There is a very real possibility of a second stock market crash in 2020. Risks such as the upcoming US election, Brexit and, of course, coronavirus could cause investor sentiment to weaken.

However, a decline in stock prices could present buying opportunities. Through buying high-quality stocks when they trade at discounted prices, it is possible for long-term investors to generate high returns as the economic outlook improves over the coming years.

High-quality stocks

A second stock market crash is likely to be caused by uncertainties surrounding the economy’s future prospects. This could mean that the operating conditions for many businesses come under pressure.

Therefore, it could be logical for investors to purchase companies with strong balance sheets and access to sufficient liquidity to survive a period of weak sales. They may be better placed to not only still be in existence in a few years’ time, but could also benefit from the demise of their weaker sector peers through increasing their market share.

Identifying the strongest businesses in a sector is subjective. However, measures such as debt levels, the amount of cash a company has on its balance sheet and its ability to access multiple forms of capital should it be required may help you to unearth the best stocks to buy should there be a further market crash.

Undervalued stocks in a market crash

A market crash can provide an opportunity to buy shares when they trade at low prices. However, this does not mean that investors should simply buy the cheapest shares they can find. Many stocks could be cheap because they face difficult outlooks, and they may fail to ultimately recover from their low price levels.

As such, it may be prudent to instead focus your capital on those shares that trade at a discount to their intrinsic value. This could mean that they are not among the cheapest shares around, but that they offer the best value for money based on their quality. It may be more profitable to buy more expensive companies with better prospects, than cheap stocks with difficult outlooks.

A long-term strategy

It is difficult to ascertain when a market crash will end and give way to a sustained bull market. Therefore, while it can offer buying opportunities, there is a chance of paper losses being sustained in the short run while a stock market fall is taking place.

This means that investors should adopt a long-term strategy when buying shares in a downturn. History shows that the stock market has always bounced back to post higher highs after even its most severe declines. The same outcome is very likely after this year’s challenges, which could make it a good time to start building a diverse portfolio of undervalued, high-quality businesses.

More reading

• Money to invest? I’d follow Warren Buffett to get rich
• Western Areas share price drops 5% following quarterly report
• How to take advantage of the surging gold price
• These BNPL shares have blown up since their IPOs
• ASX 200 drops more than 1%, IAG falls 7.5%

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.

The post If a second stock market crash arrives in 2020, I’d follow this plan to capitalise on it appeared first on Motley Fool Australia.

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The past success of investors such as Warren Buffett means that they can offer worthwhile views on where to invest today in what is an increasingly uncertain stock market.

While risks are high, and there is an ongoing potential for a market crash, Buffett’s long-term approach to investing could lead to high returns.

Similarly, his focus on investing in industries he understands could be worth mirroring within your own portfolio.

Warren Buffett’s holding period

While many investors may be trying to work out whether a second market crash will occur, or if there will be a market rally, Warren Buffett has always adopted a long-term view when it comes to investing. This means that the short-term performance of an investment portfolio is unlikely to be of great significance – as long as it offers high total returns in the long run.

The past performance of the stock market suggests that this strategy could be sound. After all, the best buying opportunities are often found when investors feel that the risks facing the world economy and the stock market are at their highest level. In such a scenario, the stock market may have already priced in those risks, which can lead to wide margins of safety being on offer for high-quality stocks.

Investing in what you know

It’s easy for any investor to buy a wide range of stocks in multiple industries to try and diversify. However, this may mean that you do not have a sufficiently large understanding of those industries to identify the best companies at the most attractive prices.

Therefore, following Warren Buffett in terms of investing in sectors that you understand could be a good idea. He has focused his capital on a relatively small number of industries, and has been able to identify the most attractive companies within them.

This point may be especially relevant at the present time. Many sectors are undergoing periods of rapid change that could provide opportunities for disruptive business models, as well as difficult futures for existing companies. Through learning about the intricacies of a specific industry, you may stand a better chance of investing in those businesses with long-term growth potential.

Focusing on equities

Warren Buffett has invested the vast majority of his wealth in equities. Although the recent market crash may make other assets such as gold and Bitcoin more attractive in the eyes of some investors, the track record of the stock market suggests that it offers the most attractive risk/reward ratio of mainstream assets.

With stock prices being exceptionally low in some industries right now, there may be opportunities to obtain market-beating returns in the coming years. Investing now could improve your financial prospects, and allow you to enjoy greater financial freedom in the long run.

More reading

• Western Areas share price drops 5% following quarterly report
• How to take advantage of the surging gold price
• These BNPL shares have blown up since their IPOs
• ASX 200 drops more than 1%, IAG falls 7.5%
• Escalating US-China tensions are sending these ASX stocks jumping higher today

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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On Friday, the Western Areas Ltd (ASX: WSA) share price fell 5.2% to $2.53 following the release of its quarterly activities report.

What was in the announcement?

The company announced that it had total nickel production of 23,391 tonnes for the 2020  financial year. Costs for the 2020 financial year were $3.13 per pound, this was at the mid point of cost guidance. The average nickel price for the financial year was $8.50 per pound.

Western Areas had operating cash flow of $22.9 million in the final quarter of the 2020 financial year. It had cash at bank of $144.8 million and no debt at 30 June. Cash plus receivables and liquid assets were $190.6 million.

The company spent $33.2 million on mine development during the 2020 financial year which was below guidance. It spent $15.6 million on exploration which was at the lower end of guidance.

Western Areas announced that its Forrestania and Cosmos operations were materially unaffected by the coronavirus pandemic. The company also announced that the development of its Oddysseus mine had entered its final stage of underground rehabilitation for the project.

Western Areas Managing Director, Dan Lougher, commented on the results stating;

“It has been a busy quarter at Western Areas across many fronts, including exploration, project development and operations, while also advancing and building long term strategic optionality into the company via an investment in Panoramic Resources. Pleasingly, our assets continued to operate reliably and consistently, enabling the company to materially deliver into all FY20 guidance metrics, acknowledging a slight shortfall in nickel concentrate production, achieving 99.7% of guided production range. Most encouragingly during the quarter, our systemic and sustained exploration effort at the West Gawler Project in South Australia has started to show its potential as a new base metal region, with the first diamond drill hole at the Sahara target area intersecting a significant interval of mineralisation.”

About the Western Areas share price

Western Areas is a nickel producer and explorer with assets in Australia. It currently has two assets in production which, according to the company, are among the lowest cost, highest grade nickel assets in Australia.

In June, Western Areas announced that it had early success with two drill holes at Sahara, within the Western Gawler project in South Australia. The company discovered 104.42 metres at .21% nickel and .12% copper including 33.97 metres at .29% nickel and .17% copper. 

Also in June, Western Areas bought a 19.9% stake in Panoramic Resources for $28.6 million.

The Western Areas share price is up 56.17% from its 52 week low of $1.62, however, it has fallen 16.5% since the beginning of the year. 

More reading

• ASX 200 Weekly Wrap: ASX retreats as confidence wanes
• These were the best performing ASX 200 shares last week
• Why Qantas and this other ASX 200 stock were just downgraded by top brokers

Motley Fool contributor Chris Chitty 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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ASX shares aren’t having a crash-hot day today. At today’s close, the S&P/ASX 200 Index (ASX: XJO) is down around 1.09% to 6,024 points. But the mood for investors in an entirely different asset class couldn’t be more contrasting. I’m speaking of course about the surging price of gold.

Gold has again been on the climb this week and now sits at a precipitous price of US$1,886 per ounce. Why is this price precipitous? Well, because the record, all-time high for gold is US$1,920 per ounce, which was hit way back in 2011. It will only take another ~1.8% rally for this record to be broken. As this precious metal has been used as an investment long before the idea of a share market was even conceived, I think it will be a pretty momentous occasion to see it break a record high price, if it does happen.

Why is gold surging in value?

Gold is typically regarded as a ‘safe haven’ investment. Investors are attracted to this reputation, as well as gold’s tangibility and use as a store of wealth when there are uncertainties and turmoil in other asset markets. And that is precisely what 2020 is bringing us in spades. The coronavirus pandemic has devastated the global economy. And although governments and central banks are throwing everything (including the kitchen sink) at propping up markets, many investors fear this can not continue forever – especially without inflationary effects. This has led to gold being a highly desirable asset to hold in many investors’ portfolios – and explains why prices are on the march.

How to take advantage of a higher gold price

I will preface this by saying that gold has already climbed from around US$1,500 per ounce to its current level this year. As such, if you don’t already own gold, I’m afraid the train has already left the station on that front. However, for those investors who would like to take a view that gold has far further to climb, then there are many ways to take advantage.

You could always buy some good old-fashioned physical bullion. But for many investors, the costs and risks of transporting or storing this bullion may not make it a viable option.

As such, an exchange-traded fund (ETF) tracking the price of gold may be a good bet. The ETFS Physical Gold ETF (ASX: GOLD) is one such option. Units of this ETF represent ownership of physical bullion, which the fund stores in a London bank vault. GOLD charges a management fee of 0.4% per annum for the privilege though.

You could also get exposure through a gold miner. Newcrest Mining Limited (ASX: NCM) is the largest gold miner on the ASX. But there are plenty of other choices, such as Evolution Mining Ltd (ASX: EVN) or Saracen Mineral Holdings Limited (ASX: SAR) as well.

Foolish takeaway

Many ASX investors don’t ever bother investing in gold. But I do think there’s a case for a small portion of a portfolio to be exposed to the yellow metal. But in the end, investing in gold is a personal choice. So if having a physical asset like gold in your portfolio helps you sleep better at night, then go for it.

More reading

• Brokers name 3 ASX 200 shares to buy right now
• ASX 200 sinks 1%: IAG cancels final dividend, tech shares tumble, IGO jumps
• Why Afterpay, Evolution, IAG, & Vicinity Centres shares are dropping lower
• 5 things to watch on the ASX 200 on Friday
• Evolution share price lower despite increased scale of opportunity

Motley Fool contributor Sebastian Bowen owns shares of Newcrest Mining Limited. 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 buy now, pay later (BNPL) sector is bigger than ever. According to Ibis World, the industry grew at 39.3% annually between 2015 and 2020. First emerging in 2011-12, Worldpay has also predicted the BNPL industry will double in the next three years. The sector has grown from 3% of all eCommerce payments in 2018 to 8% last year. 

In 2019, there was a surge of BNPL IPOs. Splitit Ltd (ASX: SPT) was the first listing of the year. Sezzle Inc (ASX: SZL) debuted mid year and Openpay Group Ltd (ASX: OPY) listed just before Christmas 2019. Industry giant Afterpay Ltd (ASX: APT) listed in 2016 while competitor Zip Co Ltd (ASX: Z1P) listed back in 2015 as Zip Money Limited. 

As the BNPL sector continues to experience rapid growth, we take a look at how ASX BNPL shares have performed since their IPOs. 

Afterpay 

Afterpay listed in 2016 at an offer price of $1 per share, giving the company a market capitalisation of $125 million. Shares are now trading at $69.81, meaning an investor at the IPO stage would be sitting on a 6881% return. Afterpay has grown into the largest of the BNPL providers by market capitalisation, and is now worth some $19.41 billion. 

Afterpay reported underlying sales of $11.1 billion in FY20, an increase of 112% on the prior corresponding period. Underlying sales in the fourth quarter were $3.8 billion, 127% above 4Q FY19. This was the highest quarterly performance ever, reflecting the accelerating shift to eCommerce spending since the impacts of COVID-19 emerged globally. 

Active customers reached 9.9 million in FY20, demonstrating the flight to online spending and attractiveness of the budget focused business model in the current economic environment. FY21 is expected to be a year of increased investment as the business looks to maintain strong momentum and capitalise on the opportunity to scale globally. 

Zip Co

The first of the BNPL providers to list, Zip Co joined the ASX in 2015 issuing shares at 20 cents each. Zip shares are now worth $6.38, giving a 3090% return to IPO investors. Zip raised $5 million in its IPO but now boasts a market capitalisation of $2.49 billion. 

Zip Co reported $2.3 billion in annualised transaction volumes in FY20, above its $2.2 billion target. Customer numbers increased to 2.1 million, a 63% increase year on year. Over the full year, Zip Co reported revenue of $161.2 million, an increase of 91% on FY19. 

The company’s business model has been tested during the pandemic and has proven incredibly resilient. Transaction volumes and customer numbers have continued to grow, and customer repayment performance remained strong. In a July trading update, Zip CEO Larry Diamond said, “…our penetration into defensive, everyday spend categories delivered in spades”. 

Splitit

Splitit listed on the ASX in January 2019 at 20 cents per share. The company raised $12 million in its IPO which gave it a market capitalisation of $54 million. It now has a market cap of $519 million and shares trading at $1.46, meaning IPO investors have seen a 630% gain. 

Splitit reported record growth in the June quarter with rapid growth across all KPIs. Merchant sales were US$65.4 million, a 260% increase on 2Q FY19. Average order value increased 44% to US$893 and total merchants increased 104% to 1,000 with large new merchants signing up. 

Gross revenue increased 460% to US$2.4 million in the June quarter with demand from higher value merchants ramping up. Customers looking to make better use of their existing credit and the accelerated shift towards eCommerce as a result of Covid-19 are driving growth. 

Sezzle

Sezzle listed on the ASX in July last year at $1.22 per share. At the time, the company had a market capitalisation of around $217 million. Now its market cap is nearly $780 million and shares are trading at $7.88, giving initial investors a 546% return. 

Sezzle is focused on the United States market and reported a record June quarter. Underlying merchant sales surged 58% quarter-on-quarter to $272.3 million. This represents an increase of 349% year-on-year. Active customers rose 243% over the year to reach 1.48 million. Merchant numbers were up 219% to over 16,000. 

In a July market release, Sezzle CEO Charlie Youakim said, “Our performance reaffirms our product’s utility to consumers looking for a smarter way to budget their personal finances and the overall market shift to eCommerce”.

Openpay 

Openpay joined the ASX in December last year, issuing shares at $1.60 each. The float valued the company at $150 million. Now Openpay has a market capitalisation of $425 million and shares are trading at $3.94. This gives IPO shareholders a hefty 146% return.

Openpay reported record growth in the final quarter of FY20 across leading indicators. Active plans increased 229% to 824,000 with notable improvements seen in the healthcare, retail, and automotive verticals. Active customers grew 141% to 319,000. In a July announcement, Openpay CEO Michael Eidel commented, “As more consumers sought better ways to structure purchases across their life needs, we saw a strong surge in new customers and plans”. 

Total transaction value grew to $192.8 million for the full year, up 92% compared to FY19. Revenue grew by 64% to $18 million over the full year, with business more than doubling in the United Kingdom. UK growth was driven by ‘OpenMay’ promotions and the launch of major retailer JD Sports on the platform. Despite lockdowns, active merchants still increased 52% on the prior corresponding period in 4Q FY20, reaching 2,162. Openpay is typically the sole BNPL provider, or one of only two, in the healthcare and automotive verticals. 

Foolish takeaway

The ASX’s BNPL shares have all performed well since their debut, which will please early investors. The shift to purchasing now but paying down the track seems to be gathering pace as the economy struggles. BNPL providers are also leveraged to the broader shift to eCommerce. With BNPL still only accounting for 8% of online purchases, it seems the sector still has room to grow, both domestically and internationally. 

More reading

• ASX 200 sinks 1%: IAG cancels final dividend, tech shares tumble, IGO jumps
• Why Afterpay, Evolution, IAG, & Vicinity Centres shares are dropping lower
• Should Afterpay shareholders be concerned about Shopify’s BNPL launch?
• Value stocks to rise on strong A$ and broker picks the cheapest ASX stocks to buy today
• How are 2019’s tech IPOs performing?

Kate O’Brien 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’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle 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 S&P/ASX 200 Index (ASX: XJO) dropped more than 1% today to 6,024 points.

Aside from the ongoing spread of COVID-19 around the world, the eye-for-an-eye ordering of consulate closures between the US and China is causing concern.

Here are some of the main headlines from today:

Insurance Australia Group Ltd (ASX: IAG) cancels its final dividend

IAG has announced today that it won’t pay a final dividend to shareholders. Its interim dividend of 10 cents per share paid earlier in the year already accounts for its policy of a dividend payout of 60% to 80% of annual cash earnings.

The insurance giant announced a few elements expected in its FY20 result.

The ASX 200 share expects to report that it achieved gross written premium (GWP) growth of around 1%. Management said this was consistent with its ‘low single digit’ guidance that it maintained throughout FY20.

It achieved an insurance margin of approximately 10%, with the shortfall against prior guidance of 12.5% to 14.5% largely driven by adverse natural perils, prior period reserving and credit spread factors.

IAG managing director Peter Harmer said: “We have experienced an immensely challenging second half to the 2020 financial year, characterised by severe natural peril activity, the disruption caused by the COVID-19 pandemic to our people, customers and suppliers, and the marked volatility in investment markets which has adversely impacted our results.

“We have seen some softening in our underlying margin in the second half. This stems from the combination of lower investment returns from diminishing interest rates, an increased reinsurance expense as we bolstered our protection following heavy perils incidence early in the calendar year, and some deterioration in Australian long tail loss ratios.”

The IAG share price fell around 7.5% today.

Big decline in property value for Vicinity Centres (ASX: VCX)

One of the ASX’s biggest property groups announced its portfolio valuation update today.

At 30 June 2020, Vicinity said its portfolio was worth 11.3% less compared to six months ago. In dollar terms, it amounted to a $1.79 billion fall in the valuation.

Independent valuers addressed market conditions by closely looking at underlying cashflows of the ASX 200 property business. They also considered the significant increasing of short to medium term allowance such as vacancy, downtime, leasing capital and lowering expectations for sales and market rental growth.

Whilst the overall portfolio fell by 11.3% in value, the flagship portfolio – consisting of Chadstone, premium CBD locations and DFO outlet centres – only saw a net valuation loss of 8.8%.

Vicinity Centre managing director and CEO Grant Kelley said: “Aside from Victoria which has had an increase in COVID-19 cases and recently reinstated stage 3 restrictions across metropolitan Melbourne, conditions across other Australian states continue to improve. For many of our centres, particularly those that are less reliant on office workers or tourists, customer visitation has returned to, or is close to, pre COVID-19 levels. Customer visitation across our portfolio is 68% of the prior year level, with 83% of stores trading. Excluding Victoria, portfolio customer visitation increase to 80%, with 95% of stores trading.”

Mr Kelley went on to say that further retail activity reduction could lead to lower valuations for its assets.

The Vicinity share price fell 2.5% today.

More COVID-19 provisions for Bank of Queensland Limited (ASX: BOQ)

BOQ saw its share price drop almost 4% after announcing its quarterly APRA update for the period ending 31 May 2020.

The ASX 200 regional bank said there was a $112 million increase in the loans that are 90+ days past due. That includes $58 million of customer loans where banking relief package applications have been processed subsequent to 31 May 2020. The rest relates to customers who didn’t elect to enter into a relief package or were ineligible.

The bank also said it has taken a further collective provision of $61 million during the third quarter of its FY20, bringing the total COVID-19 related collective provision to $71 million, the top end of its range.

More reading

• Escalating US-China tensions are sending these ASX stocks jumping higher today
• Fed up of dividend cancellations? Buy these safe ASX dividend shares
• Brokers name 3 ASX 200 shares to buy right now
• Will the iron ore price crash by the end of 2020?
• Vicinity Centres share price drops on portfolio devaluation news

Motley Fool contributor Tristan Harrison 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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