Tag: Motley Fool Australia

According to the latest cash rate futures, the market is currently pricing in a 57% probability of a rate cut to zero next month.

While I’m not convinced that another rate cut is coming, I feel quite sure that rates will be staying at these ultra low levels for the foreseeable future.

This is good news for borrowers, but the very opposite for savers and income investors who will have to live with meagre interest rates for some time to come.

Fortunately, the Australian share market is home to a large number of dividend shares with generous yields. Two which I would buy today are listed below:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

If you don’t have exposure to the banking sector already, then I think ANZ would be worth considering. With its shares down by a third from their 52-week high, I estimate that they are changing hands for 13x estimated FY 2021 earnings and 0.9% FY 2021 book value. This is lower than average and a level that I think is attractive for patient investors.

Another positive is that although it is highly likely to cut its dividend materially next year, its share price decline means it should still offer an above-average yield. As things stand, I expect ANZ to pay a partially franked dividend of $1.05 per share next year. This equates to a 5.5% yield today.

BWP Trust (ASX: BWP)

Another dividend share to consider buying is BWP Trust. It is a real estate investment trust which owns 75 properties across Australia. The majority of its properties are warehouses that are leased to the Wesfarmers Ltd (ASX: WES) owned Bunnings business. At the last count the company’s occupancy rate stood at 97.5% and it was generating over $150 million in rent each year.

While having the majority of your properties leased to a single customer is usually a risk, I don’t believe it is anything to be too concerned about. This is because Wesfarmers is a major BWP shareholder with a stake of almost 24% and unlikely to do anything that would negative impact its investment. All in all, I’m confident BWP can continue growing its income and distribution at a modest rate for the foreseeable future. At present I estimate that its shares offer investors a forward 4.9% yield.

More reading

• Next phase of bull market could see ANZ Bank outperform Afterpay
• The next ASX sector at risk of cutting dividends
• ASX 200 down 0.1%: Carsales update impresses, a2 Milk surges higher
• Is the ANZ share price a buy today?
• Can ASX big banks generate an attractive sustainable dividend yield from FY21?

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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There can be no doubting that 2020 has been a tumultuous year for the ASX. At the height of the coronavirus panic-selling in March, millions were wiped off the market caps of many ASX growth companies.

Buy now, pay later fintech Afterpay Ltd (ASX: APT) saw its share price slump almost 80% to a multi-year low of $8.01. Cloud accounting software developer Xero Limited (ASX: XRO) and healthcare blue-chip Cochlear Limited (ASX: COH) also shed over 30% of their values.

While some companies have staged incredible recoveries – Afterpay shares are up 620% since 23 March – there is still plenty of value left in the market. But separating the diamonds from the rough can be difficult. Here are 3 companies I think may have been neglected in the recent market recovery and could still offer big potential.

Nearmap Ltd (ASX: NEA)

ASX aerial imaging company Nearmap is one of the most promising ASX growth companies on the market. Nearmap is a leader in a niche industry and has rapidly expanded its footprint across Australia and North America. Statutory revenue for H1 FY20 surged 31% over the prior comparative period to $46.3 million. And the company was positioning itself for even greater things during the second half.

But then coronavirus happened. Nearmap investors fled despite the assurance that Nearmap had seen no adverse financial impacts from COVID-19. Nearmap shares dropped over 50% in value to a 52-week low of just $0.83 by 25 March. The company has recovered much of its losses, currently sitting around $2. But it’s still well short of the 52-week high of $4.29 in June 2019.

Livetiles Ltd (ASX: LVT)

LiveTiles is a perennially undervalued ASX software company and should be surging higher in the current climate. Software developers like MNF Group Ltd (ASX: MNF) and Objective Corporate Limited (ASX: OCL) have found themselves the unlikely market darlings of this emerging economy. But despite a modest recovery, LiveTiles shares are languishing well below their pre-coronavirus highs. 

LiveTiles develops intranet portals and online working environments for corporate clients. Given many businesses are still working remotely, you would think the demand for software that enables online collaboration would be accelerating.

And according to LiveTiles, it is. Cash receipts for the Q3 FY20 quarter were up 109% over the prior comparative period to $10.9 million. Annualised recurring revenue also rose 5% for the quarter to $55.7 million. And yet, LiveTiles shares are still trading for just 25 cents, 60% short of the 52-week high of 60 cents they recorded last July.

Audinate Group Ltd (ASX: AD8)

Audinate shares took a real hammering during the coronavirus selloff. After opening the year trading at over $7, Audinate shares crashed to $2.51 by 23 March. Despite a strong rebound, they still haven’t recovered all those losses. Audinate is trading at just $6.03 at the time of writing. And to think, as recently as December they were valued at $9.30.

This stunning collapse is, in large part, pretty understandable. Audinate was a promising ASX growth company pre-coronavirus, but demand for its services has been severely dampened by lockdowns. Audinate specialises in the technology required for complex and large sound systems. Past projects have included a theatre in Buffalo, New York, a shopping mall in Mexico City, and even a zoo and aquarium in Ohio.

Audinate was forced to withdraw its FY20 guidance in April in response to the pandemic. It will be interesting to see how much financial damage the company will have sustained. However, as restrictions ease and event spaces re-open, the global leader in sound technology is well-positioned for a rebound.

More reading

• Is investing in super a smart move right now?
• Afterpay share price hits record high on Apple Pay partnership
• Start your investment journey with a $2,500 investment in these ASX shares
• ASX 200 down 1.3%: Big four banks tumble, Afterpay tipped to go higher
• Splitit share price rockets 33% on new Mastercard deal

Rhys Brock owns shares of AFTERPAY T FPO, AUDINATEGL FPO, Cochlear Ltd., LIVETILES FPO, and Nearmap Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO, Cochlear Ltd., LIVETILES FPO, Nearmap Ltd., Objective Limited, and Xero. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended AUDINATEGL FPO, Cochlear Ltd., LIVETILES FPO, and Nearmap 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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I think the mid cap side of the market is a great place to look for long term investment options.

But which mid caps should you buy? Three which I think would be top options are listed below. Here’s why I like them:

Bravura Solutions Ltd (ASX: BVS)

The first mid cap ASX share to consider is Bravura Solutions. It provides software and services to the wealth management and funds administration industries. It has a number of quality products in its portfolio which are being used by some of biggest financial institutions in the world. This includes the Sonata wealth management platform, Rufus transfer agency solution, the Garradin back office solution, and the recently acquired Midwinter financial planning software.

Collins Foods Ltd (ASX: CKF)

A second ASX mid cap share to look at is Collins Foods. Not only is it one of the region’s largest KFC restaurant operators, it also has a growing presence in Europe. The good thing about the latter is that the KFC brand has a long runway for growth in the European market due to its under penetration. I believe this gives Collins Foods the opportunity to expand its international network materially over the next decade and drive solid earnings growth.

Pushpay Holdings Ltd (ASX: PPH)

A final mid cap share to consider buying with a long term view is Pushpay. It provides a donor management system, including donor tools, finance tools, and a custom community app, to the faith sector. The company has been growing at a very strong rate over the last few years and expects more of the same in FY 2021. In fact, today Pushpay upgraded its guidance just six weeks after first giving it. It expects EBITDA of US$50 million to US$54 million this year, up from its previous guidance of US$48 million to US$53 million. This will be more double FY 2020’s earnings.

More reading

• Pushpay share price jumps nearly 10% on updated guidance
• Start your investment journey with a $2,500 investment in these ASX shares
• 2 fast-growing ASX tech shares to buy right now
• Here are 2 top ASX tech shares for your portfolio
• UBS picks the best ASX retail stocks for the post COVID-19 world

James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia has recommended Bravura Solutions Ltd and Collins Foods 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 is the time when many will be mulling over the question of whether the dogs of FY20 on the S&P/ASX 200 Index (Index:^AXJO) will outperform in the new financial year.

This strategy is popularised by the “Dogs of Dow” theory, which states that last year’s underachievers on the Dow Jones Industrial Average will rebound the following year as businesses move in cycles.

The theory doesn’t quite translate into practice for ASX 200 as there are differences between the Dow and our top 200 benchmark. The most obvious one being the size of companies included in each of the indices.

Value back in vogue

But this doesn’t mean it’s unhelpful to look at FY20 underperformers this year. In fact, this year is probably the best time to be hunting for buys among the laggards compared to past years.

This is because value stocks may finally be pulling ahead of growth stocks for reasons highlighted in my previous article.

This financial year’s underperformers are firmly in the value camp as value stocks trade at a discount to the market and their historical measurements.

On the flipside, growth stocks are those that trade at a premium as investors are happy to bid up shares with better growth prospects in the post COVID-19 world.

Not easy finding the real ASX bargains

But blindly picking ASX stocks from the bargain bin is a recipe for disaster.  Some stragglers deserve to be cast aside as their recovery prospects in FY21 don’t look much better than FY20.

What might work as a better filter is to pick the worst performers that are currently rated a “buy” by most brokers covering the stock.

Using consensus data from Thomson Reuters, there are five ASX dogs that stand out.

Dirt cheap

The worst performer of the group is the South32 Ltd (ASX: S32) share price, which lost around 35% of its value of the past year.

But the majority of brokers think the stock is fundamentally cheap, as do I. I sold out of the base metal miner in August last year but bought back in April when the stock fell under $2 a share.

I think it will head back towards $3 in FY21 as the market thinks the prices for its key commodities are significantly lower than spot prices.

If prices hold around current levels, I suspect we will see a re-rating in the stock.

Zero to hero

Another dog that could find love in the new financial year is the Nine Entertainment Co Holdings Ltd (ASX: NEC) share price.

The media group has long been under pressure due to structural changes in the industry but the coronavirus disruption certainly didn’t help.

The stock slumped around 24% over the past 12 months, but the headwinds are starting to ease.

Outlook improving

The reopening of our economy is one obvious plus point, but that isn’t the only light at the end of its tunnel.

The government’s move to force tech giants like Alphabet Inc (aka Google) and Facebook, Inc. to pay local media outlets to reuse content could be a game changer.

Nine also stands to benefit from further easing on cross-media ownership laws and subscriptions for some of its mastheads, like the Australia Financial Review, are stabilising, if not growing.

The other three wooden spooners with a “buy” consensus rating are registry services company Link Administration Holdings Ltd (ASX: LNK), property group Centuria Office REIT (ASX: COF) and health insurer NIB Holdings Limited (ASX: NHF).

More reading

• How the ASX 200 can help first home buyers save for a deposit
• Millennials be warned! Signs of dangerous ASX share trading grow
• Top brokers name 3 ASX 200 shares to sell today
• Australian unemployment jumps to 7.1%
• ASX 200 down 1.3%: Big four banks tumble, Afterpay tipped to go higher

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors.

Brendon Lau owns shares of South32 Ltd. Follow me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (C shares) and Facebook. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia has recommended Alphabet (C shares), Facebook, Link Administration Holdings Ltd, NIB Holdings Limited, and Nine Entertainment Co. Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Interest rates at record lows are fantastic for borrowers and not-so-good for first home buyers saving for a home.

Where can you turn to save for a home deposit?

According to Fidelity, a $10,000 investment in Australian shares over the past 10 years to 31 December 2019 has returned 11.2% pa which resulted in dollar value of $26,881. This crushes the savings rates offered by the banks.

With a long-term viewpoint to acquire a home, you could achieve a return well in excess of current interest rates on savings accounts and term deposits offered by the big banks by investing in Australian shares.

While investing in shares carries risk in the short term, you could achieve market returns of the S&P/ASX200 Index (ASX: XJO) by investing in an exchange-traded fund (ETF) such as the BetaShares Australia 200 ETF (ASX: A200).

I see 2 big benefits of investing in an ETF that tracks the performance of the ASX 200:

1. Low management cost (0.07% pa for BetaShares Australia 200 ETF)
2. Diversification to reduce company-specific risk

Benefit 1: low management costs

Paying high management costs significantly impacts on the long-term return investors receive on their investments.

The more you pay in management fees, the more you could lose out on meeting market performance.

The real impact of fees over the long term can mean losing out on thousands of dollars!

Benefit 2: diversification

The point of diversification is to eliminate risk that can result from putting all your eggs in one basket. An ETF tracking the ASX 200 like BetaShares Australia 200 can provide protection to an investor portfolio. 

The top 10 ASX shares in the BetaShares fund are:

1. CSL Ltd (ASX: CSL)
2. Commonwealth Bank of Australia (ASX:CBA)
3. BHP Group Ltd (ASX: BHP)
4. Westpac Banking Corp (ASX: WBC)
5. Australia & New Zealand Banking GrpLtd (ASX: ANZ)
6. National Australia Bank Ltd (ASX: NAB)
7. Wesfarmers Ltd (ASX: WES)
8. Woolworths Group Ltd (ASX: WOW)
9. Transurban Group (ASX: TCL)
10. Macquarie Group Ltd (ASX: MQG)

The top 10 is composed of companies in the healthcare, banking, mining, retail, and industrial sectors.

Foolish takeaway

Investing in an ETF may be an excellent way for investors to gain exposure to the share market. As company-specific risk is reduced, you can receive a return similar to the ASX 200. This return can help want-to-be first homeowners save for a home.

In my view, investing in the share market can help first home buyers who are saving for a deposit with a medium to long term horizon. In the short term, it can be very volatile and result in losing a substantial amount of capital.

More reading

• Can these 5 FY20 dogs of ASX 200 bounce back in the new financial year?
• Millennials be warned! Signs of dangerous ASX share trading grow
• Top brokers name 3 ASX 200 shares to sell today
• Australian unemployment jumps to 7.1%
• ASX 200 down 1.3%: Big four banks tumble, Afterpay tipped to go higher

Matthew Donald owns shares of National Australia Bank Limited and Wesfarmers Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of Transurban Group, Wesfarmers Limited, and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Pushpay Holdings Ltd (ASX: PPH) share price is up 9.90% today after the payment system provider released upgraded guidance at its annual meeting. Pushpay reported solid revenue growth and expanded operating margins, with the company meeting or exceeding all guidance provided to the market over the year. 

What does Pushpay do? 

Pushpay sells a cloud-based online payment solution that centralises donation data and manages payment operations. The company has some 10,896 customers, most of which are US-based churches. 

In December, Pushpay acquired Community Church Builder (CCB), a church management system that provides a platform to connect and communicate with community members. The acquisition strengthens Pushpay‘s value proposition, with a joint product offering launched in April.

How did Pushpay perform in FY20?

Pushpay reported a 32% increase in revenue for FY20, which grew to US$129.8 million in the year to 31 March 2020. This increase pushed Pushpay into profitability, with the company reporting a US$21.7 million profit before tax, up from a loss of US$1.4 million. Operating expenses increased by only 5% thanks to disciplined cost management. 

Customer numbers grew 42% to 10,896, up from 7,649. This drove a 39% increase in total processing volume which reached US$5 billion. Gross profit margin also climbed 5 percentage points to 65%. Over the year, Pushpay processed 25.9 million transactions with an average transaction value of US$195. 

What is the outlook for Pushpay?

Pushpay stands to benefit from the shift to digital as a result of the coronavirus pandemic. This has resulted in increased demand for Pushpay’s services. While digital donations to churches were once uncommon, they are now becoming increasingly prevalent in the US. 

Pushpay has a strategic goal of becoming the preferred provider of mission-critical software in the US faith sector. Its solutions allow churches to create their own apps, manage service schedules, and facilitate digital giving. Despite Pushpay’s strong growth to date, it has still only captured a very small percentage of the market, meaning there is scope for further growth. 

Today, Pushpay updated its guidance for the year ending 31 March 2021. The company now expects earnings before interest, tax, depreciation, amortisation, and fair value adjustments to be between US$50 million and US$54 million, up from US$48 million to US$53 million. 

More reading

• 3 stellar ASX mid cap growth shares to buy right now
• Start your investment journey with a $2,500 investment in these ASX shares
• 2 fast-growing ASX tech shares to buy right now
• 3 ASX shares to buy and hold for the next decade
• Why Nearmap and this ASX mid cap share could be strong buys

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and 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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The market may have taken a tumble today, but that hasn’t stopped the A2 Milk Company Ltd (ASX: A2M) share price from charging higher.

This morning the infant formula and fresh milk company’s shares jumped 5% to a record high of $20.05.

When its shares hit that level, it meant they were up an impressive 43% since the start of the year. This compares favourably to an 11% decline by the S&P/ASX 200 Index (ASX: XJO) over the same period.

Why is the a2 Milk share price at a record high?

Investors have been buying the company’s shares this year due to its strong performance during the third quarter.

Strong demand for its infant formula during the pandemic led to a2 Milk upgrading its FY 2020 guidance in April.

It now expects revenue to be in the range of NZ$1,700 million to NZ$1,750 million this year. It is also forecasting a stronger than expected earnings before interest, tax, depreciation, and amortisation (EBITDA) margin of 31% to 32%. This compares to its previous EBITDA margin guidance of 29% to 30%.

Based on the top end of its ranges, this guidance implies EBITDA of NZ$560 million in FY 2020. This will be a 35.4% increase on the prior corresponding period.

What else is driving its shares higher?

In addition to the above, investors may have been buying a2 Milk’s shares this week following the release of a positive broker note out of UBS.

According to the note, the broker has retained its buy rating and NZ$22.00 (A$20.64) price target on the company’s shares.

UBS appears to believe there is a chance that a2 Milk will actually outperform its guidance in FY 2020.

Outside this, it has suggested that there could be a new product launch in the medium term. Depending on the market opportunity for this potential product, it seems to think it could be a catalyst to taking its shares up a level again.

Should you invest?

While I think a2 Milk Company’s shares are coming close to being fully valued, I would still buy them if you plan to invest for the long term.

I believe the company has a long runway for growth over the next decade thanks to its expanding footprint and lucrative opportunity in the China market.

More reading

• ASX 200 down 1.3%: Big four banks tumble, Afterpay tipped to go higher
• Why A2 Milk, Afterpay, Mesoblast, and Temple & Webster are pushing higher
• ASX 200 finishes higher by 0.8%, Carsales share price driven up by FY20 guidance
• Top brokers name 3 ASX 200 shares to buy today
• ASX 200 down 0.1%: Carsales update impresses, a2 Milk surges higher

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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Investing some extra money in super can have real advantages if you’re looking to build long-term wealth.

Superannuation could mean being a member of an industry fund, a for-profit fund or even running a self-managed super fund (SMSF).

But the basics of super remain the same across all vehicles. Investing in super over and above the 9.5% Superannuation Guarantee from your employer may not be the right decision for everyone. It’s a big decision which will ultimately depend on investment goals, age and income level.

So, how do you know what’s the best way to invest for you?

The benefits of investing in ASX shares

Many pre-set options in super funds won’t allow you to choose your investments as you could outside of super.

For instance, unless you’ve got an SMSF, you probably can’t buy individual ASX shares. That means you may have to leave buying growth shares like Xero Limited (ASX: XRO) for your investment accounts outside of your super fund.

The flexibility that can provide could be a real benefit for an active investor. While investing in super can provide some powerful long-term benefits, many Aussies may not want to lock-up that money until retirement.

For instance, a lot of younger investors may have one eye on buying property. The First Home Super Saver (FHSS) allows you to access up to $30,000 from your super for a deposit. But then many investors may prefer to just avoid the hassle in the first place.

So while it’s true that compounding returns are boosted inside your super fund, investing more than just the 9.5% from your employer won’t suit everyone’s goals and needs.

Why should you be investing in super?

The big factor here is tax. It’s a good time to look at investing in super considering we’re fast headed towards 30 June and the end of the financial year.

Provided the eligibility criteria is met, concessional superannuation contributions are taxed at just 15% inside of super.

For most Australians, that means you can use super to reduce your tax bill at the end of the year, while still boosting your retirement income. Every dollar earned above $18,200 per year is subject to at least 19 cents of tax.

That means that even in the lowest tax bracket there are potential tax savings. However, if your income is above the $180,000 mark, the tax-advantaged status of super really starts to add up. 

Other than just investing for tax reasons, superannuation investments can offer a liquidity premium. Given the long-term horizon of super funds, they can invest in long-term investments like infrastructure and private equity.

These investments aren’t easy to access for the average Aussie investor. That means that you could invest in more than just ASX shares if you’re investing in super. 

This could mean higher returns (due to the liquidity premium on investments) as well as strong diversification options for your portfolio.

Foolish takeaway

Super is a complicated but powerful tool for retirement. As always, it’s best to talk to a financial advisor to determine what’s best for your individual circumstances.

While the potential tax benefits are clear, investing extra money in super can tie your cash up for a long time which won’t suit everyone’s needs.

More reading

• Will Xero shares and these 2 other ASX companies be portfolio staples by 2030?
• 3 ASX growth shares to buy with $3,000
• 5 ASX shares that would’ve made you a fortune in 5 years
• Why I think Xero shares are a great long-term buy
• 3 ASX shares to buy and hold for the next decade

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

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It’s a tale as old as time. Good times breed great times that bring exuberance, followed by pain. It’s your classic asset bubble that we’ve witnessed through the centuries. No asset, be it shares in 1999, bitcoin in 2017, or tulips in 1636, are exempt.

Now, just to be clear, I don’t think the S&P/ASX 200 Index (ASX: XJO) or, indeed, the US markets like the Dow Jones are anything close to true ‘bubble’ territory.

But I do think we are starting to see signs of what former Federal Reserve chair, Alan Greenspan would call “irrational exuberance”.

According to reporting in the Australian Financial Review (AFR), ASX share trading surged on investment platforms like Commonwealth Bank of Australia (ASX: CBA)’s CommSec over the past few months. Millennials also displayed the highest activity on the platform. And it’s not just Aussies getting amongst it. The AFR reports that American users of the popular-with-millennials US brokerage company, Robinhood surged by 70% in March.

It’s an interesting phenomenon to see. Conventional wisdom dictates that market crashes translate into a rise in despondency towards stocks as an asset class – with investors burnt by falling prices reluctant to jump back in.

ASX shares in a bubble

Why is this? Well, in my opinion, it’s the nature of the market swings we have seen this year. The bear market we saw between 20 February and 23 March was almost perfect in the way it was consistent and steep. The bull market that has been in play ever since 23 March has been equally perfect in that share prices have gone up in almost a straight line.

This, in turn, has made it relatively easy to jump back into shares at any time over the past 2 months and make money.

The AFR reports that the top shares traded on CommSec over 9-10 June were Flight Centre Travel Group Ltd (ASX: FLT) and Zip Co Ltd (ASX: Z1P). Forget about the ASX blue chips. Apparently these businesses are the companies investors want in their long-term portfolios. Any coincidence that Flight Centre shares were up more than 100% between April and 10 June? Or that Zip Co shares were up more than 470% between March and 10 June? Probably not.

In the US we have seen far worse signs of exuberant, ‘bubbly’ behaviour. For example, shares of US car rental company, Hertz Global Holdings Inc (NYSE: HTZ) have ballooned more than 800% between 26 May and 8 June – despite Hertz filing for bankruptcy in between. There’s a similar story going on with Nikola Corporation (NASDAQ: NKLA), a potential rival to the electric car maker, Tesla Inc (NASDAQ: TSLA). Nikola shares shot up more than 400% between 1 May and 10 June for no solid reason.

This data tells us that these ‘new traders’ entering the market are looking for easy money, which has been delivered to them in spades so far. Making 470% in 2 months is enough to give anyone a healthy dose of irrational exuberance, in my view. 

Foolish takeaway

Yes, market crashes do give investors a phenomenal opportunity to pick up shares at great prices. But the wise words of Warren Buffett come to mind in this situation: “don’t even think about owning a stock for 10 minutes if you don’t plan on holding it for 10 years”.

So, I would caution any investor out there to avoid these ‘hype-train’ stocks and keep a long-term investing mindset present at all times.

History shows us that bubbles and irrational exuberance always ends in tears – and I’m seeing signs of some very irrational behaviour right now. 

More reading

• Are Zip Co shares too expensive?
• Top brokers name 3 ASX 200 shares to sell today
• Australian unemployment jumps to 7.1%
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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 ZIPCOLTD FPO. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Zip Co Ltd (ASX: Z1P) share price has soared 64.5% in June. The company is undergoing a $200 million capital raising to acquire United States-based buy now, pay later (BNPL) provider, QuadPay. But is the Zip Co share price getting too expensive? 

Q3 highlights 

Zip Co provided the market with an update for the month ending 31 May 2020. The company highlighted a 78% year on year increase in monthly revenue and a 63% increase in active customers to 2.1 million. Furthermore Zip Co reported a 46% increase in active merchants to 23,600. I think these numbers are pretty impressive. I also think the company’s strong performance should continue due to the change in consumer behaviour resulting from COVID-19. 

Zip Co’s business update commented on the shift away from cash to digital payments that has occurred throughout the pandemic. The company also anticipates eCommerce penetration to remain at elevated levels post COVID-19 as more consumers gain familiarity with shopping online and retailers invest significantly in this space. These trends represent considerable tailwinds for BNPL and digital payment operators like Zip Co.

QuadPay highlights 

I believe the QuadPay acquisition is a game changer for the Zip Co share price. This is a compelling investment proposition that transforms Zip Co from a domestic BNPL player to a global BNPL leader. Post completion, the combined group will have operations across Australia, New Zealand, the US, the United Kingdom and South Africa. Zip Co will have a combined annualised total transaction value of $3.0 billion and annualised revenue of $250 million. It will also boast 3.5 million customers and 26,200 merchants. 

The QuadPay acquisition will immediately elevate all of Zip Co’s key reporting metrics and its existing scale. It will also ramp up the company’s growth potential in the world’s largest retail market. QuadPay currently has an existing customer base of 1.5 million, over 3,500 merchants and annualised revenue of $70 million for the quarter ending March 2020. QuadPay allows customers to split their purchase into 4 instalments spread over 6 weeks, interest free. The merchant gets paid upfront with risk and fraud liability absorbed. What makes QuadPay unique is its ‘Anywhere App’ that enables customers to pay in instalments in store or online at any merchant.

Zip Co’s acquisition will be funded with $100 million in convertible notes and up to $100 million in warrants. This will mean Zip Co shares will be progressively diluted by $10 million every six months as the notes convert into shares. The capital will be provided by an affiliate of Susquehanna International Group, one of the largest privately-held financial services firms in the world. The company has an established track record of investing in high-growth companies including the parent company of Tik Tok, Bytedance. 

Foolish takeaway 

I believe QuadPay is a transformational acquisition that takes the growth potential of the Zip Co share price to the next level. Zip Co has entered the largest retail market in the world with a genuinely innovative product. While investors could wait for its share to possibly become cheaper, I would certainly be watching it closely. 

More reading

• Millennials be warned! Signs of dangerous ASX share trading grow
• Has the Afterpay share price become too expensive to buy?
• Why Zip Co and these All Ords shares have doubled in 12 months
• ASX 200 jumps almost 4%, Webjet share price soars
• The Zip Co share price is up 500%. Too late to invest?

Lina Lim 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 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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