Tag: Motley Fool Australia

Is the REA Group Limited (ASX: REA) share price a buy?

It’s an interesting one. The REA Group share price is still a little below where it was in February 2020. Indeed, since 23 March 2020 the REA Group share price has risen by 67%.

Lower interest rates certainly should increase the valuation of businesses. Australia’s interest rate is now just 0.25%. I think that justifies some of the rise. But COVID-19’s resurgence could knock over some of the recovery in my opinion. 

FY20 third quarter

I think the third quarter update gave us an insight into why a second wave could be so damaging to the property market and REA Group.

In the three months ended 31 March 2020 the property business reported that free cash flow was down 20%.

It was the number of residential listings in April that makes the REA Group share price a hard one to judge. REA Group said that the number of residential listings in April 2020 was down 33%, with Sydney down 18% and Melbourne down 27%. It’s hard to grow earnings with that type of decline. 

REA Group needs a certain amount of volume to maintain, let alone grow, its earnings. REA Group’s stats will probably show that listing numbers rebounded in May and June nationally as COVID-19 was eradicated from states and territories one by one.

The Victorian property market’s size is not enough to knock REA Group’s entire growth off track, but it’s obviously a sizeable part of the overall picture with Melbourne being the second largest city. It could be argued that REA Group is trading too highly with a potential slowdown of listing numbers looking more likely. 

So does this mean that REA Group should be avoided?

Investing is meant to be for the long-term. What happens over the next six months or twelve months shouldn’t necessarily make or break the overall thesis for a business.

I think it’s highly unlikely that COVID-19 will be around forever. The Spanish Flu eventually went away by itself. There are a number of healthcare teams around the world that are trying to find a solution for COVID-19 – either a vaccine or a treatment (hopefully both). The Oxford University vaccine is particularly promising at this stage.  

When you look further into the future, the REA Group share price doesn’t seem to be that bad if it can get back to good growth over the rest of the decade – it’s trading at 35x FY22’s estimated earnings.  

What excites me about the longer-term with REA Group is the international investments in property sites in the US and Asia – two regions with much larger populations and economies than Australia. If you’re quite optimistic about those stakes then perhaps today’s valuation easily be justifiable.

For me, I think REA Group is priced too highly with the potential for damage to property sentiment (and listings) over the next six months. Particularly in Victoria and NSW. However, I think REA Group will easily ride through this difficult period. At 30 April 2020 it had “low debt levels” and a cash balance of $135 million. It also has debt facilities it can tap into.

But I’m still positive about some property ASX shares

I don’t think every property share is too expensive. I’m particularly attracted to Brickworks Limited (ASX: BKW) with its defensive assets of the industrial property trust and the shares of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). I like Soul Patts as a separate investment as well.

In terms of real estate investment trusts (REITs), I also like the farmland landlords Rural Funds Group (ASX: RFF) and Vitalharvest Freehold Trust (ASX: VTH). They both have distribution yields of more than 5%. They bpth offer defensive rental income which should operate fairly differently from most other REITs and indeed most of the ASX. We all need food, after all.

More reading

• I would buy ResMed and these ASX blue chip shares in August
• 2 top ASX growth shares to buy for long-term growth
• All Technology Index celebrates 6 months with stunning outperformance
• Why Lynas, Northern Star, REA Group, & Sezzle shares are storming higher
• Is the REA Group share price a buy?

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Amazon.com, Inc. (NASDAQ: AMZN) has come a long way since 1995 when the company started out as an online bookstore.

Today Amazon has a market cap of US$1.5 trillion (AU$2.1 trillion). And founder and CEO Jeff Bezos counts among the richest people on Earth.

But judging by the company’s second quarter results — released yesterday (overnight Aussie time) — both Bezos and the Amazon share price could have much more growth ahead.

The company reported a 42% increase in operating cash flow, to US$51.2 billion. That’s compared to the previous 12 months ending 30 June.

Net sales grew to US$88.9 billion, up 40% from its second quarter in 2019. And according to the company’s third quarter guidance, net sales are forecast to grow from 24% to 33% compared to the third quarter in 2019.

Net income also rose to US$5.2 billion. That works out to earnings per share (EPS) of US$10.30, compared to US$5.22 EPS in the same quarter of 2019.

Additionally, the COVID-19 lockdowns saw online grocery sales triple, while Amazon increased its grocery delivery capacity by 160%.

A word from Amazon’s founder and CEO, Jeff Bezos

This was another highly unusual quarter… As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand — purchasing personal protective equipment, increasing cleaning of our facilities, following new safety process paths, adding new backup family care benefits, and paying a special thank you bonus of over $500 million to front-line employees and delivery partners. We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation, and AWS.

How did investors in Amazon stock react?

Amazon trades on the Nasdaq Composite (INDEXNASDAQ: .IXIC) at US$3,051.88 per share. The Amazon share price closed up 0.60% on Thursday. The share price is up 65.0% in after-hours trading.

While the company trades at a nosebleed price to earnings (P/E) ratio of 145 times, Amazon’s share price has been trending higher since 1997, when you could have picked up the stock for US$1.73 per share! And with the company forecasting net sales to grow from 24% to 33% in the next quarter, compared to the same quarter in 2019, I believe Amazon is well-placed to see its shares run higher from here.

More reading

• US tech shares deliver massive results – what does it mean for ASX tech shares?
• Are the big US tech companies about to be broken up?
• Goodman share price hits record high. Is it too late to invest?
• ASX investors have been buying Tesla and these international shares
• ASX investors were buying these 5 international shares last week

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, 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 Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon. 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 Thorn Group Ltd (ASX: TGA) share price surged 30% on Friday to close the day at 13 cents. The rise in the Thorn Group share price came following the release of the company’s quarterly report.

What was in the announcement?

The company announced that the closure of its Radio Rentals stores was completed. According to Thorn group, the company had initially closed its stores temporarily due to the coronavirus pandemic, later deciding to close them permanently. The store closures were completed at the end of May 2020 with significant redundancies occurring as a result. The company’s Radio Rentals business now utilises a purely online model which onboards customers digitally. Progress was made towards the development of this new structure during the second quarter of 2020.

Thorn reported that its business finance division faced difficulties during the second quarter of 2020 due to reduced cash repayments from customers. The company is in discussion with the lenders of its warehouse funding trust about relief options.  

In the June quarter of 2020, Thorn Group had positive cash flow of $45.5 million. This came as receipts from previously written lease contracts exceeded operating expenses and outgoings for new leases.

Thorn Group paid off $21.3 million of debt funding in the June quarter along with $2 million of its corporate debt facility. 

The company is currently undergoing cost reductions and collecting receivables from its Radio Rentals business after remodelling this division into an online business. It expects both these initiatives to be cash positive for the group. 

At the end of the June quarter, Thorn Group had $71.8 million in cash. This compared to $49.6 million cash at the end of the March quarter.

About the Thorn Group share price

Thorn is a financial services company that provides leasing and financing to consumers and businesses.

In December 2019, Thorn Group settled a class action brought against the company for $25 million. The class action was related to the previous lending practices of its Radio Rentals business.

The Thorn Group share price is up 333% from its 52 week low of 3 cents, however, it is down 40.9% since the beginning of the year. The company’s share price is also down 53.6% since this time last year.

More reading

• ASX 200 drops 2%, ASX banks fall, Super Retail jumps
• Is the REA Group share price a buy?
• Why Amazon’s share price is set to leap on the opening bell
• Apple smashes revenue forecasts
• Is the Woolworths share price in the buy zone?

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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Stock holders in Apple Inc. (NASDAQ: AAPL) will have much to cheer from its third quarter results, released on Thursday (overnight Aussie time).

The company’s quarterly revenue leapt 11% from the same quarter in 2019, hitting US$59.7 billion (AU$82.9 billion). Fully 60% of the quarter’s revenues came from international sales.

Quarterly earnings per share (EPS) were up 18%, to US$2.58. And operating cash flow was $16.3 billion. Both figures represent a new record for the June quarter.

The Board of Directors declared a cash dividend of $0.82 per share of the Company’s common stock. That will be paid out on 13 August. If you want part of that dividend payment, you’ll need to own shares before 10 August.

Additionally, the Board of Directors approved a four-for-one stock split. That’s intended to make the stock, currently trading for US$384.76 (AU$534.31) per share more accessible to mum and dad investors.

A word from Apple’s CEO Tim Cook

Apple’s record June quarter was driven by double-digit growth in both Products and Services and growth in each of our geographic segments. In uncertain times, this performance is a testament to the important role our products play in our customers’ lives and to Apple’s relentless innovation. This is a challenging moment for our communities, and, from Apple’s new $100 million Racial Equity and Justice Initiative to a new commitment to be carbon neutral by 2030, we’re living the principle that what we make and do should create opportunity and leave the world better than we found it.

While the COVID-19 pandemic lockdowns have hampered many businesses, Apple has clearly come out on top. With hundreds of millions around the world unable to leave their homes over the past months, even to visit your family, iPhones and iPads have offered a way to remain connected.

Is it too late to buy Apple stock?

Apple trades on the Nasdaq Composite (INDEXNASDAQ: .IXIC). The stock closed up 1.2% on Thursday. The Apple share price is up 6.4% in after-hours trading.

Year-to-date the Apple share price is up 28%, having gained an astonishing 80% over the past 12 months. That puts Apple’s market cap at US$1.67 trillion (AU$2.32 trillion).

I can’t see Apple’s share price gaining another 80% over the coming 12 months, though it’s certainly possible. But if you’re looking for a venerable blue chip tech stock, I believe Apple has a lot more growth ahead in the years to come.

More reading

• US tech shares deliver massive results – what does it mean for ASX tech shares?
• Are the big US tech companies about to be broken up?
• ASX investors have been buying Tesla and these international shares
• Kanye West – ASX shares for his US presidential campaign
• Apple Plans to Be 100% Carbon Neutral by 2030

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 Apple. The Motley Fool Australia has recommended Apple. 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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Despite being resilient to the market sell-off in March, the Woolworths Group Ltd (ASX: WOW) share price has failed to kick on. Whilst the share price of supermarket giant Coles Group Ltd (ASX: COL) surges to record highs, the Woolworths share price is only 6.6% higher for the year.  

However, with various tailwinds emerging, the Woolworths share price could be in the buy zone for the medium term.

Why has the Woolworths share price been so subdued?

Firstly, as seen in other large cap shares such as CSL Limited (ASX: CSL), the Woolworths share price could reflect many investors rotating their portfolio. As higher growth opportunities emerge from the market sell-off, many investors would be selling their positions in high yielding companies for shares that are heavily sold-off.

In addition, the Woolworths share price could reflect the higher costs that could potentially eat into the positive earnings from higher sales during the pandemic. In the company’s most recent trading update, Woolworths cited $275 million in extra costs due to precautionary procedures imposed by the pandemic. These included such things as more cleaning and labour as well as extra warehouse space.

Second wave fears fueling demand

The COVID-19 pandemic is resulting in a relatively uncertain outlook over the medium term. With fears of a second nationwide lockdown growing, the essential services offered by Woolworths could become in greater demand. Woolworths is well positioned as a defensive company and could also see a growing yield as demand for essential goods accelerates.

Marley Spoon partnership and growth outlook

Earlier today, Woolworths announced that its venture capital arm, W23, converted its $2.95 million convertible bond into 5.9 million CHESS depository interests in meal box delivery company, Marley Spoon AG (ASX: MMM). Woolworths entered a 5-year partnership alliance with Marley Spoon in June 2019 and could benefit from the surge in demand for delivered meal kits.

In addition, with many consumers shifting to online shopping habits during the pandemic, Woolworths is investing heavily into adapting and growing its online presence. The supermarket giant plans to spend approximately $780 million on two automated distribution centres in Sydney.

Is the Woolworths share price a buy?

In my opinion, defensive shares with growth potential like Woolworths are worth keeping an eye on in the medium term. Given the uncertainty of the pandemic and the potential for more lockdowns, investors could pile back into defensive consumer staples businesses like Woolworths.

Instead of pre-empting an entry, I think a more conservative approach would be to wait until Woolworths has reported its full-year earnings to see how the company has handled the increase in costs and how it plans to grow in the future.

More reading

• Buy these ASX ETFs for dividends in August
• Brokers name 3 ASX 200 shares to buy right now
• 3 coronavirus ASX shares to buy as consumer preferences change
• Want to start investing? Here’s how
• Why AMP, FlexiGroup, Marley Spoon, & Origin shares are tumbling lower

Nikhil Gangaram 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 COLESGROUP DEF SET 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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Facebook, Inc. Common Stock (NASDAQ: FB) released its second quarter 2020 report yesterday (overnight Aussie time). And the results far exceeded analyst expectations.

The digital advertising and social media giant reported a 10% increase in year-over-year advertising and an 11% increase in total revenue.

Net income and diluted earnings per share (EPS) were both up 98% year-over-year.

The company reported its daily active users climbed to an astonishing 1.79 billion on average in June. That’s a 12% rise, year-over-year. To put this figure in perspective, that represents almost one quarter of the world’s entire population. Given that young children are unlikely to be active daily users, you can see just how much penetration Facebook has achieved around the world.

Monthly active users also rose 12%, reaching 2.7 billion.

Full-year 2020 capital expenditures are expected to come in at the higher end of the company’s US$14– $16 billion range. That’s due to Facebook resuming its data centre construction earlier than it had expected.

A word from Facebook’s CEO

Facebook founder and CEO Mark Zuckerberg said:

We’re glad to be able to provide small businesses the tools they need to grow and be successful online during these challenging times. And we’re proud that people can rely on our services to stay connected when they can’t always be together in person.

The company noted its business has not been immune to the fallout from the global COVID-19 pandemic. It stated Facebook, like all companies, is “facing a period of unprecedented uncertainty in our business outlook”.

Facebook trades on the Nasdaq Composite (INDEXNASDAQ: .IXIC). The stock closed up 0.5% at US$234.50 (AU$325.70) per share on Thursday. The Facebook share price is up 6.5% in after-hours trading. Year-to-date the share price is up 11.8%.

Will the share price keep going up?

As the company noted, every business around the world is in a period of unprecedented uncertainty. But don’t forget that in June 2012 you could have bought Facebook shares for less than US$28 per share.

It won’t go up in a straight line from here, but if you’re wanting to add a quality blue chip stock to your portfolio, I think you should look further into Facebook.

More reading

• Meet the ASX stocks that are about to get a boost from Facebook and Google
• US tech shares deliver massive results – what does it mean for ASX tech shares?
• Are the big US tech companies about to be broken up?
• ASX investors have been buying these 5 international shares
• The most popular US shares that Aussies are buying includes a few surprising names

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 Facebook. The Motley Fool Australia has recommended Facebook. 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) is having a pretty average day today – falling 2.04% to under 6,000 points. Despite this setback for the markets today, the ASX 200 is still up more than 30% since bottoming out at 4,546 points on 23 March this year.

But if you think that’s a pretty good number, here’s a real kicker. Over in the United States, the flagship Dow Jones Industrial Average is up more than 41% over the same period.

It gets better still.

The tech-heavy NASDAQ index (one of the 2 major US stock exchanges) is actually in positive territory for the year. Not just positive either, up 16.5% since 1 January and sitting very close to the all-time high that was reached 2 weeks ago. And that’s despite a global pandemic and the worst recession in living memory.

What does this tell us? Well, I think it’s a giant red flag.

Danger signs grow for US markets

What isn’t helping are significant and growing signs of speculative bubbles in the US share market. Yes, we’ve seen shares like Tesla rise by more than 245% this year. Amazon.com (a ~US$1.52 trillion company) is up more than 60% since 1 January. A bevy of profitless and unproven electric vehicle (EV) manufacturers, such as Nikola Motors, Hyliion and Workhorse have seen triple-digit share price pops in the last few months.

According to reporting in today’s Australian Financial Review (AFR), 34,000 Robinhood users (a popular, fee-free US broker) have added Chinese EV startup Kandi Technologies to their share portfolios over the past 24 hours. This accompanies Kandi stock surging more than 350% in just the past 2 days.

And here’s the real shocker. Remember Kodak, the old camera company? Well, the company is still around and until this week was limping along as a shadow of its former self.

That was until the US government announced Kodak qualified for a multi-million dollar loan to assist with bringing the production of essential drug ingredients back to the US. Kodak stock responded by shooting up more than 2,000% between 24 July and 29 July. Someone with $1,000 worth of Kodak stock on 24 July would be sitting on more than $20,000 by 29 July.

Mind-boggling stuff, in my view.

What does this mean for ASX share investors?

I’m going to lay it out straight – I think what’s happening in the US markets is highly concerning. Looking back through history will tell us that what follows these sorts of speculative bubbles isn’t good.

And if you think ‘it’s ok because it’s only in the US, not Australia’, think again. The US markets are highly correlated to the performance of our own ASX. It’s no coincidence in my view that the pre-crash market peak in February, as well as the market bottom in March, occurred on virtually the same days in both Australia and the US. As the old saying goes, ‘if the US sneezes, the rest of the world catches a cold’.

So make no mistake, if one or more of these US market bubbles violently pops, I think it’s highly likely we will feel it on the ASX.

The solution? In my view, the best way you can deal with this potential situation is buffing up your cash position and having faith in the company’s you already own (if you don’t, it might be time to sell).

More reading

• ASX 200 drops 2%, ASX banks fall, Super Retail jumps
• Latest ASX stocks upgraded by top brokers to “buy” today
• US tech shares deliver massive results – what does it mean for ASX tech shares?
• Brokers name 3 ASX 200 shares to buy right now
• ASX 200 sinks 1.5%: AMP disappoints, big four tumble, Super Retail surprises

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If you’re wanting to add some blue chip ASX shares to your portfolio in August, then you’re in luck.

The Australian share market is home to a good number of blue chips which I believe could generate strong returns for investors over the next decade.

Three blue chip ASX shares that I would buy are listed below. Here’s why I like them:

REA Group Limited (ASX: REA)

The first blue chip share to consider is this property listings company. Although trading conditions remain tough for REA Group following the coronavirus outbreak in Victoria, I expect listings to bounce back once the crisis passes. In the meantime, I’m optimistic that price increases, new revenue streams, and its international operations will offset some of this weakness. And when trading conditions do return to normal, I believe REA Group will be perfectly positioned to grow its earnings at a very strong rate over the decade that follows.

ResMed Inc. (ASX: RMD)

One of my favourite blue chip shares is ResMed. I believe the sleep treatment-focused medical device company has outstanding long term growth potential and could provide very strong return for investors in the future. This is thanks to its leading position in a market that looks set to grow strongly over the next decade due to the proliferation of obstructive sleep apnoea (OSA). According to a recent presentation, less than a fifth of OSA sufferers have been diagnosed or treated. This gives is a significant addressable market.

Telstra Corporation Ltd (ASX: TLS)

A final blue chip share to consider buying in August is Telstra. I like the telco giant due to its attractive valuation and the positive progress it has made with its T22 strategy. This strategy is creating a much leaner operation and one which I believe could return to growth in the not so distant future. Especially given the improving trading conditions in the industry, the easing NBN headwind, and the arrival of 5G internet. I expect the latter could give Telstra’s key mobile business a major boost in the coming years.

More reading

• Is the REA Group share price a buy?
• Buy these ASX ETFs for dividends in August
• Telstra and 2 more ASX shares I’d like to buy with $5,000
• Add these ASX growth shares to your portfolio in August
• Why I would buy Telstra and this ASX dividend share

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended REA 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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The market might be suffering from a seizure today but that hasn’t stopped leading brokers from upgrading some ASX stocks to “buy” today.

Losses on the S&P/ASX 200 Index (Index:^AXJO) deepened with the index shedding around 2.5% in the closing moments of trade. 

There was blood everywhere with every sector posting losses at the time of writing.           

A clean upgrade to buy

However, one ASX stock that’s bucking the trend is the GWA Group Ltd (ASX: GWA) share price. Shares in the bathroom fittings and fixtures group jumped 6.7% to $2.85 in late trade, making it the third best performer on the ASX 200. 

It was only beaten by the Super Retail Group Ltd (ASX: SUL) share price and NRW Holdings Limited (ASX: NWH) share price. 

GWA’s outperformance comes on the back of two broker upgrades. Credit Suisse noted that work-from-home consumers are spending up on renovations and home improvement projects. 

COVID-19 beneficiary 

“Google Trends show ‘bathroom renovation’ searches up 50- 60% in May-July vs pre-COVID,” said the broker. 

However, it noted that demand was stronger for lower margin bathroom fittings as opposed to the more profitable sanitaryware products. 

Nonetheless, GWA is still looking cheap as its stock has lagged the market and demand for its products from commercial constructions is strong. 

The broker upgraded the stock to “outperform” from “neutral” with a 12-month price target of $3.05 a share. 

Second upgrade for this ASX stock

Credit Suisse isn’t the only one turning bullish on GWA. Goldman Sachs also upgraded the stock to “buy” from “neutral”. 

“We recognise the macro outlook for GWA remains challenged with the residential construction cycle to remain under pressure over the coming 12 months,” it said. 

“However, GWA has a strong market position, the capacity to drive operational efficiencies to buffer against revenue pressures, and a balance sheet robust enough to withstand this period of weakness.” 

Goldman’s price target on GWA is $3.25 a share. 

Improving reception 

Another ASX stock upgraded to buy was the Seven West Media Ltd (ASX: SWM) share price. Macquarie Group Ltd (ASX: MQG) lifted its rating on the stock to “outperform” from “neutral” as it sees a 70% upside for the stock. 

Seven West isn’t without its challenges though. The COVID-19 crisis exacerbated the downtrend in advertising and there’s a high level of uncertainty in the outlook for ad spend in this recessionary environment. 

But Macquarie points to a number of positive to offset the headwinds. 

ASX stock upgraded for looking cheap

“From a ratings perspective, SWM recently had its best week in two years following the resumption in AFL and initial success of Big Brother,” said the broker. 

“Sport continues to be key from a ratings standpoint and will help attract advertisers when ad markets improve.” 

Macquarie’s price target on the stock is 17 cents a share. 

The new code of conduct announced by the federal government today is another positive, in my view, and isn’t captured in Macquarie’s upgrade. 

The code will force Facebook, Inc. Common Stock (NASDAQ: FB) and Google’s parent company Alphabet Inc Class C (NASDAQ: GOOG) to pay traditional media companies for using their content on the social media platforms. 

More reading

• Buy these ASX ETFs for dividends in August
• Meet the ASX stocks that are about to get a boost from Facebook and Google
• US tech shares deliver massive results – what does it mean for ASX tech shares?
• Brokers name 3 ASX 200 shares to buy right now
• Why Afterpay, Bapcor, NRW, & Super Retail shares are climbing higher today

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Super Retail 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 small cap side of the market is certainly higher up the risk scale. But I believe a little exposure to it can be a good thing for a portfolio, if your risk profile allows for it.

After all, if you can identify the next Appen Ltd (ASX: APX) or Ramsay Health Care Limited (ASX: RHC) while they’re still small, you could generate incredible returns in the future.

With that in mind, I have picked out three small cap ASX shares which I think would be worth watching closely:

Audinate Group Limited (ASX: AD8)

Audinate is a digital audio-visual networking technologies provider. It has achieved very strong sales growth in recent years thanks to the increasing demand for its Dante product. This award-winning audio over IP networking solution is being used widely across the professional live sound, commercial installation, broadcast, and recording industries globally. And while demand has fallen materially during the pandemic, I expect it to rebound strongly once the crisis passes.

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan is a provider of enterprise mobility software. Its platform allows sales and service organisations to increase sales win rates, reduce expenditures, and improve customer satisfaction. This is achieved through improved mobile worker productivity. I believe a testament to the quality of its platform is its blue chip customer base. It counts the likes of sports giant Nike, beauty retailer Sephora, drinks company Red Bull, and one of the big four banks as customers.

Volpara Health Technologies Ltd (ASX: VHT)

Volpara Health Technologies is a provider of software that uses artificial intelligence imaging algorithms to assist with the early detection of breast cancer. It has been growing at an explosive rate over the last few years thanks to the increasing popularity of its software with radiologists across North America. Thanks to the quality of its software and recent acquisitions, I believe it is well-placed to continue this strong form in FY 2021 and beyond.

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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 and recommends BIGTINCAN FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO and VOLPARA FPO NZ. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended AUDINATEGL FPO, BIGTINCAN FPO, Ramsay Health Care Limited, and VOLPARA FPO NZ. 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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