Tag: Motley Fool Australia

The S&P/ASX 200 Index (ASX: XJO) is full of good quality shares. I think some ASX 200 shares are definitely worth investing in for the long-term.

Let’s get straight into it, here are my three long-term ASX 200 ideas:

Altium Limited (ASX: ALU)

Altium is an electronic PCB software business that provides the tools for engineers to design the products, devices and vehicles of the future.

The ASX 200 share has an impressive list of existing clients including John Deere, Tesla, Space X, Broadcom, Qualcomm, Google, Amazon, Disney, Cochlear Limited (ASX: COH), CSIRO and NASA.

Altium has largely been hitting its long-term goals for a number of years. It’s now aiming for 100,000 Altium Designer seats as well as US$500 million revenue by 2025. Considering the company didn’t even reach US$200 million in FY20, there is a lot of potential growth between now and then.

The company is in a strong financial position with no debt and a cash balance of over US$90 million.

I think the ASX 200 share is a great long-term option because it’s one of the few ASX businesses with a global client base, it has growing profit margins (aside from FY20 perhaps) and a growing dividend.

The world is only going to become more technological, I think Altium is in the right industry to benefit from that.

At the current Altium share price it’s trading at 49x FY22’s estimated earnings.

Brickworks Limited (ASX: BKW)

Brickworks has already been around for decades and I think it’s got a compelling long-term future ahead with its various divisions.

It owns a large amount Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. The diversified investment conglomerate provides Brickworks with rising dividends and long-term capital growth. I think this a great long-term investment for Brickworks.

The ASX 200 share also owns half of an industrial property trust along with Goodman Group (ASX: GMG). This industrial property trust offers resilient rental income for Brickworks. But over the next few years there could be a sizeable increase in the rental income and valuation of the property trust when two large distribution warehouses are completed for Amazon and Coles Group Limited (ASX: COL). I really like this division for its defensive attributes.

The other main section of Brickworks is building products. It manufactures building products in both the US and Australia. In the US it recently made some acquisitions and now it’s the leading brick manufacturer in the north east of the US.

In Australia it sells a variety of different products including bricks, precast, roofing, masonry, paving and so on. It’s the biggest brick manufacturer in the country.

Building products is going through a tough period due to COVID-19, but I think it’s a good idea to invest in cyclical businesses when they’re at the worst point of their cycle.

At the current Brickworks share price it offers a grossed-up dividend yield of 5%.

A2 Milk Company Ltd (ASX: A2M)

I think that A2 Milk is one of the highest quality shares in the ASX 200.

The infant formula business has impressively built a good market position in New Zealand, Australia and Asia.

The company has seen stronger earnings, despite COVID-19, as customers stocked up on products.

I really like the long-term growth potential of A2 Milk. It’s being sold in thousands of more stores in the US each year, which increases its potential customer base. It takes a while before customers are willing to switch over to a new product.

Soon the ASX 200 share will be generating earnings from Canada with an agreement with Agrifoods.

A2 Milk has a huge cash pile that could be used for acquisitions or shareholder returns. I think the company has the right strategy by aiming for an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of around 30% – it balances growth and short-term profitability nicely.

At the current A2 Milk share price it’s trading at 30x FY22’s estimated earnings.

More reading

• You should watch this key metric during the reporting season that others often overlook
• 3 fantastic ASX growth shares to buy in August
• Here are easy ways to diversify your ASX portfolio
• Should fixed-interest investments be part of your ASX share portfolio?
• These were the worst performing ASX 200 shares last week

Tristan Harrison owns shares of Altium and Washington H. Soul Pattinson and Company Limited. 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 Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of A2 Milk and COLESGROUP DEF SET. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re currently in the process of constructing a retirement portfolio, then you might want to take a look at the ASX shares listed below.

I believe they are great options for investors looking for a combination of growth and income over the next decade. They are as follows:

Collins Foods Ltd (ASX: CKF)

The first option to consider buying for your retirement portfolio is Collins Foods. It is one of the largest quick service restaurant operators in the ANZ region with a massive 240 KFC stores in Australia and 40 KFC stores in Europe. It also operates 12 Taco Bells across Queensland and Victoria, as well as 75 franchised Sizzler restaurants around Asia.

Although it has a very large KFC footprint in the ANZ market, management still sees plenty of room for growth. This is also the case in Europe, where the brand has yet to fully penetrate the market. Combined with expansion opportunities for the Taco Bell brand, I believe Collins Foods is capable of delivering solid earnings and dividend growth for a long time to come. 

This was certainly the case in FY 2020, despite the pandemic. Last month the company released its full year results and revealed an 8.9% increase in revenue to $981.7 million and a 5.1% lift in underlying net profit after tax to $47.3 million.

Ramsay Health Care Limited (ASX: RHC)

I think Ramsay Health Care would be a good option for a retirement portfolio. Although its growth over the short term is likely to be challenging because of lower elective surgeries and other headwinds caused by the pandemic, I expect it to bounce back once the crisis passes. Looking further ahead, I believe Ramsay has a very positive outlook.

This is due to its world class network of private hospitals and their exposure to the growing demand for healthcare services globally. Combined with potential earnings accretive acquisitions in the future, I believe Ramsay shares can deliver strong total returns for investors over the long term.

More reading

• Here are easy ways to diversify your ASX portfolio
• Why I would buy Ramsay and this ASX blue chip share
• Insiders have been buying these ASX shares
• 3 of the best mid cap ASX shares you can buy right now
• 2 five star ASX healthcare shares to buy in July

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods Limited and Ramsay Health Care 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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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

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

Magellan Financial Group Ltd (ASX: MFG)

A note out of the Macquarie desk reveals that its analysts have downgraded this fund manager’s shares to an underperform rating with an improved price target of $57.50. Although Magellan has been growing its funds under management and delivered strong performance fees, it appears concerned with its lofty valuation. In light of this, it has downgraded its shares on valuation grounds. The Magellan share price ended the week at $58.56.

Scentre Group (ASX: SCG)

Analysts at Citi have retained their sell rating and cut the price target on this shopping centre operator’s shares to $2.06. According to the note, the broker expects earnings season to be very messy for Scentre and its real estate peers. It is particularly concerned about the prospects of retail property companies because of the pandemic and suspects that they could disappoint the market next month. The Scentre share price last traded at $2.11.

TPG Telecom Ltd (ASX: TPG)

According to a note out of Credit Suisse, its analysts have reinitiated coverage on this newly merged telco with an underperform rating and $7.35 price target. The broker has been looking over its business and appears concerned that the pandemic could weigh on its performance. This is particularly the case with mobile service sales and revenues from roaming. In light of this, it is predicting a step down in its earnings. The TPG Telecom share price ended the week at $8.02.

More reading

• These were the worst performing ASX 200 shares last week
• Vocus and 1 other top quality ASX share to buy right now
• 4 trends to invest in before August earnings season
• Should you buy ASX retail shares in July?
• TPG and 1 other quality ASX 200 share to buy right now

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. 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 year is a long way from being over, but many lessons are likely to have already been learned from investing in 2020.

Notably, the stock market crash has shown that unforeseen events can have a major and sudden impact on stock prices. Alongside this, volatility can persist over a period of many months and this can allow investors to take advantage of the stock market’s cyclicality.

As such, through buying high-quality businesses at fair prices for the long term, you could improve your financial prospects even in the most difficult of investing conditions.

An unforeseen stock market crash

The stock market crash has dominated the views of most individuals when investing in 2020. As with many previous market downturns, it was unforeseen by most investors at the start of the year. However, it caused one of the sharpest and fastest falls in the stock market’s price level in history.

A key lesson that all investors can take away from the market crash is that unforeseen bear markets can occur at any time. There is often little or no warning that they will take place, since any number of potential risks can grow in size to negatively impact on stock prices.

Therefore, buying high-quality businesses when investing in 2020 and in the coming years could be of great importance. They may be better able to survive a period of weak economic performance that causes their sales figures to fall. Through identifying the best businesses in a sector and holding them in your portfolio, it may be possible to reduce risks and improve your overall returns.

High volatility

High volatility has seemingly been a constant when investing in 2020. As per previous stock market downturns, uncertainty and risks can remain elevated for many months, and even years, following the initial decline. As such, with the prospect of a second wave of coronavirus and geopolitical risks in Europe and North America, investing conditions could continue to be unpredictable for the remainder of the year.

Therefore, investors may wish to take a long-term view of their holdings. This may enable them to look beyond the short-term volatility that could cause paper losses in the near term, with the stock market’s long-term track record highlighting its potential to deliver relatively high returns over a sustained time period.

Value investing in 2020

Seeking undervalued stocks when investing in 2020 could lead to high returns in the coming years. Although growth stocks have become increasingly popular over recent years, valuations may now be more relevant in a world economy that is struggling to grow.

Through buying high-quality companies when they are trading at low prices, it is possible to obtain a wide margin of safety that could boost your returns. This may improve your financial prospects and allow you to benefit from the lessons learned from the stock market crash in 2020.

More reading

• 4 ASX tech shares to buy that aren’t BNPL shares
• 3 stellar ASX tech shares I would buy in August
• Why I’d start planning for stock market crash part 2 today
• My 5-minute bull case for the Bubs share price
• Is now the time to sell your ASX shares?

Motley Fool contributor Peter Stephens 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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Buy now, pay later (BNPL) shares have stolen the limelight from the ASX tech sector. BNPL shares have become increasingly challenging to buy as valuations continue to be stretched. With reporting season around the corner, here are 4 ASX tech shares with reasonable valuations and strong growth portfolios. 

1. Data#3 Ltd (ASX: DTL) 

Data3 delivers an integrated array of solutions spanning cloud, modern workplace, security, data and analytics, and connectivity. These technology solutions are delivered by combining its services across consulting, project services and support services.

On 16 July, the company advised that, subject to finalisation of its group year-end audit, its consolidated net profit before tax for FY20 is estimated to be approximately $34 million. This represents an increase of 28% compared to its previous record FY19 result. 

2. Bigtincan Holdings Ltd (ASX: BTH) 

Bigtincan is a global leader in sales enablement software, which allows organisations to increase sales win rates, reduce expenditure and improve customer satisfaction. In its equity capital raising presentation back in May, the company cited that its customer cash receipts increased 178% to $14.9 million from the March 2019 quarter of $5.4 million. This growth was driven by significant new wins with a number of Fortune 500 companies.

I believe Bigtincan represents a more volatile opportunity that could deliver some explosive growth in the medium-long term. For investors looking for a slightly speculative opportunity, this could be the ASX tech share to add to your watchlist. 

3. Rhipe Ltd (ASX: RHP) 

Rhipe provides licensing, business development and knowledge services that support its customers’ adoption of cloud technologies. Its vendors – such as Microsoft, VMWare and Citrix – all rely on Rhipe’s platform to build, grow and support the consumption of their cloud license programs.

On 17 April, the company provided a trading update highlighting its unaudited trading results for the nine months to 31 March 2020. During this period, the company delivered a 32% increase in sales and 19% increase in revenue. Following this announcement, Rhipe initiated a $34 million capital raising to allow it to pursue acquisitions that are complementary to its existing cloud software subscription business. I believe Rhipe has demonstrated fair growth and is now in a strong cash position to explore opportunities to accelerate its growth moving forward. 

4. Dicker Data Ltd (ASX: DDR) 

Dicker Data is a value added distributor of hardware, software, cloud and emerging technologies in Australia. In the company’s market update announced on 23 July, it outlined the recent surge in remote work has seen a strong demand for remote and virtual working solutions across its hardware and software portfolios.

The company provided unaudited half year results that saw its total revenue increase 18.1% and net profit after tax up 23.5%. Dicker is one of the few ASX tech shares that do not trade at an outrageous valuation. At today’s prices, its price-to-earnings ratio is just 21. I believe the company represents good value and further sales tailwinds can be expected.

More reading

• Replace your term deposit with these ASX dividend shares
• 3 exciting small cap ASX shares to watch in FY 2021
• Buy NAB and this ASX dividend share for income
• ASX 200 rises 0.3%, investors bet on Tabcorp
• Dicker Data share price surges 6% on strong half year update

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

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If you’re looking to add some tech shares to your portfolio in August, then I think the three listed below could be ones to consider buying.

Here’s why I think these ASX tech shares could be destined for big things:

Nearmap Ltd (ASX: NEA)

Nearmap is a leading aerial imagery technology and location data company. Its software allows its users to move location analysis out of the field and into the office. It gives businesses instant access to high resolution aerial imagery, city-scale 3D datasets, and integrated geospatial tools. I think Nearmap could have a bright future ahead of it thanks to its high quality solutions and its lucrative opportunity in a highly fragmented market. All in all, I believe the Nearmap share price could be a market beater over the 2020s.

Xero Limited (ASX: XRO)

Another ASX tech share to consider buying is Xero. It is one of the world’s leading cloud-based business and accounting software providers. Thanks to the ongoing shift to cloud accounting, Xero has been growing at a rapid rate in recent years. This continued in FY 2020 with Xero reporting a 29% lift in annualised monthly recurring revenue (AMRR) to NZ$820.6 million. This was driven by strong customer growth and its sky high retention rate. I believe the latter demonstrates the quality and stickiness of its accounting platform. Looking ahead, I believe the company has a long runway for growth. Particularly in the North America market where it currently has just 241,000 subscribers. This compares to 914,000 subscribers in a materially smaller ANZ market.

Zip Co Ltd (ASX: Z1P)

A final tech share to consider buying is Zip Co. It is one of the ANZ region’s leading buy now pay later providers. While its shares have been on fire this year, I believe they could still be a great long term option for investors. Especially given its recent expansion into the massive United States market via the acquisition of QuadPay. If the company can make a success of this expansion, it could be destined for further explosive growth over the coming years.

More reading

• These BNPL shares have blown up since their IPOs
• What to do if your ASX shares hit a record high
• Got $10,000 to invest? I would buy these ASX shares
• Why the Zip share price is a better buy than Afterpay
• Why Audinate, Nearmap, Resolute, & TechnologyOne shares are tumbling lower

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

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A second stock market crash could realistically occur over the coming months. Numerous risks face the world economy that could derail its growth prospects and cause investor sentiment to weaken.

Furthermore, the stock market has a long track record of high volatility. This means that always being ready for a sudden fall in share prices could be a sound move.

Of course, many stocks currently offer wide margins of safety, and may therefore be worth buying today despite the risk of a further drop in the price levels of indexes such as the S&P 500 and FTSE 100.

A second stock market crash

The second half of 2020 could include a second market crash after the initial decline and subsequent rebound recorded in the first half of the year. Risks such as an increase in coronavirus cases, as well as geopolitical uncertainty in the US and Europe, may contribute to more challenging operating conditions across many sectors. This may cause investor sentiment to weaken, which could disrupt the share price growth prospects for many businesses.

Of course, the stock market has a long history of high volatility. Even if a further decline in share prices does not occur over the near term, the next bear market is almost certain to take place in the coming years. No stock market index has ever risen without experiencing downturns and bear markets, which means that investors should always be ready to react to attractive stock prices that may only be available for a short time period.

Having some cash available to invest whenever a market crash occurs could be a potential solution to the prospect of a decline in share prices. It may act as a drag on your portfolio’s performance in the short run due to the low returns on savings accounts, but could allow you to capitalise on undervalued opportunities.

Buying shares today

Of course, another market crash may not occur for many years. Investor sentiment has improved in recent months, and the risks facing the world economy may already be priced in to market valuations.

As such, now could be the right time to buy high-quality businesses at low prices. Certainly, some sectors have risen significantly in value over recent months, and may now offer unfavourable risk/reward opportunities. However, other sectors still appear to be undervalued based on their long-term recovery prospects and the financial positions of their incumbents.

Therefore, investors who can adopt a long-term time horizon and look beyond short-term risks of a second market crash may wish to add stocks to their portfolios. This may not lead to high returns in the coming months, but may significantly improve your portfolio’s value as the world economy and stock prices gradually recover from an extremely challenging period.

More reading

• 3 stellar ASX tech shares I would buy in August
• My 5-minute bull case for the Bubs share price
• Is now the time to sell your ASX shares?
• 3 reasons why the Macquarie share price could be a buy
• You should watch this key metric during the reporting season that others often overlook

Motley Fool contributor Peter Stephens 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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I think that the Bubs Australia Ltd (ASX: BUB) share price is a buy. I’m going to outline my bull case for it in this article.

A quick overview of what Bubs does

Bubs was founded in 2006 by Kristy Carr. The company sells a variety of products with a focus on infant formula products and baby food, particularly goat milk products. It also sells other goat milk products and Jersey milk products.

Here are the main reasons why I think, at this share price, Bubs is a great business to buy:

Strong growth with international earnings

The biggest point about the company is that it’s delivering strong results.

Each result that Bubs releases shows strong revenue growth by the company. In the FY20 half year result it showed revenue growth of 37% to $28.75 million. In the quarter ending 31 March 2020, its revenue jumped by 67% to $19.7 million – up 36% on the previous quarter.

Whilst the current revenue numbers it’s reporting aren’t big in absolute terms, compound growth could mean the company quickly becomes much larger if it keeps growing strongly at a high double digit rate.

It’s the international growth that particularly excites me about the revenue growth. In the FY20 third quarter, Chinese revenue went up 104% and represented about a quarter of total sales. ‘Other markets’ revenue went up almost 20 times, with large growth into Vietnam – this segment now represents 12% of gross sales.

Ultimately, a business with ‘potential’ needs to deliver the growth to grow its value and lead to a sustainable increase in the Bubs share price over time.

I’m going to try to explain some of the points of why the Bubs revenue and the Bubs share price are growing so strongly.

Expanding distribution network

A key part of success for a consumer product business is to get its products in front of more potential consumers. That means into more stores, more websites and more countries.

In terms of exports, its products are going to China, South East Asia and the Middle East. The ‘other market’ regions are a big addressable market for Bubs.

Bubs has made a number of deals to expand its distribution network. For example, it has distribution agreements with Alibaba’s Tmall and Beingmate.

In Australia, Bubs products are sold across hundreds of stores with major distribution agreements with Chemist Warehouse, Woolworths Group Ltd (ASX: WOW), Coles Group Limited (ASX: COL) and Baby Bunting Group Ltd (ASX: BBN).

Bubs recently signed a new deal to expand its distribution of organic grass fed infant formula with Coles and Woolworths. That announcement sent the Bubs share price higher by 10%.

High level of control of its supply chain

Bubs boasts of being Australia’s only vertically integrated producer of goat milk formula, with exclusive milk supply from Australia’s largest milking goat herd after the acquisition of NuLac Foods.

Last year the company announced the acquisition of the Deloraine manufacturing facility for $35 million. It was a key acquisition because, at the time, it was only one of 15 licenced canning facilities in Australia authorised by the certification and accreditation administration of China (CNCA) for physical importation into China under regulatory requirements administered by state administration for market regulation (SAMR). These approved manufacturers are key for getting product into China. 

At the time of the acquisition, the company also raised $31.4 million at a share price for Bubs of $0.65. It’s up 57% since then.

Rising gross profit margin

One of the main factors for a market-beating ASX share is rising profit margins. Economies of scale are important.

Bubs has reported a steadily growing gross profit margin over the past four results. In June 2018 the gross margin was 14%, in December 2018 it had a 19% gross margin, in June 2019 it had a gross margin of 21% and in December 2019 it had a gross margin of 24%.

Bubs said it is doing effective cost management on a fixed milk price and more of the products sold are the higher margin infant formula products. In the December 2019 result the infant formula gross margin was 41%.

As the business gets bigger, Bubs will become more profitable for each extra dollar of revenue generated.

Cashflow positive

An important stage for every fast-growth company is reaching cashflow status. The company has had to do a number of capital raisings at a lower Bubs share price to reach its current size and strength. When a business becomes cashflow positive it can start funding its own growth.

In the three months to 31 March 2020, Bubs saw positive operating cashflow of $2.3 million. That’s not a lot, but the fact it’s now positive is a big plus. Bubs also had $36.4 million of cash on the balance sheet at 31 March 2020. It’s in a strong financial position. 

Good strategy and focused management

I’ve been very impressed by the partnerships, acquisitions and expansion that Bubs has done since it listed on the ASX.

Kristy Carr and the team around her have done a great job of building the business into what it is today.

It’s a good sign when the founder of the business has stayed with the business since it was founded. Mrs Carr’s holding is now 2.43% of the issued share capital. That’s not a large position, but it’s still worth over $13 million at the current Bubs share price.

Foolish takeaway

I think Bubs is one of the most promising ASX shares around. In five years I think Bubs could be a much larger business, making good profit with a strong international presence. At the current Bubs share price I’d be happy to start with a sizeable position for the long-term.

More reading

• How to become a millionaire with ASX shares starting with $0
• Why Alcidion, Bubs, IGO, & Next Science shares are pushing higher
• Where I’d invest $9,000 in ASX shares
• Got $1,000? You should buy 1 of these 6 ASX shares
• 3 of the best mid cap ASX shares you can buy right now

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. 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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The ASX has had a tremendous run over the past few months. Since its lows in late-March the S&P/ASX200 Index (ASX:XJO) has surged nearly 37%. However, in my opinion there are a few headwinds that could be facing investors in the near future. Here are some factors to take into consideration when deciding whether or not to sell your ASX shares.  

Have ASX shares run too far?

Around 4 months ago during the height of market volatility, many investors were unsure how companies would ever recover, let alone ever trade at all time highs again. What has transpired over the last few months has been astounding, with some ASX shares making once in a lifetime moves.

A great example of this is Afterpay Ltd (ASX: APT), which hit a low of $8.90 in late March. Many investors questioned how buy now, pay later users would be able to meet their repayment obligations. Despite the pessimism, government income support and the rush to online and cashless retail has fuelled demand for the company’s services.

These moves have not been limited to technology companies, with online retailers like Kogan.com Ltd (ASX: KGN) and meal-kit provider Marley Spoon AG (ASX: MMM) also harnessing the change in consumer behaviour.

Despite government stimulus and certain companies buoying the overall market, many investors might be looking to take profits after such a miraculous run. A gloomy budget deficit, high unemployment forecasts and the looming reporting season could also serve as catalyst for a pullback.

Be wary of the upcoming reporting season

The upcoming reporting season in August is set to be one of the most complex and volatile seasons in recent history. The United States reporting season, which is currently underway, has provided a glimpse of the uncertainty and volatility Australian investors can expect.

Heading into reporting season, many investors would be relatively optimistic given there have not been a significant number of earnings downgrades. However, like all reporting seasons, there are bound to be some surprises.

What to watch this reporting season

It will be interesting to see how companies disclose the impact of the pandemic to investors and how the market will react. Furthermore, with many ASX companies implementing cost-cutting strategies to protect their balance sheets, it will also be fascinating to see how dividend payout ratios are impacted. Shares in the travel sector are already expected to report badly whereas there is more optimism for shares in the health sector. Reporting season will provide an opportunity to find out exactly how the pandemic has impacted the bottom line of companies in the tech sector. Meanwhile, the results for ASX bank shares are also likely to provide good insight into the country’s recovery prognosis.

Foolish takeaway

As a long-term investor I would usually advocate for shareholders to stay invested through the regular troughs and peaks of the sharemarket. However, the share price moves and general market volatility we have seen during the pandemic are an anomaly. Rather than selling the lot, another prudent strategy investors could adopt would be to sell a portion of their holdings to lock in profits. This would keep them invested whilst also freeing up some capital to take advantage of more opportunities that could arise during the August reporting season. 

More reading

• 5 steps to start investing in ASX shares
• Where to invest $100,000 into ASX shares
• 5 simple steps to financial independence
• These BNPL shares have blown up since their IPOs
• 2 ASX shares leveraged to the eCommerce shift

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

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In this article I’m going to tell you about three reasons why the Macquarie share price could be a buy.

Macquarie is an investment bank that can trace its history back to 1969. It’s now one of Australia’s largest businesses with a market capitalisation of around $45 billion according to the ASX.

The business boasts of a record of 51 years of unbroken profitability. That’s a very solid record for a financial business in my opinion.

The Macquarie share price has recovered strongly since March 2020 – it’s up almost 75% since 23 March 2020 after the 52.5% drop to $72.

But is it a still a buy? I think there are three reasons why I’d consider the Macquarie share price over other ASX blue chip shares:

International earnings

Plenty of the biggest businesses on the ASX are mostly focused on the domestic economy like the banks, Telstra Corporation Ltd (ASX: TLS), Coles Group Limited (ASX: COL) and Wesfarmers Ltd (ASX: WES).

Macquarie only generates a third of its income from Australia and New Zealand. Meaning that international income account for two thirds of the business. The Americas accounted for a quarter of income in FY20, Asia made up 13% of total income and EMEA (Europe, the Middle East and Africa) accounted for 29% of total income. Macquarie’s share price would be nowhere near as high today without the international earnings. 

I think that’s very important. The economies of Australia and New Zealand are sizeable, but obviously the entire world’s economy is much larger. So it’s better to be able to service the entire globe. It means Macquarie can invest into any region it wants to, wherever it thinks will produce the best return for its money.

Diversified divisions

Macquarie is probably one of the most diverse businesses among the ASX 20. It has four main segments: Macquarie Asset Management (MAM), banking and financial services, Macquarie Capital and commodities and global markets. The earnings diversification has been helpful for the recovery of the Macquarie share price this year in my opinion. For example, IPOs have dropped off but ASX capital raisings have been frequent. 

Plenty of ASX shares are reliant on just one or two main sections to generate profit. But Macquarie makes good profit from each of its divisions. 

Macquarie describes half of its business as ‘annuity style’, meaning it’s defensive and generates consistent income. That refers to MAM and the banking divisions. I’m not sure banking is particularly annuity-like – particularly during COVID-19 – but managing assets is a great earnings stream. Macquarie’s assets under management had grown to $606.9 billion at 31 March 2020. That’s a great benefit to Macquarie.

The best bank

I think Macquarie is by far the best large bank on the ASX.

The big four ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) are not terrible businesses – they just don’t offer much growth or earnings diversification. Loans are not a high-growth area and not very defensive. The Macquarie share price has recovered better than the big four ASX banks’.

I wouldn’t want to diversify my portfolio by buying one of the big four because I believe it would lower my long-term investment returns. But Macquarie has proven it can be a good performer through the economic cycle.

I think Macquarie also showed its quality through the Hayne royal commission. It barely featured whereas the big ASX banks had their reputations tarnished and had to repay large sums of money. 

At this share price, is Macquarie a buy?

I’d much rather buy Macquarie than most other blue chips due to its ability to grow anywhere. At the current Macquarie share price it’s trading at 16x FY22’s estimated earnings. I think that’s a reasonable price to pay for Macquarie shares considering a good amount of dividend income should be paid over the long-term as well, though the dividend is a bit uncertain due to COVID-19 at the moment. 

More reading

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• Why CBA and Macquarie shares could be in the buy zone
• ASX 200 Weekly Wrap: Blue chip shares pull ASX 200 back over 6,000 points

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers 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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