Tag: Motley Fool Australia

We are nearly into FY21. I think there are some great ASX dividend shares which could generate attractive capital growth and pay good dividends over the next 12 months and the long-term.

I think it can be dangerous to just invest for a dividend yield. I believe we need to go for dividend shares that have the ability to generate a good stream of dividends as well as grow earnings (and eventually the share price).

Here are some dividend ideas for FY21:

Dividend share 1: Duxton Water Ltd (ASX: D2O)

Duxton Water is a company which purely owns water entitlements and leases them to agricultural businesses.

Water is obviously an integral part of the farming process. Farmers need access to water entitlements unless it’s a relatively wet year.

The last few years in Australia have been quite dry, which is partly why water values have been pushed up so much.

However, Duxton Water also points to the ongoing maturity of permanent plantings which are causing greater water demand. High value crops such as almonds and citrus are two areas where water demand is very high.

The ASX dividend share’s board is committed to pay bi-annual dividends. It intends to increase its dividend every six months. It wants to pay a dividend of 2.9 cents per share in September 2020 and by March 2022 it wants to pay a 3.2 cents per share dividend.

However, be aware that a wetter year can reduce water values. Also, the ACCC is going to release a report in July 2020 about the water system. The release of the report may prove to be a buying opportunity.

Duxton Water has an estimated forward grossed-up dividend yield of 6.2%.

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

If you regularly read my articles you’ll know that Soul Patts is an ASX dividend share favourite of mine.

I think the investment conglomerate could have a solid next 12 months.

The merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Australia is about to go ahead. TPG is Soul Patts’ biggest position, so what happens with TPG is important. Since 1 May 2020 the TPG share price has gone up 26%. I think TPG could generate even more returns for Soul Patts from the upcoming special dividend, higher regular dividends and plenty of cost and revenue merger benefits.

I think another of Soul Patts’ holdings has an exciting 12 months ahead. The Brickworks Limited (ASX: BKW) share price is down 24% since the start of the COVID-19 selloff. Its underlying non-construction assets look as solid as ever. I believe at some point demand for building products will start to return, perhaps as early as FY21. I expect the share price will reflect the optimism sooner than the earnings.

Soul Patts has grown its dividend every year since 2000. I think the ASX dividend share can keep growing its dividend annually for a long time to come.

It currently offers a grossed-up dividend yield of 4.3%.

Dividend share 3: APA Group (ASX: APA)

This ASX dividend share is my preferred infrastructure play. I do think Sydney Airport Holdings Pty Ltd (ASX: SYD) is an interesting idea at this low price, but the income portion of the FY21 returns is very unclear at the moment, so I’m not sure I can pick it yet as a ‘dividend’ idea.

APA owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation’s natural gas usage.

The energy infrastructure giant generates reliable cashflow each year, which allows it to fund the ever-increasing distribution. It has grown its distribution every year for the past decade and a half. It currently has a FY20 distribution yield of 4.4%.

Foolish takeaway

Each of these ASX dividend shares have solid income potential over the next 12 months. I think the share prices can rise too. At the current value I’d go for Soul Patts, I think its exposure to TPG will be very useful as the telco profits from the merger.

More reading

• 4 top ASX dividend shares you should never sell
• How I’d build a $100,000 portfolio for ASX dividend shares
• Australian businesses are running out of cash
• Bapcor and 1 other quality ASX share to add to your portfolio
• Is the share market facing another February 2020 moment?

Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO 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 APA Group. The Motley Fool Australia has recommended DUXTON 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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Inflation is not a term we hear much of these days. Well, in terms of its current impact. In fact, with the economy still in a coronavirus-induced shock and interest rates at a record low of 0.25%, it’s fair to say that the powers that be are more worried about deflation (or negative inflation) right now.

But there are signs that some investors are preparing for a return of inflation to the world of investing. Just last weekend, I wrote about how the ultra-rich are hoarding gold whilst other investors are enjoying the resurging share market. Gold is often touted for its supposed ‘inflation-proof’ nature, which is one of the reasons the rich are finding the yellow metal alluring.

What is inflation and why is it bad?

Inflation is defined by the slow-but-steady increasing of prices, or conversely, the weakening of a currencies’ value over time. It’s the reason why a loaf of bread cost 10 cents 50 years’ ago, but $3 today. Inflation is one of the greatest fears of an investor — and for good reason. In periods of high inflation (like in the 1970s–80s), the ‘real’ value of our hard-earned dollars declines, fast. That means that any cash lying dormant isn’t earning an inflation-beating return is losing real purchasing power. If inflation is 6% per annum and you receive a return of 5% from an investment, your money is going backwards in real terms.

Of course,  a little inflation is generally accepted as good for the economy. It encourages spending and credit growth. That’s why the Reserve Bank of Australia (RBA)’s official inflation policy is to aim for an inflation ‘bandwidth’ of 2-3% per annum.

But too much inflation is destabilising. If prices rise by 6% PA, every ASX company will have to increase their good and services’ pricing by at least 6%. And that’s just to break even. They will also be under pressure to grow their wages and other costs to keep up as well.

Are we heading for inflation on the ASX?

Actions by central banks around the world to combat the coronavirus is the biggest reason many investors are fearing future inflation. Specifically, investors are worried about the controversial monetary policy procedure; ‘quantitative easing’ (or QE).

Quantitative easing involves the central bank creating liquidity (also called money printing) which it uses to buy government bonds. As most of us would know, printing money has historically been a surefire way to create inflation. According to the Australian Financial Review (AFR), the US Fed has increased the value of its balance sheet from US$4 trillion before the pandemic hit to around US$8 trillion today. It took the global financial crisis and 11 years afterwards to get to US$4 trillion. Now the US has doubled it in 3 months.

The US isn’t feeling the inflationary effects of this extraordinary cash injection now. But it might well do at some point down the road. I’m not an economist, but what the US is doing is dangerous in my opinion. Sure, all governments have to protect their economies from the coronavirus fallout. But nothing is free in this world, and I wouldn’t be too surprised if inflation rears its head once more in the coming years. And if the US is hit with inflation, you can be sure is effects will be felt on the ASX, too.

The best solution in my view? Buy good-quality ASX shares, of course!

More reading

• 3 great ASX dividend shares for FY21
• The best placed ASX stocks for the August reporting season
• 3 of the best blue chip ASX 200 shares to buy in July
• Where to invest $5,000 into ASX shares in July
• These ASX dividend shares will help you beat low interest rates

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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The upcoming reporting season promises to be like no other. The COVID-19 pandemic will make this August profit results an even more unnerving time for ASX investors.

The prospects for shocking negative surprises are heightened this year as the ASX relaxed the rules around disclosure due to the coronavirus outbreak.

The move is well intended. The shutdowns to control the virus have cast a thick fog of war around the near-term outlook for many ASX companies.

Why this reporting season is different

But the unintended consequence is that it is now harder than ever for investors to tell which ASX stocks will disappoint as we head into reporting season.

More significantly, this makes the investing strategy for the August results season different from recent years. This time, the key to outperforming is more about avoiding earnings disasters than it is about picking ASX shares that can exceed market expectations.

In fact, just meeting consensus forecasts may be enough to keep a company’s share price ahead of the S&P/ASX 200 Index (Index:^AXJO).  

One standout ASX sector for August

While there are precious few safe harbours on the market when the reporting season kicks off in a little more than a month, a handful of ASX stocks that are well placed to weather what is likely to be a stormy profit season.

One group that I like are iron ore miners BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG).

Some believe the iron ore price is set to tumble when shipments of the commodity from Brazilian rival Vale SA recovers. That is true, but I think one shouldn’t overestimate the miner’s ability to ramp up output when the country’s COVID-19 rates are the second highest in the world.

Coupled with Brazil’s weak healthcare infrastructure, and you can see why I am not optimistic that the Latin American country can get on top of the coronavirus curve anytime soon.

Potential profit upgrade

What’s more, the iron ore spot price doesn’t need to rise anymore for the three stocks to be cheap. If the price of the steel making ingredient holds around current levels, the three ASX miners’ earnings before interest, tax, depreciation and amortisation (EBITDA) will need to be upgraded significantly.

Macquarie Group Ltd (ASX: MQG) estimates FMG’s EBITDA will increase by 67% in FY21, while Rio Tinto’s and BHP’s EBITDA will have to rise by 23% and 12%, respectively that year.

What gives me extra comfort is that their balance sheets are among the strongest on the market. There’s little risk they will need to do an emergency capital raise like so many others on the ASX.

Gold standard for the August reporting season

Another group that I am overweight on going into the reporting season are gold miners like Newcrest Mining Limited (ASX: NCM) and Evolution Mining Ltd (ASX: EVN).

Stocks in this sector have run hard this calendar year and some think are looking expensive. But I think the price of the precious metal is likely to break above previous record highs due to excessive global stimulus and record low interest rates that will persist for years.

Having said that, it’s a good idea to buy a few gold stocks as some miners may unexpectedly encounter production issues. The same goes for iron ore miners for that matter.

ASX stocks with promising outlooks

There are also a number of industrial stocks that I believe will hold up well in August. The Ansell Limited (ASX: ANN) share price is one thanks to strong global demand for personal protective equipment.

I also have high hopes for the Seven Group Holdings Ltd (ASX: SVW) share price. The conglomerate, which owns the country’s largest industrial equipment rental company, is a big beneficiary of the infrastructure construction boom. State and federal governments have promised to fast-track a number of key projects to stimulate the economic recovery.

Other possible ASX winners from the reporting season

Our home-grown investment bank Macquarie should be another that delivers the goods. Management’s long track record of under promising and over delivering is reassuring. The group has also been growing its recurring revenue business, while volatile markets should present opportunities for its traders.

Finally, I think it’s worthwhile putting supermarket stocks like Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) in your shopping basket.

While the experts are still debating if we are experiencing the second wave of COVID-19 infections, the second wave of panic buying is already hitting the supermarkets (no thanks to Victoria!).

The only thing that I am worried about with Woolies is Big W. If there is a negative surprise from its results, it is more likely than not to come from its struggling department store.

More reading

• 3 of the best blue chip ASX 200 shares to buy in July
• These ASX dividend shares will help you beat low interest rates
• These were the best performing ASX 200 shares last week
• Safe ASX 200 dividend shares to buy today
• Wesfarmers and one more ASX share I’d buy in another market crash

Motley Fool contributor Brendon Lau owns shares of Ansell Ltd., BHP Billiton Limited, Macquarie Group Limited, Rio Tinto Ltd., Seven Group Holdings Limited, and Woolworths Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Ansell 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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Are you looking to add a few blue chip ASX 200 shares to your portfolio in July? Then the three listed below could be worth considering.

I believe these blue chip shares have the potential to generate solid total returns for investors over the next few years. Here’s why I would buy them next month:

Coles Group Ltd (ASX: COL)

The first blue chip ASX 200 share I would consider buying in July is Coles. I think the supermarket giant would be a great option for a number of reasons. These include its defensive earnings, strong market position, and the refreshed strategy unveiled last year. This strategy aims to make $1 billion in cumulative savings by FY 2023 through the use of technology to automate manual tasks and simplifying above-store roles. I believe this leaves Coles well-positioned to achieve solid earnings and dividend growth over the next decade.

Ramsay Health Care Limited (ASX: RHC)

Another blue chip ASX 200 share to consider buying is Ramsay Health Care. Although the short term is likely to be challenging, I believe Ramsay’s long term growth potential remains very strong. This is because the company’s world class network of private hospitals looks set to benefit from the expected increase in demand for healthcare services in the future due to ageing populations and increased chronic disease. Another positive is Ramsay’s long history of making earnings accretive acquisitions. I believe there’s a strong chance it will acquire its way into new markets in the coming years to support its growth. Overall, I feel this puts it in a solid position to deliver strong total returns for investors over the 2020s and beyond.

SEEK Limited (ASX: SEK)

A final blue chip ASX 200 share to consider buying is this job listings giant. As with Ramsay, SEEK is certainly having a tough time right now. But I don’t believe it will be long until trading conditions normalise and the company returns to growth. In respect to the latter, I believe its China-based Zhaopin business will be the key driver of growth in the future. This business has quickly become the pivotal part of the company and contributed 47.8% of its total revenue during the first half of FY 2020. Given how lucrative the China market is, I’m confident Zhaopin can underpin strong growth for SEEK for a long time to come.

More reading

• These were the best performing ASX 200 shares last week
• Wesfarmers and one more ASX share I’d buy in another market crash
• How I’d build a $100,000 portfolio for ASX dividend shares
• ASX 200 rebounds 1.5%, Qantas drops on capital raising
• The latest ASX shares to be upgraded by top brokers to “buy”

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended Ramsay Health Care 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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With interest rates at ultra-low levels and looking likely to remain that way for the foreseeable future, I continue to believe investors would be better off putting any excess funds into the share market.

But where should you invest these funds? Here are three top shares I would invest $5,000 into in July:

Bubs Australia Ltd (ASX: BUB)

The first share to look at is this goat’s milk-focused infant formula and baby food company. For a long time Bubs was delivering strong sales growth but posting significant losses. This led to the company burning through cash at a rapid rate and needing to tap the market for additional funds. Pleasingly, the company appears to have reached an inflection point and recently reported positive operating cashflow. I’m optimistic Bubs will build on this in the coming 12 months and start growing its earnings at a very strong rate.

PolyNovo Ltd (ASX: PNV)

Another option for a $5,000 investment could be PolyNovo. It is an exciting medical device company behind the NovoSorb technology. NovoSorb is a biodegradable material that can be used to aid the repair of bone fractures and damaged cartilage, and in skin grafts. The key product in its portfolio is the NovoSorb Biodegradable Temporising Matrix (BTM) product, which is a wound dressing intended to treat full-thickness wounds and burns. I believe this product, which was developed at CSIRO, is well-placed to capture a growing slice of a $1.5 billion market. And looking ahead, the company believes there is an opportunity to use NovoSorb in the hernia and breast treatment markets. Combined, these give PolyNovo a $7.5 billion addressable market.

Pro Medicus Limited (ASX: PME)

A final share that I think could be worth considering is Pro Medicus. It is a healthcare technology company that provides radiology IT software and services. It has a number of products on offer, but the one that I’m most excited about is the Visage 7 Enterprise Imaging Platform. It delivers fast, multi-dimensional images which are streamed via an intelligent thin-client viewer. A number of major healthcare companies are using this platform, which I believe is a testament to its quality. In addition to this, management recently revealed that it has a number of sales opportunities in its pipeline that it is working on. If it can close these deals, it could underpin strong earnings growth over the coming years.

More reading

• 3 top ASX shares to buy for growth investors in July
• ASX 200 down 1.8%: CSL announces new acquisition, Qantas to raise $1.9bn
• Could one of these ASX shares be ‘the next Afterpay’?
• Australian businesses are running out of cash
• Is the share market facing another February 2020 moment?

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. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO and Pro Medicus 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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According to the latest weekly economic report out of Westpac Banking Corp (ASX: WBC), its team continue to forecast the cash rate remaining on hold at 0.25% until at least the end of 2021.

At this point, I can’t see any reason to believe that this forecast won’t prove accurate. Which, unfortunately for income investors, means that interest rates are likely to stay at ultra low levels for some time to come.

But don’t worry, because the two ASX dividend shares listed below could help you beat low interest rates. Here’s why I like them:

Commonwealth Bank of Australia (ASX: CBA)

The first dividend share I would consider buying to beat low interest rates is Commonwealth Bank. Although the banking giant’s shares have recovered strongly over the last few months, I still see a lot of value in them at the current level. This is especially the case for income investors due to the bank’s generous yield.

While I think Commonwealth Bank will have to cut its dividend one final time in FY 2021, I’m optimistic the cut won’t be as severe as some believe. Based on my belief that the economic damage from the pandemic won’t be as bad as first feared, I’m pencilling in a ~$3.70 per share dividend next year. If this proves accurate it will mean a forward fully franked yield of 5.3%.

Rio Tinto Limited (ASX: RIO)

Another dividend share that I would buy to beat low rates is this mining giant. I believe the company is well-placed to deliver bumper free cash flows over at least the next couple of years thanks to the high prices that iron ore is commanding. For example, in FY 2020 Rio Tinto expects its Pilbara iron ore unit costs to be US$14 to US$15 per tonne. This compares to the benchmark iron ore price of over US$100 per tonne.

And given the strength of its balance sheet, I believe Rio Tinto is likely to return the bulk of its free cash flow to shareholders in FY 2020 and FY 2021. In light of this, I estimate that its shares offer a forward fully franked dividend yield of at least 5%.

More reading

• A good time to buy Commonwealth Bank shares?
• How I’d build a $100,000 portfolio for ASX dividend shares
• ASX 200 rebounds 1.5%, Qantas drops on capital raising
• ASX banks told to dip into capital buffers to “support businesses and households”
• ASX 200 rebounds 1.1%: Big four banks charge higher, Qantas sinks after raising $1.4bn

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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Commonwealth Bank of Australia (ASX: CBA) shares continue to lag behind 2 of the other 3 major banks. Both National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) have risen by ~32% from 23 March. Yet CBA shares are up only ~27%. This places it on equal footing with beleaguered Westpac Banking Corp (ASX: WBC). A bank undergoing investigation by the ACCC.

Personally, I believe the CBA share is worth further investigation.

Setting up for growth

On 15 March CommBank announced it would be selling 55% of Colonial to US private equity firm KKK for AUD$1.7 billion. This provides additional capital for the bank at a time when it has set aside $1.5 billion for impacts from the coronavirus. This deal caused ASIC to pursue civil proceedings against the bank for issues arising from the Royal Commission. 

However, I do not think CommBank shares will be impacted too much. The bank indemnified KKK against all impacts from the Royal Commission in the purchase arrangement. 

Secondly, and far more exciting is the bank’s entry into the buy now pay later (BNPL) market. 

CommBank announced it was to launch Swedish private fintech, Klarna in Australia on 30 January. A plan later derailed by the COVID-19 outbreak. CommBank holds a 5.5% stake in Klarna, increased from its original 1.8% holding. The companies will jointly fund and have 50:50 ownership rights to Klarna’s Australian and New Zealand business. It is worth mentioning that Klarna is the originator of the BNPL approach and is currently the largest in the world. 

CommBank is the nation’s largest provider of digital payments services. This means the Klarna BNPL service can be immediately available across Australia. This is a significant threat to Afterpay Ltd (ASX: APT) as the dominant player in the Australian market. However, it will also threaten any other BNPL that has a service offering purely in Australia. 

Robust position

CommBank was the first Aussie bank to signal its intention to cut back on COVID-19 support by 30 June. CommBank will likely be the first of the majors to start to see loan defaults for those customers unable to pay. In addition, the bank is the largest provider of home loans and business loans in Australia. Nonetheless, it has already made a $1.5 billion provision to pay for defaults.

In addition, Colonial is more likely to increase earnings while managed as part of the core business of a private equity firm.

CBA shares are presently trading at a price to earnings (P/E) ratio of 12.4. At the time of writing, based on the current price, CBA shares have a trailing 12-month dividend yield of 6.27%. Moreover, while dividends are currently deferred, I cannot see the banks reducing or permanently cancelling dividend payments. It is the core reason why many funds hold the banks.

Foolish takeaway

I think our largest bank is good value for money right now. It has set itself up for growth in the near future and is managing its response to the coronavirus in a very fiscally responsible manner. At the current price I believe investors will see solid share price growth in the medium term, as well as securing a solid dividend payment once they recommence. 

More reading

• Could the Afterpay share price really be good value right now?
• ASX 200 rebounds 1.5%, Qantas drops on capital raising
• ASX banks told to dip into capital buffers to “support businesses and households”
• ASX 200 rebounds 1.1%: Big four banks charge higher, Qantas sinks after raising $1.4bn
• Why AMP, IOOF, Redbubble, & Westpac shares are charging higher

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. 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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The ASX telco sector has gone through some dramatic changes since I first started covering it as a telecommunications analyst over 25 years ago.

The Australian telco landscape has particularly changed in the past 10–15 years through a string of mergers and acquisition. The number of major telco providers has more than halved to just 5.

The other major change is that the National Broadband Network (NBN) has created a level playing field for the residential telco market. Prior to this, for several decades, Telstra Corporation Ltd (ASX: TLS) was the undisputed king, as it owned the national network.

In this article, I will briefly take you through the 4 major ASX-listed telco companies in Telstra, Vocus Group Ltd (ASX: VOC), TPG Telecom Ltd (ASX: TPM) and Macquarie Telecom Group Ltd (ASX: MAQ) and I’ll share my top telco pick right now.

Telstra

Telstra previously owned the national fixed-line network for broadband and voice. Therefore, it was able to set the price that it charged to other telcos using its network. This flowed through to high margins and high company profits.

Then came along the NBN…

Telstra’s T22 strategy will help address the subsequent reduction in revenues and profitability. It will help reduce underlying fixed costs by $2.5 billion annually by the end of FY22. Telstra recently revealed that it is on track to achieve most of the goals it has in place as part of this strategy.

Telstra also hopes to grow its market share over the next 5 years on the back of its market-leading 5G offering.

Vocus Group 

Vocus is a specialist fibre and network solutions provider. It mainly targets the enterprise, government, wholesale and small business markets. Vocus also has a smaller presence in the residential sector offering fixed broadband.

It has grown significantly in scale since 2015, merging with retail telco, M2 Communications. It also acquired enterprise-focused Amcom and Nextgen Networks.

Over the past few years, Vocus’ retail division has struggled. This is mainly due to tight margins offered to retail-fixed broadband operators under the NBN. However, a 3-year turn-around strategy is putting Vocus back on track.

TPG Telecom 

TPG saw its share price rise higher between 2011 and 2016 on the back of a series of acquisitions. This included retail telcos AAPT and iiNet. It became the second-largest fixed broadband provider after Telstra. However, due to lower retail margins for fixed broadband on the NBN, TPG has struggled in recent years.

This trend is reflected in TPG’s recent financial results for 1H20. Total revenue only grew by a very modest 1% for 1Ht, while underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) declined by 6%.

However, TPG’s recent merger with Vodafone positions it well to compete in the mobile market against rivals, Telstra and Optus.

Macquarie Telecom 

Lesser-known Macquarie Telecom services the enterprise and government telco sectors.

Specialist telco services extend to data centres, cloud computing and cybersecurity. Macquarie Telecom has seen strong share price growth on the back of strong demand in these 3 core market segments, especially cybersecurity.

For the six months ended December 31, it delivered a 9% increase in revenue on the prior corresponding period to $131.9 million.

My top ASX telco share pick?

My top pick right now is Telstra, but only just… I believe that with NBN headwinds declining further over the next year, and the potential of a gain in mobile market sales on the back of its 5G rollout, it is well placed for growth.

Macquarie Telecom’s recent growth has been impressive, but I am still unsure if it can maintain this momentum over the long term. Competition in the data centre space, in particular, continues to climb.

More reading

• How I’d build a $100,000 portfolio for ASX dividend shares
• ASX 200 rebounds 1.5%, Qantas drops on capital raising
• Is Telstra in for a bruising fight with merged TPG-Vodafone?
• These are the 4 cheapest ETFs on the ASX
• Why I think Telstra and these ASX dividend shares are strong buys

Motley Fool contributor Phil Harpur owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra 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 Afterpay Ltd (ASX: APT) share price has rocketed 94.67% since the start of the year to become a leader amongst ASX 200 shares.

This is despite falling to a 52-week low of $8.01 in the March bear market. Amazingly, the Afterpay share price closed the week at $57.00 which means the buy now, pay later company is worth a whopping $15.2 billion.

Why the Afterpay share price is rocketing higher?

I think there are a few factors behind Afterpay’s recent share price moves.

For one, the company has continued on its strong growth trajectory despite coronavirus disruptions. Many people turned to online shopping as bricks and mortar retailers were forced to closed during lockdowns.

This meant that, while some sales channels were softer for Afterpay, its online turnover was booming.

Another big factor I believe has been pivotal to the phenomenal growth in the Afterpay share price is the fact the company has minimal debt on its balance sheet. This means it can operate freely without having to worrying about creditors. In short, no one can really force Afterpay’s hand on key issues given its low leverage.

But despite Afterpay shares hitting record high after record high, are they really a good buy in 2020?

Is Afterpay a good value buy?

One thing I would say about the buy now, pay later space is that it looks a little overcrowded right now.

While Afterpay seems to be an industry leader, it does have the likes of Openpay Group Ltd (ASX: OPY) and Zip Co Ltd (ASX: Z1P) snapping at its heels.

I suspect we may see more industry consolidation throughout 2020 and 2021. With so many high growth companies operating in the space, as well as international competitors like Klarna, I’m not sure there’s room for all of them.

The Openpay share price has rocketed more than 370% higher since mid-March while Zip Co also continues to post strong monthly trading updates.

I’m not backing one particular horse in this buy now, pay later industry race. However, if Afterpay can post another bumper result in August, then I think it’s very possible we could see its share price hit $100 by the end of the year.

More reading

• Do you want to get rich by investing? Then do this
• Why National Storage shares are a great “set and forget” option for your portfolio
• Purchasing Openpay shares in March in would have pocketed you this return
• Could one of these ASX shares be ‘the next Afterpay’?
• Why Xero and these ASX tech shares just hit record highs

Ken Hall 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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Buying cheap shares today may not produce an impressive return in the short run. After all, the world economy faces a period of significant uncertainty caused by coronavirus. Lockdown measures are likely to cause rising unemployment and lower GDP growth across many major economies that could lead to difficult operating conditions for many listed companies.

However, through buying undervalued shares today you could take advantage of the stock market’s cyclicality and its long-term recovery potential. This could improve your chances of retiring early.

Buying cheap shares

At the present time, an uncertain economic outlook may dissuade some investors from buying cheap shares. Risks such as a second wave of coronavirus and increasing trade tensions between the United States and China could mean that the stock market experiences a challenging period that limits its scope for capital growth.

However, often the best times to buy stocks have been when their outlooks are highly uncertain. Risks mean that investors demand wider margins of safety. This could allow you to purchase stocks while they trade at even lower prices, and when they offer even greater capital growth potential.

Value investing appeal

Purchasing cheap shares allows an investor to take advantage of the stock market’s cyclicality through buying businesses when they trade at low prices and selling them when they trade at higher prices.

On a long-term basis, following a value investing strategy has been highly successful for a range of investors. They include Warren Buffett, who has been able to ignore other investors during bear markets and recessions to purchase high-quality companies at low prices. Through holding them over the long run, it is possible to obtain high returns that improve your retirement prospects.

Risk management

Of course, assessing the quality of the companies you purchase is a means of limiting risks when buying cheap shares. Through focusing your capital on those businesses that have solid balance sheets and wide economic moats, you can reduce your chances of experiencing losses in the short run. Such companies may also be able to strengthen their competitive positions to generate higher returns in the long run through increasing their market share at the expense of weaker rivals.

Furthermore, diversifying across a wide range of businesses could improve your portfolio’s risk/reward ratio. It may reduce your reliance on a small number of stocks to produce your returns, which could enhance your long-term growth rate. It may also allow you to invest in a wider range of fast-growing sectors than would otherwise be the case.

With the stock market having always recovered from its challenging periods to post long-term gains, now could be the right time to build a portfolio of stocks that can benefit from a likely improvement in the economy’s growth rate in the coming years. Doing so could increase your chances of retiring early.

More reading

• Could the Afterpay share price really be good value right now?
• How I would construct a $50,000 growth portfolio
• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• Here are 2 dirt cheap manufacturing shares to buy next week

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.

The post Stock market crash: I’d buy cheap shares today to get rich and retire early appeared first on Motley Fool Australia.

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