The Electro Optic Systems Hldg Ltd (ASX: EOS) share price is surging higher on Wednesday morning following the release of a positive announcement.

At the time of writing the aerospace and defence-focused technology company’s shares are up 7% to $5.94.

This compares to a 0.7% decline by the S&P/ASX 200 Index (ASX: XJO).

What did Electro Optic Systems announce?

Investors have been buying the company’s shares today after it provided an update on the contract negotiations it entered into with the Commonwealth of Australia in July for the acquisition of 251 Remote Weapon Stations and related materiel.

According to today’s release, the company has completed contract negotiations with the government for the aforementioned weapon stations.

The release explains that the contract is valued at over $94 million. Management notes that it will not only enhance Australian Army capability and secure EOS’ supplier base, it will also boost Australian jobs and create opportunities for small businesses.

The contract finalisation includes $28.5 million of cash flow to Electro Optic Systems in the fourth quarter of 2020. This will assist in securing the EOS Australia supply chain, consisting of 146 small businesses and over 1,100 employees.

It also advised that the 251 Remote Weapon Stations will be integrated on to Bushmaster and Hawkei protected mobility vehicles. Forty Remote Weapon Stations are scheduled for delivery in the fourth quarter of 2020, with the remainder to be delivered in 2021.

What are Remote Weapon Stations?

Electro Optic Systems’ offers a wide range of fully stabilised remotely operated weapon stations that can be integrated onto various vehicle platforms and used for different mission profiles.

Its remote weapon systems ensure full weapon readiness while the crew operate the system protected within the vehicle. All its stations have been designed with a high level of commonality and modularity to offer users a flexible firepower solution.

More reading

• ASX 200 falls slightly, miners surge higher
• The Electro Optic (ASX:EOS) share price is climbing today. Here’s why.
• Why now is a good time to buy ASX defence shares
• 3 booming ASX shares for the new space age
• Why the DroneShield (ASX:DRO) share price is up even higher today

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 Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings 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 Electro Optic Systems (ASX:EOS) share price surges higher on $94 million government contract appeared first on Motley Fool Australia.

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The Corporate Travel Management Ltd (ASX: CTD) share price is back on the market today and could be on the move.

What’s been happening in recent days?

Corporate Travel shares haven’t traded since last Friday ahead of an equity capital raising.

The Aussie travel group has successfully raised $262 million via an Institutional Entitlement Offer at $13.85 per share with 90% take-up.

That represents a 14.3% discount to the $16.16 that the Corporate Travel share price closed at on Friday. The travel share will be worth watching as investors process the discount against current valuations.

The funds will be put to work as Corporate Travel announced its latest acquisition. The travel group is set to purchase Omaha, USA-based corporate travel business, Travel & Transport (T&T).

Corporate Travel’s latest target posted calendar-year 2019 total transaction value of US$2.8 billion. The funds raised in recent days will be used for the acquisition, integration of the company and to provide balance sheet flexibility.

What does this mean for the Corporate Travel share price?

Time will tell if the acquisition is a good one for Corporate Travel. The group already has strong offshore earnings and the T&T acquisition could boost this.

But I think it also represents an important turning point. It’s not long ago that the Corporate Travel share price was down 60% to 70% for the year.

However, things change quickly during a global pandemic. CEO Jamie Pherous has declared that Corporate Travel has gone from the hunted to the hunter.

The Aussie travel group believes it has the strength to see out the coronavirus pandemic. The company has now turned its attention to acquisition opportunities with fresh capital.

To me, that confidence is a good sign. Shareholders don’t always love acquisitions but they do like certainty.

If Corporate Travel can continue to execute its strategy with a focus on balance sheet management, I think 2021 could be a good year.

Foolish takeaway

Corporate Travel has shown it is capable of balancing risk and reward in 2020. The company also provided a trading update yesterday and flagged lower earnings in August and July.

I think the Corporate Travel share price will be on the move in early trade as investors process the news.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 ends the day flat, BOQ (ASX:BOQ) shares drop on impairments
• ASX 200 up 0.15%: a2 Milk sinks lower, Bank of Queensland tumbles, CTM’s major acquisition.
• Corporate Travel Management (ASX:CTD) to raise $375m for Travel & Transport acquisition
• Are ASX travel shares like Webjet (ASX:WEB) set to soar?

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management 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 Why you need to watch the Corporate Travel (ASX:CTD) share price today appeared first on Motley Fool Australia.

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The market is poised to open weaker this morning but ASX oil stocks are likely to come under even more pressure.

Futures pricing is tipping a 1% drop in the S&P/ASX 200 Index (Index:^AXJO) on Wednesday on a poor overnight lead from Wall Street.

The 3.3% thumping in the Brent crude price to a two-week low of US$41.03 a barrel will add to the pain for oil-exposed stocks.

ASX oil stock prices on slippery slope

These include the Woodside Petroleum Limited (ASX: WPL) share price, Santos Ltd (ASX: STO) share price, Oil Search Limited (ASX: OSH) share price and Origin Energy Ltd (ASX: ORG) share price – just to name a few.

The oil price is testing the psychologically important 100-day moving average, according to Bloomberg. A break below that could pave the way for the commodity to slip even lower in the near-term.

Short-term pressure on the oil price

The weakness comes as a resurgent wave of new COVID-19 cases dominate headlines. The official global number of deaths from the pandemic exceeds one million and New York is looking like the latest hotspot.

The reintroduction of social restrictions will curtail movement and that means weak oil demand, and this isn’t the only short-term challenge the market’s facing.

There are reports that Russia is likely to pump more than the agreed quota it promised OPEC. Members of the oil cartel will be under pressure to lift supply too to make up for the huge revenue shortfall.

ASX energy stocks are in for a rough ride.

Little good news for medium to long-term outlook

Compounding the near-term gloom are downbeat medium-term forecasts for oil. Three of the world’s largest independent oil traders warn that consumption won’t recover in any meaningful way for at least 18 months, reported Bloomberg.

The dour predictions coincide with modelling that shows the peak in demand for oil is only ten or less years away.

Total SE predicted that the demand peak will come around 2030. Mubadala Investment Company, one of the largest state wealth funds of the United Arab Emirates (UAE), echoed the same conclusion.

Meanwhile, Pierre Andurand, chief investment officer and founder of Andurand Capital Management LLP, believes demand growth will come to an end in 2026.

Decarbonising your investment strategy

The silver lining is that ASX energy stocks are far more exposed to gas than to oil. While gas prices are linked to crude, the energy source is seen as a little more enduring.

This is particularly so as the Morrison government is using gas as a stopgap measure in its transition roadmap towards a greener future.

If you haven’t already started thinking about decarbonising your investment portfolio, you really should.

More reading

• Is the Westpac (ASX:WBC) share price in the buy zone?
• Will the Fortescue (ASX:FMG) share price outperform in 2021?
• 5 things to watch on the ASX 200 on Wednesday
• 2 must-buy ASX 200 shares I rate highly
• 3 ways to protect your ASX share portfolio in a market crash

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

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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ASX renewables shares could be hot property next year. According to an article in The Australian Financial Review, renewable energy could lead to strong employment in coming years.

The International Renewable Energy Agency predicts that stimulus for the industry could create a global jobs boom of up to 5.5 million over the next three years.

That could mean global renewable energy jobs grow from 11.5 million to almost 30 million worldwide by 2030.

So, if there is to be a boom, which ASX renewable shares could be set to cash in?

3 ASX renewable energy shares to buy for 2021

The first one I’ve got my eye on is Infigen Energy Ltd (ASX: IFN). The Infigen share price is currently trading near a 52-week high at 92 cents per share.

That might put some people off but I think there could be further growth in store. Infigen is a developer, owner and operator of renewable energy generation assets across Australia. 

The major issue here is that Infigen’s board has recommended a unanimous takeover of the ASX renewable energy share by Iberdrola SA, a Spanish electricity company. That means you may have to look elsewhere for medium-term industry exposure.

That’s where I see Tilt Renewables Ltd (ASX: TLT) come in. The Tilt share price has also had a solid year, climbing 3.3% higher to $3.37 per share.

Tilt is dual-listed in Australia and New Zealand. The ASX renewable energy share has Infratil Ltd (ASX: IFT) as a major shareholder which means it can be hard to get a hold of.

Tilt has eight operational wind farms across Australia and New Zealand. I think that, combined with a strong pipeline, leaves it well placed for any industry boom.

Finally, I think AGL Energy Limited (ASX: AGL) is worth a look. AGL is one of the largest energy ‘gentailers’ (generators and retailers) in Australia.

While it’s far from a pure-play ASX renewable energy share, I do think it has the size and scale to pivot accordingly.

That could make the AGL share price worth a look if we see continued growth in the industry in coming years.

More reading

• 3 reasons I like the AGL Energy (ASX:AGL) share price today
• Why AGL Energy (ASX:AGL) and these ASX shares just hit new lows
• Here’s why some ASX dividend shares just go nowhere
• ASX 200 drops 0.2%, Scentre soars
• Amaysim share price down following FY20 results and divestment announcement

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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The Westpac Banking Corp (ASX: WBC) share price has slumped 29.1% lower in 2020 to $17.16 per share. It’s far from alone as ASX bank shares have been hit hard by the fallout from the coronavirus pandemic. But, the tide could be starting to turn for the Westpac share price. The company has just copped the biggest corporate fine in Australian history for its AUSTRAC breaches.

Despite some uncertainty at the moment, I still think the Westpac share price could be in the buy zone for long-term investors.

Why the Westpac share price could be in the buy zone

For starters, Westpac has now got some certainty around the AUSTRAC penalty. The bank will pay a $1.3 billion fine for the many breaches of anti-money laundering/counter-terrorism financing (AML/CTF) laws.

Obviously that’s not good for shareholders in the short term but it does reduce the unknowns going forward.

Secondly, the Reserve Bank of Australia (RBA) is continuing to inject cash into the economy. That’s increasing liquidity and helping tilt the competitive advantage back towards the big four banks.

The RBA has set up a number of facilities to help keep businesses afloat and maintain lending throughout COVID-19. However, the big four banks like Westpac can afford to lend for low rates and squeeze their competitors like Bendigo and Adelaide Bank Ltd (ASX: BEN).

The Westpac share price has still underperformed the S&P/ASX 200 Index (ASX: XJO). That means many investors will understandably not be bullish on buying right now.

However, I think there could be an opportunity ahead of the bank’s full-year earnings update on 2 November.

The Westpac share price is currently trading at 12.9x earnings with a 10.1% dividend yield. That dividend may well drop on the back of APRA’s recommendation to reduce dividends and the $1.3 billion AUSTRAC fine.

However, I still think the medium to long-term outlook is strong for Westpac. That means I’ll be looking hard at whether or not to add the bank to my portfolio in 2021.

More reading

• Why ASX oil stock prices are set to slide this morning
• Will the Fortescue (ASX:FMG) share price outperform in 2021?
• 5 things to watch on the ASX 200 on Wednesday
• 2 must-buy ASX 200 shares I rate highly
• 3 ways to protect your ASX share portfolio in a market crash

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.

The post Is the Westpac (ASX:WBC) share price in the buy zone? appeared first on Motley Fool Australia.

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If I were buying ASX blue chip shares today, I’d choose the ones I’m going to write about in this article.

There isn’t an official definition of a blue chip. For me, it’s a sizeable business that is a leader in its industry that has been around for a while. It could also be described as a business that can keep doing well in good times or bad.

With that in mind, I think these ASX shares fit the blue chip description:

A2 Milk Company Ltd (ASX: A2M)

A2 Milk one of the leading infant formula brands in the Asia Pacific region. The company has grown strongly over the past five years as it grows its market share and international distribution network. When I think of infant formula, the first brand that comes to mind is A2 Milk.

The A2 Milk share price has fallen 15% this week and it’s down 25% since 18 August 2020.

I think it can be smart to take advantage of short-term problems and temporary share price falls.

Whilst the ASX blue chip share is expecting revenue to fall in the first half of FY21, I strongly believe FY22 and onwards will show pleasing growth. Remember, share prices often move before we learn of the actual earnings.

The USA and Chinese markets look very promising over the longer-term. A2 Milk is still expecting overall revenue growth in FY21, with a revenue range of NZ$1.8 billion to NZ$1.9 billion. That would represent growth of between 4% to 10%, up from NZ$1.73 billion in FY20.

Brickworks Limited (ASX: BKW)

Brickworks is one of the country’s leading building products companies. It’s the national leader for bricks. It also produces and sells a number of other products where it has a good market position. Those other categories include: roofing, precast, masonry and paving.

The ASX blue chip share has been growing for decades as it expands it product range. The joint venture cement terminal, Southern Cross Cement, has just been commissioned and Brickworks owns 33% of this business. Brickworks thinks this joint venture has the lowest cost position and lowest capital invested of all south-east Queensland suppliers.

Brickworks is also the market leader for bricks in the north east of the US after recent acquisitions. The company has closed a plant there, which was part of the plan to improve efficiencies across the US network.

The ASX blue chip share’s profit could benefit strongly from a rebound if COVID-19 impacts subside sooner rather than later.

Brickworks also has strong, reliable investments. It has a 50% stake of a quality industrial property trust which will soon count Coles Group Limited (ASX: COL) and Amazon as tenants. Brickworks also owns around 40% of quality investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). These two assets helped stabilise the Brickworks share price during the crash earlier this year.

Tassal Group Limited (ASX: TGR)

Tassal is fairly small, but it’s the Australian market leader of fish in the country and it has been operating for over 30 years, so I think it can count as an ASX blue chip share.

FY20 was another solid year for the company with revenue rising, operating net profit after tax (NPAT) growing 13.3% and statutory net profit jumping 18.3%.

It wasn’t too long ago that Tassal expanded into the prawn industry. Now it has two fish sectors that it can generate growth with, which is attractive in my opinion. Diversification is a wise idea. 

In FY20 it had a prawn harvest of 2,460 tonnes. In FY21 it’s expecting a prawn harvest volume of 4,000 tonnes.

The Tassal share price hasn’t recovered yet from the COVID-19 crash, it’s still down around 20%. For a growing business, that suggests it could be a good time to buy. As a bonus, it offers a partially franked dividend yield of 5%.

More reading

• 2 outstanding ASX shares to add to your retirement portfolio
• ASX 200 ends the day flat, BOQ (ASX:BOQ) shares drop on impairments
• Leading brokers name 3 ASX shares to sell today
• The latest 3 ASX stocks that brokers just upgraded to “buy”
• ASX 200 up 0.15%: a2 Milk sinks lower, Bank of Queensland tumbles, CTM’s major acquisition.

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of A2 Milk and 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 These are the ASX blue chip shares I’d buy today appeared first on Motley Fool Australia.

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I think the Fortescue Metals Group Limited (ASX: FMG) share price can outperform in 2021. The Fortescue share price is up 49.9% this year and is streaming ahead of the S&P/ASX 200 Index (ASX: XJO).

That might make some investors wary of buying in, but I think there’s a lot to like right now.

What does Fortescue do?

Fortescue is one of the largest iron ore producers in the world. It’s part of the ‘big four’ alongside BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Brazil-based Vale.

The Aussie mining group recently reported full-year production of 178.2 million wet metric tonnes of iron ore. That saw Fortescue’s revenues increase by 29% to US$12,820 million as net profit after tax jumped 49% to US$4.7 billion.

Why the Fortescue share price can outperform in 2021

I think there’s a lot to like about the Fortescue share price for 2021 and beyond.

Strong iron ore prices are being predicted by not only the market but the federal government. The commodity is reportedly set to underpin the FY21 budget and help pull Australia through a recession.

If that proves to be the case, it would be good news for Fortescue. The Aussie miner has managed to dodge much of the scrutiny faced by the likes of Rio Tinto thus far.

The BHP share price has lagged Fortescue largely due to its petroleum segment struggling thanks to weak oil prices.

I also think Fortescue has the history and tact to manage its relationship with China. China is by far the largest purchaser of Australian iron ore products which makes it a key customer.

There’s also the metrics to support the Fortescue share price being a buy. The Aussie miner’s shares are trading at a price-to-earnings (P/E) ratio of just 7.4x with a 10.9% dividend yield.

BHP shares trade at 16.6x earnings with Rio Tinto at 15.3x, both with lower dividend yields. That to me says that Fortescue shares could outperform and be an option for both dividend and growth investors in 2021.

More reading

• Why ASX oil stock prices are set to slide this morning
• Is the Westpac (ASX:WBC) share price in the buy zone?
• 5 things to watch on the ASX 200 on Wednesday
• 2 must-buy ASX 200 shares I rate highly
• 3 ways to protect your ASX share portfolio in a market crash

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.

The post Will the Fortescue (ASX:FMG) share price outperform in 2021? appeared first on Motley Fool Australia.

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WAM Capital Limited (ASX: WAM) is a listed investment company (LIC) well-known for its fully-franked dividends. Since its inception in 1999, WAM Capital has returned an average of 16.1% per annum for its investors (before fees and taxes). A large part of this outperformance has come in the form of dividend payments. The company has been holding or increasing its dividend every year since 2010. Saying that, the dividend has been held steady at 15.5 cents per share for the last two years. This dividend still gives WAM Capital shares a trailing yield of 6.92% on current prices. That’s 9.89% grossed-up with WAM Capital’s full franking credits (I apologise for rounding this up to 10% in the headline).

A WAM comeback tour

In recent times, I have written about how I wouldn’t be too interested in WAM Capital for dividend income. That concern largely stemmed from WAM Capital’s dwindling profit reserve. LICs usually pay out their dividends from a profit reserve. A profit reserve stores profits from investment activities earmarked for dividend payments.

Some other LICs, like WAM Capital’s sibling, WAM Research Limited (ASX: WAX), have well-funded profit reserves. In WAM Research’s case, its two most recent dividends came in at 4.9 cents per share each. That gives WAM Research a trailing, grossed-up yield of 9.21% on current pricing. Yet this dividend looks remarkably sustainable given that WAM Research had 34.9 cents per share in its profit reserve, as of 31 August.

But as of 31 July, WAM Capital had just 8.7 cents per share left in its profit reserve. Some simple maths will tell you that this isn’t enough to sustain a 15.5 cents per share annual dividend for too long.

But WAM Capital’s August update contained a pleasant surprise. As of 31 August, WAM Capital now reports it has 17.5 cents per share in its profit reserve. How did it manage this recovery? Well, the company told investors that last month was “the best August reporting season in the company’s history”, with winners like Codan Limited (ASX: CDA) helping to boost the LIC’s profits.

Although the newly restocked profit reserve isn’t quite at the comfort level for income investors that WAM Research provides, it’s still a marked improvement and buys WAM Capital another year to expand this reserve even further.

Is WAM Capital a buy today?

WAM Capital’s dividend stockpile certainly looks a lot healthier than it did a month ago. Saying that, I’m still not convinced it remains a better option for income investors over other LICs like WAM Research. Although its August profit reserves were a fantastic development for investors, I would simply prefer the increased certainty that something like WAM Research provides today. I’ll be keeping my eye on WAM Capital though and may rethink my position if its profit reserves improve further.

More reading

• Is this the ASX 200 dividend share you can hold into retirement?
• Are these high yield ASX dividend shares worth buying?
• 2 ASX dividend shares with yields over 8%
• 4 dividend kings to buy now and hold forever
• Is the new WAM Alternative Assets LIC a buy?

The post Is the WAM Capital (ASX:WAM) 10% dividend yield sustainable? appeared first on Motley Fool Australia.

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While it can be tempting to try and get rich quickly by day trading shares such as BrainChip Holdings Ltd (ASX: BRN), Novonix Ltd (ASX: NVX), and Piedmont Lithium Ltd (ASX: PLL), it’s worth remembering that it is also a quick way to lose a lot of money.

Statistically, day trading has been proven to create far more losers than winners. An estimated 90% of day traders lose money, with 9% believed to do a little better than break-even, and just 1% actually making real money.

In light of this, I think investors interested in building their wealth should consider a more prudent investment strategy that involves buying and holding shares over the long term.

With that in mind, here are two ASX shares that I believe investors should consider:

CSL Limited (ASX: CSL)

I think CSL is easily one of the best buy and hold options on the Australian share market. CSL, which was previously known as the Commonwealth Serum Laboratories, was founded all the way back in 1916 to service the needs of a nation isolated by war. Since then it has become one of the world’s leading biotherapeutics companies with a market capitalisation of $135 billion.

Arguably the key to the company’s success has been its investment in research and development (R&D). Every year CSL invests somewhere in the region of 10% to 12% of its sales revenue back into its R&D activities. This has helped ensure that CSL is at the forefront of innovation in the industry and has led to it developing a wide portfolio of therapies and vaccines generating billions of dollars of sales each year. Looking at its current portfolio and burgeoning R&D pipeline, I’m very confident there will be more strong growth over the 2020s and beyond.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another ASX share that I think would be a great buy and hold option for investors is Domino’s. It is the master franchise holder in Australia, New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg, and Denmark.

Although it has been growing its store network materially over the last decade and now has a total of 2,668 stores, management isn’t anywhere near stopping there. It has set itself a target of more than doubling its network to 5,500 stores by 2033. If it achieves this and can continue to deliver same store sales growth, then I expect its earnings growth over the 2020s to be very strong. This could lead to the Domino’s share price smashing the market.

More reading

• BrainChip (ASX:BRN) and Novonix (NVX) were among the most traded shares on the ASX last week
• 3 ASX dividend shares to buy for income today
• ASX 200 finishes flat, A2 Milk shares drop 10%
• Is the run over for ASX lithium shares after Tesla’s battery day? 
• Piedmont Lithium (ASX:PLL) share price rockets 83% higher on Tesla deal

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 CSL Ltd. 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.

The post Forget day trading and buy and hold these fantastic ASX shares appeared first on Motley Fool Australia.

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Magellan Financial Group Ltd (ASX: MFG) has long been considered one of Australia’s leading investment managers. In fact, an investment in Magellan on 4 January, 2010 would have multiplied by 67 times the original investment. Specifically, this represents an average annual growth rate of 52.7%. To illustrate further, if this continues into the future, an investor would double their initial investment every two years.

Magellan is the parent company that owns a range of unlisted and listed funds in global equities and infrastructure. As funds, most of these pay distributions not dividends, and are sold in units, not shares. Nonetheless, the most important point is that all of the funds are doing very well. If you are looking for an investment in which you can leave your funds for 10 to 20 years, then I think Magellan is a good option for the following reasons.

1. Future growth

Magellan recently announced it had taken a 40% stake in Barrenjoey Capital Partners, an unlisted, full service, investment bank planned for Australia. Magellan will have no involvement in the day-to-day operation of the company, but has retained a board seat. So while it is largely a passive investment, Magellan will have some oversight of the investment bank.

The goal is clearly to generate an annual return in excess of 10% via this unlisted asset. If the model is anything like Macquarie Group Ltd (ASX: MQG), then there will be opportunities to increase exposure to other unlisted assets as in-house investments. 

2. Past performance

The company’s historical financial metrics demand respect and subsequently, the Magellan share price growth has been incredible. Since 2010, Magellan has seen a compound annual growth rate (CAGR) of 50.5% in its earnings per share. Moreover, the company has also increased its per share dividend payment by a CAGR of 59.6% over the past ten years. 

There is a raft of metrics to review on this company. However, the one that really stands out to me is the return on equity (ROE). This is the return on assets minus liabilities. So for every $100 of assets the company has, unencumbered by debt, Magellan has earned an average of $38 over the past ten years. This company is truly impressive at allocating capital for the best return.

3. Magellan is cheap

By every valuation method I know, the Magellan share price is currently selling at a discount. Nonetheless, it has a current price-to-earnings (P/E) ratio of 26.59, which at first glance seems high. Moreover, if this was, say, Fortescue Metals Group Limited (ASX: FMG), or Commonwealth Bank of Australia (ASX: CBA) I would agree it was too high. However, with Magellan there is every reason to have high hopes for future performance.

The company also has a trailing 12-month dividend yield of 3.7%. While this isn’t a high yield, it is still pretty solid in the current environment and is secondary to the capital growth I expect to see.

More reading

• Why Magellan Global Trust (ASX:MGG) could be a retiree’s dream share
• 3 great ASX blue chip shares I’d buy
• Top brokers name 3 ASX shares to buy today
• Leading brokers name 3 ASX shares to sell today
• ASX 200 drops another 0.8%, Magellan (ASX:MFG) reveals a large investment

Motley Fool contributor Daryl Mather owns shares of Fortescue Metals Group Limited. 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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