Stock Pick

  • Europe Is Building the Next Tesla. Who Knew?

    Europe Is Building the Next Tesla. Who Knew?(Bloomberg Opinion) — When Nikola Corp. started trading on Nasdaq in June, the Phoenix-based clean transportation company raced quickly to a valuation of almost $30 billion.Its market worth has since fallen to a more reasonable $10.5 billion, but that’s still pretty spicy for a business yet to generate any revenue. Its most promising products are its heavy trucks, powered by electric batteries or hydrogen fuel cells.The rise of Nikola (whose name, cheekily, is another evocation of electrical engineer Nikola Tesla) will have reinforced a view among European auto industry executives that the U.S. stock market operates by different rules. While Tesla Inc. is only modestly profitable, it’s valued at about $275 billion, more than Europe’s five largest carmakers combined.At least Europe has a stake in the latest heavily hyped project. Founded by Trevor Milton, a 38-year-old American college dropout, Nikola is relying heavily on expertise from the old continent. Robert Bosch Gmbh, a German automotive supplier, has helped develop the U.S. company’s electric powertrain, and the first Nikola trucks will be built in a German factory belonging to Italy’s Iveco, a truck maker backed by the billionaire Agnelli family. Bosch and Iveco each own more than 6% of Nikola. CNH Industrial NV, Iveco’s parent, just recorded a $1.5 billion fair value gain on that investment.(1) The biggest question is whether a start-up dependent on so much external help should have a whizzy valuation like Tesla, which builds much of its technology itself. And if Europe has this expertise, why hasn’t it produced its own rival to Elon Musk’s carmaker?Maybe it’s a lack of chutzpah. Nikola’s name isn’t the only reason it’s often compared with Tesla. Milton’s hyperactive Twitter presence makes Musk look tame by comparison. Both men’s ambitions extend beyond selling zero-emission vehicles to producing and storing clean energy. While Nikola is focused on heavy-duty trucks, it has touted a variety of consumer products including a pickup called the Badger. These are catnip for retail investors, as the excitement over Musk’s Cybertruck demonstrates.While Tesla and Nikola are both working on electric heavy trucks, they differ in at least two important respects. The first is hydrogen: Musk is dismissive, while Milton thinks hydrogen is the perfect fuel for long truck journeys. The second is their attitude toward building stuff in-house. True, in its early days Tesla worked with Lotus to help make the Roadster, and Daimler AG helped develop the Model S saloon. Tesla partners with Panasonic to produce battery cells. But Musk is famous for trying to build his own technology, from electric powertrains and automated-driving software to car seats.Nikola developed its own software, infotainment and battery management-system, as well as vehicle aerodynamics, according to Cowen analyst Jeffrey Osborne. It has outsourced or used hired help to do much of the other stuff. More than 200 Bosch employees were involved in building important parts of Nikola’s trucks, including the electric motor for the axle, the vehicle-control unit, the battery and the hydrogen fuel cell. The result is a mix of intellectual property owned either separately or jointly by Nikola and its suppliers. There’s no doubt, however, who has the deeper expertise. So far Nikola has been awarded 11 U.S. patents, about 1% of the total Bosch is awarded in a typical year. “Bosch gets paid to help us get to industry standards on products,” Milton told me.Getting partners to provide the technological building blocks has some advantages. Nikola has only 300 employees and yet its first trucks should start rolling off the production line soon. Working with partners cuts the risk of the manufacturing delays and quality problems that plagued Tesla.It’s an efficient use of capital too. Nikola’s research and development expenses were just $68 million last year. Tesla spent $1.3 billion. After going public, Nikola has about $900 million of cash, although that won’t go far in the automotive business. For the North American market, Nikola plans to handle its own manufacturing, with technical assistance from Iveco. Nikola broke ground this week on a $600 million factory in Arizona.Whether or not you believe the extensive involvement of outside partners should have a bearing on its lofty valuation, there are other things that could upset Nikola’s plans. Building a refueling network is a central part of its business model, but this won’t come cheap at $17 million for each hydrogen station. The company is also entering a competitive field populated by more experienced and better capitalized rivals. Daimler’s Mercedes-Benz failed to follow through on its early experiments with electric cars and let Tesla roar past. It probably won’t make the same mistake with trucks.Daimler is the world’s largest truck maker and it plans to start production of its electric eActros and eCascadia models next year. The German giant has also formed a joint venture with Sweden’s Volvo AB to develop hydrogen fuel cell systems for heavy vehicles. That venture is valued by the companies at just 1.2 billion euros ($1.4 billion), putting the Nikola valuation into perspective.    Even if its share price looks overblown, Nikola’s improbable rise shows there’s investor demand for clean transportation companies that don’t still have one foot planted in the combustion-engine past. European manufacturers have the technical chops but they must find better ways to capitalize on investor excitement through new business models or spinoffs. Otherwise someone else will.(1) This was measured on June 30 when Nikola's stock was much higherThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • Latest ASX stocks upgraded by top brokers to “buy” today

    finger pressing red button on keyboard labelled Buy

    The market might be suffering from a seizure today but that hasn’t stopped leading brokers from upgrading some ASX stocks to “buy” today.

    Losses on the S&P/ASX 200 Index (Index:^AXJO) deepened with the index shedding around 2.5% in the closing moments of trade. 

    There was blood everywhere with every sector posting losses at the time of writing.           

    A clean upgrade to buy

    However, one ASX stock that’s bucking the trend is the GWA Group Ltd (ASX: GWA) share price. Shares in the bathroom fittings and fixtures group jumped 6.7% to $2.85 in late trade, making it the third best performer on the ASX 200. 

    It was only beaten by the Super Retail Group Ltd (ASX: SUL) share price and NRW Holdings Limited (ASX: NWH) share price. 

    GWA’s outperformance comes on the back of two broker upgrades. Credit Suisse noted that work-from-home consumers are spending up on renovations and home improvement projects. 

    COVID-19 beneficiary 

    “Google Trends show ‘bathroom renovation’ searches up 50- 60% in May-July vs pre-COVID,” said the broker. 

    However, it noted that demand was stronger for lower margin bathroom fittings as opposed to the more profitable sanitaryware products. 

    Nonetheless, GWA is still looking cheap as its stock has lagged the market and demand for its products from commercial constructions is strong. 

    The broker upgraded the stock to “outperform” from “neutral” with a 12-month price target of $3.05 a share. 

    Second upgrade for this ASX stock

    Credit Suisse isn’t the only one turning bullish on GWA. Goldman Sachs also upgraded the stock to “buy” from “neutral”. 

    “We recognise the macro outlook for GWA remains challenged with the residential construction cycle to remain under pressure over the coming 12 months,” it said. 

    “However, GWA has a strong market position, the capacity to drive operational efficiencies to buffer against revenue pressures, and a balance sheet robust enough to withstand this period of weakness.” 

    Goldman’s price target on GWA is $3.25 a share. 

    Improving reception 

    Another ASX stock upgraded to buy was the Seven West Media Ltd (ASX: SWM) share price. Macquarie Group Ltd (ASX: MQG) lifted its rating on the stock to “outperform” from “neutral” as it sees a 70% upside for the stock. 

    Seven West isn’t without its challenges though. The COVID-19 crisis exacerbated the downtrend in advertising and there’s a high level of uncertainty in the outlook for ad spend in this recessionary environment. 

    But Macquarie points to a number of positive to offset the headwinds. 

    ASX stock upgraded for looking cheap

    “From a ratings perspective, SWM recently had its best week in two years following the resumption in AFL and initial success of Big Brother,” said the broker. 

    “Sport continues to be key from a ratings standpoint and will help attract advertisers when ad markets improve.” 

    Macquarie’s price target on the stock is 17 cents a share. 

    The new code of conduct announced by the federal government today is another positive, in my view, and isn’t captured in Macquarie’s upgrade. 

    The code will force Facebook, Inc. Common Stock (NASDAQ: FB) and Google’s parent company Alphabet Inc Class C (NASDAQ: GOOG) to pay traditional media companies for using their content on the social media platforms. 

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    Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Super Retail 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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  • Nokia Raises Profit Guidance With 5G Comeback Plan on Track

    Nokia Raises Profit Guidance With 5G Comeback Plan on Track(Bloomberg) — Nokia Oyj bumped up its full-year earnings guidance after slashing costs and overhauling its products to catch up with rivals in the market for fifth-generation wireless networks.The company expects diluted earnings per share of 0.25 euro cents, plus or minus 5 cents, versus a previous projection for 0.23 euro cents.Adjusted operating profit for the second quarter was 423 million euros, beating average analyst estimates of 289.8 million euros according Bloomberg-tracked ratings.Key InsightsChief Executive Officer Rajeev Suri’s last results as CEO mark a low-point for Nokia after it lost ground to competitors in 5G mobile networks and the coronavirus disrupted supply chains and dampened investment.“Nokia-level revenue was down in the quarter” largely due to Covid-19 and China declines, Suri said in the statement. “We expect that the majority of sales missed in the quarter due to Covid-19 will shift to future periods.”Its fortunes are set to improve as a new low-cost radio-access base station puts it back in the game on 5G and chief rival Huawei is forced out of key European markets by a U.S.-led boycott campaign. That company’s struggles may be one reason Nokia can upgrade its guidance.Nokia said it expects to slightly underperform its primary addressable market, excluding China. Previously it had said it expected to perform in line with the market.Market ContextNokia shares were up about 4% for the year through Thursday’s close. More analysts are advising clients buy the stock than are recommending a hold or a sell stance.Get MoreSuri’s replacement, Pekka Lundmark, takes over on Aug. 1 and is expected to begin a review of strategy. Suri’s biggest move was to buy rival Alcatel-Lucent in 2016, a deal that gave Nokia a wider product portfolio but required a complex integration process that, according to analysts, distracted management just as the 5G race was beginning.Nokia’s second-quarter net sales were down 11% from a year earlier to 5.09 billion euros ($6.05 billion), compared to an average analyst forecast of 5.31 billion euros.Nokia reported an operating margin of 9.5% plus or minus 1.5 percentage points, against a previous midpoint of 9.0%.See the numbers here.Nokia Cuts 1,200 French Jobs in Former Alcatel-Lucent BusinessHow Nokia’s Alcatel Deal Has Come Back to Haunt Its CEO(Updates with CEO comments under Key Insights)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • 3 exciting small cap ASX shares to put on your watchlist immediately

    man peering closely at computer screen, watching ASX 200 share prices

    The small cap side of the market is certainly higher up the risk scale. But I believe a little exposure to it can be a good thing for a portfolio, if your risk profile allows for it.

    After all, if you can identify the next Appen Ltd (ASX: APX) or Ramsay Health Care Limited (ASX: RHC) while they’re still small, you could generate incredible returns in the future.

    With that in mind, I have picked out three small cap ASX shares which I think would be worth watching closely:

    Audinate Group Limited (ASX: AD8)

    Audinate is a digital audio-visual networking technologies provider. It has achieved very strong sales growth in recent years thanks to the increasing demand for its Dante product. This award-winning audio over IP networking solution is being used widely across the professional live sound, commercial installation, broadcast, and recording industries globally. And while demand has fallen materially during the pandemic, I expect it to rebound strongly once the crisis passes.

    Bigtincan Holdings Ltd (ASX: BTH)

    Bigtincan is a provider of enterprise mobility software. Its platform allows sales and service organisations to increase sales win rates, reduce expenditures, and improve customer satisfaction. This is achieved through improved mobile worker productivity. I believe a testament to the quality of its platform is its blue chip customer base. It counts the likes of sports giant Nike, beauty retailer Sephora, drinks company Red Bull, and one of the big four banks as customers.

    Volpara Health Technologies Ltd (ASX: VHT)

    Volpara Health Technologies is a provider of software that uses artificial intelligence imaging algorithms to assist with the early detection of breast cancer. It has been growing at an explosive rate over the last few years thanks to the increasing popularity of its software with radiologists across North America. Thanks to the quality of its software and recent acquisitions, I believe it is well-placed to continue this strong form in FY 2021 and beyond.

    Legendary stock picker names 5 cheap stocks to buy right now

    Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon five stocks he believes could be some of the greatest discoveries of his investing career.

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    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 and recommends BIGTINCAN FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO and VOLPARA FPO NZ. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended AUDINATEGL FPO, BIGTINCAN FPO, Ramsay Health Care Limited, and VOLPARA FPO NZ. 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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  • U.S. Wants Chinese Scholar Who Hid in Consulate Kept in Jail

    U.S. Wants Chinese Scholar Who Hid in Consulate Kept in Jail(Bloomberg) — A Chinese researcher arrested in California is a military official who should be treated as a spy, denied bail and kept in jail while she awaits trial on visa fraud charges, U.S. prosecutors said.As Juan Tang heads back to court Friday for a hearing on whether she should be released on bail, government lawyers told a federal judge there’s a serious risk she’d try to flee with the full backing and resources of the Chinese government.China has demonstrated “every reason to assist Tang in fleeing the United States and has as its disposal means such as active consular and intelligence services, the ability to issue passports, and state-controlled air transport,” prosecutors said in a court filing. Tang’s return to China would bolster its “information collection activities” in the U.S., they said.Tang is one of several Chinese scholar visa holders in more than 25 American cities who the Justice Department suspects of having an “undeclared affiliation” with the Chinese military. Her prosecution has become a flash point of tension between the U.S. and China, which have sparred publicly by closing each other’s diplomatic missions in Houston and Chengdu.Prosecutors’ portrayal of the threat Tang poses contrasts starkly with the description by her lawyer in a Wednesday court filing of overzealous American law enforcement officials surveilling Tang’s retreat to the Chinese consulate in San Francisco for a month, and arresting her after she left the property and got medical treatment.Tang, 37, is being held in county jail in Sacramento, near where she did cancer research at University of California at Davis. A key question has been whether Tang left the consulate on her own or as the result of some agreement between the U.S. and Chinese sides.Lexi Negin, the public defender representing Tang, said the scholar voluntarily surrendered to law enforcement officials. Negin on Thursday called the U.S. accusation that the consulate would help her flee “baseless,” given that Chinese officials didn’t seize the chance to get Tang out of the country when they first learned there was a warrant for her arrest and didn’t keep her at the consulate, knowing she’d be apprehended when she left.Prosecutors said Tang’s false denials when FBI agents interviewed her at her apartment in Davis about her military affiliation and her membership in the Communist Party mirror the efforts of three other Chinese researchers in California and Indiana to cover up their pasts before they were recently charged.Tang sought shelter at the consulate in San Francisco after the agents interviewed her, according to Negin’s filing. Tang was in “hysterics” after learning of the warrant for her arrest, leading consulate officials to believe she needed to see a doctor, Negin wrote.Negin said she thinks American law enforcement officials were watching the building and followed Tang’s car to a medical office were she was treated. Negin said in an email that the details about Tang’s arrest came from a prosecutor who wasn’t personally involved in her detention.The request for Tang’s release said her husband is a doctor living with their daughter in China. Her filing says pieces of prosecutors’ evidence are “weak and lend themselves to many innocent explanations,” including photographs of Tang in military uniform.“Ms. Tang apparently attended a prestigious medical school that is run by the military in China,” according to the filing. “That does not mean that she was ‘in the military.’”The Chinese Foreign Ministry earlier this week called for Tang’s release. “China has launched solemn representations with the U.S. side urging the U.S. side to immediately release the Chinese national and ensure her legitimate and legal rights,” Wang Wenbin told a regular news briefing Tuesday in Beijing.The case is U.S. v. Juan Tang, 20-MJ-96, U.S. District Court, Eastern District of California (Sacramento).For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • Buy these ASX ETFs for dividends in August

    income dividend shares

    If you’re looking to add some dividend shares to your portfolio, then it could be worth considering exchange traded funds.

    This is because there are a few exchange traded funds that give you exposure to a large number of dividend shares through a single investment.

    The advantage of this is that it provides investors with the ability to diversify on a budget.

    With that in mind, here are two exchange traded funds that I think would be great options for income investors:

    Vanguard Australian Shares High Yield ETF (ASX: VHY)

    The first exchange traded fund for income investors to consider buying is the Vanguard Australian Shares High Yield ETF. As its name implies, this exchange traded fund has a focus on high yield shares.

    In total, the fund is invested in 66 of the highest yielding blue chip shares on the Australian share market. This comprises a diverse group of shares, with no industry accounting for more than 40% of the fund and no single company accounting for more than 10%. Among its holdings you will find the banks, BHP Group Ltd (ASX: BHP), Coles Group Ltd (ASX: COL), and Telstra Corporation Ltd (ASX: TLS). I estimate that its units offer a FY 2021 dividend yield somewhere in the region of 4% to 5%.

    VanEck Vectors Australian Banks ETF (ASX: MVB)

    Another exchange traded fund to consider buying is the VanEck Vectors Australian Banks ETF. I think this fund is a great option for investors that are wanting exposure to the banking sector, but aren’t sure which bank to buy.

    This is because the fund gives investors the opportunity to get a piece of them all through a single investment. It is invested in the Commonwealth Bank of Australia (ASX: CBA) and the rest of the big four banks, the regional banks, and also investment bank Macquarie Group Ltd (ASX: MQG). As with the other fund, I estimate that its units currently provide a 4% to 5% partially franked FY 2021 dividend yield.

    Where to invest $1,000 right now

    When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

    Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

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

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  • Why this broker thinks Mesoblast shares are a strong buy

    Buy Shares

    The Mesoblast limited (ASX: MSB) share price could be heading higher from here according to one Australian broker.

    A note out of Lodge Partners reveals that it believes Mesoblast shares are still a strong buy despite being up 85% since the start of the year.

    Why is Lodge Partners bullish on Mesoblast?

    According to the note, the broker is bullish on the global leader in allogeneic cellular medicines for inflammatory diseases due to the potential of its Ryoncil (remestemcel-L) product candidate.

    In August Mesoblast will be having an advisory committee (AdCom) meeting with the Oncologic Drugs Advisory Committee (ODAC) to discuss Ryoncil’s use as a treatment for paediatric steroid-resistance acute graft versus host disease (paediatric SR-aGvHD).

    Lodge Partners notes that the ODAC is the US Food and Drug Administration’s (FDA) key player in the regulation of cancer drugs. It plays a big role on whether a cancer drug gets approved or not.

    The broker appears confident that the AdCom will run smoothly. So much so, it gives the company a 95% probability of receiving FDA approval further down the line.

    Though, the broker has warned that a lot can happen between now and gaining FDA approval, so it could be a bumpy ride.

    It explained: “One thing to keep mind, the AdCom votes on exactly what is before it. It may not like one aspect of the drug in question. If that aspect can be ameliorated by a simple labelling change, the change will be made, and the drug allowed through, even if the AdCom originally voted “no”. The same can happen on the FDA’s end.”

    “The point, being there is a lot that can happen between the AdCom vote and the FDA’s final decision. Therefore, it is not uncommon for the FDA to approve drugs an AdCom has said no to and vice versa,” the broker added.

    Nevertheless, the broker is confident that a positive result is coming and has suggested investors buy shares.

    It concluded: “The path to approval for Ryoncil is now set. It just needs to get to the finish line. We have no doubt it will get there. Strong Buy maintained.”

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    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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  • Meet the ASX stocks that are about to get a boost from Facebook and Google

    woman holding smartphone with social media symbols

    ASX-listed media companies could soon get a big earnings uplift as online US giants are forced to pay to use their content. 

    The federal government will impose millions in fines on tech titans Facebook, Inc. Common Stock (NASDAQ: FB) and Google’s parent company Alphabet Inc Class C (NASDAQ: GOOG) if they breach a mandatory code of conduct. 

    The code will force the social media giants to pay to use articles generated by Australian media organisations on their platforms. 

    Google and Facebook pay to play

    This is good news for the likes of the NEWS CORP/IDR UNRESTR (ASX: NWS) share price, Nine Entertainment Co Holdings Ltd (ASX: NEC) share price and Seven West Media Ltd (ASX: SWM) share price. 

    These commercial operators can choose to negotiate with the social media companies individually or collectively. 

    If they cannot reach a deal with the US giants, they will go through three months of remediation before moving to a binding final offer arbitration. The arbitrator must choose an offer within 45 days, according to the Australian Financial Review.

    The code will be enforced by the Australian Competition and Consumer Commission (ACCC).

    Big multi-million dollar fines 

    Google and Facebook face fines of up to 10% of local turnover, $10 million or three times the benefit gained from the breach, whichever is greater. 

    The Federal Treasurer Josh Frydenberg said during the press conference this morning when announcing the new penalties that the new rules was to create a level playing field. 

    He pointed out that Facebook and Google were arguably the most powerful media organisations in the world and that local content producers needed to be properly paid for their work. 

    Not-for-profit also covered 

    While commercial media companies can negotiate payment, public broadcasters were excluded from the monetary component of the code. 

    This is because media outlets like the Australian Broadcasting Corporation (ABC) were funded by the taxpayer. 

    However, the public broadcasters can strike a deal to share data or other non-financial aspects of the code. 

    Can Facebook and Google afford to disengage? 

    We haven’t heard anything from Google or Facebook, but they have vehemently opposed such a code in the past. 

    They’ve even gone so far as to say the news content that they use generates little monetary value, prompting some to wonder if they will simply stop syndicating news stories.  

    Does this mean our listed media companies will see little monetary benefit from the new code? I don’t think so as I believe the social media platforms will not want to lose eyeballs. 

    They will also leave their flank undefended from smaller rivals who will be willing to share revenue to attract viewers, and the big boys simply won’t have it. 

    Where to invest $1,000 right now

    When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

    Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

    See The 5 Stocks

    *Returns as of June 30th

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    Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Brendon Lau 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 Alphabet (C shares) and Facebook. The Motley Fool Australia has recommended Alphabet (C shares), Facebook, and Nine Entertainment Co. 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.

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  • Why I think Megaport shares offer enormous long-term growth potential

    lots of piggy banks, asx growth stocks

    ASX technology company Megaport Ltd (ASX: MP1) offers customisable, on-demand network services to corporate clients. It helps clients expand their network connectivity beyond the limits of traditional infrastructure by leveraging cloud-based technology. These services can help businesses stay connected when many staff are working remotely, as is the case right now because of the COVID-19 pandemic. But Megaport’s cloud network services also help to facilitate more agile working environments, even when the world is functioning a little more ‘normally’.

    Megaport also gives companies the flexibility to manage their bandwidth usage: customers can scale up their bandwidth when transferring large amounts of data for major projects, and then reduce consumption during off-peak times. This allows companies to be more efficient with their data usage, cutting costs.

    Along with other tech companies like data warehouse operator NextDC Ltd (ASX: NXT) and internet communications company MNF Group Limited (ASX: MNF), Megaport has been one of the few success stories to emerge out of the COVID-19 pandemic.

    Revenues for the June quarter surged by 12% versus the prior quarter, and were up by 66% year-on-year to $17 million. The company also expanded its presence internationally, establishing operations in both Spain and Denmark.

    Should you invest?

    Despite a recent pullback, Megaport shares have still just about doubled in price since March, and are currently trading at $13.04. This is short of the 52-week high of $15.50 they reached in early June, but still means Megaport shares have risen a little over 20% so far in 2020.

    With the economic outlook growing increasingly gloomy, many new investors may be understandably reluctant to pick up shares in companies that have already experienced strong recent gains. There is always the very real fear that a market correction is just around the corner, and the share prices of many growth companies could collapse – as they did back in March.

    However, investors should balance this trepidation against a longer-term outlook. The coronavirus pandemic has the potential to bring about permanent changes in the way we all live. Many people may have discovered that working remotely suits their lifestyles much better. Big companies may also realise that they can save huge amounts on rent and other property costs by supporting more flexible working arrangements. And these changes need to be supported by the type of strong, adaptive, agile networks that Megaport facilitates.

    Megaport has already racked up an impressive list of big-name international clients, including Adobe Inc, Tesla Inc and Zoom Video Communications Inc. This shows the importance that big, forward-thinking corporations place on creating secure, cloud-based networks for an agile workforce.

    While there may be a few bumps along the way, I think over the long-run Megaport has the potential for enormous gains.

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    Rhys Brock 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 MEGAPORT FPO, Tesla, and Zoom Video Communications and recommends the following options: short August 2020 $130 calls on Zoom Video Communications. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended MEGAPORT 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.

    The post Why I think Megaport shares offer enormous long-term growth potential appeared first on Motley Fool Australia.

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  • This ASX share could be perfect for a $500 buy

    Growth

    I think that ASX share Future Generation Investment Company Ltd (ASX: FGX) could be a perfect buy for a $500 investment.

    If you’re investing with $500 then you want to make sure you choose the right one.

    Shares are a great way to build wealth over the long-term. But you don’t want your first investment to go badly wrong – that might put you off shares. 

    I think the right ASX share is to go for something that could provide solid returns over the long-term.

    A quick overview of Future Generation

    Future Generation is a listed investment company (LIC). The job of a LIC is to invest in other shares on your behalf. But you can buy a LIC just like any other business on the stock exchange like Commonwealth Bank of Australia (ASX: CBA).

    Many fund managers charge a management fee of around 1% (and then perhaps an outperformance fee, if it outperforms). Future Generation doesn’t charge any management fees or performance fees. Instead, it donates 1% of its net assets to youth charities. It has a noble cause.

    Future Generation doesn’t invest directly into ASX shares. Instead, it invests into the funds of Aussie fund managers who invest in ASX shares. Those fund managers also don’t charge management fees or performance fees.

    Why I think this ASX share is a great investment for $500

    These are my reasons for picking Future Generation:

    Diversification

    When you start investing you have to pick something to buy. If you choose an individual share then your entire portfolio consists of just one share. That’s not diversified at all. Even high-conviction fund managers usually have around 10 different positions in their portfolio.

    Most LICs offer a pretty diversified portfolio with at least 20 shares, perhaps several dozen positions. Future Generation is invested in the funds of around 20 funds. Each fund represents a whole portfolio of shares. So Future Generation’s underlying portfolio seems to be very diversified with different ASX shares.

    Those fund managers only put shares in the portfolio they think can produce good returns, so it’s a compelling portfolio of underlying shares.

    Dividends

    One of the best features of investing in shares is the dividends. It’s nice to get paid for no effort, apart from making the initial investment.

    Many LICs like to pay dividends to shareholders. LICs can pay a smoothed dividend to investors from the capital gains generated and dividends that the LIC receives.

    Future Generation has increased its dividend every year since 2015, when it first started paying a dividend. The LIC was only formed in September 2014. That’s a reliable record from the ASX share.

    At the current Future Generation share price it offers a grossed-up dividend yield of 7%. That’s a great yield in the current environment. 

    Performance

    A LIC’s investment performance can be measured against a benchmark. Future Generation’s benchmark is the S&P/ASX All Ordinaries Accumulation Index.

    Future Generation’s gross portfolio performance has outperformed its benchmark by 3.3% over the past six months, 6% over the past year, 0.6% per annum over the past three years, 1.6% per annum over the past five years and 1.8% per annum since inception (September 2014).

    Outperformance compared to the ASX share index over the long-term is attractive.

    Cheap price

    I think Future Generation is trading at an attractive price. With exchange-traded funds (ETFs) you buy $1 of assets for $1. With LICs you can buy $1 of assets for less than $1. That’s described as a discount to the net tangible assets (NTA). I think that’s an attractive way to buy ASX shares. 

    At the end of June 2020, Future Generation had NTA per share of $1.147. That compares to the current Future Generation share price of $1.02. That’s a discount of 11%. I’d be very happy to accumulate shares at the current level.

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    Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO. 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 This ASX share could be perfect for a $500 buy appeared first on Motley Fool Australia.

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