Tag: Motley Fool Australia

The Woodside Petroleum Limited (ASX: WPL) share price tumbled for the third consecutive day to its lowest level this month, but brokers think the weakness is a buying opportunity.

Shares in the ASX energy stock slumped 1.4% to $20.66 on Thursday when the S&P/ASX 200 Index (Index:^AXJO) fell 0.8%.

In contrast, its peers are faring better. The Oil Search Limited (ASX: OSH) share price jumped 1.3% to $3.14, while the Beach Energy Ltd (ASX: BPT) share price added 1% to $1.51.

Big write-down hurts confidence

Sentiment towards the Woodside share price took a hit after management revealed it would write-down the value of its assets by US$3.9 billion ($5.6 billion).

This is largely due to the slump in oil and gas prices, as well as the uncertain demand outlook due to the global COVID-19 pandemic.

Baby and bathwater

But brokers like JP Morgan aren’t put off. In fact, it reiterated its “overweight” (meaning buy) recommendation on the stock.

“We believe Woodside’s strong operating performance for the quarter has been somewhat lost following weak realized prices and the asset impairments that were announced,” said the broker.

JP Morgan’s price target on the stock is $25.70 a share.

It isn’t along in feeling bullish about Woodside. Goldman Sachs also came out swinging for the stock.

Weak sales overshadows strong production

Woodside posted a record second quarter production of 25.9 million barrels of oil equivalent in the second quarter of 2020 but revenue was below the broker’s expectation. This is because Woodside sold a greater amount of LNG at the weak spot price.

“Our global team expects LNG spot prices to rebound from here, where we assume a [long-term] price of US$7.25/mmbtu,” said Goldman.

“We maintain a Buy rating and highlight the business is well positioned versus ASX peers to ride out the low oil price environment and to continue to invest in future growth for the portfolio.”

At the broker’s target price of $33.70 a share, the assumed long-term oil price is US$60 a barrel.

Acquisition opportunities

Meanwhile, Credit Suisse is another bull. The broker believes that the asset write-down may facilitate mergers and acquisitions (M&A) as others follow its lead.

This is particularly applicable to the ownership shake-up of the North West Shelf assets and the broker sees material upside from growth at Woodside’s Scarborough/interconnector gas project.

“WPL’s resilience to low oil, and upside potential is underappreciated by the market in our view, although patience through 2022 may be required to see upside come to fruition,” said Credit Suisse.

The broker’s 12-month price target on the stock is $25.24 a share.

More reading

• Market close: ASX 200 drops 0.7% today
• The ASX tech ETF you can buy and hold forever
• How to pick an ASX 200 share market bubble
• Retail investors behaved differently in the March ASX 200 market crash than the GFC. Here’s how
• Why outperforming ASX retail stocks could be running out of puff

Motley Fool contributor Brendon Lau 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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Investors aged 50 and over would do well to look at ASX shares as the best way to protect and grow their money.

The outlook for property looks very uncertain with CoreLogic now reporting that national property prices are going backwards and rents are under pressure. Cash in the bank isn’t going to earn much interest.

I think that investors aged over 50 could go for these two ASX shares:

Share 1: Brickworks Limited (ASX: BKW)

Brickworks is a diversified property business. Most people would know it for its Australian building products division which sells a variety of items including bricks, paving, masonry, roofing, precast and so on. The ASX share recently acquired some US brickmakers. That opens up a large new market, it diversifies its earnings and hopefully improve the efficiencies there.

Obviously COVID-19 is going to have a short-term impact on the construction industry. But the best time to buy cyclical shares is when they’re in the tough part of the cycle.

But there are two other divisions that make Brickworks a great, reliable investment for investors aged over 50. The first is an industrial property trust that it owns 50% stake of, along with partner Goodman Group (ASX: GMG). The property trust delivers defensive rent, which is good in times like this. Over the longer-term, rental income and the value of the trust should grow as two new high-tech distribution warehouses are completed and leased to Amazon and Coles Group Limited (ASX: COL).

The other division is a large shareholding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. This company itself is a great long-term investment as a conglomerate which is steadily growing its value and dividend for Brickworks. It is becoming more diversified as time goes on. Soul Patts recently made an investment into agriculture and plans to invest in regional data centres.

Brickworks is a great ASX share for investors aged over 50 because it hasn’t cut its dividend for over 40 years. At the current Brickworks share price it’s trading with a grossed-up dividend yield of 5%.

Share 2: Magellan Global Trust (ASX: MGG)

This is a listed investment trust (LIT) which targets the highest-quality shares in the world. ‘High-quality’ means aspects like a strong balance sheet, great brand power, high profit margins and resilient business models.

In this COVID-19 era, it’s tech shares in-particular that are proving robust because their services are delivered digitally. People can stay in their home and still use their Microsoft Office products, buy things online with their Mastercard or Visa card, watch YouTube or browse Facebook.

Magellan Global Trust owns shares like Alibaba, Alphabet (Google), Atmos Energy, Microsoft, Tencent, Facebook, Visa, Mastercard, Reckitt Benckiser and Novartis. I think the ASX share is well suited to a retiree portfolio because it’s positioned for both defence and growth.

In terms of income, it aims to pay a 4% distribution yield on its net asset value (NAV). Not a bad yield in the current environment. The trust currently has a high level of cash (18%) in the portfolio, so it can shelter shareholders against another market selloff if there is one later this year. That cash can then be used to snap up cheap opportunities.

The ASX share can provide a good combination of income, income growth and capital growth for retirees.

At the current Magellan Global Trust share price it’s trading at a 5% discount to the intraday indicative NAV.

The trust recently announced that the distribution for December 2020 will be 3.58 cents per unit, an increase of 8.5% on the prior corresponding distribution.

Foolish takeaway

Both of these ASX shares offer defensive distribution, a good starting yield and good potential growth. At the current prices I think I’m drawn to Magellan Global Trust due to the relatively high Australian dollar, high quality holdings and the defensive cash position.

More reading

• Got $3,000? Here are 3 great ASX shares to buy
• 3 ASX shares to buy for the next decade
• My ASX share for the week
• 3 ASX shares that I’d invest $1,000 into EVERY month
• 3 ASX shares I won’t hesitate to buy in the next market crash

Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company 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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‘Bubble’ is one of those terms that’s probably thrown around a little more than it should be. After all, I’m sure there were many people saying that Aferpay Ltd (ASX: APT) shares were in a ‘bubble’ when they nearly hit $20 back in August 2018. I’m sure those same commentators would sell an arm and possibly a leg for a time machine today.

But consider this. The S&P/ASX 200 Index (ASX: XJO) has recovered more than 30% since its March lows. The US-based Dow Jones Industrial Average is up nearly 45% over the same period. And the Nasdaq Index made a new all-time high just last week. All in the face of the worst global recession in living memory.

I think we need to talk about bubbles.

What is a ‘bubble’?

A bubble is normally defined as an exuberant, temporary and unsustainable dislocation of the price of an asset or asset class from its value. By this definition, a bubble is generally only obvious in hindsight.

The most recent example (in my view) of a real bubble is the ‘bitcoin mania’ we saw in the bitcoin and cryptocurrency markets back in 2017. A defining characteristic of a bubble is the ‘taxi driver effect’. This refers to an asset that climbs in valuation so substantially that it attracts for and more investors in a snowball-esque manner. Eventually, this effect grows so potent that ‘even your taxi driver is talking about it’ (I’m not disparaging the investing acumen of taxi drivers, by the way, that’s just how the adage goes). So if your taxi, Uber or bus driver is telling everyone about how Zip Co Ltd (ASX: Z1P) is going to the moon, I would start to get worried!

Before bitcoin mania, other famous examples of a bubble include the dot.com crash of the early 2000s and the real estate bubble in the United States that sparked the global financial crisis. The earliest appearance of a bubble is usually attributed to the ‘tulip mania’ phenomenon that was seen in the Netherlands back in the 1600s, during which the prices for tulip bulbs (which had been recently introduced and were considered highly fashionable) reached extraordinary levels and then dramatically collapsed.

Are ASX shares in a bubble today?

Whilst I don’t believe the entire ASX 200 is in a bubble right now, we have been witnessing some dangerous signs of late. Firstly, I don’t think it’s a good sign that the US markets, in particular, are near or exceeding all-time highs. Make no mistake, the coronavirus pandemic is wreaking massive economic damage across the global economy. To have any market reach new all-time highs in the middle of this tragic event doesn’t gel with reality, in my opinion.

Back over on the ASX, I don’t think things look quite as dislocated. But a caveat: when companies in a single sector – ASX payments for instance – give investors 3-digit returns over a few months almost across the board, I’m seeing an orange flag waving high.

Foolish takeaway

I don’t think ASX 200 shares are in a bubble right now. But I’m still extremely cautious over what we’re seeing across the world in equity markets today. As such, I’ll be investing with extreme caution for the remainder of 2020, with as much cash on hand as possible. I’m not selling out of my shares mind you, but I don’t think we’re as close to being out of the woods as the markets seem to be hoping for.

More reading

• Retail investors behaved differently in the March ASX 200 market crash than the GFC. Here’s how
• Why the Zip Co share price sank 11% lower today
• Why outperforming ASX retail stocks could be running out of puff
• Top brokers name 3 ASX 200 shares to sell right now
• Nearly 1 million Australians unemployed, market unphased

Sebastian Bowen owns shares of Uber Technologies. 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 Uber Technologies. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Why ASX dividend shares over property? I understand property has typically been Australians’ favourite way to invest. The great Australian dream is a quarter-acre block to call your own, after all.

But property prices are still relatively high, despite the coronavirus pandemic. And the future for the housing market is more uncertain than I’d like. So I think a better bet for cashflow is these 3 ASX dividend shares.

Woolworths Group Ltd (ASX: WOW)

Woolworths needs no introduction as Australia’s largest supermarket chain. The company also owns a network of pubs/hotels, the BWS and Dan Murphy’s liquor stores, as well as the Big W department store chain.

Woolworths’ dividend might not sound too enticing at its current trailing yield of 2.66%. But I think this is one of the safest dividends on the ASX due to the ‘consumer staples’ nature of the Woolworths business, and thus is worthy of inclusion in a dividend-focused portfolio. I’m also excited about the company’s plans to spin-off its liquor and hotel assets into a separate entity down the road.

BWP Trust (ASX: BWP)

BWP is a real estate investment trust (REIT), which means it primarily owns land and property assets. The benefits of owning a good-quality REIT like BWP compared to an investment property are numerous in my opinion. No stamp duty taxes and no ongoing maintenance hassles for shareholders are a good start.

BWP’s tenants aren’t likely to give you too much hassle either, considering the largest is Wesfarmers Ltd (ASX: WES)’s Bunnings Warehouse. And finally, I would consider any investment property that gives off a net 4% yield these days to be a top investment. Yet that’s what BWP’s trailing distribution yield is offering on current prices. As such, I think it is more than worthy as an alternative to an investment property.

Telstra Corporation Ltd (ASX: TLS)

Our last dividend pick is this telco giant. The Telstra share price is not as attractive today (at $3.48 at the time of writing) than a few weeks ago when it was asking around $3.10. But I still think Telstra is a solid pick for dividend income at these prices.

Telstra has paid out 16 cents per share in dividends over the past 12 months (including the 6 cents of special nbn dividends). That gives Telstra a trailing yield of 4.64%, which isn’t a bad offering, especially considering the payouts come with full franking.

I also think Telstra is a highly defensive company, considering the lengths it would take for most people to part with their phones or their internet connection. As such, I think it’s a robust holding to have in a dividend portfolio, and a great alternative to an investment property today.

Foolish takeaway

I’ve got nothing against property and property investors. But it’s my opinion that a portfolio of strong ASX dividend shares can offer more certainty and net yield than many houses currently on the market, and the above 3 shares are a great place to start!

More reading

• Why outperforming ASX retail stocks could be running out of puff
• 5 ASX shares with huge moats to own today
• This leading broker thinks the Telstra share price can storm notably higher
• 5 things to watch on the ASX 200 on Thursday
• 3 outstanding ASX 200 shares for retirees to buy today

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Wesfarmers Limited and Woolworths 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 Catapult Group International Ltd (ASX: CAT) share price has edged 3.1% higher following the company’s announcement it has appointed a former Amazon executive as Chief Operating Officer (COO).

New COO

In this morning’s ASX release, Catapult announced the appointment of Chris Cooper to the role of COO to further enhance the company’s scale and meaningfully drive its strategic growth. 

Additionally, the new COO has global leadership experience driving expansion into international markets, tailoring business models to local cultural practices, and delivering results through volatile business cycles.

Catapult CEO, Will Lopes, said “Chris brings to Catapult a wealth of operational expertise, as well as decades of experience leading international organisations across the globe…”

Chris Cooper’s recent role was Executive Vice President of International Operations and New Business Expansion at Audible, an Amazon subsidiary. Mr Cooper commented: “…Catapult’s distinctive position to take sport analytics to the next level and continue to set the bar on how elite teams and athletes around the world make data-driven decisions using the latest performance technology is what drew me to this opportunity.”

The appointment comes following the company’s lifting of cost-cutting measures from its coronavirus mitigation plan, as announced on 13 July 2020. Will Lopes said “entering the COVID-19 crisis we took preventative measures anticipating a worst-case scenario impact to our global business. I am glad such impact was less than anticipated and we are able to remove such measures earlier than expected.”

H1 FY20 results presentation

In its results presentation in February this year, Catapult announced annual recurring revenue was up 20% compared to the same period last year. Additionally, earnings before interest, tax, depreciation and amortisation (EBITDA) increased to $5.7 million which was up from a loss of $1.4 million. Free cash flow significantly increased to $13.6 million.

The Americas continues to be the growth driver for Catapult with teams there making up 45% of total teams and 70% of revenue by region.

About the Catapult share price

First listing on the ASX in 2014, Catapult Group has grown into a worldwide leader in sports technology. The company’s technology provides analytical data to sporting organisations around the world to help them assess athlete performance. 

In Australia, the group provides data about players to organisations such as the Australian Football League (AFL) and National Rugby League (NRL). Other sports it works with include American football, baseball, basketball, cricket, soccer, ice hockey and rugby. 

At time of writing, the Catapult share price is trading at $1.31 and has rallied 27.18% in the past year. 

More reading

• Catapult share price on watch after COVID-19 update

Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Catapult Group International Ltd. The Motley Fool Australia has recommended Catapult Group International Ltd. 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 a growth investor, then you’re in luck. Right now, there are a good number of companies on the Australian share market that look well-placed to grow their earnings at a very strong rate over the next five years.

Three of the best growth shares that I think you can buy at the moment are listed below. Here’s why I think they are must-buys:

Altium Limited (ASX: ALU)

One of my favourite growth shares on the ASX is Altium. It is an electronic design software company best known for its Altium Designer product. This product is regarded as the best in its class and currently has over 50,000 subscribers. The good news is that demand for Altium Designer (and its newly launched Altium 365 cloud-based product) looks set to increase strongly over the coming years thanks to rapidly growing Internet of Things market. So much so, management is aiming to grow its revenue to US$500 million by FY 2025. This compares to US$189 million in FY 2020.

Appen Ltd (ASX: APX)

Another growth share which I think is a must-buy is Appen. It is a leading developer of high-quality, human-annotated training data for machine learning and artificial intelligence (AI). Given the importance of high quality data for these activities, Appen looks set to benefit greatly from these rapidly growing markets. For example, management estimates that the AI market will be worth between US$169 billion and US$191 billion per annum by 2025. Importantly, 10% of this spending is expected to be on the data labelling that Appen is a leader in.

Xero Limited (ASX: XRO)

Finally, this cloud-based business and accounting software provider could be another must-buy growth share. Xero has been growing at a very strong rate over the last few years and looks well-positioned to continue this strong form for some time to come. This is thanks to its massive global opportunity, strong pricing power, sticky product, and high quality platform. Combined, I expect them to result in strong earnings growth in the coming years.

More reading

• 5 ASX shares with huge moats to own today
• 2 ASX tech shares to buy and hold beyond 2025
• Is the Xero share price heading to $100?
• 3 top ASX growth shares I’ll buy if the ASX crashes again
• Top brokers name 3 ASX 200 shares to buy today

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 Altium and Xero. The Motley Fool Australia owns shares of Appen Ltd. 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 searching for a source of income but aren’t sure which shares to buy or don’t have sufficient funds to invest in a truly diverse manner, then ETFs could be a good option for you.

There are a number of ETFs that have been set up to give investors exposure to a collection of dividend shares.

Three that I think are worth considering are listed below:

Vanguard Australian Shares High Yield ETF (ASX: VHY)

The first option for income investors to consider buying is the Vanguard Australian Shares High Yield ETF. I think this exchange traded fund is a quality option for income investors due to the diversity of its holdings. It provides investors with exposure to many of the highest yielding shares on the ASX through a single investment. This includes the banks, telcos, and miners such as BHP Group Ltd (ASX: BHP). At present I estimate that its units offer a FY 2021 dividend yield of at least 5%.

Vanguard Australian Shares Index ETF (ASX: VAS)

Another ETF for income investors to consider buying is the Vanguard Australian Shares Index ETF. It has been designed to mirror the lesser followed S&P/ASX 300 index. This means it gives investors exposure to blue chips such as Coles Group Ltd (ASX: COL) and Telstra Corporation Ltd (ASX: TLS), and also smaller companies like Accent Group Ltd (ASX: AX1) and Baby Bunting Group Ltd (ASX: BBN). I like the diversity this gives investors. At present, I estimate that its units offer a FY 2021 dividend yield of at least 3%.

VanEck Vectors Australian Banks ETF (ASX: MVB)

Finally, if you’re looking at bank shares but can’t decide which ones to buy, the VanEck Vectors Australian Banks ETF could be the answer. This is because this ETF gives investors the opportunity to get a piece of them all through a single investment. The VanEck Vectors Australian Banks ETF is invested in Commonwealth Bank of Australia (ASX: CBA) and the rest of the big four banks, the regional banks, and also Macquarie Group Ltd (ASX: MQG). I estimate that its units currently provide a ~4.5% partially franked FY 2021 dividend yield.

More reading

• The dangers of investing in managed funds
• Why I would buy Telstra and these ASX dividend shares
• 2 ASX shares I would buy for growth and income
• Why I would buy ANZ and this ASX dividend share right now
• These are the 4 cheapest ETFs on the ASX

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. The Motley Fool Australia has recommended Accent Group. 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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Retail investors – ordinary investors like you and I – don’t exactly have the best reputation for good investing habits (or returns for that matter).

An article from Forbes reckons the average return for the average retail investor over the 30 years to 2014 was just 1.9% per annum (ouch!). Whilst this statistic is a little dated now, I doubt this metric would have substantially improved by 2020.

So why can’t normal, everyday retail investors get a long-term rate of return that’s barely above what a bank account pays each year? If those same investors invested in a simple index fund like the SPDR S&P/ASX 200 Fund (ASX: STW), they instead would have enjoyed an average annual return of 7.25% that the fund has provided since its inception in 2001.

Why are retail investors so bad at investing?

Well, in my view it’s because retail investors aren’t too good at that paramount principle of good investing: ‘buy low, sell high’. Inexperienced investors tend to let their emotions get the better of them when it comes to the markets. They might panic and sell out of their shares at or near the bottom of a market crash. They then might only feel brave enough to reenter the market once the ‘bottom’ has well and truly passed – missing out on the gains in the meantime.

Following this kind of path is a great way to get an average return of 1.9% per annum.

A changing paradigm?

According to reporting in Monday’s Australian Financial Review (AFR), the S&P/ASX 200 Index (ASX: XJO) market crash we saw back in March has turned this paradigm on its head. The AFR reports that retail investors were, in fact, net buyers of Australian shares (meaning they bought more shares than they sold) between mid-February and May, to the tune of around $9 billion in total.

In contrast, it was institutional investors (fund managers and the like) who were hitting the sell buttons over the crash, with net sales of approximately $11 billion.

The AFR quotes corporate advisory firm Vesparum Capital’s founder, Timothy Toner, as stating: “This is very abnormal… During the GFC there were some similarities but nothing like what we’ve seen during COVID-19 in terms of the striking differences between the two classes of investor [retail and institutional].”

So retail investors seem to have smartened up since the carnage that the global financial crisis brought back in 2008 and 2009. Why? It’s possible that the bull run in global share markets over the past decade or so has trained investors to ‘buy the dips’, safe in the knowledge that the markets will soon recover.

Foolish takeaway

Remember, the crash and bear market we saw in February, March and April was one of the steepest and most rapid in history. It’s only been around 5 months since the last peak, in mid-February, and yet the ASX 200 is around 32% above its March lows. In contrast, the bear market that the GFC brought us lasted almost 2 years. If retail investors’ patience was tested to that extent, rather than a ‘flash crash’, we might have seen a different story. Food for thought!

More reading

• Why outperforming ASX retail stocks could be running out of puff
• Top brokers name 3 ASX 200 shares to sell right now
• Nearly 1 million Australians unemployed, market unphased
• Why the Pointsbet share price is outperforming today
• ASX 200 flat: Big four banks and travel shares push higher, Breville tumbles lower

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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It has been a very disappointing day of trade for the Zip Co Ltd (ASX: Z1P) share price.

In afternoon trade the Afterpay Ltd (ASX: APT) rival’s shares are down 8% to $6.04.

At one stage the Zip share price was down as much as 11% to $5.86.

Why is the Zip share price tumbling lower today?

Investors have been selling the company’s shares on Thursday after they were the subject of a broker note out of UBS.

According to the note, following the release of its fourth quarter update, the investment bank has downgraded Zip’s shares to a sell rating with an improved price target of $5.70.

Although UBS was impressed with its sales growth during the fourth quarter and FY 2020, it appears a touch concerned by a rise in its net bad debts.

During the quarter, Zip’s net bad debts lifted to 2.24% from 1.84% in the third quarter and 1.63% from the same period last year.

Though, it is worth noting that management highlighted that its arrears metric is declining. As this is a leading indicator for future bad debts, it could be a sign that its net bad debts have now peaked.

Nevertheless, in light of this and its strong share price gain over the last few months, UBS doesn’t see enough value in its shares to offer a sufficient risk/reward for investors.

Morgans remains bullish.

One broker that remains bullish and sees the Zip share price weakness as a buying opportunity is Morgans.

According to a note out of the broker this morning, it has retained its add rating and lifted the price target on its shares to $7.20.

This price target implies potential upside of approximately 19% over the next 12 months from the current level.

Should you invest?

It’s impossible to say where the Zip share price will go over the next few months, but I’m confident that over the long term it will go notably higher from here.

As a result, if you’re prepared to make a long term investment, then this share price weakness could prove to be an excellent buying opportunity.

More reading

• Top brokers name 3 ASX 200 shares to sell right now
• Why Audinate, Breville, Zip Co, & Zoono shares are sinking lower today
• ASX BNPL shares: should you invest in the fastest growing industry of 2020?
• 2 ASX shares I’d buy if the market crashes again
• 3 reasons the Openpay share price is better than Afterpay

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Several S&P/ASX 200 Index (Index:^AXJO) retail stocks have been the surprising outperformers during the COVID-19 pandemic. But Citigroup warns they could be about to lose their mojo.

There are a few reasons why these retailers have outperformed even as the coronavirus outbreak forced a shutdown of the economy in March.

Retail winners from COVID-19

Some like the Wesfarmers Ltd (ASX: WES) share price benefitted from increased demand for home improvement projects. Others like the JB Hi-Fi Limited (ASX: JBH) benefitted from strong demand for IT equipment.

The big shift to online shopping also meant that web-based retailers, such as the Kogan.com Ltd (ASX: KGN) share price, are booming.

Those that sell exercise wear have also seen a quick rebound with consumers locked out of gyms and having to work out on their own. These stocks include the Accent Group Ltd (ASX: AX1) share price and Super Retail Group Ltd (ASX: SUL).

Losing momentum

However, Citigroup is splashing cold water on this parade and warned that the momentum could fade.

“Retail sales conditions have been strong, but are likely to slow from here, which makes retail share prices susceptible,” said the broker.

“The fade in sales growth may be quicker if government stimulus is wound back and the super withdrawal declines more rapidly.

“The economic update provided by the Federal Government on 23 July 2020 will be important and we see downside risk to consensus earnings if total stimulus is less than $50 billion for the December quarter.”

Consumer cashflow about to be hit

But it isn’t only government stimulus that has helped sustain consumer spending. The early superannuation withdrawal scheme also fuelled spending, and this program isn’t likely to be extended.

The scheme allows consumers to make tax-free withdrawals of $10,000 in FY20 and another $10,000 this financial year. Applications for early withdrawal spiked this month as Melbourne went into a second lockdown.

While the program is meant to help applicants in hardship pay for the basic necessities, there’s evidence that many have been using the cash on discretionary items. Many of these applicants also probably do not know about the hidden danger of accessing the program.

But rightly or wrongly, Citi estimated that the end of this withdrawal program will cut household cash flow by between 3% and 6%.

Risk of consensus downgrades

“Retail spending has also done well because money was freed up by an almost halving in non-retail discretionary spend (the fall in tourism, auto and entertainment are key factors),” said the broker.

“We expect these areas of spend to gradually recover, impacting retail sales growth over the next year.”

For these reasons, Citi thinks the sector could be on the cusp of a consensus downgrade cycle with earnings per share forecasts set to fall by up to 6% for discretionary retailers.

Those that are more susceptible to slowing sales are department stores Target (owned by Wesfarmers) and Myer Holdings Ltd (ASX: MYR).

More reading

• Retail investors behaved differently in the March ASX 200 market crash than the GFC. Here’s how
• Top brokers name 3 ASX 200 shares to sell right now
• Nearly 1 million Australians unemployed, market unphased
• Why the Pointsbet share price is outperforming today
• ASX 200 flat: Big four banks and travel shares push higher, Breville tumbles lower

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 Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Accent Group and Kogan.com ltd. 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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