Tag: Motley Fool Australia

Investors look to have embraced the wisdom of the legendary Warren Buffett in yesterday’s trading, which saw the S&P/ASX 200 Index (ASX: XJO) close up 0.5%. That’s the index’s strongest performance so far this month.

The Oracle of Omaha is almost as well known for his golden investment adages as he is for his incredible success in the share markets. Success that’s seen his personal wealth grow to more than US$70 billion (AU$99 billion).

Here are 3 of my favourite Buffett nuggets – all of which Aussie investors look to have taken to heart on Tuesday.

First, embrace what’s boring, think long-term, and ignore the ups and downs.

Second, never overpay for anything.

And third, the best investments provide real world value, not just market value.

Signs of life in travel and real estate share prices

In today’s COVID-19 world, investors have flocked to technology and healthcare shares.

Technology, because many of these companies’ share prices benefit from the huge societal shift in working, shopping and socialising from our homes.

And healthcare because, well, we are talking about a global pandemic here.

Now the best placed shares in both of these sectors should continue to perform well over the mid-term. But it’s some of the most savaged shares in 2 of the most beaten down industries — travel and property — that have started capturing the attention of value investors.

Here are 2 of the standouts.

First, Flight Centre Travel Group Ltd (ASX: FLT). As the largest retailer of travel in Australia, Flight Centre was absolutely smashed following the virtual shutdown of global and even interstate travel. From its 2020 high on 15 January through its 2020 low on 23 April, the Flight Centre share price fell more than 78%.

Ouch!

But with the Flight Centre share price in the basement, August has seen bargain hunters snap up the shares of this company that provides real world value.

Yesterday, Flight Centre’s share price gained 6%. That brought its share price gains in August to more than 18%. In trading today it has given some of those gains back, likely driven by news of a renewed lockdown in Auckland. That’s certainly not good news for the company in the short-term. But if you’re thinking long-term, ignoring the ups and downs and not wanting to overpay for anything (just like Buffett), you may want to consider adding some Flight Centre shares to your portfolio.

Moving onto to the battered real estate sector, the brick-and-mortar retailers – and their landlords – have been among the hardest hit from the social distancing and lockdown measures intended to manage or eliminate the coronavirus.

Take Shopping Centres Australasia Property Group (ASX: SCP). The real estate investment trust (REIT) has a current market cap of $2.4 billion. It owns a diversified portfolio of shopping centres.

From 19 February through 19 March, the Shopping Centres Australasia share price fell 35%.

But August has seen a solid turnaround for the REIT’s share price. Yesterday’s 4.1% gain brought the monthly gains for August to 6.5%. But like Flight Centre, the Shopping Centres Australasia share price is down in intraday trade today, also likely impacted by the new coronavirus cases reported across the ditch.

Our pitched battle with this virus isn’t over yet. And this will continue to see shares gain on any good news of vaccines and elimination results and fall on any setbacks.

But again, if you’re thinking long-term, ignoring the ups and downs and looking for shares that provide real world value, the current Shopping Centres Australasia share price could look like a bargain in 2 years’ time.

While on the subject of Buffett truisms…

Is the boom over for big technology shares?

Here’s a good lesson in ignoring daily and weekly price swings.

It seems the NASDAQ-100 (INDEXNASDAQ: NDX) – comprised of the 100 biggest companies on the broader tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) – is under pressure.

This headline from Bloomberg caught my attention this morning: “‘Stay-at-Home’ Safety Trade Unravels With Big Tech Left Behind.”

Here’s an excerpt:

An oddity is occurring as the stock market grinds back to an all-time high: Big tech is getting left behind.

A risk-on rotation rippling across markets has the tech-heavy Nasdaq 100 flirting with a third straight loss — which would be its longest slide since March — as the S&P 500 climbs for an eighth consecutive day and approaches its February record.

Batten the hatches! Man the lifeboats!

Is it time to sell your shares of Apple Inc. (NASDAQ: AAPL), Alphabet Inc Class A (NASDAQ: GOOGL) and Facebook, Inc. (NASDAQ: FB)?

Hardly.

We’re talking about 3 days of rather minor losses, down 3.4%.

Highlighting that this is the longest slide since March sounds alarming. But on the flip side, it means the top 100 Nasdaq listed shares (taken together) haven’t lost ground for more than 2 consecutive days since March either.

In fact, the NASDAQ-100 is up 55% since 20 March. And it has gained 23%, year-to-date.

And as far as I can discern, there’s no reason the biggest technology companies can’t see their share prices gain that much or more again over the next 2 years. With some ups and downs along the way, of course.

More reading

• ASX investors have been buying these international shares
• ASX travel shares stuck in suspended animation
• Flight Centre and Zip Co were among the most traded shares on the ASX last week
• Here’s what a stock split means for investors
• Better Buy: Alphabet vs. Amazon

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. Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Apple, and Facebook. The Motley Fool Australia has recommended Alphabet (A shares), Apple, Facebook, and 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.

The post Warren Buffett would applaud the share price gains of these undervalued ASX shares appeared first on Motley Fool Australia.

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Oil and gas producer Santos Ltd‘s (ASX: STO) share price is still well down for the year. From its 15 January 2020 high of $9.00 per share, the Santos share price crashed 69% to its low on 19 March. It had the COVID-19 panic selling, which hammered most shares on the ASX, to thank for that.

That’s a steep hill to climb back up. Although the company has come a long way, gaining 110% since the 19 March trough, year-to-date, the Santos share price still remains down 30%. That gives the company a current market cap of $12 billion.

Santos trades at a price to earnings (P/E) ratio of 12.9 times. However, both its share price and its earnings could be in for a boost.

What does Santos do?

Headquartered in Adelaide, Santos Ltd is a leading independent oil and gas producer in the Asia-Pacific region.

With its origins in the Cooper Basin, Santos has one of the largest exploration and production acreages in Australia and extensive infrastructure. It supplies natural gas to Australian, Indonesian and other Asian markets, and develops oil and liquids businesses in Australia, Indonesia and Vietnam. Santos also focuses on liquefied natural gas (LNG) strategy. It has interests in four LNG projects in Australia.

Santos shares have been trading on the ASX since 1970. Today it’s one of the top 200 companies by market cap in Australia, and listed on the S&P/ASX 200 Index (ASX: XJO).

How can COVID-19 lift Santos share price?

The share price hasn’t been helped by falling energy prices, as the pandemic forced border closures and lockdowns, resulting in a huge drop in the demand for oil.

But this same pandemic could offer a welcome boost for Santos’ shareholders. That is if the Australian Government goes through with a proposal to underwrite new gas pipelines and the supporting infrastructure to reduce the cost of energy for Aussie companies and households.

This is the recommendation made by the appropriately named Nev Power. Power is the National COVID-19 Co-ordination Commission chair. And, as the Australian Financial Review reports, he’s also a leading advocate for a gas-led economic recovery.

Santos’ plan to tap coal seam gas deposits in Pilliga State Forest, New South Wales is one of the projects the manufacturing taskforce is recommending for government support.

None of this has passed through legislation yet. But if it does, the Santos share price could enjoy a nice run higher.

More reading

• 2 easy ASX shares to buy for small cap exposure
• Top brokers name 3 ASX 200 shares to buy today
• ASX 200 down 0.3%: CBA delivers $7.3bn cash profit, gold miners sink, SEEK’s outlook disappoints
• Coronavirus: SkyCity share price falls as NZ restrictions tighten
• 5 things to watch on the ASX 200 on Wednesday

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

The post How the Santos share price could gain from COVID-19 stimulus appeared first on Motley Fool Australia.

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The SEEK Limited (ASX: SEK) share price could be a long-term buy at today’s price.

Shares in Seek have been hammered in early trade after the company reported its results for FY20 earlier today. Investors have been quick to dump their shares in the company, with the Seek share price trading more than 9% lower at the time of writing, after hitting an intra-day low of $18.51 earlier today.

Despite the negative price action, I think shares in Seek could be a long-term buy as the online employment group recovers from the COVID-19 pandemic.

How has the pandemic impacted Seek?

In its full-year report, Seek cited weak macro-economic conditions and the COVID-19 pandemic as contributing factors to the result.

Despite reporting a 3% increase in revenue of $1.577 billion, Seek announced a heavy net loss of $111.7 million for FY20 compared to a net profit after tax of $180.3 million a year ago. The company also reported a 9% dip in full-year earnings with earnings before interest, taxes, depreciation and amortisation of $414.9 million for FY20.

The company’s management cited weaker economic conditions induced by the COVID-19 pandemic as a reason for weaker job listings. As a result, Seek was unable able to provide financial guidance for FY21 given the highly volatile nature of the global economic environment.  

Seek also cancelled its final year dividend last week in an attempt for the company to strengthen its balance sheet against the economic downturn.

What’s the long-term outlook for the Seek share price?

Despite the pessimistic short-term outlook, the Seek share price could be a long-term buy in my view.

Seek has always been focused on its long-term growth outlook and the company has benefitted as job ads transition from newspapers to online platforms. The company has an aspirational goal of $5 billion in annual revenue by 2025, however Seek has acknowledged that the COVID-19 pandemic will impact this target.  

In its pursuit to generate growth, Seek has turned to offshore markets. A highlight from the company’s report today was the performance of its Zhaopin business in China, which reported a 12% increase in revenue on a constant currency basis.

Seek has cited the resilience and recovery of Zhaopin in the second half of FY20 as an example of recovery in other markets. As a result, Seek floated a possible scenario which could see the company achieve revenue of $1.47 billion and net profit of $20 million in FY21.

Should you buy shares in Seek?

In my opinion, there could be long-term value in buying Seek shares. The company has an interesting and proven growth profile, however much of the outlook depends on a recovery in economic conditions. 

At the time of writing, the Seek share price has bounced from its intra-day low and is trading more than 9% lower for the day.

More reading

• ASX 200 down 0.3%: CBA delivers $7.3bn cash profit, gold miners sink, SEEK’s outlook disappoints
• Why Mesoblast, Northern Star, SEEK, & WiseTech Global shares are sinking lower
• SEEK share price on watch after COVID-19 profit hit
• 5 things to watch on the ASX 200 next week
• Invest like Warren Buffett and buy these ASX shares

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

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When it comes to investing in ASX shares, the small cap and micro cap sectors are usually out of reach for most ordinary retail investors. That’s because these kinds of shares simply don’t have the coverage and analysis available that companies in the S&P/ASX 200 Index (ASX: XJO) enjoy.

This makes doing your research that much harder, confining successful investing in small and micro cap shares to mostly institutional investors. It’s unfortunate because smaller companies can offer some of the best long-term growth investments out there. In theory, the smaller a company is, the more room and runway it has to potentially grow.

There are still ways that ordinary investors can invest in these companies with confidence. So here are 2 such investments that I think are worthy of consideration today if you’d like some easy small cap exposure in your portfolio.

Wam Microcap Ltd (ASX: WMI)

Wam Microcap is a Listed Investment Company (LIC), which means it is a company that invests in other ASX shares for the benefit of its owners. As the name implies, Wam Microcap focuses on the smaller end of the market.

Its mandate dictates that it only invests in companies with a market capitalisation initially below $300 million. I like this company as a small cap investment for 2 reasons: its diversified portfolio of at least 20 small ASX companies, and its stellar history of delivering returns.

On the former, some of Wam Microcap’s current holdings include Marley Spoon AG (ASX: MMM), Temple & Webster Group Ltd (ASX: TPW) and Redbubble Ltd (ASX: RBL). On the latter, Wam Microcap has delivered an average return of 15.9% per annum (before fees) since its inception in mid-2017. As such, I think this LIC is a great investment if you’re after a sprinkling of small cap magic in your portfolio.

Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO)

This exchange-traded fund (ETF) from Vanguard is another great investment to consider for small cap exposure. It tracks the MSCI Australian Small Companies Index (as the name implies), which includes around 170 ASX companies from the bottom end of the ASX 300. 

As an ETF, VSO offers a low management fee of 0.3% per annum. This fund was hit hard during the coronavirus market crash, with its units still down around 7% year to date.

However, I think the long-term prospects for this investment remain sound. Thus, I think it is a great way to add some easy diversification and small cap exposure to any ASX portfolio.

Some of VSO’s current top holdings include Atlas Arteria Group (ASX: ALX), Altium Limited (ASX: ALU) and Domino’s Pizza Enterprises Ltd (ASX: DMP). If you’d like a passive way to track a large portfolio of smaller ASX companies, then this is a perfect investment for your portfolio.

More reading

• How the Santos share price could gain from COVID-19 stimulus
• Top brokers name 3 ASX 200 shares to buy today
• ASX 200 down 0.3%: CBA delivers $7.3bn cash profit, gold miners sink, SEEK’s outlook disappoints
• Coronavirus: SkyCity share price falls as NZ restrictions tighten
• If you have $12,000, you should invest in these 3 ASX shares now

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 and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited and Temple & Webster Group 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.

The post 2 easy ASX shares to buy for small cap exposure appeared first on Motley Fool Australia.

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With interest rates still at record low levels, I think investing in ASX dividend shares for income has never been more important.

After all, paltry interest rates mean there’s little reason to keep too much cash in the bank these days. As such, I think any investor who prioritises earnings income from their investments should be on the hunt for good-quality ASX dividend shares.

So here are 3 income shares that I think are well-worthy of a $5,000 investment today.

ASX dividend share 1) Woolworths Group Ltd (ASX: WOW)

As the largest grocer in the country, Woolworths needs no introduction. Although this company isn’t renown for its massive dividend payouts, I think it’s defensive nature as a consumer staples giant makes it a very useful share to own in these uncertain times.

On current prices, Woolies shares are offering a trailing dividend yield of 2.56% (or 3.66% grossed-up with full franking). Although the shares aren’t what I would call cheap today, I still prefer it to supermarket arch-rival Coles Group Ltd (ASX: COL) right now, which recently reached a new record high.

2) Vanguard Australian Shares High Yield ETF (ASX: VHY)

This exchange-traded fund (ETF) is another income share I would happily consider today. It’s run by the reputable Vanguard Group and only selects a basket of ASX shares that it believes offer the best dividend yields right now.

I like that it has somewhat pivoted away from the ASX banks over the past year as well. Today, VHY’s top holdings include Commonwealth Bank of Australia (ASX: CBA), Wesfarmers Ltd (ASX: WES), BHP Group Ltd (ASX: BHP) and Transurban Group (ASX: TCL). It offers a trailing dividend yield of 5.4% on current prices, which also usually comes with franking credits as well.

3) Telstra Corporation Ltd (ASX: TLS)

Telstra is my final dividend pick today. It’s the largest telco company in Australia and has a formidable market share in both mobile and fixed-line internet services.

The last few years, Telstra has paid an annual dividend of 16 cents per share, which includes its special dividends funded by NBN payments. This gives Telstra a trailing dividend yield of 4.71% (or 6.73% grossed-up with full franking).

Now, Telstra is set to announce whether this dividend will be maintained this year in its full-year earnings report tomorrow. But I’m quietly confident that it will be so. As such, it might be a good idea to pick up some Telstra shares for future dividend income today.

Foolish takeaway

I think all 3 of these ASX dividend shares would make great $5,000 additions to an income-focused portfolio today. The pick of the bunch for me is Telstra on current prices, but I think Woolies and VHY also have a solid thesis as well.

More reading

• Top ASX dividend shares to buy in August 2020
• ASX dividend investors! Ignore shares in consumer staples at your peril
• Is the Telstra share price a buy?
• Investing 101: Humility > Arrogance
• These were last week’s best performing ASX shares

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited and Vanguard Australian Shares High Yield Etf. The Motley Fool Australia owns shares of and has recommended Telstra 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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While the big four banks are usually the ones stealing the limelight in the financial sector, I believe regional retail banks such as Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN) remain desirable as investment prospects.

Both of these blue-chip institutions have some of the highest fully-franked trailing dividend yields going around, representing a historically strong income source for shareholders. Likewise, these banks are currently facing similar headwinds that include COVID-19, the weaker national economic environment and the financial recovery from Australia’s unprecedented bushfire season in regional communities.

Despite facing profound challenges, are either of these banks a prudent investment right now?

Bendigo and Adelaide Bank

The slightly larger of these banks, Bendigo maintains a market capitalisation of approximately $3.77 billion and is the largest retail banking institution outside of the big four.

The Bendigo and Adelaide Bank share price at the time of writing is trading at $7.13, thus representing a price-to-earnings (P/E) ratio of 12.04. This P/E sits at a discount to major competitors such as National Australia Bank Ltd (ASX: NAB), which has a P/E of 16.4, and Westpac Banking Corp (ASX: WBC), with a P/E of 13.6, suggesting that Bendigo may be slightly better value at its current share price.

In addition, Bendigo’s trailing dividend yield sits at 9.26%, having paid out a healthy last dividend of 31 cents per share in March. Of course, COVID-19 has chewed up most of the company’s profits and many institutions are seeking to preserve cash. As such, market consensus is that the bank will likely severely cut its final FY20 dividend by as much as 75%. Only time will tell if this proves to be the case with Bendigo reporting its full-year FY20 results next week on 17 August.

In the meantime, brokers from Citi last week placed a price target on the bank of $7.25, rating the company as ‘neutral’. The broker cited concerns over Victoria’s stage 4 lockdowns as a major headwind, particularly in H2 of FY20, highlighting that this may lead to higher loan deferrals and tighter lending margins.

Although the bank’s share price has struggled in recent times due to its exposure to lending in regional areas, worsened by this year’s bushfires, I remain optimistic that heightened domestic travel and spending in regional areas due to COVID-19 may offset some of the losses taken on by Bendigo.

The bank has a long way to get back to its 52-week high of $11.69, but investors with a long-term view will likely see significant upside from a combination of capital gains and upper-end dividend distributions.

Bank of Queensland

This slightly smaller bank comes in at a market capitalisation of $2.8 billion. The Bank of Queensland share price currently trades at $6.17 at the time of writing. Notably, Bank of Queensland’s P/E ratio sits at under 10, making it a slightly less expensive option compared to other financial institutions.

Similarly to Bendigo, the current Bank of Queensland share price is trading at a sizeable discount of 38% to its 52-week high of $9.98, which was achieved in September last year. Bank of Queensland also maintains a fully-franked trailing dividend yield of over 10%, despite choosing to defer its dividends as of April this year.

According to its results for the first-half of FY20, Bank of Queensland saw its net profit slashed by as much as 40%, and earnings per share withdraw by 16%. Operating expenses also grew by 9% due to a deteriorating economic environment.

Despite poor first-half results in what management dubbed a ‘transitional’ year, Bank of Queensland remained positive regarding its strong balance sheet, aided by a $340 million equity raising.

But according to reporting by the Australian Financial Review, last month Bank of Queensland reported a $112 million increase in loans over 90 days overdue, and provided loan deferrals to over 21,000 customers. This is largely inevitable due to the current difficulties facing the institution and it is great to see the bank helping out its customers in their time of need. It may, however, lead to severe write-downs on some of the company’s loans and a slashed valuation of the bank.

Foolish takeaway

Some short-term pain will undoubtedly be felt for shareholders of both banks but, over the long term, I believe these regional institutions will eventually make a comeback. If I had to pick one, I’d go with Bendigo. It’s a bigger player overall and its loan books appear to be holding up marginally better in the current economic climate. In addition, I get to hear from Bendigo and re-evaluate my thesis on it as of next week, rather than waiting until October for Bank of Queensland.

More reading

• Why Aurizon, Cochlear, Magellan, & Westpac shares are pushing higher
• Flight Centre and Zip Co were among the most traded shares on the ASX last week
• Why this reporting season is different, and now’s a great time for ‘buy to hold’ investors in ASX shares
• Why Bendigo and Adelaide Bank, CIMIC, James Hardie, & Webjet are storming higher
• Should you buy CBA shares before the dividend announcement?

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

The post Is the Bank of Queensland share price a better buy than Bendigo and Adelaide Bank? appeared first on Motley Fool Australia.

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Due to the quality on offer in the tech sector, I think it is one of the best places to look for long term investments.

Three exciting ASX tech shares that I would buy today are listed below. Here’s why I think they are in the buy zone:

Afterpay Ltd (ASX: APT)

The first tech share to consider buying for the long term is Afterpay. Due to the increasing popularity of the buy now pay later payment method with consumers and merchants, I believe this payments company could be a strong performer over the next decade. Especially given the incredible active customer growth it is experiencing in the United Kingdom and United States markets. Given that the latter market is worth an estimated $5 trillion a year, Afterpay clearly has a long runway for growth there. In addition to this, Afterpay is likely to support its growth by expanding into new markets in the coming years. Canada is coming this financial year and I suspect Europe and even Asia could soon follow.

Appen Ltd (ASX: APX)

Appen is the global leader in the development of high-quality, human-annotated training data for machine learning and artificial intelligence. Through a team of over 1 million crowd-sourced workers, the company is able to collect and label high volumes of data used to build and improve artificial intelligence models. Due to the growing importance of artificial intelligence and machine learning and Appen’s leadership position in its field, I believe demand for its services is likely to grow strongly in the coming years. This could mean further strong earnings growth ahead for the company.

Pushpay Holdings Group Ltd (ASX: PPH)

Pushpay is a donor management platform provider for the faith sector. It has been growing its sales and operating earnings at an explosive rate in recent years thanks to increasing demand for its platform in a church market that is rapidly embracing digital transformation. This has particularly been the case during the pandemic, with churches using its platform to reach their congregation in new ways. This led to Pushpay smashing expectations in FY 2020 and then guiding to further impressive growth in FY 2021. The good news is that it is still only scratching at the surface of its massive market opportunity in the medium to large church market. In light of this, I expect its strong growth to continue for many years to come.   

More reading

• Where to invest $500 into ASX shares immediately
• Is the Afterpay share price a buy?
• MoneyMe share price surges, but is it sustainable?
• If you have $12,000, you should invest in these 3 ASX shares now
• 5 things to watch on the ASX 200 on Wednesday

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 PUSHPAY FPO NZX. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. 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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Something a little different, today.

I usually write specifically about investing, sometimes with reference to the wider world.

This time, I’m going to do the reverse. Because there are some big macroeconomic changes taking place – and not just the transitory recession we’re currently living through.

Changes that will likely transform the economic and political environment in which we invest.

In short, COVID-19 is rewriting the social contract.

Before the Great Depression, government support, in the form of welfare and other safety nets, was pretty sparse, if present at all.

The Great Depression – and the social disruption (and human misery) it caused – ushered in a new deal.

Quite literally: then-US president Franklin D. Roosevelt used exactly that term, and with capitals: The New Deal.

To quote directly from Wikipedia, it:

“…focused on what historians refer to as the “3 Rs”: relief for the unemployed and poor, recovery of the economy back to normal levels, and reform of the financial system to prevent a repeat depression.”

It was recognition that a prosperous nation, even as it went through tough economic times, could and should do more to look after its least fortunate citizens, and to accelerate recovery.

It was encouraged (even enabled) by the recognition that government balance sheets could run extended deficits during tough times, to be paid off when things improved.

Now, I’m no historian. But the New Deal was remarkable for the speed and size of the response, and it was more remarkable (in hindsight, and probably also at the time) for how it changed the expectation of what the government should do.

The same was true here in Australia of Medicare, some four decades later. Once a partisan and hotly debated issue, it has come to be all-but untouchable, sharing widespread bipartisan support (except for the knuckleheads at the fringes), and we look at other countries (no names, no pack drill, but one of them rhymes with ‘United States’) and wonder how it’s possible their healthcare isn’t more universal, and how such a program could even reasonably be called ‘socialism’ as some detractors suggest.

A dozen years ago, having learned from some of the errors of the Great Depression, the USA and others met the GFC with unparalleled spending, including corporate bailouts, to avoid a repeat of the late 1920s and early 1930s. And, as if to give economists a control group to compare, some countries, notably in Europe, followed an austerity strategy instead.

Newsflash: It didn’t work.

If it wasn’t already clear, it became crystal: Keynesian economics – spend in tough times, and recover it in the good times – was not only a more humane approach, but it was smart economics. 

There really are very few serious scholars who’d tell you that we’d have been better off to let banks and businesses fail in 2008, putting millions more out of work.

Back in 2020, though, and the GFC almost feels both quaint and ancient history, by comparison to our current challenges.

This pandemic, a truly once-in-a-century occurrence when that term is otherwise overused, is a public health emergency. And the response to that emergency was to – knowingly and deliberately – create another emergency; this time an economic one as jobs and businesses were essentially put into a deep freeze.

And the size of the response has been mindblowing.

We’ve seen right-wing governments in the USA, the UK and here in Australia, who are otherwise fiscal conservatives, throw money at the problem like there was no tomorrow.

And we can debate whether that was right or wrong (I’m in the former camp, for the record), but I think the more interesting conversation is about what the decision means for the role of government – both from the politicians themselves, but also what we expect, as citizens.

Along the lines of FDR’s ‘3 Rs’, we’ve seen a radical redefinement of not only what the government should do, but also how much it should do… and spend.

Indeed, the various programs – from the forgiveness of airline landing fees to the $100-plus billion being spent on JobKeeper and JobSeeker – are larger than even the most strident social democrat might have dared hope, only 12 months ago.

And the line between what we expect of government, and what it deigns its role to be, has all but vanished.

As Treasurer Josh Frydenberg said, referencing a conversation he had with John Howard, there is no ideology in a crisis.

Which is as it may be, but more accurately, ideology is actually being rewritten with each passing day.

Big Government – now and in future – is the order of the day. It simply has to be that way, given the size of the stimulus as a share of GDP, and considering how long it’ll take to pay off.

Again, I make no judgement on whether that’s good or bad – it just is, and will be for years.

It goes further, too. With notable exceptions (I’m looking at you, Bunnings Karen), we’ve accepted a huge increase in the role of government when it comes to restricting our movement and, yes, deciding whether or not we cover our faces.

We’ve let them close state borders, for the first (meaningful) time since Federation, as well as closing the country’s borders to all but a limited number of returnees.

It is no small thing to see a conservative government run up a multi-generational debt in a matter of months.

The ‘budget emergency’ and ‘debt and deficit emergency’ are gone.

We’re all Keynesians now.

It is, in some senses, the natural extension (even if created by an unnatural health crisis) of a creeping change in what we’ve increasingly come to expect from our governments.

We’ve always wanted roads, water, electricity and law & order / defence.

Now we want an NBN, low unemployment, industry assistance, JobKeeper, a higher rate of unemployment benefit, healthcare, turbo-charged bushfire protection, a disability insurance scheme and plenty more. Not only that, but governments are also throwing billions and billions of dollars at a cure for COVID-19.

Only just last week, The Economist wrote about:

“…the $7trn which governments across the world have spent or pledged since the pandemic began in order to preserve incomes and jobs”.

Thats $7 trillion. In US dollars.

More than $10 trillion Australian dollars.

And – let me say it again – I make no judgement, here, on any of that.

I simply make the point that it is real. It’s a thing.

As a society (and the same is happening around much of the Western world), the majority actively want more government in their lives (yes, even those who say they want smaller government and more individual freedom and incentive, but who still want support, right now!).

It doesn’t stop there. Plenty of people, including high profile commentators like Alan Kohler, for example, are calling for a ‘jobs guarantee’ – essentially (and this is a necessary simplification, so please take it as such) a job for anyone who wants one.

If you’re of a certain age, that should remind you of a particularly ‘socialised’ approach to economic management. A government that promises a job to anyone who wants one is either appropriate, Utopian, or socialism, depending on your particular economic and social ideology.

But whatever your view, what strikes me is how mainstream these types of approaches have become – something that, despite the partisan views of the culture-warriors, would have been unthinkable only 20 years ago.

Indeed, Josh Frydenberg recently citing Thatcherism, while presiding over a $100-plus billion stimulus package, might just be the most incongruous thing we’ll see this year… and in 2020, that’s saying something!

(And then there’s the rise of ‘Modern Monetary Theory’ which, grossly simplified, says government debt isn’t real. And/or that there should be no limit. Put me down as a capital-S sceptic. Sounds more like MPT – Magic Pudding Theory – to me.)

At the same time, we’re continuing to see an acceleration in the rise of economic nationalism, as populist leaders turn their backs on (imperfect) win-win outcomes in favour of lose-lose outcomes dressed up as ‘protecting [insert nationality here] jobs’.

And, of course, we continue to face a larger and more existential threat in climate change which, though likely given a breather (no pun intended) by the economic impacts of COVID-19, remains an ever-present problem that world leaders are showing little progress in addressing.

I have my own thoughts, but I come with no concrete answers – either to what’s right or wrong, or what will come next. In one version of the future, we all become like the Nordic countries, with higher taxation and acceptance of a larger role for governments. In another, a Trump-like figure rises up in opposition to ‘too much government’.

For businesses, more government might mean more regulation, or higher taxes. It might change the competitive dynamics of industries, and/or the areas in which government sees a new/renewed role for itself.

We might see Australia Post as an alternative bank, for example, or the reversion of aged care, electricity and/or transport into government hands.

And, of course, we’ll need to learn to either live with an astronomical level of debt, or work out how to pay for it with increased taxes and/or lower government spending, each of which will have an impact on the economy, and for jobs and profits, accordingly.

As an investment advisor, you might wonder about my view on the impact for our companies.

The bad news is that the outlook is as uncertain there as it is elsewhere.

But if I was a betting man, I’d be pretty keen to own businesses with scale, and with meaningful pricing power, both of which offer protection against inflation and a fickle consumer.

I’d happily own shares in a disruptive business, but I’d want to know it was producing a product or service that was self-evidently in demand. Creating its own demand could need something very special in a world where growth in discretionary spending might be hard to come by.

So, perhaps as a combination of the two factors, above, I’d want growing sales and healthy profit margins.

The good news is that even if I’m wrong about some of the impacts, businesses that share those characteristics are likely to win in any environment.

In short; resilience – always valuable, in any market – will be especially important in an uncertain economic and social future.

And not just for our investments, but in our finances and employment, too.

Fool on.

More reading

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• 3 stellar ASX tech shares to buy for the long term
• Top brokers name 3 ASX 200 shares to buy today
• Downer share price edges higher on takeover bid

The post How COVID-19 is locking in our economic future… appeared first on Motley Fool Australia.

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Many of Australia’s top brokers have been busy adjusting their financial models again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX 200 shares are in the buy zone:

A2 Milk Company Ltd (ASX: A2M)

According to a note out of UBS, its analysts have retained their buy rating and NZ$22.00 (A$20.25) price target on this fresh milk and infant formula company’s shares. The broker believes that strong demand for its infant formula, particularly on Chinese ecommerce platforms, will allow a2 Milk Company to outperform the market’s expectations with its FY 2020 result. And while it has concerns that higher infant formula inventory levels could weigh on its performance in the ANZ market during the first quarter, it remains positive on its outlook. I agree with UBS and would be a buyer of a2 Milk Company’s shares.

Challenger Ltd (ASX: CGF)

A note out of the Macquarie equities desk reveals that its analysts have upgraded this annuities company’s shares to an outperform rating with an improved price target of $4.50. Although Challenger’s guidance for FY 2021 was below expectations, the broker believes recent share price weakness has brought it to an attractive level. Especially given its positive long term outlook. While I agree that Challenger’s valuation is reasonably undemanding, I would prefer to wait for its performance to improve before investing.

NEXTDC Ltd (ASX: NXT)

Another note out of UBS reveals that its analysts have retained their buy rating and lifted the price target on this data centre operator’s shares to $14.15. According to the note, the broker believes that the shift to cloud is accelerating and will continue to do so in the coming years. Especially given how many businesses are shifting the internal data centres to colocation centres. This should lead to strong demand for NEXTDC’s services. I agree with UBs on this one as well and feel NEXTDC could be a great long term option for investors.

More reading

• ASX 200 down 0.3%: CBA delivers $7.3bn cash profit, gold miners sink, SEEK’s outlook disappoints
• Should you buy these 2 ASX dairy shares instead of A2 Milk?
• Coronavirus: SkyCity share price falls as NZ restrictions tighten
• Why a new CEO is good for the A2 Milk share price
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Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. 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.

The post Top brokers name 3 ASX 200 shares to buy today appeared first on Motley Fool Australia.

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At the time of writing, the Downer EDI Limited (ASX: DOW) share price was up 1.44% to $4.22 as the company released its annual report and launched a takeover bid for Spotless.

What are the details of the takeover bid?

Downer intends to acquire the 12% of Spotless that it does not already own to take its ownership to 100%. As part of the deal, Spotless shareholders other than Downer will be entitled to receive $1.00 in cash for each of their Spotless shares. In addition, for every 17.93 Spotless shares, shareholders will receive one Downer share option with an exercise price of zero. This will allow Spotless shareholders to gain exposure to the Downer share price after the takeover.

Spotless delisted from the ASX in 2019.

Currently, Downer owns an option giving it the right to purchase another 2.99% of Spotless shares. This will take its ownership above 90%, allowing Downer to make a compulsory takeover if shareholders do not accept its current offer.

What were Downer’s annual results?

Downer EDI had revenue of $12.7 billion in the 2020 financial year, this was down 0.5% on the 2019 financial year. Earnings before interest and tax (EBIT) were -$41.3 million in the 2020 financial year versus $462.2 million in the 2019 financial year.

The company posted a net loss after tax of $150.3 million in the 2020 financial year. This compared to a net profit after tax in the 2019 financial year of $261.8 million. Earnings per share were -26.6 cents in the 2020 financial year. 

Downer EDI had impairments on non-current assets of $212 million in the 2020 financial year versus zero in the 2019 financial year. The company had depreciation on leased assets of $151.8 million in the 2020 financial year, this figure was zero in the 2019 financial year.

The company reported that earnings before interest and tax and before amortisation (EBITA) of acquired intangible assets was $30 million.

About the Downer share price   

Downer EDI is a services company that operates in Australia and New Zealand. It operates services including road, rail, power, gas, water, health, education, defence, and government services. Downer EDI is listed on the ASX along with the New Zealand Stock Exchange.

Earlier this year, Downer raised $400 million from shareholders through an entitlement offer at a price of $3.75 per share. The capital raising was intended to support Downer in making a full takeover of Spotless.

The Downer share price is up more than 66% from its 52 week low of $2.54, however, it is down 46.5% since the beginning of the year. The Downer share price is down 41.8% since this time last year.

More reading

• 3 underperforming ASX 200 stocks that could beat earnings expectations
• Downer share price lower despite contract wins
• ASX 200 jumps 2.6% on vaccine hopes and jobkeeper
• What you need to know about Downer’s share price, $400m cap raise and acquisition

Motley Fool contributor Chris Chitty 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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