Last month’s reporting season produced more winners than losers despite the COVID-19 market meltdown. UBS picks the best and the worst of the S&P/ASX 200 Index (Index:^AXJO) bunch.

The broker noted that the profit season was better than expected with several stocks showing surprising resilience to the economic fallout from COVID-19.

One sector that stood out for all the right reasons was consumer discretionary. Many listed players in this space have a decent web presence that appealed to stuck-at-home consumers.

Other sectors that performed well include consumer staples, building materials, gaming, general industrials and insurance, added UBS.

Biggest earnings cuts

Consensus estimates for FY21 earnings per share (EPS) were cut by 1.8% over reporting season. The biggest culprit was the industrials (excluding financials) stocks as the group suffered an 8.2% downgrade.

Financials also got a 2.6% haircut to the current financial year’s EPS forecast, although most of the cuts were already made before reporting season.

On the other hand, resource stocks enjoyed a 6.3% uplift to FY21 EPS due largely to good commodity prices and outlook.

Profits to rebound in FY21

But the worst of the earnings hit could be behind us even though tomorrow’s GDP reading will almost certainly confirm that we are in a deep recession.

“The market now expects 8.3% EPS growth in FY21, led by the Financials (+13.3%) and the Resources (+8.3%),” said UBS.

“The Industrials ex-Financials are now only seen delivering 2.3% EPS growth, down from 8.3% before reporting season.”

Cash surprise

But one of the biggest surprises from the reporting season isn’t earnings but cash flow. The broker noted that 20% of stocks under its coverage delivered stronger than expected cash flows.

This may be due to management teams running down inventories and hoarding cash due to the uncertain operating environment.

Biggest ASX winners from reporting season

ASX 200 stocks that are regarded as being the champs of the reporting season in UBS’ eyes include the Cleanaway Waste Management Ltd (ASX: CWY) share price, and the JB Hi-Fi Limited (ASX: JBH) share price.

Others in the winners’ circle are the Reliance Worldwide Corporation Ltd (ASX: RWC) share price, Suncorp Group Ltd (ASX: SUN) share price and Treasury Wine Estates Ltd (ASX: TWE) share price, although the latter was subsequently hit by the China-Australia trade spat.

On the flipside, the biggest sinners include the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price, Origin Energy Ltd (ASX: ORG) share price, Telstra Corporation Ltd (ASX: TLS) share price, RESMED/IDR UNRESTR (ASX: RMD) share price and Vicinity Centres (ASX: VCX) share price.

More reading

• ASX 200 jumps 1.6%: Afterpay tumbles, IOOF crashes, CBA pushes higher
• Should you buy Telstra and these beaten down ASX shares?
• 5 things to watch on the ASX 200 on Wednesday
• A strange thing is happening with index funds…
• ASX 200 falls 1.8%, Afterpay drops 8%

Brendon Lau owns shares of Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Treasury Wine Estates Limited. The Motley Fool Australia has recommended Reliance Worldwide Limited and ResMed Inc. 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 Digital Wine Ventures Ltd (ASX: DW8) share price surged more than 10% this morning after the company released a positive company update.  

What are the details?

In the update, Digital Wine said its WINEDEPOT business shipped a record number of cases in August, up 28% on the previous record in July. Digital Wine reported that WINEDEPOT had processed a total of 4,151 orders in August, shipping 8,488 cases for the month.

Despite the increase in customers, the August growth came from existing customers ramping up their order volumes, the company said.

In addition, Digital Wine said that WINEDEPOT had added another 17 brands to its portfolio and signed its first small distributor. This was Turallao Wine Distribution, which represents a number of additional wine brands.

How has the Digital Wine share price performed?

Digital Wine is an online beverage supplier that provides end-to-end supply chain solutions for wine producers, distributors, importers and retailers. The company’s WINEDEPOT business operates as a cloud-based software-as-a-service. The WINEDEPOT technology platform removes inefficiency’s in supply chains and empowers direct-to-market sales.

Earlier this week, Digital Wine released its financial report for FY20. The company’s report was highlighted by revenue of $566,141 for the full-year, a 139% increase on its performance in 2019. 

Digital Wine primarily generates its revenue through trading fees and subscription fees for its WINEDEPOT platform. For the same period, Digital Wine Ventures posted a full-year loss of $2 million. However, the company attributed the loss to costs involved with the launch of WINEDEPOT and closure of operations in China.

At the time of writing, the Digital Wine share price has been sold down and is trading more than 5.2% higher for the day. Shares in the company were trading more than 10% higher earlier in the day after hitting an intra-day high of 4.2 cents. The Digital Wine share price has performed strongly in 2020, surging more than 600% since the start of June.

More reading

• UBS picks the best and worst ASX stocks from the reporting season
• Why the Zip share price is plummeting 15% today
• Facebook threatens to block news on its platform
• ASX 200 jumps 1.6%: Afterpay tumbles, IOOF crashes, CBA pushes higher
• Why Afterpay, IOOF, Redbubble, & Zip shares are dropping lower

Motley Fool contributor Nikhil Gangaram 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 Zip Co Ltd (ASX: Z1P) share price is plunging today, down 11.64% at the time of writing to $7.06 a share. Z1P shares opened at $7.26 this morning after closing at $8.01 yesterday and were down to $6.57 at one point, highlighting the swift and decisive nature of this move.

Zip shares have had a rollercoaster ride over the past fortnight. Exactly 2 weeks ago, Zip shares were asking $6.24. By 24 August, the Zip share price was up to $7.45 and by 26 August it was $9.65. After printing a new all-time high of $10.64 on Monday (representing a gain of more than 70% in under 14 days), the shares came crashing back to earth and have continued to fall ever since.

Why is the Zip share price crashing 15% today?

The selling of Zip shares has accelerated over yesterday and today – 2 days where the stock has shed more than 20% of its value. The catalyst behind this move is highly likely to be the announcement on Monday night (our time) that the American payments giant PayPal Holdings Inc. (NASDAQ: PYPL) is entering the buy now, pay later (BNPL) space that both Zip and arch-rival Afterpay Ltd (ASX: APT) are currently dominating.

PayPal is a payments company with a market capitalisation of approximately US$245 billion – no small fry. It’s known for both its stellar growth in the online payments space over the past decade and for being one of Tesla Inc. (NASDAQ: TSLA)’s CEO Elon Musk’s early business ventures.

PayPal released a statement on Monday outlining the launch of ‘Pay in 4’ to customers in the United States in the fourth quarter of 2020. This new product will allow customers to make a purchase and ‘pay in 4’ interest-free instalments. It will be embedded into PayPal’s existing payments infrastructure, which means merchants won’t be charged additional fees for its use.

This product is obviously a direct threat to Zip (and Afterpay) given PayPal’s size and scale in the payments market. This partly explains, in my view, why the Zip share price is cratering today.

Froth and volatility

It’s also worth noting that there was a lot of froth and volatility in the Zip share price, which is inevitable when you have a 70% move upwards over just 2 weeks. A share price movement like that is extremely vulnerable to a negative piece of news like we’ve witnessed coming out of PayPal.

With a lot of short-term traders likely sitting on massive profits, there would have undoubtedly been a lot of itchy fingers yesterday morning. This news was evidently more than enough to trigger some profit taking, which looks to be snowballing today.

Is Zip a buy today?

If you’re bullish on Zip’s long-term future and aren’t fazed by PayPal’s moves, then perhaps. But I’m certainly staying away from this frothy stock for now. There is clearly a lot of betting and trading going on with the Zip share price this week, and that’s something that I want no part of. It might be worth waiting for a real dip on this one, rather than the dramatic steam-letting we are seeing today.

More reading

• ASX 200 jumps 1.6%: Afterpay tumbles, IOOF crashes, CBA pushes higher
• Why Afterpay, IOOF, Redbubble, & Zip shares are dropping lower
• PayPal scares investors in BNPL shares, time to sell?
• ASX 200 falls 1.8%, Afterpay drops 8%
• Apple and Tesla are in the top 5 US shares bought by ASX investors this week

Sebastian Bowen owns shares of Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings. 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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Facebook, Inc. (NASDAQ: FB) has threatened to block Australians from sharing news on its widely used social media platform. This comes as companies such as News Corp (ASX: NWS) have pushed for regulations that will force social media giants to pay for news content on their sites. 

The regulations are being drafted by the Australian Competition and Consumer Commission (ACCC) and have not yet been legislated. They will introduce an independent arbitrator to determine the amount that websites and social media providers will be required to pay for news content shared on their platforms.

Facebook Australia and New Zealand managing director Will Easton said the regulations misunderstood the dynamics of the internet. He went on to say that Facebook would either need to block news content or allow news publishers to charge as much as they wanted for content.

The ACCC responded, stating: “Facebook’s threat today to prevent any sharing of news on its services in Australia is ill-timed and misconceived”.

Clash of the titans

The Newscorp share price has not moved dramatically since Facebook flagged that it was considering blocking its content in Australia. At the time of writing, the Newscorp share price was up 2.0% to $20.62. It has been reported that Newscorp has said online giants should pay $1 billion for the news content they were currently sharing with users.

If Facebook and other online giants do not comply with the new regulations, they could face penalties of up to 10% of their revenue from Australia.

If Facebook goes ahead with blocking news for Australian users, Facebook and its other social media platforms including Instagram will be affected.

About the Facebook share price

Facebook is an online social media conglomerate based in the United States. Along with its flagship Facebook platform, the company also owns Instagram, Whatsapp and various other internet-based platforms. It listed on the NASDAQ in 2012.

In the 3 months to 30 June 2020, Facebook had total revenue of US$18.3 billion, up 11% compared to the same period in 2019. The average number of daily active users in the June 2020 quarter was 1.79 billion, an increase of 12% compared to the same period in 2019.

The Facebook share price closed at $295.44 in US trade, up by 0.76%.

Facebook shares are up 115.49% since a 52-week low of $137.10. The Facebook share price has returned 40.83% since the beginning of the year and is up 61.98% since this time last year.

More reading

• A strange thing is happening with index funds…
• Why Facebook stock surged to a new all-time high on Wednesday
• Zoom Video to soon appear on Amazon, Facebook, and Google smart display devices
• Want to own the FAANG stocks? Here are 3 ways you can
• Warren Buffett would applaud the share price gains of these undervalued ASX shares

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. Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook. The Motley Fool Australia has recommended Facebook. 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 Wednesday the S&P/ASX 200 Index (ASX: XJO) is back on form and is charging higher. The benchmark index is currently up 1.6% to 6,050.2 points.

Here’s what is happening on the market today:

Buy now pay later shares sink.

Afterpay Ltd (ASX: APT) and its buy now pay later rivals have continued to sink lower on Wednesday. Investors have been selling their shares following an announcement by PayPal yesterday. That announcement revealed that the payments giant will be launching Pay in 4 in the United States in the final quarter of the year. Pay in 4 is a buy now pay later offering which allows consumers to pay for items in four interest-free instalments.

IOOF share price crashes lower.

The IOOF Holdings Limited (ASX: IFL) share price has crashed materially lower on Wednesday after returning from a trading halt. Investors have been selling the financial services company’s shares following the completion of the institutional component of its $1,040 million capital raising. IOOF raised a total of $734 million from institutional investors at a significant 24.4% discount of $3.50. This capital raising was undertaken to partly fund the acquisition of the National Australia Bank Ltd (ASX: NAB) wealth business, MLC Wealth for $1,440 million.

Bank shares mixed.

The big four banks are having a mixed day on Wednesday and are acting as a bit of a drag on proceedings. The best performer in the group has been the Commonwealth Bank of Australia (ASX: CBA) share price with a gain of 1.2%.

The best and worst ASX 200 performers.

The best performer on the ASX 200 on Wednesday has been the Western Areas Ltd (ASX: WSA) share price with a 6% gain. This morning the nickel producer provided a positive update on its Odysseus mine. The worst performer on the index by some distance has been the IOOF share price with a massive 21% decline. This follows the aforementioned capital raising.

More reading

• UBS picks the best and worst ASX stocks from the reporting season
• Why the Zip share price is plummeting 15% today
• Why Afterpay, IOOF, Redbubble, & Zip shares are dropping lower
• Why the IOOF share price is crashing 21% lower today
• PayPal scares investors in BNPL shares, time to sell?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is back on form and is charging notably higher. At the time of writing the benchmark index is up 1.45% to 6,040.1 points.

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

The Afterpay Ltd (ASX: APT) share price is down 4% to $80.84. Investors have been selling the payments company’s shares again on Wednesday following an announcement by PayPal yesterday. That announcement revealed the upcoming launch of Pay in 4 in the United States. As its names indicates, Pay in 4 is a buy now pay later offering which allows consumers to pay for items in four interest-free instalments.

The IOOF Holdings Limited (ASX: IFL) share price has crashed 21% lower to $3.66. This follows the completion of the institutional component of its $1,040 million capital raising. IOOF raised a total of $734 million from institutional investors at a 24.4% discount of $3.50. It launched the capital raising to partly fund the acquisition of the National Australia Bank Ltd (ASX: NAB) wealth business, MLC Wealth for $1,440 million.

The Redbubble Ltd (ASX: RBL) share price is down 3.5% to $4.04. This appears to be down to profit taking from investors after some stellar gains in recent weeks. In fact, on Tuesday the Redbubble share price jumped to a record high despite the market selloff. One broker that believes its shares can still go higher is Morgans. It recently put a $4.33 price target on the company’s shares.

The Zip Co Ltd (ASX: Z1P) share price has crashed 14% lower to $6.89. Investors have been selling the buy now pay later provider’s shares amid concerns that the PayPal launch could undermine its US ambitions. Zip isn’t in as strong a position as Afterpay to fend off PayPal in the lucrative market. In addition to this, this morning Citi downgraded its shares to a sell rating with a $6.70 price target.

More reading

• Why the IOOF share price is crashing 21% lower today
• PayPal scares investors in BNPL shares, time to sell?
• ASX 200 falls 1.8%, Afterpay drops 8%
• Why it makes sense to invest in ASX tech shares
• Zip and Brainchip were among the most traded shares on the ASX last week

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 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 worst performer on the S&P/ASX 200 Index (ASX: XJO) on Wednesday has been the IOOF Holdings Limited (ASX: IFL) share price by some distance.

In morning trade the financial services company’s shares have crashed 21% lower to $3.64.

Why is the IOOF share price crashing lower?

Investors have been selling IOOF’s shares on Wednesday after they returned from a trading halt following the completion of the institutional component of its capital raising.

According to the release, the fully underwritten institutional placement and the institutional component of its entitlement offer raised a total of approximately $734 million. This comprised $452 million from its placement and $282 million from its entitlement offer.

Management revealed that the placement attracted significant demand from new and existing institutional investors. It was a similar story for the entitlement offer, with a take-up rate by eligible institutional shareholders of over 92%.

These funds were raised at $3.50 per new share, which represents a discount of 24.4% to its last close price.

IOOF will now push ahead with its underwritten retail entitlement offer, which aims to raise a further $306 million, and its share purchase plan aiming to raise $50 million.

Why is IOOF raising funds?

IOOF launched its capital raising to partly fund the acquisition of the National Australia Bank Ltd (ASX: NAB) wealth business, MLC Wealth for $1,440 million. It also expects the funds to provide greater financial flexibly to continue to execute its growth strategy.

IOOF’s CEO, Renato Mota, was pleased with the success of its placement and entitlement offer.

He said: “We are encouraged by the strong vote of confidence from institutional investors as we take this once in a generation opportunity to create the leading wealth manager of the future.”

“We are also pleased that investors recognise that the strategic and value propositions are compelling. However, as CEO and as a company, we understand the obligations that attach to this. We will be entirely focused on delivering the promised better outcomes for all our stakeholders; our clients, members, advisers, the community and our shareholders,” he added.

More reading

• Why Afterpay, IOOF, Redbubble, & Zip shares are dropping lower
• A strange thing is happening with index funds…
• ASX 200 down 1.7%: Afterpay sinks on PayPal news, QBE sacks its CEO, bank shares lower
• This chart shows why big banks are in trouble
• ASX 200 drops 0.2%, Scentre soars

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.

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I believe that international growth is a key part of delivering strong returns for ASX shares.

Australia is a great country, but it only has a small population. It’s a good place to start, but businesses with global exposure have much larger growth potential due to the bigger total addressable market.

You can get that exposure either through ASX growth shares with international earnings like CSL Limited (ASX: CSL), or you can go for an investment product that offers that international growth potential.

Here are some great ideas:

A2 Milk Company Ltd (ASX: A2M)

A2 Milk could be one of the best ASX growth shares for international growth. The A2 Milk share price has fallen since the FY20 result. It’s down 14% since the start of August. I think it’s a good time to buy shares.

China and the USA are two big growth markets for the company.

Total A2 Milk revenue rose by 32.8% to NZ$1.73 billion in FY20. But Chinese label infant nutrition revenue more than doubled to NZ$337.7 million with store distribution growing to 19,100 stores. USA milk revenue growth rose 91.2% to NZ$66.1 million and the distribution grew to 20,300 stores – up from 13,100 at the end of FY19.

In FY21 the company is expecting continued strong revenue growth with a solid earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 30% to 31%.

I think this ASX share is one to watch. At the pre-open A2 Milk share price it’s trading at 26x FY22’s estimated earnings.

Magellan High Conviction Trust (ASX: MHH)

One of the best ways to get exposure to international growth could be to go for a quality listed investment trust (LIT) or company (LIC).

Magellan High Conviction Trust is a LIT that targets the best businesses in the world. A group of great companies can just keep winning year after year. The ASX share owns stocks like Alibaba, Alphabet, Microsoft, Tencent and Facebook. These are really good technology businesses that are constantly looking for ways to grow and diversify earnings.

Technology businesses are also some of the least affected by COVID-19 impacts because their service is provided digitally. Indeed, a business like Microsoft has seen a huge shift to its cloud infrastructure – bringing forward a lot of demand.

The stronger Australian dollar makes it better value to buy international shares. At the pre-open Magellan High Conviction Trust share price, the ASX share is trading at a 5.5% discount to the indicative net asset value (NAV).

PM Capital Global Opportunities Fund Ltd (ASX: PGF)

PM Capital is a well-respected fund manager which runs this LIC that looks for good value businesses when they’re unloved by the market.

Some of the businesses that it owns include names like Cairn Homes, Bank of America, Visa, MGM China Holdings, KKR & Co, Siemens and Freeport-McMoRan.

I think that some of the cyclical businesses it’s invested in could rebound nicely over the next few years as the global economy comes out of COVID-19.

The ASX share recently launched an off-market equal access buyback to boost the share price. It also grew its dividend in the recent FY20 result. It currently offers a grossed-up dividend yield of 6.4%, which I think is good in this low interest environment.

At the current PM Capital Global Opportunities Fund share price it’s still valued at a 15% discount to the pre-tax net tangible assets (NTA) per share at 28 August 2020.

Foolish takeaway

I really like all three of these ASX shares for the international growth exposure. At the current price I think A2 Milk is too good to pass up considering it continues to grow at an impressive rate with more growth ahead as it expands its distribution network. However, both of the investment businesses look good value today too.

More reading

• The a2 Milk share price sank 12% lower in August: Should you buy the dip?
• 2 ASX dividend shares with yields over 10%
• This ASX-listed company makes $5.7 million per employee
• Where I’d invest $10,000 right now in ASX shares
• A2 Milk share price lower after Chairman, CEO, COO, and other execs sell millions of shares

Tristan Harrison owns shares of PM Capital Global Opportunities Fund Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of A2 Milk. 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 Mesoblast limited (ASX: MSB) share price is trading flat on Wednesday despite the release of a positive announcement.

In morning trade the allogeneic cellular medicines company’s shares are changing hands for $5.24.

What did Mesoblast announce?

This morning Mesoblast announced that it has received ethics approval to include Australian hospitals in the Phase 3 randomised controlled trial of remestemcel-L in ventilator-dependent COVID-19 patients with acute respiratory distress syndrome (ARDS).

According to the release, participating hospitals in Melbourne and Sydney have been granted approval by the Human Research Ethics Committee of Monash Health and will join more than 17 leading US medical centres that are already part of the Phase 3 trial.

This study is being conducted by the US National Institutes of Health–funded Cardiothoracic Surgical Trials Network, and cleared by the US Food and Drug Administration (FDA).

Mesoblast’s Chief Executive, Dr Silviu Itescu, appeared to be pleased with the news.

He stated: “As an Australian company developing a potential treatment for COVID-19 ARDS, the primary cause of death in patients infected with COVID-19, we have a responsibility to evaluate remestemcel-L in Australian patients as the country continues to grapple with COVID-19.”

What does the trial consist of?

Mesoblast’s phase 3 trial is enrolling ventilator-dependent patients in intensive care units with moderate to severe COVID-19 ARDS. They are randomised (1:1) to receive either two intravenous infusions of remestemcel-L three to five days apart or a placebo on top of maximal care.

The primary endpoint is all-cause mortality within 30 days of randomisation, with the key secondary endpoint being the number of days off mechanical ventilator support.

The trial’s independent Data Safety Monitoring Board plans to complete an interim analysis this month in the trial’s first 90 patients randomised in the United States after they have completed 30 days of follow up.

After the review of the safety and efficacy data, the Data Safety Monitoring Board will provide a recommendation to Mesoblast on whether the trial should proceed as planned or stop early.

That data should be released later this month and will be worth watching out for.

More reading

• These were the best performing ASX 200 shares in August
• Up 38% in August, is the Mesoblast share price a buy?
• Bulls versus bears – two experts face off on where share prices are going
• Mesoblast share price on the rise after delivering promising FY20 results
• Hydrix and Zip were among the most traded shares on the ASX last week

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.

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The 2020 stock market crash may have caused some investors to turn to other assets that are less risky than shares. However, buying stocks today could prove to be a sound long-term move that delivers relatively high returns.

Of course, an uncertain economic outlook means that avoiding companies with weak balance sheets, high valuations and business models that may not easily adapt to change could be a shrewd move. It may reduce your risks and help to improve your return prospects.

High valuations after the market crash

Even though the stock market crash occurred only a handful of months ago, some shares now appear to be trading on excessive valuations. Certainly, they could move higher in the short run if investor sentiment continues to improve as per recent trends. However, buying any asset for more than it is worth could prove to be a means of generating poor returns over the long run.

Therefore, it may be prudent to focus your capital on stocks that have more attractive valuations based on their financial position and outlooks. The prospects for the world economy continue to be very uncertain, with risks such as coronavirus and Brexit having the potential to cause a second downturn for stock prices in the near term. By investing in undervalued, rather than overvalued, stocks you can limit your potential losses in the short run and benefit from greater capital return prospects in the long term.

Weak balance sheets

The uncertain economic outlook following the market crash means that companies with weak balance sheets may struggle to survive. For example, they may have high debt levels or lack access to liquidity. Should their sales come under pressure, they may struggle to remain afloat compared to sector peers that have modest debt levels and stronger cash flow.

Therefore, it could be a good idea to hold companies with sound financial positions. Investors can determine the financial strength of a business through looking at its annual report and recent market updates. This information is available freely online, and could help you to avoid weak businesses that ultimately prove to be disappointing investment opportunities in the current challenging economic climate.

An inability to evolve

Following the market crash, some sectors may need to evolve rapidly to respond to changing consumer tastes. The coronavirus pandemic may have fundamentally changed sectors such as energy, banking and retail forever. Businesses that can adapt their operations to accommodate different consumer tastes may therefore have a competitive advantage over their peers.

As such, avoiding companies that lack the right strategy to evolve their business models could be a sound move. Clearly, assessing this factor is highly subjective. However, by considering the strategies of a company compared to its sector peers, it may be possible to purchase those stocks with the financial capacity to make necessary changes to their business models so they can return to strong growth in the long run.

More reading

• Brainchip share price rockets 30% higher on NASA program collaboration
• Xero share price higher after chairman buys $400k worth of shares
• Nufarm share price charges higher on FY 2020 guidance
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Motley Fool contributor Peter Stephens 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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