Tag: Motley Fool Australia

On Friday the S&P/ASX 200 Index (ASX: XJO) followed the lead of international markets and dropped notably lower. The benchmark index fell 1.9% to 5,847.8 points.

Will the market be able to bounce back from this on Monday? Here are five things to watch:

ASX 200 to rebound.

The ASX 200 looks set to rebound on Monday after a solid finish to the week in the United States. According to the latest SPI futures, the benchmark index is expected to open the week 24 points or 0.4% higher this morning. On Wall Street the Dow Jones jumped 1.9%, the S&P 500 stormed 1.3% higher, and the Nasdaq index rose 1%.

Oil prices mixed.

Energy producers including Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) will be on watch after a mixed end to the week for oil prices. According to Bloomberg, the WTI crude oil price fell 0.2% to US$36.26 a barrel and the Brent crude oil price rose 0.5% to US$38.73 a barrel. This meant oil prices ended their six-week winning streak.

Healius sells medical centres.

The Healius Ltd (ASX: HLS) share price could be on the move today amid speculation that the healthcare company has agreed a deal to sell its medical centres. The company is believed to have agreed a fee of $500 million with BGH Capital for the assets.

Gold price edges lower.

Gold miners including Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be on watch after the gold price edged lower on Friday. According to CNBC, the spot gold price fell 0.15% to US$1,737.30 an ounce.

Auction rates improve.

Domain Holdings Australia Ltd (ASX: DHG) and REA Group Limited (ASX: REA) shares could be on the move today after Sydney and Melbourne auction clearance rates improved. According to Domain, 69.5% of Sydney home taken to auction last week were sold. Whereas in the Melbourne market, 57% of properties that went to auction were sold.

More reading

• Why the Healius share price will be in the spotlight tomorrow morning
• Cheap ASX 200 shares I’d buy for less than $10
• Why we may be in danger of another coronavirus ASX market crash
• These were the best performing shares on the ASX 200 last week
• Why the Nearmap share price and one other are on my buy list

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA 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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On Saturday I looked at the healthcare sector and revealed how it has vastly outperformed the S&P/ASX 200 Index (ASX: XJO) over the last five years.

It isn’t the only side of the market to have outperformed the index over the period. Another area which has been on fire has been the tech sector.

During this time the S&P/ASX 200 Information Technology index has gained a sizeable 84.6%.

But don’t worry if you missed these gains, because I believe the sector can continue to outperform over the next five years.

But which shares should you buy? I believe the three ASX tech shares listed below have the potential to generate market beating returns for investors. Here’s why:

Afterpay Ltd (ASX: APT)

I think this payments company is an ASX tech share to buy with a long term view. Although its shares have been on fire this year, I still believe they can go materially higher in the future. This is due to the growing popularity of buy now pay later with consumers and retailers, its US$5 trillion opportunity in the United States, and expansion opportunities in mainland Europe and Asia. The latter could be supported by US$500 billion WeChat owner, Tencent Holdings. It recently became a substantial shareholder of Afterpay.

Altium Limited (ASX: ALU)

Another ASX tech share to consider buying is Altium. It is a printed circuit board design software company which is benefiting greatly from the rapidly growing Internet of Things (IoT) market. The explosion of connected devices globally has been driving increasing demand for its Altium Designer software. So much so, this year Altium expects to achieve 50,000 subscribers. After which, it is aiming for 100,000 subscribers by FY 2025. Together with its other promising businesses such as NEXUS and Octopart, I feel Altium is well-placed to deliver strong long term earnings growth.

Appen Ltd (ASX: APX)

I final ASX tech share to look at is Appen. The artificial intelligence (AI) company has a million-plus team of crowd-sourced experts which prepare the data to go into the AI and machine learning models of some of the world’s largest tech companies. This includes the likes of Facebook, Microsoft, and Apple. In respect to Apple, Appen helped the tech behemoth develop its intelligent assistant, Siri. The good news is that AI is growing in importance for businesses. I believe this means demand for its services will continue to grow over the next decade and underpin strong earnings growth.

More reading

• How to earn $50,000 in dividends each year with ASX shares
• How I would build a balanced portfolio worth $100,000 with 10 ASX shares
• Here’s how you invest in super to get a free $500
• 3 ASX shares I’d buy if the market hits 23 March levels again
• ASX 200 falls 1.9%, big 4 ASX banks retreat

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

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The Healius Ltd (ASX: HLS) share price will be in the spotlight tomorrow morning on reports that it sealed a $500 million deal on the weekend.

The medical facilities operator agreed to sell its 70-odd medical centres to Australian private equity firm BGH Capital, reported the Australian Financial Review.

The agreement, which is understood to be binding and fully funded, will make BGH the largest operator of general practice clinics in the country.

Takeover defense

These medical centres generated $183 million in revenue and $30 in earnings before interest, tax, depreciation and amortisation (EBITDA) in the six months to end December 2019, according to the AFR.

The divestment is seen as a defensive strategy to impede the takeover of Healius by Partners Group, which offered $3.40 a share for all of the company back in February.

Healius rejected the non-binding offer and it’s been a one-way street for its share price since as it slumped to $2.53 on Friday.

Can Healius shares outperform?

Management will be hoping for a big boost in the stock to justify the snub to shareholders. While it remains to be seen how the stock trades on Monday morning, history is on its side.

ASX stocks that undertake a divestment tend to outperform and recent transactions, such as Wesfarmers Ltd (ASX: WES) cutting the apron strings of Coles Group Ltd (ASX: COL), could put Healius shareholders in a good mood.

Healthcare sector underperformer

That would be a refreshing change as there isn’t much goodwill floating about for Healius. The stock crashed 20% over the past year when its peers have been faring a lot better.

The Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price gained around 2% while the Sonic Healthcare Limited (ASX: SHL) share price dipped 8% over the same period.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) lost 11% of its value, no thanks to the COVID-19 global market meltdown.

Foolish takeaway

I can’t help feeling that BGH got a better deal than Healius, assuming the centres are being acquired on a 10 times EBITDA multiple.

While that’s within a reasonable range for acquisitions, some might argue that defensive assets in this ultra-low interest rate environment would be worth more.

Healius is likely to use the proceeds from the asset sale to repay debt and to focus its resources on growing its pathology and diagnostic imaging business.

The group had been trying to sell its medical centres since the start of the year before the coronavirus pandemic scared off some potential bidders.

It may not be a big surprise that BGH emerged as the victor given that it raised a lot of capital in 2018 for its takeover fund and it already holds medical facilities in its portfolio.

The acquisitive firm also owns now-delisted educational services group Navitas Limited (ASX: NVT) and is reported to be in talks with Village Roadshow Ltd (ASX: VRL) to acquire its theme parks.

More reading

• 3 strong ASX dividend shares to buy next week
• Cheap ASX 200 shares I’d buy for less than $10
• Why we may be in danger of another coronavirus ASX market crash
• These were the best performing shares on the ASX 200 last week
• Why the Nearmap share price and one other are on my buy list

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited and Sonic Healthcare 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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According to the latest weekly economic report out of Westpac Banking Corp (ASX: WBC), its team continue to expect the cash rate to stay on hold at 0.25% until at least the end of 2021.

I suspect that this forecast will prove accurate, which could be bad news for income investors who will have to contend with low interest rates for some time to come.

But don’t worry, because the ASX dividend shares listed below could help you earn an income in this low interest rate environment. Here’s why I like them:

Coles Group Ltd (ASX: COL)

The first dividend share to look at is Coles. I believe the supermarket giant is well-positioned to grow its earnings and dividend at a solid rate over the next decade. This is due to its defensive business, refreshed strategy, expansion opportunities, and its focus on automation. Together with its enviable track record of delivering consistent same store sales growth, I believe the outlook for Coles and its shareholders is very positive. At present I estimate that its shares offer a fully franked 3.8% FY 2021 dividend.

Commonwealth Bank of Australia (ASX: CBA)

Another dividend share I would consider buying is Commonwealth Bank. Although its shares have recovered strongly from their lows, I still believe they offer a lot of value for investors at this level. While a dividend cut in FY 2021 seems inevitable, I’m optimistic it won’t be as brutal as some believe. I suspect a dividend of ~$3.70 per share is possible. If this proves accurate it will mean a forward fully franked yield of 5.5%. This is certainly a very generous yield in this low interest environment.

Rural Funds Group (ASX: RFF)

A third and final dividend share to consider buying is Rural Funds. It is a property company that owns a diversified portfolio of high quality Australian agricultural assets. These asset include cattle properties, vineyards, and orchards. Due to the nature of these industries, tenants will generally sign up for ultra long leases. This gives Rural Funds great visibility with its future earnings. Which means it has been able to provide guidance for not just this year, but also next year. It plans to pay distributions of 10.85 cents per share in FY 2020 and then 11.28 cents per share in FY 2021. This equates to yields of 5.45% and 5.7%, respectively.

More reading

• If I won the lottery I’d buy these 6 ASX shares
• How to earn $50,000 in dividends each year with ASX shares
• Westpac tips the Australian dollar to continue rising
• 2 defensive ASX shares to protect your portfolio
• 3 ASX dividend kings to buy and hold forever

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 3 strong ASX dividend shares to buy next week appeared first on Motley Fool Australia.

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One group of shares that are particularly popular with retail investors are blue chip shares.

A blue chip is generally a large and well-established company that has operated for many years. More often than not, they will be a leader in their industry.

The Australian share market is home to a large number of blue chips and investors will no doubt have a hard time deciding which ones to buy.

To narrow things down, I have taken a look at three popular blue chip shares to see if they are in the buy zone right now. They are as follows:

Goodman Group (ASX: GMG)

One of my favourite blue chip shares is Goodman Group. It is an integrated commercial and industrial property group which owns, develops, and manages industrial real estate in 17 countries. Among its portfolio you’ll find warehouses, large scale logistics facilities, and business and office parks. It is the warehouses and logistics facilities that I’m most excited about. These give Goodman Group exposure to the structural tailwinds of the ecommerce market through its relationships with the likes of Amazon and Walmart. And given how rapidly online shopping is growing, I believe these assets will be in demand for a long time to come. This could underpin solid earnings and distribution growth over the next decade.

Telstra Corporation Ltd (ASX: TLS)

Another blue chip share to consider buying is Telstra. The telco giant has fallen out of favour with investors over the last few years due to its earnings decline, but I believe it is time to reconsider your view of the company. I think Telstra’s dividend is now at a sustainable level and feel that a return to growth is not too far away. This is thanks to its sizeable cost cutting, simplification of the business, and the easing of the NBN headwind. In fact, Telstra’s operating earnings would have grown during the first half if it were not for the NBN headwind. Overall, I believe now could be the time to make a long term investment in its shares.

Woolworths Limited (ASX: WOW)

This conglomerate could be another blue chip share to consider buying. I like Woolworths due to its quality brands, defensive qualities, and strong management team. Combined, I believe they have positioned the company to deliver solid earnings and dividend growth over the next decade. Another positive is the planned spin off of its hotels business. I expect this to unlock value for shareholders if it goes ahead.

More reading

• How I would build a balanced portfolio worth $100,000 with 10 ASX shares
• 12 top ASX dividend shares to buy in June 2020
• What would I rather buy today: TPG or Telstra shares?
• Tech shares! Should we even invest in anything else?
• Woolworths facing fresh threat from Amazon.com

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of 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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I think that ASX share Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is the best long-term idea that you can buy idea on the ASX. For ease, it’s also called Soul Patts.

When I say ‘long-term’, I’m not talking about a year or two. I mean it’s an investment you could hold onto for at least two decades and do well with.

Overview of Soul Patts

It’s an investment conglomerate that has been operating since 1903. It’s actually one of the oldest businesses on the ASX.

The company started off as a pharmacy business after two different families merged their pharmacy businesses together. There are some employees who been working for a long time for Soul Patts.

More than 40 employees have worked for the company for over 50 years. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families.

Diversification

I think one of the most important reasons to like Soul Patts is its diversification. It may have started off as a pharmacy business, but it’s now a diversified conglomerate. It’s invested in both listed and unlisted businesses which makes it somewhat similar to Warren Buffett’s Berkshire Hathaway.

It’s a large shareholder of telco TPG Telecom Ltd (ASX: TPM), resources business New Hope Corporation Limited (ASX: NHC), diversified property business Brickworks Limited (ASX: BKW), pharmacy company Australian Pharmaceutical Industries Ltd (ASX: API) and listed investment company (LIC) Bki Investment Co Ltd (ASX: BKI).

Some of the unlisted businesses Soul Patts is invested in are: electrical supplier Ampcontrol, resources subsidiary Round Oak, agriculture and swimming schools.

Diversification is a key factor for liking this ASX share. It’s invested across numerous industries, so there’s less risk if one investment does badly.

I think a broad investment mandate is attractive. It means that the management team can look almost anywhere to find the next opportunity.

This ability to change the asset base over time means you may never need to sell your Soul Patts shares. It’s helpful for your wealth if you don’t have to trigger a capital gains tax event and potentially pay over a material portion of the gains over to the ATO.

Solid long-term returns

Management are long-term focused with their investing. Management think many years ahead when making an investment. The fact that Soul Patts is thinking long-term can give us confidence to invest in the ASX share itself for the long-term.

Its strategy has clearly paid off over the decades. Over 20 years to 31 January 2020, the Soul Patts total shareholder return was 13.2% per annum, outperforming the All Ordinaries Accumulation Index by 4.6% per annum.

The new investments that Soul Patts is making could continue this solid performance. It is planning on expanding into regional data centres. I think this could be a very smart move. It could do particularly well if the work-from-home trend is a permanent change for some workers.

Soul Patts dividend

If consistent dividend growth is a priority for you then this ASX share is probably the best in Australia.

It has grown its dividend every year since 2000. I think that’s a really impressive record considering it includes the GFC period and Soul Patts also plans to pay an increased dividend later this year.

The ASX share has actually paid a dividend every year in its existence going back to 1903. This includes the though times of the Spanish Flu and the world wars.

It currently has a grossed-up dividend yield of 4.4%. I think that’s solid in today’s low interest world. 

Foolish takeaway

There are several great reasons to like Soul Patts. It’s the largest position in my portfolio and I plan to hold it in my portfolio forever. I’d be happy to buy more at the current share price.  

More reading

• If I won the lottery I’d buy these 6 ASX shares
• 12 top ASX dividend shares to buy in June 2020
• Have $1,000? You should pick one of these 8 ASX shares
• 3 ASX 200 shares I’d buy for 2020 and beyond
• 2 ASX shares I’d buy in a heartbeat

Motley Fool contributor Tristan Harrison owns shares of 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. 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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Last week saw a large number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

BWP Trust (ASX: BWP)

According to a note out of Ord Minnett, its analysts have upgraded this real estate investment trust’s shares to a buy rating with an improved price target of $4.40. The broker believes that BWP, which is predominantly a landlord to Bunnings Warehouse, is undervalued. Especially given its long leases. I agree with Ord Minnett on BWP and believe it is a great option for investors. This is particularly the case for income investors due to its attractive yield.

CSL Limited (ASX: CSL)

Analysts at Citi have retained their buy rating and $334.00 price target on this biotherapeutics company’s shares. The broker appears pleased with its decision to exercise its right to acquire Vitaeris and sees potential in its clazakizumab product. Outside this, the broker believes that increasing demand for flu vaccines could offset some of the potential weakness in plasma collections in FY 2021. I agree with Citi and would be a buyer of CSL’s shares.

Qantas Airways Limited (ASX: QAN)

A note out of UBS reveals that its analysts have retained their buy rating and lifted their price target on this airline operator’s shares to $5.50. According to the note, the broker believes there is a lot of pent up demand for travel and expects the domestic travel market to rebound strongly when border restrictions are lifted. This has led to the broker upgrading its earnings forecasts and lifting its price target accordingly. As long as there isn’t a second wave, I think Qantas could prove to be a good investment.

More reading

• You could beat the market in the 2020s with these ASX healthcare shares
• How I would build a balanced portfolio worth $100,000 with 10 ASX shares
• Should you buy CSL shares before it’s too late?
• Is the Qantas share price a buy today?
• 3 quality ASX dividend shares to solve your income needs

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 CSL Ltd. 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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If you’ve saved up a bit of cash and want to invest, you might have your eye on some ASX 200 shares trading cheaply.

Here are a couple of my top picks that you can snap up for under $10 per share today.

2 ASX 200 shares to buy for under $10

Harvey Norman Holdings Ltd (ASX: HVN) has been a bit of a surprise packet in 2020.

The Aussie retailer recently announced booming sales during the early stages of coronavirus restrictions. Aussie workers forced to work from home have been stocking up on office supplies and electronics from the Aussie retailer.

This sales boost even saw the ASX 200 retail share announce a 6 cents per share special dividend last week.

That’s good news for shareholders and we could see that trend continue if work from home becomes the ‘new normal’. The Harvey Norman share price is trading at $3.54 per share right now and could be a bargain buy.

Harvey Norman isn’t the only ASX 200 share that could be a steal for under $10. I also like the look of Mirvac Group (ASX: MGR) shares right now.

The Mirvac share price is trading at $2.36 per share after falling 25.8% lower this year.

Mirvac is a diversified real estate company with interests in residential, commercial and industrial assets. The Aussie developer has been hammered by the recent bear market with investors still unsure where the real estate sector is headed.

However, as the great Warren Buffett says, “be greedy when others are fearful“.

There’s no doubt investors are fearful right now with the S&P/ASX 200 Index (ASX: XJO) rocketing despite the bleak economic environment amid the pandemic. If you’re bullish on real estate, Mirvac could be a good ASX 200 share to buy.

The group still has a market capitalisation of $9.4 billion and trades at a price to earnings (P/E) ratio of 9.3.

The big question mark for me is the end of government stimulus measures later this year. These include mortgage holidays and payments to Aussie businesses and workers. That could put some stress on the real estate sector.

However, no one knows the future. We could just as easily see an extension of stimulus measures towards the end of the year.

Foolish takeaway

These are just a couple of ASX 200 shares that could be of good value for under $10 per share.

More reading

• Why we may be in danger of another coronavirus ASX market crash
• These were the best performing shares on the ASX 200 last week
• Why the Nearmap share price and one other are on my buy list
• 3 ASX dividend kings to buy and hold forever
• Got $20,000? These are the ASX shares I’d buy during COVID-19

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

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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

According to a note out of Citi, its analysts have retained their sell rating and $47.80 price target on this pizza chain operator’s shares. Although the broker took away a number of positives from its CEO Webcast last week, it wasn’t enough for a change of rating. Citi appears concerned that its new store openings could suffer because of the pandemic. If this leads to lower than expected earnings growth, it fears it could lead to a de-rating to lower multiples. The Domino’s share price ended the week at $62.70.

JB Hi-Fi Limited (ASX: JBH)

Analysts at Credit Suisse have downgraded this retailer’s shares to an underperform rating with an improved price target of $34.52. According to the note, although it is pleased with its performance during the pandemic, the broker believes JB Hi-Fi’s shares have run too hard. It notes that its shares are trading at a significant premium to peers and fears the market may be expecting too much from the company once government support ends. The JB Hi-Fi share price was last trading at $40.00.

Webjet Limited (ASX: WEB)

A note out of Morgan Stanley reveals that its analysts have downgraded this online travel agent’s shares to an underweight rating with an improved price target of $3.30. The broker points out that Webjet’s shares may still be down materially this year, but its market capitalisation was actually trading at pre-pandemic levels. This is because of its highly dilutive capital raising. Whereas the Corporate Travel Management Ltd (ASX: CTD) market capitalisation is notably lower than its pre-pandemic level despite not raising capital. It prefers the corporate travel specialist and has an overweight rating on its shares. Webjet’s shares ended the week at $3.95.

More reading

• 3 five-star ASX shares I would buy today
• Why the Lovisa share price is at risk of falling further over the coming weeks
• The latest ASX shares to be hit by broker downgrades to “sell” today
• ASX 200: improved consumer sentiment to near pre COVID-19 levels
• ASX 200 to sink lower after Wall Street crashes on second wave concerns

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 and Webjet Ltd. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Buying cheap stocks today may not yield high returns for investors in the short run due to the risks faced by the stock market. Coronavirus lockdowns put in place across the world economy may lead to severe declines in global GDP that cause investor sentiment to be highly volatile over the coming months.

However, with economic growth likely to return in the long term, now could be the right time to buy a selection of high-quality businesses while they offer wide margins of safety. This strategy could produce high returns that boost your financial prospects over the next decade.

Long-term recovery

The world economy may experience severe disruption in the short run, but it is likely to return to growth in the coming years. Policymakers have enacted major stimulus programs that are likely to offer a significant amount of support to the global economy. For example, the US has reduced interest rates to zero and enacted an ‘unlimited’ quantitative easing program. These measures could make the process of returning to positive growth much quicker for the world economy.

Furthermore, the track record of global GDP growth suggests that a period of decline is unlikely to last over a sustained time period. Previous recessions have always given way to growth. Although the current economic crisis could be relatively severe, corporate profitability and cheap stocks are very likely to recover over the long run as GDP growth returns to a positive figure.

Holding period

Despite the prospect of an improving long-term economic outlook, investors should not expect to generate high returns on their holdings over the short run. Numerous short-term risks remain in place. They include a possible second wave of coronavirus, inflationary pressure and many other potential challenges that could lead to poor performance from the stock market.

Therefore, it is crucial to provide your portfolio with sufficient time to overcome short-term threats and deliver on its growth potential. Through buying and holding cheap stocks for a period of ten years, you could increase your chances of benefitting from a likely stock market recovery that produces high returns for your portfolio.

Buying cheap stocks

Of course, investors should not only focus on price when purchasing stocks. It is also crucial to consider other factors such as their financial strength, track record during difficult economic periods, and the presence of an economic moat. Assessing a company’s quality may require additional analysis and effort on the part of the investor, but it can help to identify which cheap stocks are the most attractive opportunities over the long run.

Buying a selection of cheap stocks and holding them for the long term has historically been a sound strategy to generate high returns. Although a recovery may not seem likely at the present time, the stock market has always returned to growth after its downturns. Investors who make purchases while valuations are low have often been among those who make the most attractive returns in the subsequent bull markets.

More reading

• Why we may be in danger of another coronavirus ASX market crash
• If I won the lottery I’d buy these 6 ASX shares
• Tax time is approaching – what you need to know
• You could beat the market in the 2020s with these ASX healthcare shares
• How to earn $50,000 in dividends each year with ASX shares

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