Tag: Motley Fool Australia

The S&P/ASX 200 Index (ASX: XJO) has seen strong share price gains across the board today. In fact, the index was up by a very healthy 2.5% at the close. This follows strong share price gains yesterday, as general market sentiment continues to lift. These gains are largely being driven by hopes the Australian economy can start recovering from the coronavirus pandemic more quickly than anticipated.

Easing restrictions bring hope to the travel sector

ASX 200 travel shares have been punished harshly in recent months. With severe lockdown restrictions coming into effect in March, both local and international travel has virtually ground to a halt since then.

However, it is now looking increasingly likely that domestic travel will gradually start to pick up in the months ahead. As the Australian government begins to ease lockdown restrictions, renewed hope is starting to flow through to the travel sector. Increased optimism surrounding a possible coronavirus vaccine is also boosting spirits amongst ASX 200 investors.

It’s true that the possibility of international travel resuming to any significant degree before the end of this year is still highly unlikely. There is, however, the possibility of a trans-Tasman bubble that will open up travel between Australia and New Zealand later in the year.

This good news is helping spur on a partial rebound amongst heavily sold off shares within the ASX 200 travel sector. Corporate Travel Management Ltd (ASX: CTD) is up 3.8% today whilst Webjet Limited (ASX: WEB) climbed by 5.5%. Likewise, Flight Centre Travel Group Ltd (ASX: FLT) is up by 8.8% and Qantas Airways Limited (ASX: QAN) surged by 4.9%.

Travel bookings segment hit particularly hard

In the travel bookings segment, Flight Centre has been hit particularly hard by the economic fallout from COVID-19. This is primarily related to the company’s high fixed overhead costs. These are necessary to support the company’s nationwide chain of retail outlets. Despite its strong rally today, Flight Centre’s share price is still down by over 60% since January. In a recent capital raising, Flight Centre successfully raised $700 million from institutional and retail shareholders. The company has also undertaken a range of cost reduction initiatives in order to make it through these unprecedented market conditions.

Due to its online only business model, Webjet may have less overheads than its main rival, Flight Centre. However with bookings drying up, the company has also been forced to enter survival mode in recent months. The Webjet share price has also been hit hard by a highly dilutive equity raising back in April. It would seem though that investors are now feeling a bit more optimistic that domestic flight bookings may begin again soon. Likewise, Corporate Travel Management will be hoping that some corporate travel in Australia will begin to resume in the months ahead. This should continue providing renewed optimism to its investors.

Meanwhile, our national airline carrier, Qantas, has seen its fleet of planes largely grounded over the past few months. However, the company secured additional debt funding of $550 million in early May. It’s strong cash position makes it relatively well placed to ride out the remainder of the coronavirus crisis, before domestic travel starts to resume. This has helped to see its share price rise higher today as news surrounding the sector continues to look more optimistic.

More reading

• ASX 200 rallies hard, no longer in bear territory
• Latest spending data could drive the ASX retail sector higher
• Up another 5%: Is the Webjet share price a buy?
• The latest ASX shares that brokers have just upgraded to “buy”
• Why these 3 ASX 200 tech shares offer great value

Motley Fool contributor Phil Harpur owns shares of Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) jumped almost 3% today to 5,780 points, it is now out of the bear market territory we’ve been in since March 2020.

The ASX 200 is now down by just 19% from the 21 February 2020 level. Since 23 March 2020 the ASX 200 has risen by 27% in an extraordinary turnaround.

ASX banks boost the index

The big four ASX banks don’t quite make up as much of the index as they used to, but their combined movements can still have a big impact on the share market. They all rose strongly today. 

Looking at those movements:

The Commonwealth Bank of Australia (ASX: CBA) share price rose by almost 4%.

The Westpac Banking Corp (ASX: WBC) share price went up 6.1%.

Australia and New Zealand Banking Group (ASX: ANZ) saw its share price increase by 6%.

The National Australia Bank Ltd (ASX: NAB) share price went up 5.6%.

Investors appear to be much more hopeful about the Australian economy’s trajectory.

ASX 200 travel shares continue to soar

After yesterday’s comments from Treasurer Josh Frydenberg about prolonging support, the travel industry has continued to fly today with investors seeing a return of travel on the horizon.

Some of the ASX 200 travel shares that experienced another large gain today were:

The Flight Centre Travel Group Ltd (ASX: FLT) share price went up 9.5%.

The Webjet Limited (ASX: WEB) share price rose 5.8%.

Infrastructure giant Sydney Airport Holdings Pty Ltd (ASX: SYD) saw its share price fly higher by 4.2%.

The Qantas Airways Limited (ASX: QAN) share price went up 5.4%.

Coca-Cola Amatil Ltd (ASX: CCL) is hurting

The Coca Cola share price fell 1.6% today after the food and beverage business said that its volumes were down heavily whilst also suffering earnings before interest and tax (EBIT) margin pain.

COVID-19 struck at a particularly difficult point with Easter and Ramadan falling during the heaviest restrictions.

The business also withdrew its dividend payout ratio guidance.

More reading

• Why ASX 200 travel shares are soaring higher today
• Latest spending data could drive the ASX retail sector higher
• Why ANZ, CBA, NAB, and Westpac shares are storming higher today
• Up another 5%: Is the Webjet share price a buy?
• The latest ASX shares that brokers have just upgraded to “buy”

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

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The Palla Pharma Ltd (ASX: PAL) share price was an impressive performer on the ASX today. Despite a number of gains across the board, Palla Pharma stood out with a big 27.46% share price rise in intra-day trading. As the day went on, Palla Pharma shares pulled back from these levels and closed 12.68% higher at 80 cents per share.

About Palla Pharma

Palla Pharma is a growing global supplier of opiate-based pain relief medicines. It is a fully-integrated opiate manufacturer, involved in a number of activities from poppy straw growing through to tableting production. 

The company is one of three licensed poppy processors in Australia, and the only Australian-owned company. Additionally, it is one of six licensed opiate producers globally.

The company was founded in 2004 as TPI and rebranded in 2019. ASX investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is a major shareholder and its CEO, Todd Barlow, sits on the Palla Pharma board.

What caused the Palla Pharma share price to spike?

This morning, Palla Pharma announced it would not be going ahead with the acquisition of a major UK customer – ending almost a year’s worth of negotiations.

Since July 2019, Palla Pharma has been in discussions with its largest UK customer, a manufacturer of finished dosage codeine phosphate, regarding the potential acquisition of the customer’s UK operations. This was part of Palla Pharma’s strategy to continue to move down the value chain.

According to Palla Pharma, the customer’s manufacturing site has the capacity to tablet over 120 tonnes of codeine phosphate. This equates to revenue of approximately US$120 million.

Acquisition discussions intensified earlier this year after the UK regulator imposed a 3-month suspension of the customer’s operating license. The suspension resulted in a need for working capital and management support, which was provided by Palla Pharma. To address the customer’s working capital needs, Palla Pharma acquired 4 of the customer’s marketing authorisations for the supply of codeine-based products into the UK.

In return for its management assistance and investment of resources in the due diligence process, Palla Pharma noted it had been given an “option to acquire the business at an attractive valuation”.

Fast forward to April and Palla Pharma announced it had acquired further marketing authorisations from the customer. Despite electing not to exercise the option, Palla Pharma stated it was in advanced negotiations with the owners and senior creditors in regard to the potential acquisition. However, there remained “material differences between the parties with respect to valuation”.

All of this takes us to today’s announcement, in which Palla Pharma revealed it had ceased negotiations with the customer as it became evident a commercial agreement could not be reached.

What now?

The UK customer has been recapitalised by a new minority shareholder and Palla Pharma stated it will be seeking to have its current outstanding invoices for codeine phosphate supply in 2019 paid in full.

While exploring the possible acquisition, Palla Pharma acquired 7 marketing authorisations from the customer, which accounted for approximately 70% of the customer’s revenue. The ownership of these authorisations has been transferred to Palla Pharma and manufacturing is in the process of being transferred to the company’s Norway site.

Looking forward, Palla Pharma expects earnings in the second half of FY20 to be “significantly stronger” than the first half. This comes as the company finalises the transition of its sales profile from volume-based commodities to higher-value products. As a result, Palla Pharma anticipates a material uplift in full-year earnings.

Palla Pharma is set to hold its AGM on Thursday, 28 May, where it will provide a more detailed trading update and outlook.

More reading

• 2 ASX shares perfect for dollar-cost averaging
• 2 quality ASX shares to buy for long-term growth
• Replace your term deposit with these dividend shares
• My ASX share for the week
• How to retire early using ASX shares

Motley Fool contributor Cathryn Goh owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended 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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Earnings reliability in this environment is very tricky with the coronavirus.

Interest rates are so low it has made the earnings/interest certainty of bonds look very expensive. Would you rather invest in Vanguard Australian Government Bond Index ETF (ASX: VGB) for a tiny return or go for shares?

I’d rather go for shares. But share prices are always going to be volatile, however earnings from some shares could be much more stable. But how much should investors pay for those earnings to be mostly stable?

Some defensive shares like APA Group (ASX: APA) and Ausnet Services Ltd (ASX: AST) offer potentially reliable earnings. But they’re priced highly for that safety. 

Shares like EML Payments Ltd (ASX: EML) and Pushpay Holdings Ltd (ASX: PPH) have the potential to generate strong returns over the future. But there are a broader range of potential outcomes for those riskier shares.

But it’s up to you decide how much risk you’re willing to take with your investing. Can you stomach earnings volatility, or perhaps earnings unpredictability? Getting the best results in investing will require taking on more risk.

Is there a way to reduce risk and still get good returns?

It’s okay if you don’t like taking on as much risk. Diversification can help reduce the risk of an individual holding. It’s why investments like Vanguard Australian Shares Index ETF (ASX: VAS) are so popular. It takes out some of the guesswork so that it becomes more about your mindset to hold through tough periods.

Obviously if you end up owning more than 30 individual shares yourself then you’re probably losing the advantage of investing in shares with your own portfolio. Is that smallest holding as good as your tenth (or better) idea? It might be a good idea to just focus on your best ideas. 

More reading

• Why Fortescue, Freedom Foods, Pushpay, & QBE shares are dropping lower
• Where to invest $10,000 into ASX shares immediately
• Got $2,500? I’d buy these 2 ASX shares in a heartbeat
• High yield dividend shares could be the answer for income
• The smartest shares to buy if you have $2,000

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of APA Group. The Motley Fool Australia has recommended Emerchants 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 latest credit and debit card usage data is giving investors a new reason to feel bullish on the ASX retail sector.

Spending on cards issued by Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) have not only recovered from the COVID-19 blues but is ahead of what it was this time last year.

Charge it to the card

Card data from CBA is up 4% in the week to 22 May, while ANZ reported a 2.3% rise, according to the Australian Financial Review.

However, some of the increase in card use may be due to the growing popularity of tap and pay to limit infection transmission.

ANZ also pointed out that the spending surge may not mean actual growth in consumer spending but households dipping into their travel and holiday budgets to fund purchases.

Better than expected result

Regardless, the sharp rebound is an unexpected surprise as the shutdown of our economy to contain the coronavirus pandemic dealt a devastating blow to the consumer discretionary sector.

ANZ economist Adelaide Timbrell told the AFR that ANZ-observed retail spending is still stronger than what the bank expected before the full reopening of our economy.

Consumers in Western Australia are leading the spending charge with a 12% increase over the previous corresponding period (pcp), according to the ANZ data.

On the flipside, Victoria is the worst state as card spending dropped 5.5% pcp. This is probably because the state is the slowest to relax its lockdown rules.

Patchy results

The latest data adds to signs that the retail sector is turning the corner. Consumer discretionary stocks have enjoyed a re-rating in their share prices that was fuelled by better than expected trading updates from retailers like City Chic Collective Ltd (ASX: CCX), Baby Bunting Group Ltd (ASX: BBN) and JB Hi-Fi Limited (ASX: JBH).

But not all consumer facing stocks are benefiting from the spending recovery. Travel and entertainment spending have collapsed due to the coronavirus.

This means we will have to wait a while before Sydney Airport Holdings Pty Ltd (ASX: SYD) and Flight Centre Travel Group Ltd (ASX: FLT) enjoy a rebound in revenue.

Also, retailers who cater to tourists and overseas students won’t be feeling the love from the latest card data.

International travel came to a near complete halt amid the outbreak and will be among the last sectors to recover from the COVID-19 fallout.

More reading

• Why ANZ, CBA, NAB, and Westpac shares are storming higher today
• The latest ASX shares that brokers have just upgraded to “buy”
• Why these 3 ASX 200 tech shares offer great value
• Up over 100% in 2 months. Are Nearmap shares still a buy at current prices?
• How to pick better shares and earn better returns

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited and Commonwealth Bank of Australia. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you have room to add a growth share or two to your portfolio, then I think the three listed below could be worth considering.

I believe all three have earnings on upwards trajectories and could provide investors with strong returns over the next decade. Here’s why I would invest $3,000 into them:

a2 Milk Company Ltd (ASX: A2M)

The first growth share I would suggest investors consider buying is this fresh milk and infant formula company. It has consistently grown its earnings at a very strong rate over the last few years thanks to increasing demand for its infant formula in China. The good news is that although it is generating material sales in the key market, it still only has a relatively small market share. I believe this gives it a long runway for growth over the coming years.

Aristocrat Leisure Limited (ASX: ALL)

It has been a difficult few months for Aristocrat Leisure because of casino closures during the pandemic. However, with casinos around the world slowly reopening, demand for its industry-leading pokie machines looks set to rebound again. Combined with its fast-growing digital business, which is has been thriving during lockdown, I believe the future is very bright for this gaming technology company.

Nanosonics Ltd (ASX: NAN)

Another growth share to consider buying is Nanosonics. It is the infection control specialist behind the industry-leading trophon EPR disinfection system for ultrasound probes. The system has been growing its market share at a rapid rate in recent years, but has still only captured a relatively modest amount of it. In light of this, I expect the company to continue to grow its market share in the coming years, underpinning strong earnings growth. This should be supported by the launch of several potentially lucrative new products.

More reading

• 3 timeless investing lessons from 2020 (so far!)
• 2 ASX shares to buy with $5000 today
• Why didn’t Warren Buffett buy more shares in the recent bear market?
• Where to invest $5,000 in ASX growth shares today
• 3 ASX 200 shares to watch this week

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 Nanosonics Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Nanosonics 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 Australian share market is home to a number of high-quality blue chip shares.

However, with so many for investors to choose from, it can be difficult to decide which ones to buy.

To narrow things down, I’ve picked out three blue chip shares which I think are great options for investors right now. They are as follows:

Coles Group Ltd (ASX: COL)

The first blue chip to consider buying is Coles. I think it could be great long term option due to its solid growth potential thanks to its defensive earnings, expansion opportunities, and its refreshed strategy. In respect to the latter, the Smarter Selling pillar of its strategy is aiming to deliver $1 billion in cumulative savings by FY 2023. This will be through initiatives including the use of technology to automate manual tasks and simplifying above-store roles to remove duplication.

CSL Limited (ASX: CSL)

Another blue chip share to buy is CSL. I believe the global biotherapeutics giant is one of Australia’s highest quality companies and a great buy and hold option. This is due to the strength and growth potential of its CSL Behring and Seqirus businesses. I believe CSL’s Behring business in particular is well-placed for growth thanks to increasing demand for immunoglobulins, its growing plasma collection network, and burgeoning research and development pipeline. 

Telstra Corporation Ltd (ASX: TLS)

A final blue chip share to consider buying is Telstra. I like the telco giant due to its attractive valuation and the solid progress it is making with its T22 strategy. This strategy is creating a much leaner operation and one which I believe could return to growth in the coming years. Especially given the improving trading conditions in the telco industry and the arrival of 5G internet. The latter could give Telstra’s mobile revenues a major boost in the next few years.

More reading

• 3 top ASX dividend shares to buy in June
• How to pick better shares and earn better returns
• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• CSL shares have underperformed the ASX 200 over the past month. What’s going on?

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 owns shares of and has recommended Telstra Limited. 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.

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One of the best performing areas of the market today has been the banking sector.

The big four banks have all recorded strong gains today and are powering the S&P/ASX 200 Index (ASX: XJO) notably higher.

What’s happening in the banking sector today?

Here’s a snapshot of what is happening in the banking sector this afternoon:

• The Australia and New Zealand Banking GrpLtd (ASX: ANZ) shares price is currently up 4.75% to $16.33.
• The Commonwealth Bank of Australia (ASX: CBA) share price is up 1.5% to $59.89.
• The National Australia Bank Ltd. (ASX: NAB) share price has pushed 4% higher to $16.38
• The Westpac Banking Corp (ASX: WBC) share price is the best performer with a 5% gain to $16.10.

Why are the big four banks charging higher today?

With no news out of any of the banks or broker notes that I’m aware of, today’s strong gains are a little bit of a mystery.

However, I suspect that investors are buying the big four banks on the belief that they have been oversold during the pandemic.

Australia will undoubtedly suffer economically from the pandemic, but the surprisingly low infection rate and the rapid reopening of the country appears to have caught even the most positive economists by surprise.

Combined with the Federal Government’s stimulus packages and the Reserve Bank’s rate cuts, Australia’s economic future doesn’t look anywhere near as bleak as other countries.

This could ultimately mean that the big four banks have overestimated the provisions they have announced over the last few weeks. Especially if a successful vaccine is developed sooner rather than later.

What provisions have the banks made?

As a reminder, National Australia Bank was the first bank to announce provisions. On 27 April it revealed an $807 million top-up to its economic adjustment to reflect potential COVID-19 impacts.

This was followed the next day by Westpac, which announced approximately $1.6 billion of additional impairment charges predominantly related to COVID-19 impacts.

Within two days, with its interim results, ANZ Bank announced COVID-19 impacts of $1.031 billion.

And the last bank to move, was the Commonwealth Bank. Earlier this month Australia’s largest bank made an additional credit provision of $1.5 billion for the potential longer term impacts of COVID-19.

If things go better than expected, these provisions could be partially reversed. Which would be a big boost to their future dividends.

Should you buy the banks?

Even after their strong gains this week, I still see a lot of value in the big four banks and would be a buyer of all of them at these levels.

Though, my preference remains Commonwealth Bank due to its overall quality.

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again
• Where will the NAB share price be in 1 year?
• Is the ANZ share price a buy?
• Why I would buy CBA and these ASX dividend shares

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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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Is the Webjet Limited (ASX: WEB) share price a buy? It has been an amazing performer recently.

In just one month the Webjet share price has risen by 94%. There have been other shares that have recovered strongly from the coronavirus lows like Afterpay Ltd (ASX: APT), but Webjet is one of the ones that are cut off from almost all of the customer base.

When Webjet did the capital raising it was planning for the eventuality of needing to survive until around the New Year without any material revenue. It doesn’t seem that dire now. 

But things seem to be getting back to normal quicker than expected. Travel within each Australian state is being encouraged. There’s plans for travel across the entire country. There will hopefully be a travel link with New Zealand sooner rather than later. Things are looking up. 

Does the Webjet share price represent good value?

It was only two weeks ago when I said that the Webjet share price was cheap at a share price of $3.24. Since then it has risen around 35%.

Between now and then I said it might be wise to take some profit off the table. I’m even more of that belief now. Remember that there are a lot more Webjet shares on issue that there used to be, so future earnings will be shared with more shares.

At the moment there still isn’t much travel going on. The coronavirus seems as though it’s going to be around in the world for some time, so international travel could be very limited until 2021.

In 2030 I think we’ll be looking at a much higher Webjet share price. But I worry that today’s share price may be too optimistic. All of the coronavirus impacts are still to play out. Retirees may be less willing to leave their respective countries right now. Earnings may not bounce back as much in the near term as expected with this share price.

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again
• Why Cann, IAG, Monadelphous, & Webjet shares are storming higher
• Is it too early to buy Webjet shares?
• ASX 200 jumped higher, rises more than 2%

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There’s no stopping the bulls! The ASX surged to a two-and-a-half month high in after lunch trade despite brewing geopolitical tensions threatening to overtake the COVID-19 pandemic as a major source of contention.

The S&P/ASX 200 Index (Index:^AXJO) jumped 2.4% to 5,753 at the time of writing. If it finishes at this level, it would mark it highest close since March 10.

Warnings of overstretched valuations and trade protectionism between China and the US and its allies can’t stop our market from entering into bull territory.

If you missed the big 25% bounce from the bear market low in March, it might not be too late to join the party as brokers have only just upgraded these ASX shares to “buy”.

Turning point

The first is Smartgroup Corporation Ltd (ASX: SIQ). Shares in the novated leasing group jumped 9.3% to $6.40 at the time of writing after Morgans upgraded the stock to “add” from “hold”.

Positive news from industry peer Eclipx Group Ltd (ASX: ECX) and anecdotal signs of a recovery in the automotive sector gave the broker enough reason to lift its recommendation on Smartgroup.

“The clearest data point has been from ECX, which recently reported novated lease orders (as at mid-May) were down ~35% on pre-Covid levels, having recovered from down ~60% in April,” said Morgans.

“Historically, SIQ’s novated volumes have been less volatile given a higher skew to Government and Health sectors.

“In addition, ECX has shown a very strong week to week recovery in its fleet end of lease car sales (recovered to within 4% of pre-Covid levels).”

The broker’s price target on Smartgroup is $6.95 a share.

Dropping into the “buy” zone

Another stock racing higher today is the Insurance Australia Group Ltd (ASX: IAG) share price. Shares in the insurer jumped 3.2% to $5.80 as IAG became the latest stock to be added to Credit Suisse’s buy list.

The broker upgraded its rating on IAG to “outperform” from “neutral” after its shares lagged the market by around 14% over the past two months.

The sell-off could be overdone. Not only are the earnings risk priced into the stock, but increases on insurance premiums and very low (sometimes negative) bond yields could trigger a rebound.

“We previously considered IAG a defensive stock in the current environment but struggled with valuation,” said the broker.

“Post a recent share price pullback and the stock trading at a 10% PE discount to the market, from 0-20% premium in recent years, we now consider IAG at an attractive entry price.”

Credit Suisse’s price target on IAG is $6.40 a share.

More reading

• Why these 3 ASX 200 tech shares offer great value
• Up over 100% in 2 months. Are Nearmap shares still a buy at current prices?
• Leading brokers name 3 ASX 200 shares to sell today
• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax

Motley Fool contributor Brendon Lau 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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