Tag: Motley Fool Australia

Concerns over a spike in coronavirus cases weighed heavily on the S&P/ASX 200 Index (ASX: XJO) last week. The benchmark index fell a disappointing 2.3% to 5,919.2 points.

While a good number of shares dropped lower, some fell more than most. Here’s why these ASX 200 shares were the worst performers:

The Corporate Travel Management Ltd (ASX: CTD) share price was the worst performer on the ASX 200 last week with a 15.2% decline. Investors were selling travel shares last week after the outbreak of coronavirus in Melbourne sparked fears that the domestic travel market recovery could take longer than originally anticipated.

The Domain Holdings Australia Ltd (ASX: DHG) share price was out of form and dropped 12.5% last week. Once again, this appears to have been driven by the spike in coronavirus cases. Given how important the Melbourne market is to overall listing volumes, the six-week lockdown is likely to lead to a notable reduction in listings.

The AP Eagers Ltd (ASX: APE) share price wasn’t far behind with a 10.7% decline. This was despite there being no news out of the auto retailer last week. However, with its shares up more than 100% from their March low, investors may have been taking a bit of profit off the table. There may also be concerns that another outbreak could negatively impact near term car sales.

The Monadelphous Group Limited (ASX: MND) share price was a poor performer last week and fell 10.6%. This was also despite there being no news or broker notes relating to the engineering company. Investors may have concerns that the recent outbreak of coronavirus could weigh on its performance. In May the company advised that its Engineering Construction division experienced supply chain issues because of the pandemic. This was causing delays on large resources construction projects currently in progress, as well as a number of temporary deferrals to potential new construction contract award dates.

More reading

• ASX 200 down 0.5%: Afterpay completes placement, big four banks tumble
• These were the 5 best performing ASX shares last week
• ASX 200 Weekly Wrap: Afterpay, Tech push ASX 200 back above 6,000
• The Webjet share price is dividing analysts even as it becomes a likely takeover target
• These were the best performing ASX 200 shares last week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management 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 WiseTech Global Ltd (ASX: WTC) share price was hit hard in the early phase of the coronavirus pandemic, falling from $29.44 in mid February to $10.48 in in mid March. Since then WiseTech’s share price has seen a partial recovery, however, it is now only trading at $20.34, well below its pre-COVID-19 levels.

Global trade is now picking up, which means WiseTech is gradually seeing its operations get back to normal levels. WiseTech continues to invest for future, and believes it is well placed to tap into the growing demand for logistics solutions.

So, is the WiseTech Global share price in the buy zone?

What is compelling about the WiseTech business model?

WiseTech Global is a world-leading developer and provider of software solutions to the logistics industry. Its customer base is now in excess of 15,000 and spans more than 150 countries.

As the global economy continues to grow, logistics – the process of manufacturing and efficiently delivering products to the end consumer – has grown more complex. WiseTech has carved out a very successful niche in addressing this growing issue.

WiseTech’s flagship product is CargoWise One. It can be tailored for each customer’s supply chain. It provides logistic services including customs brokerage, HR management, and online tracking and tracing.

CargoWise One doesn’t operate as a traditional subscription-based software-as-a-service (SaaS) product. WiseTech generates revenue depending on how an individual customer utilises the software. This enables WiseTech to grow its revenues as customers expand their usage. CargoWise One also has an extremely high 99% retention rate.

Strong revenue growth despite short-term challenges

WiseTech has continued to grow at a strong pace in recent times, in both size and scale via organic growth and targeted acquisitions. Between 1H16 and 1H20, WiseTech has grown its revenue base at a compound annual growth rate of 43%. The company continues to invest strongly to drive product innovation. This provides a solid foundation for future growth.

In February, WiseTech downgraded its earnings forecast for FY 2020. It now anticipates revenue growth of between 5% and 22%. This downgrade was driven by a sharp downturn in manufacturing and economic trade in the first few months of the coronavirus pandemic.

Foolish takeaway

With the WiseTech Global share price still well down on pre-COVID levels, I think now could be a good buying opportunity for long-term investors. As global trading begins to start to get back to more normal levels, I believe this should see WiseTech Global’s revenue stream start to pick up. I remain confident that WiseTech Global is well placed to grow it revenues over the next five years, driven by the rising demand for logistic solutions.

More reading

• Why GWA, Meridian Energy, Treasury Wine, & WiseTech Global are dropping lower
• The WiseTech share price is up 15% in a week. Too late to buy?
• Why Lovisa, PointsBet, Transurban, & WiseTech shares are racing higher
• What’s next for WAAAX shares?
• Should ASX investors be worried about insider selling?

Motley Fool contributor Phil Harpur owns shares of WiseTech Global. The Motley Fool Australia owns shares of WiseTech Global. 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 recent market crash means that there are a number of cheap stocks available to buy in a variety of sectors. Certainly, their prices could move lower in the short run due to risks such as a weak global economic outlook and the potential for a second wave of coronavirus. However, over the long run they could deliver impressive returns that boost your retirement prospects.

As such, buying a diverse range of cheap shares today could be a sound move. They could offer significantly higher returns than other assets over the coming years.

Market crash

The recent market crash may have dissuaded some investors from buying cheap stocks. After all, it was one of the fastest declines in the stock market’s history. There may even be further risks ahead, with the potential for a second crash later in the year should a spike in coronavirus cases take place.

However, declines in the stock market are not all that uncommon. For example, over recent decades investors have experienced other bear markets such as the global financial crisis and the tech bubble.

As such, temporary declines in stock prices are likely to occur fairly regularly over an investor’s lifetime. While they can cause panic in the short run due to the paper losses they create, on a long-term view they provide buying opportunities that can positively impact on your portfolio’s performance.

Buying cheap stocks

A stock market crash presents an opportunity to buy cheap stocks across a wide range of industries. Weak investor sentiment and challenging trading conditions over the short run can combine to cause high-quality businesses to offer wide margins of safety. Over time, such companies are likely to experience improving operating conditions, rising profitability and growing sentiment among investors. This can lead to rising stock prices and high returns for investors who bought while stock prices were low.

Of course, ensuring that you purchase attractive businesses is highly important at the present time. Some companies may struggle to survive a period of weak economic performance that causes disruption to their operating environment. Therefore, focusing your capital on financially-sound businesses with wide economic moats could be a sound move that lowers your risks and boosts your long-term returns.

Relative appeal

Since the stock market has always recovered from its bear markets and downturns to post new record highs, buying cheap stocks today is likely to produce long-term growth via a successful recovery.

Moreover, on a relative basis the stock market appears to have significant appeal. Other mainstream assets such as cash and bonds lack return potential due to low interest rates that may remain in place over the medium term to support an economic recovery. As a result, stocks may be the most attractive means of improving your portfolio’s prospects and of increasing your chances of retiring early.

More reading

• 3 ASX shares that I’d invest $1,000 into EVERY month
• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• Why I think the WiseTech share price is in the buy zone
• Here are the top 5 ASX tech shares on the All Tech Index

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

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ASX tech shares have been dominating the ASX news cycle over the past few weeks and months. Whether it’s Afterpay Ltd (ASX: APT) or Xero Limited (ASX: XRO) making new all-time highs every week or Zip Co Ltd (ASX: Z1P) shares rocketing more than 600% since March, these tech shares are never far from the headlines these days.

So I thought I would examine which ASX tech shares are the most dominant on the ASX today. The S&P/ASX All Technology Index (ASX: XTX) is the ASX index that tracks the tech space in Australia, so let’s take a look at the top 5 shares that move this index.

1) Afterpay Ltd (ASX: APT)

No real surprise that Afterpay takes the ASX crown with an 18% weighting in the index. Afterpay has been on an incredible run in recent months. After bottoming out at $8.01 in mid-March, Afterpay shares made yet another fresh record high at $76.62 in intraday trade yesterday – a trough to peak rise of 857% in just the last 3.5 months.

2) Xero Limited (ASX: XRO)

The second-largest ASX tech share in the index is cloud-based accounting software giant Xero with a 10.8% weighting. This is another company that investors can’t get enough of these days. Xero shares have climbed nearly 60% since their March lows and made a new all-time high just yesterday of $94.31.

3) Seek Limited (ASX: SEK)

Seek takes out the ASX tech bronze medal with an 8.2% weighting. Seek is the largest provider of online classifieds in the jobs and employment space. With its $7.55 billion market capitalisation, Seek is one of the companies that managed to effectively disrupt the old newspaper’s fabled ‘rivers of gold’ classifieds business model. Unlike Afterpay and Xero though, Seek shares haven’t been able to top their February highs just yet, although the Seek share price is still up nearly 80% from its March lows.

4) Computershare Limited (ASX: CPU)

Computershare is something of an ‘under the radar’ tech share these days. It has been around a while too, having started life back in 1978. This company makes a crust by managing share registries, corporate stock accounts and employee share plans. Chances are if you invest in ASX shares already, you will be familiar with its services. Like Seek, Computershare shares are still a ways off of their pre-March highs, although investors would have enjoyed the stock’s 55% surge since its March lows.

5) REA Group Limited (ASX: REA)

REA is our fifth and final ASX tech share on the XTX index. Another ‘newspaper disrupter’ at its heart, REA runs realestate.com.au – the most popular online real estate marketplace in Australia by a long-shot. This company has made its investors an absolute fortune over the past 2 decades with the REA share price up a staggering 37,400% since July 2000. REA shares took a big tumble in the March crash this year, but have since recovered more than 60% from their lows.

Foolish takeaway

AS you can see, ASX tech shares come in all shapes and sizes. But as this sector has shown in recent months, the tech space can be one of the most lucrative to invest in. The ASX tech index is one that deserves to be watched closely going forward, and I think all ASX investors should be familiar with its major holdings.

More reading

• What does COVID-19 and the payment revolution mean for Afterpay and Sezzle?
• ASX 200 drops 0.6%, Afterpay hits a new record
• Short sellers are betting US$20bn against the skyrocketing Tesla share price
• The Openpay share price is surging today. Is it the next Afterpay?
• Why Kogan, Netwealth, Silver Lake, & Zip Co shares are storming higher

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

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One thing that all ASX investors should know is that market crashes are inevitable. The very nature of capital markets encourages fear and greed at every turn. These duelling emotions cause market volatility, corrections and sometimes crashes.

We’ve recently had one of the most severe and simultaneously short market crashes in history back in March, so many investors will be hoping that we won’t see another crash for a while. But the next crash, whether it’s 1 month or 10 years’ away – is still inevitable. So with this sobering reality in mind, here are the 3 ASX shares that I won’t be hesitating to buy if and when the next crash comes around.

Washington H. Soul Pattinson & Co Ltd (ASX: SOL)

‘Soul Patts’ as its easily known, is one of the best dividend-paying shares on the ASX, in my opinion. It has increased its dividend every year since the year 2000 and paid a dividend every year going back to 1903. That’s a record that cannot be rivalled by any other ASX company.

Today, Soul Patts is more of a conglomerate than a real company. It owns massive stakes in several quality ASX companies, including Brickworks Ltd (ASX: BKW) and TPG Telecom Ltd (ASX: TPG). I already own shares in Soul Patts, but I would love to load the boat when the next market crash does come around.

VanEck Vectors Wide Moat ETF (ASX: MOAT)

This exchange-traded fund (ETF) is one of my favourite passive ASX investments. It aims to hold a mid-sized portfolio of US shares that display characteristics of possessing a wide economic moat. A ‘moat’ is a Warren Buffett term that refers to a company’s intrinsic competitive advantage. This might be a strong brand, intellectual property assets, or stickiness of a product. Some of MOAT’s holdings include credit card company American Express, cereal maker Kellogg and Buffett’s own Berkshire Hathaway. MOAT will be in my sights if there’s a good pricing opportunity down the road, to be sure.

Macquarie Group Ltd (ASX: MQG)

Macquarie is sometimes called the ASX’s ‘fifth bank’, but this characterisation is slightly misleading. This financial company does offer banking services much like the big four banks like Commonwealth Bank of Australia (ASX: CBA). But most of Macquarie’s operations are in the asset management and investment banking arenas, which I think are far better placed for shareholder wealth creation than the traditional banking services these days.

Macquarie is a rather cyclical share that tends to drop heavily in market crashes and enthusiastically recover afterwards. As such, I’m looking forward to starting a position in this company when the next buying opportunity exposes itself.

Foolish takeaway

Market crashes are a scary time to have money in shares. But they are also usually the best time to be buying shares for your portfolio. I’m not hoping for another crash, but I sure will be ready to buy these ASX shares when it does come around.

More reading

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• Ramsay and 2 other ASX shares to buy and hold beyond 2026
• 3 ASX shares I’d invest $1,000 into right now

Motley Fool contributor Sebastian Bowen owns shares of VanEck Vectors Morningstar Wide Moat ETF and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, Macquarie Group Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended VanEck Vectors Morningstar Wide Moat ETF. 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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What does the COVID-19-driven shift to online shopping mean for Afterpay Ltd (ASX: APT) and Sezzle Inc (ASX: SZL)? 

Changes in the way we pay

Giving a keynote address at Morgan Stanley in June, Reserve Bank of Australia’s Assistant Governor Michele Bullock explored the health crisis’ disruption of the retail payments system and its implications. 

According to Bullock, “merchants and consumers have changed both their payment preferences and their mode of interaction.” 

To support the contention, Bullock presented some staggering statistics that revealed the death of ‘paper’ payment instruments. 

For instance, use of cheques “has declined from around 50 per capita per year in the 1990s to around 2 per capita in 2019” as many payments became electronic. 

Inevitably, the shift to electronic payments is seeing the decline in the use of cash. 

In fact, Bullock cited RBA’s recent consumer payments survey, which found that “a third of survey respondents did not use cash for any payments”, although “around 10 per cent used cash for all their payments.” 

Importantly, the decline in the use of cash and the rapid acceptance of cards was an “important enabler for online commerce, allowing payments to be made in a remote environment.” 

Afterpay, Sezzle, BNPL, and the dash from cash

The dash away from cash, of course, boosted companies like Afterpay, which saw early adoption from online and e-commerce retailers. 

In fact, online sales constitute the majority of Afterpay and Sezzle’s revenue pie. For example, in FY19, Afterpay’s in-store cumulative underlying sales contributed 18% to Australia and New Zealand’s combined underlying sales, which means that the vast bulk of Afterpay’s underlying sales for Australia and New Zealand were online. 

But just because more people are making online purchases does not – on its own – mean that more people will make these online purchases using Afterpay and Sezzle. 

However, Sezzle’s executive chair and CEO Charlie Youakim certainly drew that conclusion when announcing the company’s record 2Q20 in a July 7 update, highlighting the change in consumer behaviour as a factor in Sezzle’s performance. 

Youakim wrote that Sezzle’s “performance reaffirms our product’s utility to consumers looking for a smarter way to budget their personal finances and the overall market shift to eCommerce.” 

The Sezzle update further stated that “with nearly 100% of Sezzle’s transactions via eCommerce, the Company is well-positioned for the ongoing move to online.”

Youakim then noted that Sezzle’s strong performance in Q2 is “reflective of an improving consumer profile combined with an accelerated adoption of eCommerce due to the [COVID-19] pandemic.” 

The emphasis on eCommerce and the shift to online certainly seemed to benefit Sezzle, as its 2Q20 represented the top 3 months of monthly underlying merchant sales in its history.

In its latest investor presentation, Afterpay echoed Sezzle and stated that “since the impacts from COVID-19 began, we have seen consumers shift further towards online spending.”

COVID-19 and the new normal

Even when COVID-19 is contained or a vaccine disseminated, people are now likely to be more vigilant about hygiene and social distancing, cutting down trips to brick-and-mortar stores. 

This will compress discretionary in-store purchases, while boosting online retailers and retailers with a sound online presence. 

The new normal of COVID-19 will see consumers shift even more of their purchases online. 

RBA’s Bullock similarly concluded that “the increased use of online shopping, either through necessity or preference during the ‘stay at home’ period, seems likely to be a permanent shift.”

In my view, this shift could increase the volume of transactions that Afterpay and Sezzle process. 

Additionally, more consumers going online may mean more opportunities for merchants to sell more per consumer. This is because the more purchases we make online, the more tailored the recommendations become, and the more likely we are to make add-on purchases or get directed to products we did not realise we wanted. 

In the end, Afterpay and Sezzle seem well-positioned to succeed in the post-coronavirus world.

More reading

• ASX 200 drops 0.6%, Afterpay hits a new record
• Short sellers are betting US$20bn against the skyrocketing Tesla share price
• The Openpay share price is surging today. Is it the next Afterpay?
• ASX 200 down 0.2%: Big four banks tumble, Afterpay surges higher again
• These ASX fintech shares are tackling COVID-19 head on

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

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Many stocks may have experienced a rebound after the 2020 market crash. However, a difficult outlook for the world economy means that a second market crash cannot be ruled out in the short run.

While that scenario may cause short-term pain for investors, it has the potential to provide buying opportunities for long-term investors.

Through purchasing high-quality businesses while they offer wide margins of safety, you could benefit from the stock market’s recovery potential and boost your chances of making a million.

A second market crash

Although the 2020 market crash may have priced in a more challenging outlook for many businesses, their prospects could realistically worsen over the coming months.

For example, there could be a second wave of coronavirus. Although lockdown measures have largely been successful, little is known about coronavirus at this stage. As such, it could return as lockdown measures are eased, which may cause investor sentiment to weaken.

Furthermore, geopolitical risks continue to be relatively high. Tensions between the United States and China may increase in the short run, while political risks in the US could increase later in the year as the election nears. In Europe, Brexit is likely to be a persistent risk over the coming months that could hurt investor sentiment and send stock prices downwards.

Buying opportunities

A second market crash may be bad news in the short run, but could prove to be a buying opportunity over the long term. It may allow investors to purchase high-quality businesses while they offer wide margins of safety.

Historically, this strategy has been a sound means of capitalising on the cyclicality of the stock market. It may not produce high returns in the short run, but investors with sufficient time to experience a market recovery could enjoy relatively high returns.

Of course, if economic conditions worsen, it could be a sound move to invest in financially-sound businesses. They may stand a better chance of surviving a period of lower growth, and could offer less risk and greater return prospects over the coming years.

Making a million

Buying shares during a market crash could allow you to benefit from the recovery potential of the stock market. It has an excellent track record of producing strong gains following every one of its past bear markets and downturns.

Although it is exceptionally difficult to buy stocks at the very bottom of a market crash, purchasing them when they appear to offer a discount to their intrinsic value could prove to be a shrewd move. It may lead to paper losses in the short run should the economic outlook worsen, but over the coming years it may improve your portfolio returns. It could even allow you to obtain a seven-figure portfolio as the stock market and the wider economy recover.

More reading

• What does COVID-19 and the payment revolution mean for Afterpay and Sezzle?
• These are the 3 steps I’d take to build a dividend share portfolio right now
• Don’t waste the stock market crash! I’d buy bargain stocks to get rich and retire early
• Fluence share price surges 20% on update
• ASX 200 drops 0.6%, Afterpay hits a new record

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

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Building a dividend share portfolio may seem like a risky move at the present time. However, with the income returns from other assets such as cash and bonds being relatively low, dividend shares could prove to be a sound means of obtaining a passive income in the long run.

Through spreading your capital across a wide range of companies that offer dividend growth potential and solid financial positions, you could obtain a favourable risk/reward opportunity that produces an attractive income return in the coming years.

Spreading the risk

A dividend share portfolio should contain a wide range of businesses that operate in a variety of industries and economies. If it doesn’t, you are likely to be reliant on a small number of shares for your income. Should even a small number of them experience a challenging financial period, it could lead to disappointing returns that hurt your financial position.

Diversifying across multiple sectors and regions is likely to be even more important than usual at the present time. Some countries are experiencing greater challenges from coronavirus than others, while some industries are feeling the effects of lockdown to a greater extent than others. As such, by simply owning a range of businesses you not only reduce risks but also achieve a higher income return in what is likely to be an uncertain period for the world economy.

Dividend growth potential

When building a dividend share portfolio, it may be tempting to simply purchase those businesses that offer the highest yields. While this may produce an attractive income return in the current year, over the long run it may not be a sound move due to their lack of dividend growth.

As such, it may be a good idea to focus on yield and dividend growth potential. This may ensure that your passive income growth beats inflation and that you are able to improve your spending power. If this goal is not achieved, your passive income may be able to buy fewer goods and services as factors such as low-interest rates and quantitative easing could lead to higher inflation across the world economy.

A solid dividend share portfolio

At the present time, some shares may offer high yields for a good reason. For example, they may face challenging operating conditions that have caused their share prices to fall.

As such, before buying high-yielding companies within a dividend share portfolio it could be worth assessing their financial strength and outlook. By analysing their balance sheet strength, cash flow and economic moat, you can assess whether they offer a solid passive income over the long run.

By focusing your capital on the highest-quality companies available, you can reduce risk and increase your chances of obtaining a generous income return that improves your financial freedom in what could be a challenging period for the global economy.

More reading

• Don’t waste the stock market crash! I’d buy bargain stocks to get rich and retire early
• Fluence share price surges 20% on update
• ASX 200 drops 0.6%, Afterpay hits a new record
• 2 ASX dividend shares with yields over 9%
• Short sellers are betting US$20bn against the skyrocketing Tesla share price

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

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Buying bargain stocks could prove to be a risky strategy over the coming months. Many industries face hugely challenging operating conditions across the world economy that may persist over the short run. As such, the stock market’s performance could be somewhat disappointing after its recent market crash.

However, investors with long-term time horizons could benefit from the wide margins of safety currently on offer. There may be favourable risk/reward opportunities across many sectors that lead to impressive long-term returns. They could boost your financial prospects and help you to retire early.

A wide margin of safety

Buying bargain stocks may allow you to access more attractive risk/reward opportunities. In some cases, low valuations are merited at the present time. For example, companies trading in sectors such as retail and travel & leisure could experience difficult trading conditions that negatively impact their financial performances. However, in other cases weak investor sentiment towards the wider stock market means that you can buy high-quality businesses at a large discount to their intrinsic values.

A strategy of buying undervalued stocks has historically been highly successful. The stock market has never experienced perpetual bear markets, with it having produced high single-digit annual returns despite a number of downturns, crashes and bear markets. Through buying stocks when they offer wide margins of safety, investors can benefit from the cyclicality of the stock market, as well as its recovery potential.

Relative appeal of bargain stocks

It may be tempting to ignore bargain stocks at the present time due to the uncertain economic outlook. Investors may even decide to focus their capital on lower-risk assets such as bonds and cash. They may outperform the stock market should it experience a further crash in the coming months due to challenges such as a weak economic outlook or a second wave of coronavirus.

However, over the long run a portfolio of stocks is very likely to beat the returns of cash and bonds. That’s especially the case since the prospects for a hawkish monetary policy, where interest rate rises are commonplace, seem to be low. Policymakers may look to provide support to the wider economy through lower interest rates, which could cause the performance of bargain stocks to be significantly more attractive than the returns available from other popular assets such as cash and bonds.

A long time horizon

Therefore, investors with a long time horizon could improve their retirement prospects through buying bargain stocks today. Certainly, they may not produce paper gains over the coming months due to the uncertainties facing the world economy. However, over the long run the favourable risk/reward opportunities available due to weak investor sentiment and the growth potential of the world economy mean that they may help to bring your retirement date a step closer.

More reading

• Fluence share price surges 20% on update
• ASX 200 drops 0.6%, Afterpay hits a new record
• 2 ASX dividend shares with yields over 9%
• Short sellers are betting US$20bn against the skyrocketing Tesla share price
• 2 easy ASX shares for beginners

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

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The Fluence Corporation Ltd (ASX: FLC) share price soared 20% higher today after announcing a positive operating cash flow for the quarter ended June (Q2 2020).

The company’s mission is to provide breakthrough water-treatment technologies. It does this by developing water, wastewater and reuse solutions that are efficient and unique. 

Cash flow update

The company’s positive cash flow was in line with its previous guidance which helped boost the Fluence share price today. Furthermore, Fluence’s cash balance at the end of Q2 was approximately US$20 million. This was up from US$16.9 million at the end of Q1 2020.  

When commenting about the update, Managing Director and CEO, Henry Charrabe said: “Streamlining our operations and focusing on timely collections from customers enabled us to turn our operating cash flow positive. Despite global challenges and the economic slowdown, the company is now in a stronger cash position…”

A further update about its financial and operating performance will be provided at the end of this month.

About Fluence Corporation

With headquarters in New York and a global staff consisting of 300 water specialists, Fluence Corporation is a leader in the decentralised water, wastewater and reuse treatment markets. The group was created in 2017 after a series of mergers and acquisitions. It now has an international presence in over 70 countries. This includes in North and South America, the Middle East, Europe and China. 

As per an announcement on 19 June, the company’s key, Ivory Coast Project has been impacted by administrative delays resulting from the coronavirus pandemic. Positively, however, Fluence expects the delay to be resolved fairly quickly. 

Henry Charrabe said in the June update, “This water treatment plant is a key infrastructure project for the Ivory Coast Government, and all parties are working hard so that the people in Abidjan will be able to access clean drinking water…“

Fluence also announced its earnings before interest, tax, depreciation and amortisation (EBITDA) turned positive in Q1 2020 and is expected to remain positive for FY20. 

The Fluence share price is currently trading at 24 cents with a market cap of approximately $146.84 million. The group’s share price has, however, fallen more than 55% in the past 12 months. 

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Motley Fool contributor Matthew Donald 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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