• 3 industries that may never recover from COVID-19

Motley Fool contributor Cathryn Goh 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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