The federal government’s early childhood education and care relief package helped ASX childcare shares stay afloat at the height of the COVID-19 pandemic. However, as restrictions ease and Australians begin to go back to work, the free childcare scheme is unlikely to be extended beyond its expiry date of 28 June 2020.

What is the free childcare scheme?

In early April, the federal government pledged to support parents and childcare centres across the country by announcing that childcare would become free for parents who continue to work during the coronavirus pandemic.

Additionally, the government announced it would provide financial support to childcare centres to ensure they continue to operate. As a result, the government has been paying childcare businesses 50% of their pre-COVID-19 revenue in the form of weekly ‘business continuity payments’.

The scheme was no doubt a big relief to the many parents trying to balance both working at home and parenting at the same time. It has also been vital for many others such as nurses and doctors that have been required to leave their children in the care of others when they go to work.

The announcement put a rocket under ASX childcare shares like G8 Education Ltd (ASX: GEM) and Think Childcare Ltd (ASX: TNK) at the time. However, following the initial boost, both shares remain relatively flat over the past month. G8 Education even tapped the market for capital in April to provide liquidity and strengthen its balance sheet.

New report hails scheme as a success

A report into the free childcare scheme has just been released by the Federal Education Department. The report was produced at the height of the pandemic and involved a survey of more than 7,000 child care providers.

According to ABC News, the report concluded that the scheme fulfilled its aim of rescuing the sector and keeping services viable and open. It found that 86% of childcare services credited the scheme with helping them stay open, while 76% said the scheme helped them stay financially viable. The report also said that current childcare levels remain well below capacity at 63%.

As quoted by ABC News, Education Minister Dan Tehan said:

It is positive to see a report card like this but we cannot rest on our laurels because as demand continues to increase we’ve got to ensure that the sector will survive and flourish in a post pandemic world.

Speaking to the Sydney Morning Herald, Mr Tehan further commented on the sustainability of the scheme:

The success of the rescue package and the success we have had in flattening the curve means we do have to look at how long we want this temporary measure in place and how quickly do we need to change to meet the growing demand.

What next?

The current scheme is due to expire on 28 June 2020. While no final decision in regard to an extension has been made yet, Prime Minister Scott Morrison recently highlighted the temporary nature of the scheme. On Friday, Scott Morrison said that although the Education Minister is considering the program beyond its current expiry, it was “not a sustainable model for how the childcare sector should work”.

As for ASX childcare shares, it will continue to be a tough road ahead as COVID-19 has had a significant adverse impact on occupancy levels across the sector. G8 Education and Think Childcare also carry a meaningful amount of debt to be serviced.

Although G8 Education’s recent $301 million equity raising helped to substantially shore up its balance sheet, it is still in a net debt position of $65 million on an adjusted basis. The much smaller Think Childcare had around $30 million of net debt as of FY19 (ending 31 December 2019).

More reading

• These 10 ASX 200 shares have fallen the most over the last year
• Here are all the ASX 200 companies that have announced capital raisings so far in 2020
• Leading brokers name 3 ASX 200 shares to sell right now

Motley Fool contributor Cathryn Goh 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 S&P/ASX 200 Index (Index:^AXJO) is heading for its best session this month on growing optimism that the global economy is finally on the path to recovery.

Markets may have passed peak COVID-19  pain and investors should be reassessing their ASX share portfolio to best position themselves for the post pandemic world.

If you are looking for clues on the stocks you should and shouldn’t hold, Macquarie Group Ltd (ASX: MQG) may have some answers as its analysts looked at stock returns in the 1990 recession.

Doesn’t repeat but rhymes

That was the recession we had to have where the unemployment rate jumped to over 10%. Economists expect a similar outcome for the job market during this coronavirus-inspired recession.

“We still think the market is in a range, as valuations limit upside. But without a second wave of Covid-19 and shutdowns, the worst of the contraction may have passed, and March 23 is the low,” said the broker.

“This puts us in Late Contraction; that part of the recession where stocks often go up even when unemployment rises above 10% as it did months later in 1990-91.”

Go overweight on resources

One sector that the broker is overweight on during this part of the market cycle is resources. The BHP Group Ltd (ASX: BHP) share price outperformed during the recession two decades ago and Macquarie thinks this will happen again.

Mind you, it’s not only BHP but also the other iron ore producers that Macquarie are tipping to be big winners this time round. This means you should add Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) to the list as well.

This is because the group is expected to generate strong free cash flows that can be used to pay dividends.

Gold standard

Gold miners also found a place in Macquarie’s model portfolio. The broker added Evolution Mining Ltd (ASX: EVN) and Saracen Mineral Holdings Limited (ASX: SAR) to its overweight list.

Another sector to find favour is communications as media stocks outperformed in the last recession. Macquarie is backing NEWS CORP/IDR UNRESTR (ASX: NWS) over Nine Entertainment Co Holdings Ltd (ASX: NEC), and is keeping its bullish view on Telstra Corporation Ltd (ASX: TLS) for its defensive qualities.

Bet on consumers

Macquarie is also encouraging investors to increase their exposure to consumer discretionary stocks as cyclical stocks tend to outperform in a recovery. Stocks highlighted by the broker are Crown Resorts Ltd (ASX: CWN), Wesfarmers Ltd (ASX: WES) and Aristocrat Leisure Limited (ASX: ALL).

Sectors to avoid

On the flipside, Macquarie is recommending investors go underweight on financials, healthcare and technology.

It is also suggesting investors reduce their exposure to Australian real estate investment trusts (AREITs).

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?
• Could ASX 200 iron ore shares save the Australian economy?
• Are CBA shares in the buy zone?
• 3 ASX shares that will have strong dividends in 2020

Motley Fool contributor Brendon Lau owns shares of Aristocrat Leisure Ltd., BHP Billiton Limited, Macquarie Group Limited, Rio Tinto Ltd., and Telstra Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Telstra Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Crown Resorts Limited 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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I’m a big fan of growth shares and feel lucky to have so many to choose from on the Australian share market.

But with so many options, it can be hard to decide which ones to buy.

Three top ASX growth shares that I think should be considered are listed below. Here’s why I would be a buyer of these shares:

a2 Milk Company Ltd (ASX: A2M)

One of the best growth shares on the local market could be a2 Milk Company. Over the last few years the infant formula and fresh milk company has grown at a rapid rate thanks largely to the success of its A2-only offering with Chinese consumers. The company’s products exclude the A1 protein from cow’s milk which some people are believed to have problems consuming. Demand continues to rise for its products, leading to management recently upgrading its guidance for the full year. The top end of its guidance range implies year on year revenue growth of 34.1% and EBITDA growth of 35.4%. Given its modest market share, I believe a2 Milk Company still has a long runway for growth.

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

If you would like to invest in growth shares outside Australia, then you could invest in some of the fastest growing tech companies in the Asia market with the BetaShares Asia Technology Tigers ETF. Through a single investment investors can gain exposure to companies that are revolutionising the lives of billions of people in the region. This includes ecommerce giant Alibaba, search engine company Baidu, and new Afterpay Ltd (ASX: APT) shareholder and WeChat owner, Tencent.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another option for growth investors to consider is Domino’s Pizza. I think it could generate market beating returns for investors over the next decade thanks to its bold same store sales and store expansion targets. Over the next five years the pizza chain operator is aiming to deliver annual same store sales growth of 3% to 6% and annual organic new store additions of 7% to 9%. If it delivers on this, I expect it to underpin strong earnings growth for the foreseeable future.

More reading

• Where to invest $10,000 into ASX shares
• ASX shares that could benefit from the Internet of Food
• ASX shares can help millennials retire before their parents
• Are these China-exposed ASX shares in danger in 2020?
• Double your money with these high quality ASX shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A large portion of the Australian economy is reliant on tourism and high value exports such as tertiary education. With the coronavirus pandemic effectively shutting down the majority of the economy, Australia’s mining sector has remained a pillar of strength.

So, will the surging price of iron ore help the Australian economy recover faster?

Why is the iron ore price surging?

With economic fears of the coronavirus pandemic subsiding, the iron ore spot price has surged more than 10% since the end of April and is currently trading above US$91 a tonne. The iron ore price has surged on the back of stronger than expected demand from China and weak supply from exporters in Brazil.

Earlier this year, the pandemic triggered fears as steel stockpiles in China surged due to subdued construction demand. However, as construction projects have restarted in China the country’s steel surplus has been absorbed. In addition, the potential for infrastructure stimulus has also strengthened the demand side.

In addition to stronger demand, the rapid spread of coronavirus cases in Brazil has impacted the country’s output. Brazil has long been the world biggest producer of iron ore, however a dam collapse last year resulted in tighter restrictions being placed on mines. Surging coronavirus cases in the country have also raised concerns about future iron ore supply.

How have iron ore miners performed?

Iron ore miners on the ASX have outperformed in 2020 despite the tumultuous conditions of financial markets. Fortescue Metals Group Limited (ASX: FMG) has seen its share price surge almost 30% for the year and is currently trading at all-time highs. Mining giants BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have also seen strong demand with their share prices bouncing 44% and 28%, respectively, from their lows in March.

The Australian mining sector was partially immune to the coronavirus lockdown with workers allowed to commute for work. In addition, coronavirus transmission in the iron ore producing heartland of Western Australia remains low.   

Foolish takeaway

According to the Minerals Council of Australia, iron ore exports are the largest source of export revenue in Australia, contributing $63 billion in 2017 to the economy. Iron ore producers in Australia are poised to benefit and provide a boost to the local economy as they dominate supply for recovering Chinese demand.

In addition to the economy, the ASX 200 iron ore miners could also provide value to shareholders. With companies in the banking sector slashing dividends, iron ore miners could fill the income void by matching or increasing their payouts.

More reading

• 3 ASX shares that will have strong dividends in 2020
• 5 ASX 200 dividend shares for an economic recovery
• Why ASX iron ore miners like BHP aren’t afraid of the China trade war
• Fortescue share price hits a record high: Is it too late to invest?
• ASX 200 up 1.35%: Gold miners and Fortescue rocket higher, big four banks tumble

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 Commonwealth Bank of Australia (ASX: CBA) share price has been a positive performer on the S&P/ASX 200 Index (ASX: XJO) on Tuesday.

In afternoon trade the banking giant’s shares are up 2% to $60.00.

Despite this decent gain, the Commonwealth Bank share price is still down a sizeable 34% from its 52-week high.

Are CBA shares in the buy zone?

I think Commonwealth Bank’s shares are in the buy zone at this level. Though, given how poor investment sentiment is in the sector, I wouldn’t necessarily be surprised if they went lower before going higher.

However, for patient investors that are not bothered by the day to day fluctuations of share prices, I believe an investment at the current level will yield strong total returns over the next three to four years.

Times certainly are tough for the bank right now, but the cycle will soon change and growth will emerge once more. I’d want to be holding its shares when that happens.

What about dividends?

I feel it is inevitable that Commonwealth Bank will have to cut its dividend again in FY 2021.

Estimating just how much of a cut is very difficult and will depend a lot on how accurate its COVID-19 provisions are. However, I would expect the bank to pay out a dividend of around $3.70 per share next year.

While this dividend would be just a touch higher than the one it paid all the way back in 2013, the pullback in its share price means it still equates to a very generous yield.

Based on its current share price, this implies a forward fully franked 6.15% dividend yield. That certainly is attractive in my eyes in this low interest rate environment.

Foolish Takeaway.

The Commonwealth Bank share price could easily go lower before it goes higher again. However, trading conditions will eventually improve and its share price will almost certainly start moving upwards when the market first anticipates this change.

In light of this, I think it could be a good idea to pick up shares with a long term and patient view today.

More reading

• 3 ASX 200 blue chip shares I would buy today
• The ASX big bank stock most likely to outperform in the COVID-19 recovery
• Should you throw $3,000 into Altium shares today?
• Cochlear share price edges lower on patent infringement news
• 3 ASX shares to instantly diversify your portfolio

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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Looking for strong dividends in 2020?

Well, they’re not as easy to find as it might have appeared in January or February. Since the outbreak of the coronavirus and subsequent economic lockdowns, a huge range of ASX blue-chips announced dividend cuts or even cancellations.

These include everything from the ‘big four’ banks like Westpac Banking Corp (ASX: WBC) to ‘safe’ dividend payers like Transurban Group (ASX: TCL).

But I think there are still some companies out there that offer a solid dividend outlook for 2020 and beyond (although anything is possible). So here are three ASX shares that (in my opinion) won’t have to cut their shareholder payouts this year.

Coles Group Ltd (ASX: COL)

Coles was the face of defensive ASX companies as the coronavirus pandemic took hold. Consumers flocked to Coles and other supermarkets to stock up on essentials, which initially saw Coles post a 12% rise in sales for the first quarter of FY20 last month. Although I suspect demand has returned to more normal levels since, it certainly proved how useful being a consumer staples giant can be in tough times.

As such, I think Coles’ dividends will continue to flow in 2020 (and might even get an increase). On current prices, you can expect a trailing dividend yield of 2.75% from Coles shares – or 3.93% grossed-up with full franking.

Fortescue Metals Group Ltd (ASX: FMG)

Fortescue is one of the largest iron ore mines in the country and has amassed a reputation as a strong dividend payer in recent years. Even on current prices (which are at record highs today), Fortescue has a trailing dividend yield of 7.23% – or 10.76% grossed-up with full franking.

Right now, iron ore is a great business to be in. The iron ore price hit US$91.90 today and looks to push even higher after production issues emerged in Brazil. If these prices hold (or even if they don’t), Fortescue should be able to shovel even more cash out the doors in 2020.

WAM Research Ltd (ASX: WAX)

WAM Research is a Listed Investment Company (LIC) that specialises in finding undervalued growth companies. It has a long and strong history of paying fully franked dividends, which, at the time of writing, give WAX shares a trailing yield of 7.33% (or 10.47% grossed-up).

But the best part of this story is that this LIC has plenty of gas left in the tank to continue to pay these dividends. Its most recent interim dividend came out at 4.9 cents per share – well covered by the company’s profit reserves of 26.2 cents per share. That’s a big buffer for dividend payments to carry us through 2020!

More reading

• Could ASX 200 iron ore shares save the Australian economy?
• 2 ASX 50 shares for retirees to buy right now
• Is the Bega Cheese share price a strong ASX buy today?
• Forget term deposits and buy these top ASX dividend shares
• Latest ABS data reveals how Australians are responding to COVID-19

Motley Fool contributor Sebastian Bowen owns shares of WAM Research 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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If you’re wanting to add a few blue chip ASX shares to your portfolio, then you’re in luck.

The S&P/ASX 200 Index (ASX: XJO) is home to a good number of blue chips which I believe could generate strong returns for investors in 2020 and beyond.

Three blue chip ASX shares that I would buy are listed below. Here’s why I like them:

CSL Limited (ASX: CSL)

The first blue chip I would buy is CSL. I think the global biotherapeutics company has the potential to provide investors with strong returns over the next decade. This is due to its leading therapies, growing plasma collection network, and lucrative research and development pipeline. In respect to the latter, the company has a wide range of therapies under development which have the potential to generate significant revenue and support the rest of the business in the coming years.

REA Group Limited (ASX: REA)

Another blue chip share to consider is REA Group. I think the realestate.com.au operator is one of the best long term investments on the ASX 200. This is because of its high quality and resilient business model. This resilience has been on display this year. REA Group recently released its third quarter update and revealed a 1% increase in revenue to $199.8 million and an 8% lift in EBITDA to $119.6 million. This was despite dealing with a 7% decline in listings during the quarter. And while trading conditions will remain tough in the near term, I expect its earnings growth to accelerate once the crisis passes.

Woolworths Limited (ASX: WOW)

I think this retail conglomerate could be a good option for investors. Although best known for its supermarkets, Woolworths is also behind the likes of Dan Murphy’s, BWS, and BIG W. Combined, I believe the company is well-positioned to grow its earnings and dividends at a solid rate for the foreseeable future. Especially given its entrenched customer base and defensive business model.

More reading

• Are CBA shares in the buy zone?
• The ASX big bank stock most likely to outperform in the COVID-19 recovery
• Should you throw $3,000 into Altium shares today?
• Cochlear share price edges lower on patent infringement news
• 3 ASX shares to instantly diversify your portfolio

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended REA 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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The S&P/ASX 200 Index (Index:^AXJO) is surging higher on encouraging news of a possible vaccine for COVID-19 and comments from US Federal Reserve head Jerome Powell on more stimulus.

It seems the Fed is not running out of juice to liquor-up financial markets, while Boston-based biotech Moderna announced better than expected early trial results.

If the bulls are right about the worst being over, it will have implications for the performance of the big four ASX banks.

Passing the baton

During the meltdown, it’s the Commonwealth Bank of Australia (ASX: CBA) share price that held up better than its peers. That’s understandable as investors are willing to cough up a premium during a crisis to hold the highest quality and safest domestic bank.

But if animal spirits are running wild, the tide will turn. Investors will be more aggressively turning to value buys and this means beloved CBA is likely to be left behind in the rebound.

The question then is which of the other three big banks will take the crown? There isn’t much difference in valuations of Australia and New Zealand Banking GrpLtd (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX:NAB).

Best bank for the COVID-19 rebound

But NAB seems to be a hot favourite among some leading brokers. For instance, Goldman Sachs put the stock in its “conviction” buy list as NAB is its top pick in the sector.

The broker is bullish on the bank due to its dramatic improvement in operational performance in recent years and it sees better revenue potential given NAB’s bigger exposure to small and medium sized business lending.

Meanwhile, JP Morgan is also backing NAB in the four-horse race. While the bank reported a disappointing first half profit result recently, the broker believes it displayed the most resilient top-line if you excluded the bank’s underperforming Markets division.

Don’t discount CBA just yet

Coincidentally, both brokers rate CBA a “sell” due to its lofty valuation. I own shares in all the big four banks but remain overweight on CBA as I don’t believe we have seen the last of the coronavirus volatility.

Let’s not forget that CBA also continues to win market share for home loans despite its dominance in the sector.

Just as importantly, my experience tells me that its seldom premium valuations that really hurt my share portfolio performance. The real culprits are balance sheet and governance issues – factors that weigh more heavily on the other three.

Buy into NAB’s SPP

But I agree that NAB is likely to pull ahead of its peers if the skies are as blue as it appears today. If you share my belief that we have seen the worst of the coronavirus market meltdown and are happy to stomach the volatility, NAB looks enticing.

This is why I plan to participate in NAB’s share purchase plan, which closes this Friday. I doubt you can buy NAB shares lower than the $14.15 a share offer price again for a long time.

Just remember not to put all your eggs into one basket. It’s better to hold a few bank stocks for diversification.

More reading

• Should you throw $3,000 into Altium shares today?
• Cochlear share price edges lower on patent infringement news
• 3 ASX shares to instantly diversify your portfolio
• Leading brokers name 3 ASX shares to sell today
• 5 ASX 200 dividend shares for an economic recovery

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

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

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