Tag: Motley Fool Australia

There are a lot of different types of investors out there.

There are investors that have a focus on dividends, others that are looking for growth, and some investors are searching for shares which they feel are undervalued.

Whichever type of investor you are, I feel one of the shares listed below will appeal to you. Here’s why I think they are in the buy zone:

Commonwealth Bank of Australia (ASX: CBA)

Investors in search of income might want to take a look at Commonwealth Bank. Although its shares have been on fire in recent weeks, they are still down 21% from their high. I think this leaves them trading at a very attractive level for a long term and patient investment. Times may be hard for the banks right now, but I’m optimistic the worst is behind them. And although I expect another dividend cut in FY 2021, I’m confident this is the bottom of the cycle. Furthermore, even if the bank were to cut its dividend to ~$3.70 per share next year (which I expect), it would still be a generous fully franked 5.1% dividend yield.

ResMed Inc. (ASX: RMD)

If you’re looking for growth shares then I think ResMed is worth considering. It is a medical device company which is exposed to the proliferation of sleep apnoea. I believe ResMed is perfectly positioned to capture the rising demand for sleep treatment products this is causing. This is thanks to its leading CPAP masks and machines and its growing software businesses – Brightree and MatrixCare. All in all, I believe ResMed can grow its earnings and a strong rate over the next decade and beyond.

Freedom Foods Group Ltd (ASX: FNP)

I think Freedom Foods could be a good option for value investors. Its shares have fallen heavily over the last couple of weeks after a surprisingly disappointing trading update. That update revealed that a number of sales channels had been impacted greatly by the pandemic. However, I believe this weakness will be short-lived and expect its sales to rebound quickly. This view is shared by analysts at Goldman Sachs who are forecasting earnings per share of 20 cents in FY 2021 and then 30 cents in FY 2022. This means Freedom Foods’ shares are changing hands at under 20x FY 2021 earnings and approximately 13x FY 2022 earnings.  

More reading

• Is the CBA share price a buy right now?
• The ASX bank dividend recovery may be better than what the market thinks
• Will ASX 200 shares hit a record high in June?
• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• Could these sensational ASX shares help you beat the market?

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

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Pointsbet Holdings Ltd (ASX: PBH) share price

Pointsbet is an online bookmaker with operations in Australia and the United States. The company offers innovative products that facilitate betting on horse racing and other sports. 

The Pointsbet share price has risen significantly from the lows we saw in March. Contributing to this rise was a trading update released by the company on 27 May. The announcement reminded investors that both AFL and Rugby League would soon be recommencing. Also included was advice that Pointsbet had entered into an agreement with Fox Sports to become the media provider’s AFL betting partner. According to Pointsbet, this was part of ‘an opportunistic approach to targeting media assets to deliver efficient client acquisition and increased betting volumes’. Pointsbet also has an existing deal covering Tier 1 horse racing with Channel Seven. 

What’s next for Pointsbet?

Pointsbet is not short on ambition. Also included in the May update was the company’s assertion that it ‘aims to provide more markets on the major Australian and US sports than any other bookmaker’. Given the company’s recent success, it is easy to believe that Pointsbet will deliver on its aspirations.

Another feather in the company’s cap is that it is operating in the lucrative US market and already seeing considerable success. Over 30% of the US population now has access to legal sports betting. Despite the fact that sports were recently suspended due to COVID-19 restrictions, Pointsbet reached 22,716 US clients in Q3 of the 2020 financial year. It’s total active clients across Australia and the US now totals 106,046. This represents a growth of 64% on the prior corresponding period. 

While Pointsbet is a relative newcomer to the betting industry, I believe it shows significant growth potential due to its position in the US and its unique betting markets. This potential is highlighted by the fact that the company’s market cap currently sits at $906 million. Compare this to the market cap of fellow gambling provider Tabcorp Holdings Limited (ASX: TAH) which sits at $7.36 billion. Pointsbet shows room for enormous growth as it increases its market share.

The Pointsbet share price is up 221% since this time last year, hitting a record high of $7.17 yesterday.

Sezzle Inc (ASX: SZL) share price

Sezzle is a financial technology company based in the US. This company works with a platform similar to ASX market darling Afterpay Ltd (ASX: APT). That is, it offers buy now, pay later (BNPL) solutions to consumers. 

Like other companies in the BNPL sector, the Sezzle share price has been performing well. This can be partially attributed to the fact that more consumers have moved to online shopping during lockdown restrictions. Sezzle is a significant player in the industry with 1.3 million active customers. Its platform is available through 14,900 merchants and its app has been downloaded around 600,000 times.

While Sezzle’s popularity does not presently match that of Afterpay’s, I believe it shows great potential, especially as a possible takeover target. If the BNPL industry consolidates, it’s very possible that Sezzle will get bought up by one of the major players. Alternatively, the company may continue to grow independently with the aim of rivaling Afterpay. Given the fact Sezzle is headquartered in the US and already actively targeting the US$460 billion Canadian retail market, I feel this is definitely possible. 

The Sezzle share price is up over 770% from its 52-week low of $0.35 and is currently sitting at $3.05 per share. The company also reached a new, all time high of $3.25 in yesterday’s trade. 

Foolish takeaway

Despite their recent gains, I still feel that both both the Sezzle and Pointsbet share prices offer considerable upside potential. Pointsbet is looking to leverage its huge growth potential in the lucrative US sports betting market while it expands its market share in Australia. Sezzle looks set to continue growing as it increases the number of merchants offering its platform along with its number of users. Is it time to invest? This writer believes yes.

More reading

• Why I would buy Afterpay and these exciting ASX tech shares
• Will ASX 200 shares hit a record high in June?
• ASX shares could be the best way to grow your wealth in 2020
• 10 ASX 200 shares that are fit for the Queen
• 3 ASX shares for a stress-free life

Chris Chitty 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 Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd and Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking to add a few dividend shares to your portfolio this week, then I think the ones listed below are worth considering.

Here’s why I think these dividend shares are in the buy zone:

Dicker Data Ltd (ASX: DDR)

The first ASX dividend share to consider investing in is Dicker Data. It is an Australia owned and operated distributor of IT hardware, software, cloud, and Internet of Things solutions. Thanks to a growing number of vendor agreements and strong demand for IT products, Dicker Data has delivered robust earnings and dividend growth over the last few years.

Pleasingly, this trend looks likely to continue in FY 2020. So much so, the company is confident enough to provide dividend guidance of 35.5 cents per share this year. This equates to a 31% increase year on year and represents a fully franked forward 4.6% dividend yield.

Sydney Airport Holdings Pty Ltd (ASX: SYD)

While I wouldn’t be buying Sydney Airport’s shares if you want dividends in 2020, if you can afford to be patient it could be a great option. Australia’s busiest airport isn’t very busy at all right now. The pandemic has led to severe travel restrictions both domestically and internationally. However, the good news is that the domestic market is on the verge of starting its recovery.

Last week Qantas Airways Limited (ASX: QAN) revealed that it is preparing to increase its capacity to upwards of 40% of pre-pandemic levels by the end of July. I expect this to be a big boost to Sydney Airport and could put it in a position to pay a decent dividend in FY 2021. I estimate that it could pay as much as 27 cents per share to shareholders next year, before increasing it to 37 cents per share in FY 2022. This represents a 3.8% yield and a 5.25% yield, respectively.

More reading

• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• Forget term deposits and buy these high yield ASX dividend shares
• How to turn $20,000 into $275,000 in 10 years with ASX 200 shares
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• Why Kogan, NAB, Qantas, & Sydney Airport shares are racing higher

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data 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 Tuesday the S&P/ASX 200 Index (ASX: XJO) was on form again and surged higher.

This led to a number of shares jumping higher with the market, with some of them even managing to climb to new highs yesterday.

Here’s why these ASX shares are flying high right now:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

The Domino’s share price touched on a multi-year high of $66.96 on Tuesday. Investors have been buying the pizza chain operator’s shares during the pandemic after the closure of restaurants led to increasing demand for its pizzas. Towards the end of April the company revealed that its Japan and Germany businesses were performing particularly strongly in the second half. Australian same store sales have been positive during the period as well. All in all, it looks well-placed to deliver a solid full year result in August.

Fortescue Metals Group Limited (ASX: FMG)

The Fortescue share price hit a new record high of $15.25 yesterday. Investors were buying the iron ore producer’s shares after the price of the steel-making ingredient jumped higher again. Supply disruption in Brazil and robust demand in China have combined to send the spot iron ore price comfortably over the US$100 a tonne level. In light of this, Fortescue is likely to be generating significant free cash flow at present. Especially given its low cost operations and improving production grades.

MNF Group Ltd (ASX: MNF)

The MNF share price hit a 52-week high of $5.88 on Tuesday. The telecommunications and unified communication technologies provider’s shares have been on fire during the pandemic. This is because the working from home initiative has led to a surge in demand for voice and collaboration technology. At the end of April, the company revealed that it was on track to achieve its operating earnings guidance of $36 million to $39 million in FY 2020. This represents a 32% to 43.4% year on year increase.

More reading

• Are the Rio Tinto, Fortescue and BHP share prices a buy right now?
• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• 5 things to watch on the ASX 200 on Tuesday
• 2 strong ASX dividend shares to bolster your income
• How to build a $20,000 passive income with ASX shares

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 MNF Group Limited. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited and MNF 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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Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy? The ASX bank sector has been roaring back to life in recent weeks.

Since 25 May 2020 the CBA share price has soared higher by 22%. The market seems to think that the $60 billion jobkeeper overestimation means the economy will be in much better shape. That jobkeeper estimation error was due to overly pessimistic forecasts according to reporting by the Australian Financial Review.

The performance of CBA’s earnings and share price is largely linked to the Australian economy. Indeed, every ASX bank relies on a solid national economy. CBA is exposed to the same sorts of systematic risks as Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).

Where to now for the CBA share price?

The CBA share price is still down by around 19% from the level at 21 February 2020. So it’s not as though investors are pricing in a complete recovery for CBA yet.

The major bank made a $1.5 billion additional credit provision for the potential impacts of COVID-19 in its third quarter update.

If CBA’s provision is enough to account for all of the potential damage then it may in a much better position than investors were fearing a couple of months ago.

However, there’s one big factor I’m wary of. The official Australian interest rate is now incredibly low. This will likely cause a negative hit to CBA’s net interest margin (NIM). The NIM is important because banks generate a lot of their overall profit from the money they lend out.

I’m not sure how much higher CBA’s share price can go over the next couple of months. COVID-19 will cause a sizeable hit to the profit this year.

It will be interesting to see what CBA does with its dividend. ANZ and Westpac decided to defer the dividend. NAB decided to pay a much smaller dividend. After the recent strong share price increase for CBA, I’d be inclined to go for other shares first.

More reading

• The ASX bank dividend recovery may be better than what the market thinks
• Will ASX 200 shares hit a record high in June?
• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• These quality ASX dividend shares have very juicy yields
• ASX 200 closes higher, banks keep rising

Motley Fool contributor Tristan Harrison 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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On Tuesday the S&P/ASX 200 Index (ASX: XJO) returned from the long weekend and recorded a stunning gain. The benchmark index jumped 2.45% to 6,144.9 points.

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

ASX 200 to fall.

The ASX 200 looks set to run out of steam on Wednesday and drop lower. According to the latest SPI futures, the benchmark index is expected to fall 91 points or 1.5% at the open. This follows a mixed night of trade on Wall Street which saw the Dow Jones fall 1.1%, the S&P 500 drop 0.8%, and the Nasdaq push 0.3% higher. The latter index hit a record high during last night’s trade.

Oil prices mixed.

Energy producers such as Oil Search Limited (ASX: OSH) and Santos Ltd (ASX: STO) will be on watch today after a mixed night for oil prices. According to Bloomberg, the WTI crude oil rose 0.5% to US$38.38 a barrel and the Brent crude oil price fell 0.4% to US$40.64 a barrel. Oil prices were notably higher at one stage on supply cut optimism, before giving back most of their gains.

ANZ downgraded to a neutral rating.

One leading broker thinks the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price may have peaked after its strong run. According to a note out of Goldman Sachs, its analysts have downgraded the banking giant’s shares to a neutral rating with a $20.02 price target. The broker made the move on valuation grounds.

Gold price rebounds.

Gold miners including Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could be on the rise after the gold price rebounded. According to CNBC, the spot gold price rose 0.85% to US$1,719.00 an ounce ahead of the U.S. Federal Reserve meeting this week.

Tech shares on watch.

Tech shares such as Appen Ltd (ASX: APX) and Xero Limited (ASX: XRO) could defy the market decline today after their U.S. counterparts pushed higher. The Nasdaq index broke through the 10,000 points mark for the first time thanks to solid gains by the likes of Amazon and Facebook.

More reading

• Why you should be buying the dip in ASX gold stocks
• How to become a millionaire before your parents with ASX shares
• Why the CSL share price continues to trail the ASX 200
• The ASX bank dividend recovery may be better than what the market thinks
• Why I would buy Afterpay and these exciting ASX tech shares

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 Xero. 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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ASX gold shares have lost their lustre as fear truly turned into greed on our market.

The S&P/ASX 200 Index (Index:^AXJO) recorded another big jump on Tuesday. The top 200 benchmark recovered by 35% since its bear market low point back in March.

While there are fears that we could be retesting that low come the next profit reporting season in August, I seriously doubt any sell-off will be that bad.

If bullish sentiment is to persist as I suspect, does it mean it’s time to sell ASX gold miners?

Is gold losing its shine?

Gold is seen as a safe haven and it outperforms during times of distress. But it usually lags when the good times return.

The bulls are emboldened by better than expected economic news. Unemployment and the economic contraction from the COVID-19 crisis aren’t as bad as originally forecast.

This explains why gold miners are among the worst performers on the market today. The Evolution Mining Ltd (ASX: EVN) share price, Northern Star Resources Ltd (ASX NST) share price and the Gold Road Resources Ltd (ASX: GOR) share price shed between 5% and 9% each.

Safety first

However, it would be a mistake to go underweight on gold stocks, in my opinion. If anything, this is the perfect time to add to positions for those who have limited exposure to the sector.

This is because my optimism towards gold isn’t hinged on the steepness of the coronavirus curve. There’s a bigger driver for gold, and it’s loose monetary policy.

Make no mistake, this policy will be in place for a long time even as we squash the coronavirus curve.

Record low rates here to stay

For one, Australia cannot wean itself off record low interest rates even as we emerge from the COVID-19 recession.

Record household debt and weak wage growth means any lift in rates could send many to the wall – and that means the RBA’s hands are tied when it comes to lifting the cash rate.

Then there is the problem about government debt as our country will probably need an entire generation to pay off the bills from the large COVID-19 stimulus programs.

Burgeoning government debt

More importantly for gold, the US is in a worst situation. I say worst because the US dollar tends to be negatively correlated to the gold price.

The ballooning US debt will weaken confidence towards the greenback and that will keep the precious metal in investors’ good books.

The US budget deficit is tipped to quadruple in 2020 to nearly US$4 trillion, reported Bloomberg which quoted forecasts by the Committee for a Responsible Federal Budget (CRFB).

Buy the gold dip

This estimate only includes the already announced support packages passed by US congress. There’s talk that US President Donald Trump is planning on adding another US$1 trillion to pull his economy out of the worst recession since the Great Depression.

And he has a great incentive to spend big as he’s facing re-election this November.

The rest of the world is also likely to increase government spending to get their economies growing again, and this will only add to the appeal of the yellow metal.

Gold’s bull run will continue well past the COVID-19 crisis.

More reading

• Why the CSL share price continues to trail the ASX 200
• The ASX bank dividend recovery may be better than what the market thinks
• ASX 200 jumps 2.4%, unloved shares keep rising
• Top brokers just upgraded these 3 ASX stocks to “buy”
• What 2020 has taught us about investing

Motley Fool contributor Brendon Lau owns shares of Evolution Mining Limited. Connect with me on Twitter @brenlau.

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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Do you want to become a millionaire before your parents? You can use ASX shares to do it.

Some younger people still have a long working career ahead of them. They may will be able to quickly accelerate their wealth towards their financial goals. Particularly because of the current difficult coronavirus circumstances.

Why younger people have an advantage with ASX shares

Older people are drawn towards safer assets. Cash, term deposits and property are big holdings of older Aussies. However, the Australian interest rate is now so low you won’t get much of a return from fixed interest assets. Rents are falling across the country for property. Corelogic is starting to report that house prices are falling. Cash and property (including commercial) don’t look great right now. 

On the other hand, ASX shares are rising. There are plenty of businesses that may be able to adapt to the new way of doing things in the world. I’ve got my eyes on growth shares like Pushpay Holdings Ltd (ASX: PPH), Bubs Australia Ltd (ASX: BUB), MFF Capital Investments Ltd (ASX: MFF) and Magellan High Conviction Trust (ASX: MHH).

Young people still have many years of earning ahead of them to invest into growth assets like ASX shares. It’s going to be those growing businesses like Xero Limited (ASX: XRO), Altium Limited (ASX: ALU) and City Chic Collective Ltd (ASX: CCX) which could keep taking market share away from competitors with their focused business plans.

If you can invest $1,500 a month into ASX shares then it would only take 19 years to reach $1 million if your money was growing at 10% per annum, which is the historical return of the Australian share market. Don’t forget – superannuation counts towards building your wealth. Younger people have the opportunity to save hard whilst options to spend money are restricted. It’s not easy to ‘get ahead’ but you need to do things differently to many people to reach a net worth of $1 million. 

More reading

• Why I would buy Afterpay and these exciting ASX tech shares
• NIB Holdings and 1 other ASX share which I would consider buying for growth and income
• Why CSL, Elders, Evolution, & Xero shares are dropping lower
• Where to invest $20,000 into ASX shares immediately
• ASX shares could be the best way to grow your wealth in 2020

Tristan Harrison owns shares of Altium and Magellan Flagship Fund Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Altium, PUSHPAY FPO NZX, and Xero. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. The Motley Fool Australia has recommended PUSHPAY FPO NZX. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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What’s going on with the CSL Limited (ASX: CSL) share price?

The S&P/ASX 200 Index (ASX: XJO) has had another phenomenal day. By the market’s close, the ASX 200 was up 2.24% to 6,144.9 points, decisively breaking through the 6,000-point mark that it flirted with last week.

Most ASX blue chip shares performed strongly today. The ASX banks surged, as did Woolworths Group Ltd (ASX: WOW), BHP Group Ltd (ASX: BHP) and Telstra Corporation Ltd (ASX: TLS).

But something’s missing here – CSL.

That’s right, as the ASX 200 rallied, CSL has been left in the dust. By the end of the day, CSL shares were down 2.39% to $278.50. As the largest ASX company, CSL has the heaviest weighting on the ASX 200 index. And as such, this underperformance sticks out like a sore thumb.

So what’s happening?

CSL share price continues to underperform

Two weeks ago, I wrote about how CSL shares were lagging the market. Since then, CSL shares have fallen another ~6%, while the ASX 200 has rallied over 9%.

Not even the news that CSL has made a new acquisition today could get investors on side.

But I think an examination of what’s really been going on with CSL shares this year can shed some light.

Below, we have a graph of the ASX 200 index – represented here by the iShares Core S&P/ASX 200 ETF (ASX: IOZ) over the past 6 months.

And here we have a graph of the CSL share price over the same period:

As you can see, the CSL share price was something of a safe haven for ASX investors over March and April. Between 20 February and 23 March, the ASX 200 index fell over 36%. By contrast, the CSL share price ‘only’ fell by around 16% over the same period.

What’s next for CSL?

You might be thinking it’s a great time to buy CSL shares today. And if you’re an ultra long-term investor, I would back you up. Before the coronavirus pandemic, CSL shares were perennially at all-time highs. Investors seemed to see any hint of a dip as a chance to ‘pick up a bargain’. And this strategy worked well.

But today, I think the market is starting to realise that even great companies like CSL can’t be priced at ‘growth company’ levels forever. CSL is a behemoth now with a market capitalisation over $125 billion. I do still think CSL has a lot of growth in its future but, with a price-to-earnings ratio of 45, I don’t think it has the ability to bang out the high levels of growth the market seems to think is still possible.

As such, I wouldn’t be surprised if the CSL share price continues to underperform the ASX 200 going forward.

More reading

• The ASX bank dividend recovery may be better than what the market thinks
• ASX 200 jumps 2.4%, unloved shares keep rising
• Top brokers just upgraded these 3 ASX stocks to “buy”
• Not keen on Westpac? Then buy these top ASX dividend shares instead
• What 2020 has taught us about investing

Sebastian Bowen owns shares of Telstra 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 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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The recent strong run in ASX bank share prices is a sign that the value trade is finally springing back to life.

For the longest while, it was growth stocks like tech that dominated while value stocks played second fiddle.

Investors are rediscovering their taste for these laggards in the big post COVID-19 rebound!

Zero to hero

Financials were the best performing sector on the S&P/ASX 200 Index (Index:^AXJO) today and over the last five trading days.

The rally was fuelled by the sector heavyweights. These are the Commonwealth Bank of Australia (ASX: CBA) share price, the Westpac Banking Corp (ASX: WBC) share price, the Australia and New Zealand Banking Group (ASX: ANZ) share price and the National Australia Bank Ltd. (ASX: NAB) share price.

Shares in the big four jumped by at least 5% on Tuesday, and despite their recent outperformance, they remain significantly below where they were trading before the coronavirus outbreak.

The same can’t be said for other large cap stocks, and that’s what’s driving the big bank rally, in my view.

Better than feared

What is also helping drive the sector higher is the realisation that the COVID-19 disaster isn’t going to do as much damage to the economy as previously thought.

Treasury is the latest to admit it was too pessimistic as it upgraded Australia’s peak unemployment rate to 8% from 10%, reported Business Insider.

The better-than-Armageddon outlook is one reason why Citigroup released a bullish report on the sector.

Dividends on the comeback

While loan deferments and the government’s stimulus support packages end in September and pose a risk to the economy, the broker thinks the deadline may also be a blessing.

“A ‘Rip the BandAid off’ approach by the banks is set to accelerate mortgage impairments, bringing housing losses to fruition,” said Citi.

“However, an outcome of managing balance sheet risk will be in providing a pathway to dividends being reinstated.”

That will be music to the ears of investors as dividends are the main reason why retail investors buy bank stocks.

Don’t underestimate the dividend recovery

ANZ Bank and Westpac opted to defer paying their interim dividends until the coronavirus dust settled, while NAB took an axe to its latest distribution. CBA reports on a different earnings cycle and will only declare its interim dividend in August.

“We forecast higher than consensus dividend growth out to FY22 on milder than expected loan loss outcomes,” added Citi.

“This should see stock prices continue to move higher based on attractiveness of their dividend yields.”

The broker is recommending all the big four banks as a “buy”.

Another to bank on

But it isn’t only our ASX domestic banks that are benefiting from the improving outlook for the broader economy.

The Macquarie Group Ltd (ASX: MQG) share price also made a strong recovery with V-shaped bounce in global markets likely to provide a tailwind to the investment bank’s earnings.

The stock is a “buy” in my book as I think there’s more upside for the Macquarie share price.

More reading

• Why the CSL share price continues to trail the ASX 200
• ASX 200 jumps 2.4%, unloved shares keep rising
• Top brokers just upgraded these 3 ASX stocks to “buy”
• Not keen on Westpac? Then buy these top ASX dividend shares instead
• What 2020 has taught us about investing

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Macquarie 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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