Tag: Motley Fool Australia

A stock split is a term that has recently been all over the investing world. Why? Well, because one of the largest companies in the world — Apple Inc. (NASDAQ: AAPL) — has recently announced a fresh stock split. So although companies on the ASX aren’t as prolific with stock splits as our friends over in the United States, understanding how these splits work is still a valuable piece of investor information that I think everyone should have their head around.

What is a stock split?

A stock split is… well, it’s all in the name. It refers to the process of a company deciding to ‘divide’ existing shares into smaller parts. Apple announced last week that it would be undergoing a 4-for-1 stock split soon. This means that an existing Apple share will be split into 4 parts, each worth a quarter of what the ‘unsplit’ shares are valued at.

To be very clear, this has no impact on the value of a person’s Apple holdings. Say I have 2 Apple shares worth US$445 each before the split takes place. After the split, I will have 8 Apple shares worth approximately US$111.25 each. My overall Apple position has not changed one iota. It’s really just a game of arithmetic at the end of the day.

Why do companies do it?

Because a stock split has no real impact on any current or future investors, it can be hard to understand why a company would want to split their shares. The usual explanation is that it ‘levels the playing field’ of potential new investors to the company.

If a company has a $5 share price, virtually anyone who can buy shares in the first place is able to invest in said company. But take a company like Amazon.com Inc. (NASDAQ: AMZN). Its shares are presently valued at more than US$3,000 (A$4,193) each. Many newer retail investors simply don’t have that kind of capital to sink into one company. One famous example is Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B). It has never, in its long history, split its A-class shares. As a result, one single BRK.A share will set you back around US$315,000 today.

The logic goes that those potential investors that might not have wanted to buy Apple for US$450 might be more inclined to do so if Apple shares were closer to US$110. And more buying pressure of any kind is good news for existing Apple shareholders.

But in reality, I think stock splits make for good public relations and not much else. Something to remember when you next hear the term ‘stock split’!

More reading

• 5 investing tips from Irving Kahn – who called the 1929 stock market crash
• Bank savings rates fall as Buffett racks up record cash pile and analysts tip Qantas share price rebound
• How Moderna went from coronavirus sequence to a phase-1-ready vaccine candidate in 42 Days
• Why Amazon shares climbed 14% last month
• Better Buy: Alphabet vs. Amazon

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Apple, and Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Amazon, Apple, and Berkshire Hathaway (B shares). 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 A2 Milk Company Ltd (ASX: A2M) share price will be on watch today after the infant formula and fresh milk company finally found its next permanent managing director and chief executive officer.

What did a2 Milk Company announce?

In December last year, former CEO Jayne Hrdlicka abruptly left the fast-growing company after she “agreed to step down” from her role with immediate effect. Ms Hrdlicka was replaced with its former CEO, Geoffrey Babidge, on an interim basis while the company searched globally for a permanent replacement.

This morning a2 Milk Company revealed that it has finally found its next leader, with the appointment of David Bortolussi. He will succeed interim CEO Geoffrey Babidge early in the 2021 calendar year.

Who is David Bortolussi?

Mr Bortolussi was most recently the Group President – International Innerwear, at HanesBrands, where he was responsible for and had extensive exposure to Asian sourcing markets, particularly in China. This includes various brand distribution partnerships in the region.

Prior to this, Mr Bortolussi spent five years at Foster’s Group, where he held the role of Chief Strategy Officer and was responsible for corporate strategy, M&A, business development, and performance improvement. In this role, he led the operational separation and demerger of the domestic beer and global wine businesses, generating significant shareholder value.

Given the hefty cash balance that a2 Milk Company is sitting on at the moment, the new CEO’s experience in M&A could come in very handy in the near future.

The company’s chair, David Hearn, commented: “Following an extensive global search, the Board is delighted to have secured David for this role. David has demonstrated significant skill in guiding businesses through periods of significant growth whilst also effectively managing the changes that expansion frequently requires.”

“The a2 Milk Company is going through a period of continued strong growth in dynamic markets and David’s skillset and comprehensive strategic and operational experience will serve the company well. I am looking forward to working with David as we navigate these challenges together with the board and management team,” he added.

The new CEO appears up for the challenge. Mr Bortolussi said: “I have always admired The a2 Milk Company’s achievements and I am looking forward to joining the board and management team to continue the development of such an extraordinary business. The team at a2 has created a very distinctive consumer proposition, amazing brand and strong culture with so much potential. I’m thrilled to have the opportunity to lead such a talented and experienced team, and to be part of the next phase of growth.”

More reading

• 5 things to watch on the ASX 200 on Tuesday
• A2 Milk and 1 other top ASX growth share to buy this month
• Would Warren Buffett buy a2 Milk Company shares?
• 3 top ASX growth shares you should never sell
• 3 ASX shares poised for huge growth over the next year

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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 Bega Cheese Ltd (ASX: BGA) share price jumped 2.0% higher yesterday as the S&P/ASX 200 Index (ASX: XJO) got off to a strong start.

The Bega Cheese share price is now up 6.5% in 2020 but where is it headed in August?

Why 2020 has been a good year for Bega

For one thing, supply costs are remaining low. Farmgate milk prices remain depressed, which is good for Bega’s profit margins.

There’s also been strong demand for Bega’s products in the first half of 2020. Bega operates in the Consumer Staples sector, which is good for earnings stability.

Strong supermarket sales have certainly helped and I’m hoping for solid earnings across Bega’s spreads, dairy consumer packaged goods, nutritionals and dairy ingredients.

Demand from China was somewhat subdued in Bega’s half-year result in February but I think it still represents a strong growth corridor.

Where will the Bega Cheese share price go in August?

The Bega Cheese share price will be worth watching in August.

The Aussie dairy group hasn’t provided an exact date for its full-year results announcement but reported last year’s result on 28 August 2019.

Slowing sales to China is a potential area of concern for Bega. However, if the August full-year result indicates steady demand, I think Bega’s shares may continue to climb in 2020.

The other potential headwind is an increasing number of homebrand products. These brands from the likes of Coles Group Ltd (ASX: COL) are putting pressure on both volume and pricing for Bega.

That’s why I think the August full-year result is one to watch. It could be the key to understanding where the Bega Cheese share price is set to end the year.

Foolish takeaway

The Bega Cheese share price has been a strong performer in 2020 and the full-year result looms as the key for further gains.

I’d want to see steady earnings and a solid growth outlook, particularly for Asia.

Bega shares currently trade at a price-to-earnings ratio of 64.2, which is a bit on the high side. That means I won’t be buying until I see the company’s latest financials later this month.

More reading

• Is the Origin Energy share price cheap or will it keep falling?
• 5 things to watch on the ASX 200 on Tuesday
• Why the Wesfarmers share price is too expensive
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• Why I’ve gone cold on ASX REITs

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. 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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The Origin Energy Ltd (ASX: ORG) share price jumped 1.4% higher yesterday in a good sign for investors. However, the Origin Energy share price remains down 31.2% for the year.

So, is the ASX energy share in the buy zone or will it fall further in 2020?

Why the Origin Energy share price has slumped this year

It’s been tough going for ASX energy shares in 2020. That means Origin Energy is in good company when it comes to the ASX losers list.

One of the big factors has been a slump in demand for energy. That’s largely been driven by the coronavirus pandemic, which has shut down operations in many energy-intensive industries like travel and manufacturing.

Origin has a number of different operating segments. The company is involved in energy sales, renewable energy, gas exploration and production as well as power generation. 

The recent slump in demand has naturally impacted on realised prices and earnings for Origin. That means all eyes will be on Origin’s full-year results announcement on Thursday 20 August.

What can we expect from Origin’s full-year result?

I don’t think anyone would be surprised by a drop in Origin’s full-year earnings and profit numbers. Despite the Origin Energy share price trading with a dividend yield of 5.2%, I’d expect that to fall lower.

The real question is just how badly earnings have been impacted and what the outlook for FY21 is like.

Investors are naturally interested in what the future looks like. That means a clear pathway for dividends and more certainty around management’s strategy for the short- to medium-term.

There has been an uptick in renewable energy usage during 2020. As one of the largest energy producers in Australia, Origin is well-placed to capitalise on any changing consumer trends.

Is Origin in the buy zone?

The Origin share price currently trades at a price-to-earnings (P/E) ratio of 10.1. That’s slightly cheaper than rival AGL Energy Limited (ASX: AGL) and could make it a good relative buy.

The 31.2% share price drop this year is a concern, but could mean it has been oversold. If we see a clear growth strategy and signs of strengthening earnings, I think the Origin Energy share price could be in the buy zone this month.

More reading

• Where is the Bega Cheese share price headed in August?
• 5 things to watch on the ASX 200 on Tuesday
• Why the Wesfarmers share price is too expensive
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• Why I’ve gone cold on ASX REITs

Motley Fool contributor Ken Hall 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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Are you interested in adding some growth shares to your portfolio? Then I think the three named below could be great options.

I feel all three are well-positioned to deliver above-average earnings growth over the next few years, which could lead to them generating strong returns for investors.

Here’s why I would invest $3,000 across the three:

Bravura Solutions Ltd (ASX: BVS)

The first ASX growth share to consider investing some of these funds into is Bravura Solutions. It is a financial technology company responsible for the Sonata wealth management platform. This popular wealth management platform allows advisers to connect and engage with clients via computers, tablets, or smartphones. Demand for the platform has been growing very strongly in the past few years and has underpinned strong earnings growth. The good news is that demand shows no signs of slowing. And combined with recent acquisitions that have given Bravura access to new and lucrative markets, I believe this means it is well-positioned to grow its earnings at a solid rate over the coming years.

PolyNovo Ltd (ASX: PNV)

Another growth share to consider buying with these funds is PolyNovo. It is a medical device company which I think could be a great long term option due to its NovoSorb Biodegradable Temporising Matrix (BTM) product. This exciting product was developed at CSIRO and is used as a wound dressing to treat full-thickness wounds and burns. It currently has a sizeable $1.5 billion market opportunity, but management plans to extend its use into the hernia and breast treatment markets. If this is successful, it could be very lucrative for the company. It estimates that these markets would add an extra $6 billion to its addressable market.

Pushpay Holdings Ltd (ASX: PPH)

A third growth share that I would invest $1,000 of these funds into is Pushpay. This donor management platform provider has been benefiting greatly from the shift to a cashless society and the digitisation of the church. Adoption of its industry leading platform has been increasing rapidly in recent years, leading to Pushpay’s revenue and operating earnings growing at an explosive rate. The good news is that Pushpay still has a very long runway for growth and is aiming to win a 50% share of the medium and large church market. If it achieves this, it will have captured a US$1 billion revenue opportunity. This compares to the US$127.5 million operating revenue it recorded in FY 2020.

More reading

• 3 ASX shares I would buy right now at these prices
• 3 ASX shares to buy and hold for the next decade
• A2 Milk and 1 other top ASX growth share to buy this month
• Got $3,000? Buy these 3 top ASX shares right now
• 3 ASX shares poised for huge growth over the next year

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 POLYNOVO FPO and PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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 Monday the S&P/ASX 200 Index (ASX: XJO) started the week on a very positive note. The benchmark index stormed almost 1.8% higher to 6,110.2 points.

Will the market be able to build on this on Tuesday? Here are five things to watch:

ASX 200 expected to edge higher.

The ASX 200 is poised to edge higher on Tuesday after a positive night of trade on Wall Street. According to the latest SPI futures, the ASX 200 is set to open the day 1 point higher. Over in the United States, the Dow Jones jumped 1.3%, the S&P 500 rose 0.3%, and the Nasdaq index fell 0.4%.

A2 Milk Company names new CEO.

The A2 Milk Company Ltd (ASX: A2M) share price will be on watch today after naming its new managing director and chief executive officer. The infant formula and fresh milk company has appointed David Bortolussi. He will succeed interim CEO Geoffrey Babidge early in the 2021 calendar year. Mr Bortolussi was previously the Group President – International Innerwear, at HanesBrands.

Challenger results.

The Challenger Ltd (ASX: CGF) share price could be on the move today when it releases its full year results. The annuities company has provided guidance for normalised net profit before tax at the bottom end of the range of $500 million and $550 million in FY 2020. This compares to $548 million in FY 2019. All eyes will be on its guidance for FY 2021.

Oil prices rebound.

Energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) could be on the rise today after oil prices rebounded. According to Bloomberg, the WTI crude oil price is up 2% to US$41.96 a barrel and the Brent crude oil price has risen 1.2% to US$44.94 a barrel. Strong Chinese factory data and U.S. stimulus hopes supported oil prices.

Gold price higher.

Gold miners including Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) will be on watch today after the gold price pushed higher. According to CNBC, the spot gold price has risen 0.4% to US$2,036.4 an ounce amid hopes of major U.S. stimulus.

More reading

• Why the Wesfarmers share price is too expensive
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• Why I’ve gone cold on ASX REITs
• Sigma share price jumps on $172 million deal
• Gold price tops US$2,000: What’s driving it higher and how can you benefit?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia owns shares of A2 Milk. 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 looking for better interest rates than those on offer with savings accounts or term deposits, then I have good news for you! Despite the pandemic, the Australian share market is still home to a good number of shares offering decent dividends.

Two ASX dividend options that I think are top picks for income investors right now are listed below. Here’s why I like them:

Commonwealth Bank of Australia (ASX: CBA)

The first ASX dividend share to consider buying is Commonwealth Bank. I think the banking giant’s shares are trading at a very attractive level following a sharp pullback this year. And although this pullback isn’t completely unjustified, I believe the extent of its decline has been overdone.

While guessing what dividend the bank will pay next year is difficult given the increased uncertainty caused by the coronavirus second wave, I would expect something in the region of $3.00 per share in FY 2021. After which, I expect a rebound to a more normal level in FY 2022. The former still equates to a generous fully franked 4% yield.

SPDR S&P/ASX 200 Fund (ASX: STW)

I think the SPDR S&P/ASX 200 Fund ETF could be another good option for income investors right now. As its name implies, this fund gives investors exposure to all of the 200 companies listed on the S&P/ASX 200 Index (ASX: XJO) through just a single investment. This means you’ll be investing in a diverse group of shares including Commonwealth Bank and the rest of the big four banks, mining giants, and countless REITs.

Although predicting what the yield will be in FY 2021 is tricky because of the pandemic, traditionally it is around 4% to 4.5%. I think this makes it a good option for income investors that don’t have enough funds to maintain a truly diverse portfolio.

More reading

• Should you buy CBA shares before the dividend announcement?
• Bank savings rates fall as Buffett racks up record cash pile and analysts tip Qantas share price rebound
• It’s ASX reporting season! Here’s what to watch out for this week
• CBA and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak

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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Is the Wesfarmers Ltd (ASX: WES) share price too expensive?

Wesfarmers is one of the largest and most popular companies on the ASX for Aussie investors. The company has a massive presence in the Australian retail scene, after all. It owns the stupendously successful hardware chain Bunnings, as well as the Officeworks, Kmart and Target store chains.

It also used to own Coles Group Ltd (ASX: COL) before Coles was kicked out of the Wesfarmers nest and spun off to live life on its own terms in late 2018. Before Coles was demerged, Wesfarmers was actually the largest non-public employer in the country. The company still retains a 5% stake in Coles to this day.

In addition to the retail stores listed above, Wesfarmers also owns a significant portfolio of other businesses. It owns the Kleenheat brand of gas, Covalent Lithium and the WorkWear clothing brand, amongst many others. If you’re looking for a diversified conglomerate, then this is Australia’s largest by far.

It’s a bold claim then, perhaps, to label Wesfarmers as overvalued. But I think there is sufficient cause here.

Is the Wesfarmers share price overvalued?

So on current pricing, Wesfarmers is asking a price of $47.01 a share. That gives the stock a price-to-earnings (P/E) ratio of 24.38 and a trailing dividend yield of 3.25% (which comes fully franked).

By comparison, the broader S&P/ASX 200 Index (ASX: XJO) currently has an average P/E ratio of 16.99. So the market is pricing Wesfarmers far above the market average, for a start.

But let’s look at some of Wesfarmers’ numbers.

In the 6 months to 31 December 2019, Wesfarmers reported 6% growth in revenue and 4.4% growth in after-tax profits. solid numbers to be sure, but nothing exciting in my opinion. Ditto with Wesfarmers’ dividends. A 3.25% yield is solid, but nothing to write home about.

Not only that, but last year’s interim dividend came in at $1 per share. In February this year, Wesfarmers only delivered a 75 cents per share dividend (a 25% drop). This does take into account the demerger of Coles (from which Wesfarmers shareholders received an additional special dividend), but it still doesn’t excite me.

So for a company with (pre-coronavirus) revenue growth of 6% and a dividend yield of 3.25%, we are being asked to pay 24.38x earnings. It’s a ‘no deal’ for me.

Foolish takeaway

Wesfarmers is due to report its full-year earnings on 20 August, so it will be interesting to see what the past 12 months have thrown up for the company. Even so, there is nothing in the current Wesfarmers share price that leads me to believe the shares are anything but too expensive.

Yes, it’s a relatively stable and diversified company. But it is also one that is not growing very fast, and which I think there are few growth avenues left to meaningfully pursue. As such, I think there are better options out there for growth and income investors alike than Wesfarmers shares today.

More reading

• Why I would buy Goodman Group and these blue chip ASX shares
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• Are ASX retail shares buys right now?
• Why I’ve gone cold on ASX REITs
• Sigma share price jumps on $172 million deal

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers 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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There are few ASX shares that I would buy today in this current climate. We are living in uncertain times with COVID-19 causing disruptions and impacting businesses across the globe.

Yet despite this, valuations on some companies have soared these past few months. You only have to look at Afterpay Ltd (ASX: APT) and Domino’s Pizza Enterprises Ltd (ASX: DMP) to see how their share prices have skyrocketed.

What happens next to these shares is anyone’s guess, however there are still some absolute bargains on the ASX that I believe will provide strong returns in the near future. Here are 3 ASX shares that are worth a closer look today.

WiseTech Global Ltd (ASX: WTC)

The WiseTech Global share price has fallen 28% since 18 February 2020. In the early phase of the pandemic, the company was hit hard as global trade came to a standstill. Since then, economic trade has slowly started to pick up again and WiseTech Global has seen its operations get back to normal levels.

WiseTech’s latest business update to the market reaffirmed its FY20 guidance of revenue of $420–$450 million (growth of 21–29%), and earnings before interest, taxes, depreciation and amortisation (EBITDA) of $114–$132 million (growth of 5–22%).

I am confident that the long-term prospects of WiseTech Global remain strong and the company is well-placed to expand into new markets.

PolyNovo Ltd (ASX: PNV)

The PolyNovo share price has gained 73% from its March lows, meaning a $5,000 investment would have already netted you a $3,600 profit. A decent return for having your spare cash working for you rather than sitting in a savings account accumulating 1% interest per annum.

PolyNovo develops biodegradable material that is used for skin tissue repair to treat burn and skin trauma patients. Although the PolyNovo share price has stormed higher in recent months, in my view this Australian-based medical device company still has a long way to go and could be the next CSL Limited (ASX: CSL) in the years to come.

Just last month, PolyNovo addressed the market with a trading update stating that it had reached record US sales in June, and announced its first sales to the UK. The company expects its FY20 product sales to be at least double of that in FY19. In light of this, I think that the PolyNovo share price is undervalued and represents a buy today.

Qantas Airways Limited (ASX: QAN)

The Qantas share price has fallen from grace with investors, sitting 55% below its all-time high reached back in December 2019. Whilst the travel industry has been decimated from the coronavirus pandemic, I think that all the bad news has already been priced into this company.

The International Air Transport Association (IATA) has painted a bleak picture of international travel not returning to pre-COVID-19 levels until 2024. While short haul and domestic flights are likely to rebound more quickly, it’s predicted that travel within the country will return to normal by the end of 2020. I believe this is a big positive for Qantas as the Melbourne–Sydney route is the 2nd busiest domestic service in the world.

As Australia’s largest airline, I am convinced that Qantas will be able weather the storm and come out through the other side. The strong pullback on the Qantas share price is a buying opportunity for patient investors.

Foolish takeaway

I think these ASX shares are trading at very attractive prices for what profit they may be generating in the next few years. If I had to pick 1 of the 3, it would be PolyNovo based on its sizeable $1.5 billion addressable opportunity and management’s drive to expand into new markets.

More reading

• Bank savings rates fall as Buffett racks up record cash pile and analysts tip Qantas share price rebound
• ASX 200 jumps 1.2%: Big four banks rise, Qantas update, Mesoblast surges
• Qantas share price higher despite share purchase plan flop
• Top brokers name 3 ASX shares to buy next week
• Alliance Airlines reports 24% increase in profits

Aaron Teboneras owns shares of CSL Ltd. and WiseTech Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and POLYNOVO FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO and WiseTech Global. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Six companies are currently evaluating COVID-19 vaccine candidates in late-stage testing. Johnson & Johnson (NYSE: JNJ) isn’t one of them.

J&J was among the first to commit resources to a major effort to fight COVID-19. It established a partnership with the US Government early on to develop a novel coronavirus vaccine. It’s the biggest healthcare company in the world, with massive resources. And yet Johnson & Johnson lags well behind multiple rivals, both big and small.

Don’t discount J&J’s prospects, though. The healthcare giant’s COVID-19 vaccine candidate could have an ace in the hole that just might make it the biggest winner of all.

Johnson & Johnson announced the publication of results from a preclinical study of its lead vaccine candidate, Ad26.COV2-S, on July 30. You might not think preclinical results would be a big deal. After all, several of J&J’s rivals in the race to develop COVID-19 vaccines have already announced results from early-stage clinical studies in humans.

The company reported that its experimental vaccine induced a robust immune response in nonhuman primates. In particular, vaccination with Ad26.COV2-S resulted in the production of high levels of neutralizing antibodies, which hold the potential to prevent infection by the coronavirus. J&J noted that its vaccine candidate provided “complete or near-complete protection in the lungs from the virus” in the animals in the preclinical study.

All of that was great news. But what really made these preclinical results stand out was that the impressive immune response was obtained with only a single dose of Ad26.COV2-S. Other COVID-19 vaccine candidates that are farther along in clinical testing require two doses.

There are a couple of key reasons why a “one-and-done” vaccine is preferable to vaccines that require multiple doses. First, a single-dose vaccine is cheaper. Second, people would be more likely to receive a single vaccine dose than they would be to get both doses of a vaccine that requires two.

It’s still early, though. J&J is evaluating both one- and two-dose regimens of Ad26.COV2-S in its phase 1/2a clinical studies. The company also plans to include both dosing regimens in its planned phase 3 study. There’s a possibility that testing could lead J&J to go with the two-dose approach. However, if the single-dose vaccination works as well in humans as it did in nonhuman primates, Johnson & Johnson could easily vault from laggard to leader in the COVID-19 vaccine space.

Playing the long game

Johnson & Johnson arguably remains something of an underdog in the race to develop a COVID-19 vaccine. Even though the company expects to begin a late-stage study of Ad26.COV2-S in September, it’s still well behind several other drugmakers. You also might be surprised that J&J has only won major regulatory approval for one vaccine – ever. And that approval came last month, with European approval of the company’s Ebola vaccine.

But J&J appears to be playing the long game pretty well with its COVID-19 vaccine development. It spent more time upfront to identify a candidate that could potentially be administered with only one dose. The company also is charging much less for its vaccine than its top rivals are. Last week, J&J landed a deal with the U.S. government to supply 100 million doses of Ad26.COV2-S for around $1 billion. By comparison, Pfizer and BioNTech are supplying 100 million doses to the US for $1.95 billion.

Lower pricing with fewer doses required might not seem like a smart strategy. Couldn’t J&J make a lot more money selling a two-dose vaccine regimen at a price more competitive with its rivals? Sure. The healthcare stock might even be up more year to date if it took this approach.

However, a single-dose vaccine would be much more attractive to governments across the world. And J&J is likely to sell it at cost while the pandemic is ongoing. After the pandemic ends, expect the company to raise its price.

Remember Aesop’s fable about the tortoise and the hare? It looks like Johnson & Johnson could be the tortoise in the race to develop a COVID-19 vaccine. The tortoise might win the race in the real world – just as it did in the fable.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Everything you need to know about the coronavirus vaccine race

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

The post This could be the ace in the hole for Johnson & Johnson’s COVID-19 vaccine appeared first on Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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