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Here we go again. 

A new variant of COVID-19, named Omicron, over the weekend prompted many countries to close borders and sent share markets tumbling.

The S&P 500 (SP: .INX) sank 2.3% on Saturday morning, while the STOXX Europe 600 (STOXX: SXXP) fell a shocking 3.7%.

The futures market is tipping the S&P/ASX 200 (ASX: XJO) to drop 1.4% on Monday morning, in its first trade after Omicron was declared.

Prime Minister Scott Morrison has called an urgent national cabinet meeting to form a national response to the new health threat.

“It’s about whether people are getting a worse illness or it’s going to put stress on your hospital system,” he told Nine’s Today show.

“The fact we’ve had a new variant is not a surprise. We’ve been saying all through the pandemic that new variants also come.”

All hell is breaking loose. What does this mean for our ASX shares?

No need to panic, says one expert

One expert is urging investors to hold tight and not panic.

DeVere Group chief executive Nigel Green predicted over the weekend that Omicron would trigger a temporary correction, but that would be quickly shrugged off.

“The fact that a new strain has been discovered and, critically, that at this stage we know little about it has caused jitters in the financial markets, which loathe uncertainty,” he said. 

“The headlines have caused a knee-jerk reaction.”

He added it didn’t help that US markets were closed for 1.5 days last week due to the Thanksgiving holiday, meaning market movements were exaggerated.

“This wobble is likely to be temporary with markets remaining bullish for the time being.”

Just look what happened after Delta arrived

Green pointed out that the Delta variant of the coronavirus triggered only a temporary shock on markets earlier this year.

“Global shares have jumped 16% this year with investors focusing on the post-pandemic economic rebound. They largely shrugged off the Delta variant that caused a mini wave of market nerves in the [northern] summer,” he said.

“It’s likely that markets will do the same with this new variant.”

Health authorities would have been expecting new types of the virus to pop up and would be better prepared after the experience of Delta.

And this, according to Green, would mean stock markets can quickly move on from Omicron worries and focus on other issues.

“Global financial markets will be focusing on other pressing issues including high inflation caused by supply side bottlenecks and the likelihood of a quicker pull away from ultra-loose monetary environment,” he said.

“Markets will temporarily wobble on the uncertainty of this new Covid variant, but will remain bullish.”

The post COVID-19 Omicron can’t stop shares charging up: expert appeared first on The Motley Fool Australia.

More reading

• New artificial intelligence ASX share rockets 11% on debut
• This ASX share is a buy after it dodged a MASSIVE bullet: analyst
• ANZ (ASX:ANZ) shares rated a buy amid $125 trillion decarbonisation opportunity
• Down 20% in a month: Is the Zip (ASX:Z1P) share price too cheap to ignore?
• This sector could be a $50 trillion investment opportunity: expert

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Investors in at the ground level on a new artificial intelligence ASX share did pretty well for themselves on Friday.

Shares for Artrya Limited (ASX: AYA) listed on the ASX that morning and closed its first day at $1.52.

That’s a handy 12.6% up from its initial public offer issue price of $1.35 per share.

What does Artrya do?

The Perth business develops technology to automate the diagnosis of coronary artery heart disease, which can lead to cardiac arrest.

According to Artrya co-founder and managing director John Barrington, internationally 9 million people die from such disease each year.

“This number is expected to increase over the next few decades, as ageing populations continue to put pressure on health systems,” he said.

“This float will assist the company in pursuing further growth in the US, UK, Canada, and Europe.”

A 10 November supplement to the original IPO prospectus showed that Artrya recently won a tender to be appointed as an artificial intelligence supplier for the National Health Service Shared Business Services (NHS SBS) Framework.

The deal means that Artrya is among a shortlist of pre-approved suppliers that UK public institutions, including 1,250 hospitals, can purchase from.

What’s Artrya’s pipeline?

Artrya’s flagship software product is called Salix, which detects the presence of “vulnerable plaque” within a person’s arteries in roughly 15 minutes.

According to the prospectus, such plaque may rupture and cause heart attacks.

Salix was developed as a collaboration between the University of Western Australia, the Harry Perkins Institute of Medical Research, and the Ottawa Heart Institute.

The software suite is scheduled for an “unrestricted launch” in Australia early in the new year. Overseas expansion will take place soon after that.

“We are keenly focused on product development and market entry strategies to ensure our shareholders are rewarded for their belief in an innovative Australian business,” said Barrington.

Artrya chair Bernie Ridgeway said in the prospectus that coronary artery disease impacts an estimated 126 million people around the world. 

And the majority will have no warning signs before experiencing a heart attack.

“As the prevalence of CAD rises due to an ageing population, global health systems will have to deal with more CAD cases.”

In November 2020, Salix was added to the Australian Register of Therapeutic Goods (ARTG) as a Class 1 medical device.

Artrya will sell the software in a subscription model.

“This model will help Artrya penetrate the global CCTA and ICA markets because healthcare providers pay no upfront costs to use Salix,” Ridgeway said.

“Artrya believes the software-as-a-service model could deliver annuity revenue and profitable margins for the company.”

The post New artificial intelligence ASX share rockets 11% on debut appeared first on The Motley Fool Australia.

More reading

• COVID-19 Omicron can’t stop shares charging up: expert
• This ASX share is a buy after it dodged a MASSIVE bullet: analyst
• ANZ (ASX:ANZ) shares rated a buy amid $125 trillion decarbonisation opportunity
• Down 20% in a month: Is the Zip (ASX:Z1P) share price too cheap to ignore?
• This sector could be a $50 trillion investment opportunity: expert

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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In an odd turn of events, a particular ASX share has been upgraded from “hold” to “add” by one investment house because of a failed business deal.

Shares for energy infrastructure firm APA Group (ASX: APA) have not lit the world on fire of late. They closed Friday at $9.64, which is pretty much where they were at the trough of the COVID-19 crash in March 2020.

In an attempt to diversify its business, APA in September submitted a takeover bid for electricity company Ausnet Services Ltd (ASX: AST).

Eventually the Ausnet board went with another suitor, Brookfield Asset Management Inc (TSE: BAM.A), in a bitter blow for APA.

APA’s proposal reeked of desperation

But Morgans senior analyst Nathan Lead has no doubt APA’s takeover bid was terrible and investors were absolutely relieved the proposal was not accepted.

“We estimated APA needed to bridge a more than $3 billion gap in order for the acquisition to have zero value per share impact,” he wrote in a Morgans memo.

“This willingness to pay overs to diversify into electrification may signal that APA is concerned about the long-term prospects for its existing business.”

The market certainly agreed with Lead, pushing APA shares up more than 17% in less than a month since Ausnet killed the takeover offer.

Morgans analysis shows APA’s 2049 “terminal value” now assuming “mildly declining perpetuity cash flows”.

“Alternatively, APA’s penchant for M&A could see its cost-of-equity rise as it is viewed by the market as cum-capital raising.”

But now macroeconomic conditions could trigger revenue upgrades

So why is a loser who missed out on a business deal now so attractive to the Morgans team?

Inflation, pure and simple.

Lead explained that APA’s revenue changes are correlated to the consumer price index via “contracted price escalations”.

“The low inflation environment has reduced APA’s earnings growth in recent years,” he said.

“However, APA should benefit from a CPI surge in 2022. Circa 32% of EBITDA is sourced from the Wallumbilla-Gladstone Pipeline, whose US$ revenues escalate annually on 1 January based on November CPI in the USA.”

The November CPI figure is expected to be reasonably high, following October’s year-on-year 6.2% increase.

“Furthermore, we understand domestic CPI for the December quarter drives annual escalation of a mass of AU$ contract revenues in 2022 (and the September quarter CPI was a solid 3%),” Lead said.

“Long-term we assume Australian and USA CPI averages 2.4% and 3% per annum through to 2030 respectively, as per market implied expectations in yield curves.”

The Morgans team is therefore upgrading APA shares from “hold” to “add”.

“At current prices, we estimate a 12-month and 5-year potential return of circa 11% and 7.6% per annum, respectively.”

The post This ASX share is a buy after it dodged a MASSIVE bullet: analyst appeared first on The Motley Fool Australia.

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• Why Ausnet, Charter Hall, Codan, and Imugene shares are storming higher

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Australia and New Zealand Banking GrpLtd (ASX: ANZ) shares could be a buy for ESG focused investors.

That’s the view of analysts at Bell Potter, which have retained their buy rating on the banking giant’s shares this morning.

What does Bell Potter think of ANZ shares?

According to the note, the broker has retained its buy rating and $31.00 price target on ANZ’s shares.

Based on the current ANZ share price of $27.07, this implies potential upside of 14.5% for investors over the next 12 months.

But it doesn’t stop there. The broker is forecasting a generous dividend yield of 5.2% over the period. Combined, this brings the total potential return on offer with ANZ’s shares to almost 20%.

What did the broker say?

Bell Potter notes that ANZ has just held another ESG meeting and highlights that the bank is aiming to be Australia’s leading bank in supporting customer transition to net zero emissions.

Its analysts believe this has the potential to be a very lucrative market for the bank to target. And if it gets it right, it could have positive consequences for ANZ’s shares in the future.

The broker commented: “There are significant opportunities from decarbonising the economy and the bank is well positioned to facilitate to net zero emissions. This is also in line with ANZ’s clear path of driving forward with sustainable investments. So it’s not just about Australia but more so on a global basis, and especially the amount needed to spend: ~$125 trillion and with >50% in the Asia Pacific. One key element for example is the US$10 trillion needed for electric vehicle conversion. The ambition is thus to be Australia’s leading bank in supporting customer transition to net zero.”

Bell Potter accepts that this will not be an easy task but one that could generate significant benefits in the future.

It explained: “The bank’s success in supporting a net zero transmission will be largely driven by financing customers to reduce their emissions. Getting it right is the hard part however – it would probably take a long time but the benefits are massive.”

“ANZ is already working with 100 largest emitting customers to do so. Some of them have closed the gap but all have welcomed the engagement. The bank already has skills and would be able to understand the implications of sustainability better. As a prudent lender, ANZ will be judged with not loosening their credit standards. Likewise as a prudent saver, the bank has to be sure that things do not get out of hand,” it added.

All in all, combined with its strong position in business banking, Bell Potter remains bullish on ANZ’s shares and has reiterated its buy rating.

The post ANZ (ASX:ANZ) shares rated a buy amid $125 trillion decarbonisation opportunity appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It has been a terrible month for the Zip Co Ltd (ASX: Z1P) share price.

Since the start of November, the buy now pay later (BNPL) provider’s shares have lost 20% of their value.

This means the Zip share price is now down 7.5% in 2021.

Why are its shares sinking this month?

Investors have been selling down the Zip share price this month despite the release of a positive update at its annual general meeting.

At the event, Zip’s Managing Director and CEO, Larry Diamond, revealed that Zip’s strong growth continued during October.

He commented: “October was Zip’s highest TTV month on record processing over $770m in transaction volume for the month, which was a 94% increase on October 2020, with the Company now annualising at over $9b. Off the back of the rebrand, October delivered a 24% MoM increase which provides outstanding momentum entering the seasonal peak period.”

However, this good news may have been offset by reports in the United States which suggest that fraud is rising in the BNPL industry.

An investigation apparently shows that criminals are exploiting weaknesses in the application process for BNPL loans and stealing items. Investors may be worried what impact this will have on margins.

Is the Zip share price now too cheap to ignore?

One leading broker that appears to see the recent weakness in the Zip share price as a buying opportunity is Morgans.

A recent note reveals that its analysts have put an add rating and $8.56 price target on the company’s shares. Based on the current Zip share price of $5.17, this implies potential upside of almost 66% for investors over the next 12 months.

Morgans is positive on Zip due largely to the company’s bold long term global ambitions and its current valuation. Its analysts highlight that in comparison to Afterpay Ltd (ASX: APT),  Zip’s shares are trading on significantly lower multiples.

The broker commented: “We continue to see longer term upside if Z1P can execute on its ambitions of becoming a global payments player. Noting the stock continues to trade at a significant discount to peer APT (~6x sales versus ~25x), we maintain our ADD recommendation.”

The post Down 20% in a month: Is the Zip (ASX:Z1P) share price too cheap to ignore? appeared first on The Motley Fool Australia.

More reading

• Could the Afterpay (ASX:APT) share price be about to get a boost?
• Why Zip (ASX:Z1P) and this ASX tech share could be buys
• What is the difference between buying Square and Afterpay (ASX:APT) shares?
• Are Zip (ASX:Z1P) shares a buy? Some pros and cons from Motley Fool analyst Kate Lee
• Does the lower Zip Co (ASX:Z1P) share price make it a takeover target?

Motley Fool contributor 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 has recommended AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There is one fund manager that believes there’s an investment opportunity with a sector out there which could be worth up to $50 trillion.

Nick Griffin from Munro Partners was speaking to Patrick Poke from Livewire Markets when he said he thinks a particular part of the global economy could have an opportunity of between $30 trillion to $50 trillion.

What’s the investment opportunity?

Mr Griffin believes that global decarbonisation could have a total cost of between $30 trillion to $50 trillion. He points out that this cost is directly a $30 trillion to $50 trillion revenue opportunity for the companies that can provide these solutions.

There are a number of areas that he believes could see significant growth in the coming years. He said on the Livewire podcast:

As we see here today, electric cars are roughly 3-5% of all cars sold in the world today. Renewable energy is less than 20% of all electricity generation globally, and electricity is actually only 25% of the energy mix. So, if you truly want to de-carbonise the planet, IE, get to net zero by 2050 and that’s the goal, then electricity as just a share of our energy generation has to more than double, IE, oil has to be replaced with electricity, if that makes sense, to power all these electric cars.

And then renewables’ share of electricity has to go from 20% to 80%. Some simple maths tells you you’re getting between an eight and a 16-fold increase in renewable energy over the next 30 years. There are a plethora of investments you could look at here. Whether it’s wind-turbine generation, OEMs (original equipment manufacturers), or whether it is solar equipment, or whether it’s the semiconductors.

Mr Griffin named the German power semiconductor business Infineon as a potential opportunity as its addressable market multiplies.

In terms of the areas of where Munro Partners is thinking there will need to be significant areas of investment, it thinks that there are opportunities with “many climate related technologies are in their infancy and thus have significant long-term growth potential”.

What areas will need huge investment?

Munro Partners points out areas like electric cars, energy efficiency, hydrogen, batteries, distribution grids, transmission grids, renewables, heating, charging stations, buses and tracks.

Circular economy solutions is another area that Munro Partners is looking at, that’s where there are efforts to improve recycling, use alternative packaging materials and manage wastewater.

Munro Partners is a globally-focused fund manager, so didn’t name any ASX shares to think about.

But there are some ASX shares that have a growing exposure to green initiatives and decarbonisation.

One example is Australian Ethical Investments Ltd (ASX: AEF), which is a fund manager that tries to find investments that are both compelling to make returns and fit a number of ethical/green criteria for investors.

Cleanaway Waste Management Ltd (ASX: CWY) is one of the biggest businesses involved in the recycling sector. It’s currently rated as a buy by the brokers at Macquarie Group Ltd (ASX: MQG).

Macquarie itself has a growing division that specialises in lending for green projects.

Being the resource-heavy stock market that it is, the ASX has lithium miners like Pilbara Minerals Ltd (ASX: PLS) and Orocobre Limited (ASX: ORE) – both rated as buys by Macquarie. Even Wesfarmers Ltd (ASX: WES) is getting in on the lithium mining action with Mt Holland.

The post This sector could be a $50 trillion investment opportunity: expert appeared first on The Motley Fool Australia.

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Motley Fool contributor 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 and has recommended Australian Ethical Investment Ltd. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. and Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part 1 of this edition, Sam Granger, Founder of Equanimity Partners, explains the benefits of holding a smaller portfolio and reveals this year’s top-performing share in the Equanimity High Conviction Fund.

Motley Fool: How would you describe your fund to a potential client? 

Sam Granger: The Equanimity High Conviction Fund provides exposure to a concentrated portfolio of 10 to 15 outstanding businesses which we judge to have exceptional risk/reward characteristics.

We have a flexible mandate that allows us to search very broadly for potential winners, and then we conduct extremely thorough independent due diligence to whittle down this opportunity set into a small number of our very best ideas.

The fund has been running for almost 5 years and has been compounding investors’ capital at 20.0% per annum, net of all fees, since inception.

MF: What advantages do you see with the concentrated investment approach of holding only 10-15 shares? 

SG: If you have more capital in your very best opportunities you clearly have the potential to earn higher returns, provided your analysis is correct, of course. Concentration also gives us the time to do very deep fundamental research without the distraction of marginal ideas.

MF: Would more diversity from owning a larger number of shares reduce volatility?

We believe there is a trade-off between the higher returns on offer in a concentrated portfolio and the associated higher levels of volatility that a concentrated portfolio creates. We’re happy to accept this trade-off because over the long term we don’t view owning 10 to 15 exceptionally high-quality businesses as particularly risky.

At the moment we have 12 holdings.

MF: You established the Equanimity High Conviction Fund in May this year after executing a management buy-out from Totus Capital, where you helped establish the fund in 2017. What was your rationale here? And has anything changed with the fund? 

SG: That is correct. I originally established the fund in partnership with Totus Capital in January 2017, and then purchased Totus Capital’s share of the business in 2021.

The rationale for this was that I wanted independence, the challenge of running my own business, and the ability to devote all my time to the High Conviction Fund. Independence has enabled me to spend more of my time focused on investment research, which now occupies 95 per cent of a normal day for me.

Ben McGarry, the founder of Totus, was extremely gracious in allowing me to buy him out of his share of the business, which ensured a great deal of continuity for our investors.

The only thing that really changed was the name of the fund.

MF: You hold both large and small-cap shares. What are the pros and cons of investing in small caps compared to blue chips?   

SG: Small caps are currently around 20% of our portfolio and have historically been an important driver of our returns. The allure of small caps is that you can discover underresearched businesses at attractive prices before their quality is fully recognised by the broader market. The negatives are that often the liquidity in the shares is poor and the business models are less proven.

Our portfolio started out with a very significant focus on small caps, but this exposure has actually been coming down through time.

MF: What sectors look promising to you in the year ahead?    

SG: We’re focused on the bottom-up analysis of businesses rather than being thematically or sector-driven. And we generally take a 3-to-5-year view on the performance of the businesses we own rather than a single year.

With that said, we are finding more attractive opportunities in offshore markets and have bought very little in Australia over the past 12 months. We are generally finding better risk/reward in the larger and more established blue-chip businesses offshore and are finding the valuations in small-cap Australia quite demanding.

The Australian market is actually quite expensive for high-quality businesses. Those that are listed here tend to attract a massive premium. Over the last 2 years or so, I’ve been finding better opportunities offshore.

MF: What’s been your best investment for the fund over the past year?   

SG: Alphabet Inc (NASDAQ: GOOG) has been our best. That’s currently up 69% year-to-date. The business is an extraordinary collection of competitively advantaged assets with structural tailwinds for growth as commerce continues to shift online.

Key assets in the Alphabet stable include Google Search, YouTube, Android, Google Cloud Platform, and Google Maps. We first purchased our position in Alphabet almost four years ago and continue to be happy shareholders today.

**

Tune in tomorrow for part 2 of our interview, where Equanimity Partners Sam Granger profiles 3 international shares with strong growth outlooks.

(You can find out more about the Equanimity High Conviction Fund here.)

The post This international share has returned 69% in 2021 and there’s more to come: fund manager appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Alphabet (A shares). The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Australian share market is home to a good number of shares offering attractive dividend yields.

But which ones should you buy over others? Here’s are two that analysts rate as buys right now:

Bapcor Ltd (ASX: BAP)

The first ASX dividend share to look at is Bapcor. It is the Asia Pacific’s leading provider of vehicle parts, accessories, equipment, service and solutions. It is also the name behind a number of retail brands such as Autobarn, Burson Auto Parts and Midas.

Thanks to the strength of these brands and strong demand for used cars, Bapcor was on form and delivered solid sales and profit growth in FY 2021. Looking ahead, the company appears well-placed for growth over the long term thanks to its strong market position and bold expansion plans overseas.

It is also worth noting that Bapcor’s shares were sold off last week amid the surprise announcement of the retirement of its long-serving CEO. And while this creates an air of uncertainty, this appears to be more than priced in following the 18% weekly Bapcor share price decline.

The team at Morgans is positive on Bapcor. The broker currently has an add rating and $8.45 price target on the company’s shares.

As for dividends, its analysts are forecasting fully franked dividends of 21 cents per share in FY 2022 and then 23 cents per share in FY 2023. Based on the current Bapcor share price of $6.76, this will mean yields of 3.1% and 3.4%, respectively.

Mineral Resources Limited (ASX: MIN)

Another ASX dividend share analysts have named as a buy is Mineral Resources.

It is a mining and mining services company with exposure to two commodities – iron ore and lithium. While the former is acting as a drag on its performance at present, sky high lithium prices are offsetting this thankfully.

It is because of the latter that the team at Macquarie remain very positive on Mineral Resources. Last week the broker reaffirmed its outperform rating and $72.00 price target.

The broker is also forecasting attractive dividend yields in the near term. Macquarie has pencilled in dividends per share of $1.34 in FY 2022 and then $1.85 in FY 2023. Based on the latest Mineral Resources share price of $43.53, this will mean yields of 3.1% and 4.25%, respectively, over the next two financial years.

The post 2 buy-rated ASX dividend shares appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Bapcor. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Cloud software provider Xero Limited (ASX: XRO) has grown phenomenally since it started in 2006.

The business started in a tiny apartment in Wellington, New Zealand, where the first employees had to pinch wifi from the neighbouring cafe.

And now, it has a market capitalisation of $20.72 billion.

It started its publicly listed life on the NZX, but even just during its ASX life, Xero shares have returned an eye-watering 2,896%.

So has all the money been made now? It wouldn’t be outrageous to suggest all the decent growth is now behind it?

That’s the question The Motley Fool’s chief investment officer Scott Phillips and analyst Chris Copley set out to answer in a recent video.

How Xero grew from zero to hero

Although commonplace now, the idea of cloud-based accounting was revolutionary in the mid-noughties when founder Rod Drury decided to make it reality.

According to Copley, formerly an accountant, the company was “an early mover” in the cloud accounting industry.

“I used to train different clients on how to use some of these accounting platforms, and Xero was by far my favourite solution,” he said.

“We could teach them how to do the bookkeeping on Xero because it was so easy to do and that saved them costs.”

This ease of use, and the network effects of accountants actually recommending the software to their clients, propelled the incredible growth of Xero over the past decade.

Phillips said that the company’s origin and growth narrative was irresistible.

“It’s one of Australasia’s great success stories of the last 20 years.”

Plenty of reasons to continue growth

But investors must look forward, not backwards. 

Xero shares ended Friday at $139.30, which is a 9% drop over the month. Is the market starting to lose faith in the sustainability of its growth?

Copley said the global addressable market for cloud accounting is massive, and that Xero has only “scraped the surface” so far.

“Cloud adoption globally is really low relative to Australia and New Zealand.”

He added that the business is still running in ‘capture market share’ mode, so it has room to improve its margins in the future.

Xero is also developing into a small business suite, through collaborative partnerships with non-accounting software. This makes the platform more “mission critical” for its customers, according to Copley, and more “difficult to leave”.

But there are risks for Xero shares

Having a small business clientele means Xero is exposed to the whims of the economy, according to Copley.

And the company doesn’t have the head-start in the expansion markets as it did in Australia and New Zealand 10 years ago.

“There are solutions in the US like QuickBooks Online, which is Intuit Inc (NASDAQ: INTU)’s cloud-based accounting software,” Copley said.

“It has quite a comparable solution to Xero but has a larger market share in the US, and the business is growing at a similar rate.”

Also, regardless of geography, Xero’s rivals have now woken up to the fact that cloud is the future. The likes of old desktop rivals MYOB and Reckon Limited (ASX: RKN) are fast developing competitive solutions.

“Xero will need to continue to innovate and continue to innovate its solutions.”

Are Xero shares worth it now?

Copley said that with the valuation so high now, one could not buy Xero shares now with the expectation that it would rise 729% like the last 5 years.

“There’s a lot of lofty expectations built into the share price that investors should be wary of when investing in Xero.”

But having said that, Copley still made the call that Xero shares are a “market beater”.

“It’ll continue to grow. It’ll continue to grow for a long period of time. Its tail is long, which means I think it can get double-digit growth for a long period of time,” he said.

“You really do need to look well long term into the future for this one because even in 3 to 5 years it’s still going to probably have quite a lofty multiple.”

The post Are Xero shares worth their $21bn valuation? Motley Fool analyst Chris Copley weighs in appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo owns shares of Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It could be a tough start to the weeks for energy shares such as Oil Search Ltd (ASX: OSH), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL).

This follows an oil price sell off on Friday night amid fears over the new Omicron variant of COVID-19.

What happened to oil prices?

Traders were selling off oil on Friday night in a panic, leading to prices having their worst day of the year so far.

According to Bloomberg, the WTI crude oil price sank a whopping 13.05% to US$68.15 a barrel and the Brent crude oil price has tumbled 11.55% to US$72.72 a barrel.

Traders are concerned that the new Omicron variant, which was discovered in South Africa, has the potential to put countries back into lockdown and derail the travel market. If this were to happen, it would hit demand for oil very hard, just as supply is about to increase.

John Kilduff, partner at Again Capital, told CNBC: “It appears that the discovery of a Covid-19 variant in southern Africa is spooking markets across the board. Germany is already limiting travel from several nations in the affected region. The last thing that the oil complex needs is another threat to the air travel recovery.”

Increasing supply

Last week the US Government announced plans to release 50 million barrels of oil from the Strategic Petroleum Reserve as a part of a global plan by energy-consuming nations to tame rising fuel prices.

China, India, Japan, South Korea, and the U.K. are also planning to release some of their reserves.

Analysts at Commerzbank commented: “This [sell-off] is attributable to concerns about a sizeable oversupply in early 2022 that is set to be brought about by the upcoming release of strategic oil reserves in the US and other major consumer countries, plus the ongoing steep rise in new coronavirus cases.”

“Furthermore, an even more transmissible variant of the virus has been discovered in South Africa, prompting a noticeable increase in risk aversion on the financial markets today,” it added.

All in all, Omicron looks set to make this another volatile period for energy shares.

The post ASX energy shares on watch after Omicron sparks oil price crash appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Leading broker names 2 ASX energy shares to buy
• Traditional owners seek stake in $16.8bn Woodside Pluto project
• 5 things to watch on the ASX 200 on Friday
• Santos (ASX:STO) share price dips despite progress on $21 billion merger

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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