Market bulls have gained the upper hand with the S&P/ASX 200 Index (Index:^AXJO) jumping 1.8% today.

The world appears to finally be in control of the COVID-19 pandemic and investors are willing to look past the recession and into the recovery.

But investors shouldn’t get ahead of themselves. The fact that the big four banks have finished the session at their intraday lows shows the rebound remains vulnerable.

If you are looking for ASX shares that might hold their ground better, here are the latest buy ideas from leading brokers.

Bountiful harvest

One stock that UBS is backing is Graincorp Ltd (ASX: GNC). The broker just reiterated its “buy” call on the grain handler as it believes the risk-reward is favourable after management posted a better than expected profit result.

There are also signs that the drought is breaking in parts along the eastern seaboard where Graincrop focuses on. This bodes well for our winter crop.

Further, the group’s balance sheet looks healthy with net cash of $5 million from its core businesses post demerger of UMG and divestment of the Bulk Liquid Terminals.

UBS’ 12-month price target on Graincorp is $4.50 a share.

Turning a corner

Meanwhile, Morgans reaffirmed its “add” recommendation on Superloop Ltd (ASX: SLC) after the broadband services company’s latest trading update.

The broker thinks Superloop is at a turning point after struggling with operational issues over the past year or so.

“Both 1H20 and 2H20 results, ex the COVID-19 overlay which is clearly not management’s fault, have been in-line with our expectations,” said Morgans.

“This implies that after several years of being in an earnings downgrade cycle, FY20 looks to be the base year, from which to grow.”

The broker’s price target on the stock is $1.30 a share.

Good prognosis

Another stock for the watchlist is medical diagnostic group Sonic Healthcare Limited (ASX: SHL). Citigroup highlighted the stock as a “buy” after running several COVID-19 test scenarios.

The stock fell out of favour at the start of the pandemic because investors were worried that what it will make from running COVID-19 tests will not be enough to offset the drop in demand for its traditional services.

The broker estimates that the total market opportunity in the US alone from coronavirus testing stands at around US$6 billion for the six months to the end of calendar 2020.

“Assuming a SHL market share of 5%, it would increase group 1H21 revenue/EBITDA/NPAT by up to 13%/31%/63% over our baseline forecasts of ‘business as usual’, all else equal,” said the broker.

While there are some caveats to the forecast, the broker believes Covid-19 testing could provide a significant cushion against a drop in the base business.

“Under the 5% mkt share scenario the group’s global revenue would have to decline by 13% in 1H21 to offset the contribution from US Covid-19 testing,” explained Citigroup.

The broker’s 12-month price target on Sonic is $32.50 a share.

More reading

• Here’s why the Fortescue share price hit an all-time high today
• Is the ASX 200 getting too far ahead of itself?
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Are CBA shares in the buy zone?
• 3 ASX 200 blue chip shares I would buy today

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 SUPERLOOP FPO. The Motley Fool Australia has recommended Sonic Healthcare 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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Is it time to buy banks like Australia and New Zealand Banking Group (ASX: ANZ)?

When you look at the carnage from the coronavirus for ASX bank shares you can see much lower share prices.

ANZ has seen a share price fall of 43%.

The Commonwealth Bank of Australia (ASX: CBA) share price has dropped 33% since 21 February 2020.

Westpac Banking Corp (ASX: WBC) has seen its share price fall 41%.

The National Australia Bank Ltd (ASX: NAB) share price has dropped 43%.

Banks are obviously going to suffer a lot of pain during the coronavirus crisis, that’s why they have already provisioned a few billion dollars between them for bad debts.

But some assumptions investors are making about the banks may not turn out to be as bad if the economy doesn’t slump as much as expected. Perhaps a vaccine will be available for the public sooner than expected, which could open up travel and education sectors sooner than thought. In that scenario banks may actually end up cheap at today’s prices.

A selloff of around 40% is a huge selloff. That’s not far off the GFC and don’t forget that interest rates are now incredibly low. Whilst that obviously reduces the profit of banks, it also improves the attractiveness of the cashflows that they generate each year.

Which ASX bank to buy?

If I had to buy one ASX bank other that Macquarie Group Ltd (ASX: MQG), my pick would be Commonwealth Bank because of its higher quality and good balance sheet.

However, I would prefer to buy Macquarie over other ASX banks. It has global earnings which are more diversified, so I think there’s a lot more to like about Macquarie than the domestic banks. I believe Macquarie has much more growth potential at this stage. 

But I’m avoiding banks right now, even if they do seem cheaper now.

More reading

• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Are CBA shares in the buy zone?
• The ASX big bank stock most likely to outperform in the COVID-19 recovery
• Leading brokers name 3 ASX shares to sell today
• 5 ASX 200 dividend shares for an economic recovery

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is it time to buy ASX banks? appeared first on Motley Fool Australia.

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There are few ASX shares that I plan to hold til I’m 100.

The problem is that many businesses seem as though they’ll eventually become structurally challenged or at least we can’t have enough conviction in their long-term prospects.

There are two ASX shares in my portfolio I plan to hold until I’m 100, essentially forever.

Here are my two ideas:

Long-term ASX share 1: Rural Funds Group (ASX: RFF)

Rural Funds is a farmland real estate investment trust (REIT). It owns a diverse portfolio of different farm types including almonds, cattle, macadamias, vineyards and cotton.

One of the main reasons why I’m confident about holding this share for the long-term is that farmland has already been around for many centuries which should mean it’ll be okay for the next few decades. The way most of us eats food isn’t going to change any time soon. I believe that farmland is going to be integral for many years to come. 

It aims to increase its distribution by 4% each year to unitholders, so that’s not exactly rocket-like growth, but it’s comfortably higher than inflation and you get a solid starting yield.

I like the Rural Funds strategy of buying properties that it can re-invest into and add productivity improvements at the farms. It’s doing this well with cattle farms at the moment.

As long as the balance sheet remains relatively conservatively geared I think Rural Funds can be an excellent ultra-long-term ASX share which keeps producing a stream of cash distributions for investors. It currently has a forward distribution yield of just over 6% which is solid in today’s low interest coronavirus world.

Share 2: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is an investment conglomerate ASX share that has been listed since 1903. Think of all the things that it has already been through to get to this point. It’s survived through the Spanish Flu, two world wars and all the various recessions.

The conglomerate has a diversified asset base with investments in various industry like telecommunications, resources, property, building products and pharmacies.

Soul Patts regularly invests into new industries. It recently invested a sizeable amount into agriculture and it’s now looking to invest into regional data centres.

It’s already been around for a century and Soul Patts has paid a dividend every single year in that history. Its dividend is funded from the investment income it receives, where it retains some profit which it will use for future investment opportunities.

The current grossed-up dividend yield of 4.7%.

Foolish takeaway

Out the two ASX shares, Soul Patts would be my clear favourite. It’s much more diversified, has a cheaper cost structure, a much longer history and more investment flexibility. I’m looking to buy more shares of Soul Patts if it drops below an $18 share price.

More reading

• 3 Warren Buffett ASX dividend shares to buy right now
• 3 ASX shares to instantly diversify your portfolio
• 3 industries that may never recover from COVID-19
• Beat falling rates with these strong ASX dividend shares
• Buy these ASX 200 shares for your kids today

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company 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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One of the most common questions I hear from ASX dividend share investors is around how to build a portfolio that can provide tax-advantaged income.

The way our dividend system is structured in Australia is actually fairly unique in the world – and gives investors the opportunity to harvest income in an advantaged way.

But many investors don’t realise this and make decisions with their investing which negate these benefits and can even end up eroding their overall returns.

So let’s look at how ASX shares are taxed, and how you can use this to your advantage. Remember though – this is just general information. You should always speak to a tax professional about your individual circumstance as well.

How are ASX shares taxed?

When you own ASX shares you will face two types of tax: capital gains tax and income tax.

Capital gains tax is only levied when you buy an ASX share and sell it at a later date for a profit. In most circumstances, you get a discount on this gain if you have held the shares longer than a year. And if you never sell a share, you never have to pay tax on its gains – something to keep in mind.

For shares that don’t pay dividends, that’s the end of the story. But if you hold shares that do (which is likely for many ASX investors), you will also pay income tax.

See, dividends are taxed as ordinary income. This means you’ll have to add the dividends you receive each year to your total income, which is then taxed at your marginal rate.

But there’s another aspect to dividend taxes that some investors overlook: franking credits.

How franking can help you pay less tax

If a company pays a dividend in Australia, it usually does so from a pool of cash that has already been taxed by the government. Therefore, if the government taxes the dividend again when you receive it as income, it will have been taxed twice. To remove this double-tax, the dividend will come with a ‘receipt’ of the tax that’s already been paid. That receipt is known as a franking credit. Depending on how the company has paid its tax, and in which country it earns its income, dividends may be distributed fully franked, partially franked or with no franking credit at all. 

Franking credits can be used to offset other income as a deduction, effectively reducing the tax you have to pay on said income. In this way, receiving dividends is a very tax-effective way to make money. This is particularly relevant in retirement when you no longer have work-related deductions to offset your income tax.

Foolish Takeaway

Of course, some investors don’t really worry about dividends and prefer to stick with growth shares to try and maximise capital gains. But for those investors who invest for income, or even those who are happy with any kind of return, dividends can be a great way to receive income that comes with tax advantages like franking. So make sure if you invest for dividends, you know the full extent of the benefits that come with them!

More reading

• Top brokers pick the latest ASX stocks to buy today
• Is it time to buy ASX banks?
• 2 ASX shares I plan to hold til I’m 100
• ASX 200 market close: Share market up 1.8%
• Here’s why the Fortescue share price hit an all-time high today

Motley Fool contributor Sebastian Bowen 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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