Tag: Motley Fool

ASX miners have been sitting high on the dividend throne but their reign is under threat as bank stocks are forecast to overtake them in 2022.

While high yielding ASX stocks were forced to slash their dividends in 2020 due to COVID-19, our biggest miners were flushed with cash.

The surprising surge in commodities, like the iron ore price, helped the sector become the dividend king.

Passing of the dividend baton to ASX banks

The Fortescue Metals Group Limited (ASX: FMG) share price, BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price were yielding 7% or more if you included franking.

What’s more, they are well placed to increase their dividend payments in 2021 as the commodity price tailwinds continue to blow.

However, the headwinds that have been buffeting the big ASX banks are turning into tailwinds and this sector is rapidly playing catch-up.

Tailwinds driving dividend recovery

The banking regulator has released the banks from a dividend leash as our economy bounces back from COVID.

The property market is also roaring back, which will lower the need for bad-debt provisioning. This assumption is one of the key underpinnings to Credit Suisse’s bull case scenario for ASX banks.

“Our bull case for the bank sector is predicated on recovery with the heavy lifting (capital and provision build) having been done in 2020,” said the broker.

“This scenario sees dividend growth in 1H21 followed by provision releases beginning in 2H21 as realisation of bad debts come in below modelled economic scenarios.

“At the same time credit growth builds over FY21 on the back of low rates, relaxation of lending standards and government stimulus.”

Bull versus bear case

Of course, this bullish forecast will be derailed if the vaccine roll-out hits unexpected hurdles and if our cities reimpose lockdowns.

But Credit Suisse thinks the bull case is a more likely outcome than the bear case. It increased its dividend payout forecast for the sector to 60% from 50% in FY21. The payout goes up to 65% in FY22 and FY23.

Further, the broker highlighting the prospects that the banks will undertake a capital management program as soon as FY22.

The dividend yield from ASX banks is tipped to increase from 3% in 2021 to circa 4.5% in 2022 (before franking). The yield in the materials sector, which is dominated by miners, is expected to go from a little over 5% to around 3.5% (excluding franking) over the same period.

ASX Banks are the Largest Dividend Recovery Play

Is it time to buy ASX bank stocks?

Credit Suisse has a “buy” recommendation on three of the big four ASX banks. This includes the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price, National Australia Bank Ltd. (ASX: NAB) share price and Westpac Banking Corp (ASX: WBC) share price.

The Commonwealth Bank of Australia (ASX: CBA) share price is rated “neutral”.

More reading

• 4 ASX shares that helped this fund outperform in December
• Brokers name 3 ASX shares to buy right now
• This broker calls ANZ (ASX:ANZ) shares as the preferred bank pick
• ASX 200 up 0.4%: Afterpay hits record high, bank shares rise, Resolute disappoints
• Why Afterpay, BHP, Objective, & Pro Medicus shares are charging higher

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, BHP Billiton Limited, Commonwealth Bank of Australia, National Australia Bank Limited, Rio Tinto Ltd., and Westpac Banking. Connect with me on Twitter @brenlau.

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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If you’re looking to make some additions to your portfolio in January, then the three ASX shares listed below could be great options.

They have been tipped as shares that could generate strong returns for investors in the future.

Here’s why they could be five-star stocks:

CSL Limited (ASX: CSL)

This biotherapeutics giant could be a five star stock. This is due to the quality of its CSL Behring and Seqirus businesses, their leading therapies and vaccines, its growing plasma collection network, and burgeoning research and development pipeline. In respect to the latter, CSL’s pipeline contains a number of products, such as Clazakizumab, that have the potential to generate billions of dollars of sales in the future. UBS is a fan of the company and last week reiterated its buy rating and $346.00 price target on CSL’s shares.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another potential five-star stock is Domino’s. This is due to the pizza chain operator’s strong market position and bold growth targets over the next decade. At the end of FY 2020, Domino’s had a network of 2,668 stores and is now aiming to more than double this to 5,500 stores by 2033. At the same time, the company is targeting organic same store sales growth of 3% to 6% per annum over the medium. Delivering on these targets would result in strong top line growth over the 2020s. One broker that is a fan of these plans is Goldman Sachs. The broker has a conviction buy rating and $88.00 price target on its shares.

BetaShares NASDAQ 100 ETF (ASX: NDQ)

A final potential five-star option is the BetaShares NASDAQ 100 ETF. This is due to the fact that this fund is home to a large number of the highest quality companies that the world has to offer. Among its holdings you will find the likes of Amazon, Apple, Facebook, Microsoft, Nvidia, Starbucks, and Tesla, to name just a few. This group of shares have been tipped to grow strongly in the future and could help drive outsized returns for the BetaShares NASDAQ 100 ETF.

More reading

• 3 blue chip ASX growth shares to buy
• 2 stellar ASX growth shares to buy this week
• Fund managers are buying Domino’s (ASX:DMP) and this ASX share
• 3 quality ETFs for ASX investors to buy today
• Top brokers name 3 ASX shares to buy today

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 BETANASDAQ ETF UNITS and CSL Ltd. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS and Dominos Pizza Enterprises 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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Exchange traded funds (ETFs) continue to grow in popularity with Australian investors.

So much so, according to the AFR, Vanguard has reported its best year since entering the Australian market two decades ago.

The world’s second-largest asset manager pulled in a total of $5.7 billion into its exchange traded funds in 2020 after Australian investors sought diversified exposure during a volatile time for share markets because of COVID-19.

If you’re interested in joining these investors by adding an ETF or two to your portfolio, then you might want to take a closer look at the two listed below. Here’s what you need to know about them:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The first ETF to look at is the BetaShares Asia Technology Tigers ETF. As its name implies, it gives investors exposure to a number of the biggest and brightest tech shares in the Asia market. Among the fund’s holdings you will find the likes of Samsung, Alibaba, JD.com, Tencent, and Baidu.

In respect to the latter, Baidu is the dominant search engine in China and widely considered to be the country’s version of Google. But like its US peer, Baidu is so much more than just a search engine. It has a keen focus on artificial intelligence and is aiming to be an autonomous vehicle powerhouse.

Another company you’ll be owning a slice of is Tencent. It is one of the world’s largest tech companies with a focus on video games and social media. It is best known as the company behind the WeChat app, which is used by over 1.2 billion people for messaging, e-commerce, digital payments, and entertainment.

BetaShares Global Cybersecurity ETF (ASX: HACK)

The BetaShares Global Cybersecurity ETF is another ETF to look closely at. This ETF aims to track the performance of an index providing investors with exposure to the leading companies in the growing global cybersecurity sector.

BetaShares notes that with cybercrime on the rise, demand for cybersecurity services is expected to increase strongly in the future. And given how this side of the market is heavily under-represented on the ASX at present, this ETF give investors an easy way to invest in the theme.

Included in the fund are both global cybersecurity giants and emerging players from a range of global locations. Among its holdings you’ll find Accenture, Cisco, Cloudflare, Crowdstrike, and Okta.

More reading

• 2 ASX ETFs to buy for 2021 and beyond
• US decides against delisting Tencent and other Chinese giants
• 3 quality ETFs for ASX investors to buy today
• 2 quality ETFs for ASX investors in January
• 3 great ASX tech shares to buy

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 BETA CYBER ETF UNITS. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. 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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Some small cap ASX shares may be able to make good returns over the longer-term.

There are smaller businesses that have interesting characteristics, which may be of interest to some investors:

Volpara Health Technologies Ltd (ASX: VHT)

Volpara is a medical technology business. Its main service is providing software to help detect breast cancer early on by increasing the quality of screening using AI.

The small cap ASX share reported its FY21 half-year result a couple of months ago. Subscription revenue went up 71% to NZ$8.8 million, though total revenue only grew by 38% to NZ$9.5 million. Annual recurring revenue (ARR) went up from NZ$18 million to NZ$19.9 million.

One of the metrics that Volpara likes to boast about to investors is that the gross profit margin reached 92%, up from 89% in the prior corresponding period.

The company recently won two contracts. The first was a five-year software as a service (SaaS) contract with BreastScreen Queensland to use VolparaEnterprise, which could expand to include VolparaDensity and VolparaLive. 

Volpara also announced that its breast health platform has been selected by US Radiology Specialists, which comprises of more than 280 radiologists, 3,100 team members and 145 outpatient imaging centres across 14 states in the US.

City Chic Collective Ltd (ASX: CCX)

City Chic is one of the small cap ASX shares in the retail space that is growing online sales at a fast rate. In FY20 online sales rose by 113.5% and this represented 65% of City Chic of total sales. Fund manager Chris Prunty from QVG Capital thinks that the e-commerce theme will continue to grow after COVID-19 has passed.

The company is made up of a variety of different retail brands. It sells plus-size clothing, footwear and accessories to women. It has a number of brands including City Chic, Avenue, CCX, Hips & Curves and Fox & Royal. City Chic has around 100 stores across Australia and New Zealand. It has websites for local and US customers, it has marketplace and wholesale partnerships with major US retailers such as Macys and Nordstrom, and a wholesale business with European and UK partners such as ASOS and Zalando.

City Chic recently acquired Evans for $41 million from Arcadia Group, which has gone into administration. Evans is a UK-based retailer of women’s plus-size clothing with a longstanding customer base and sizeable market position.

The Evans website made £23 million of sales with 19 million visits for the financial year to August 2020. The wholesale business also made £3 million of sales. The overall Evans group of businesses, including the stores and franchise, made £60 million of annual sales before COVID-19 came along. The small cap ASX share’s management are hoping it can capture some of the physical sales that Evans used to make. 

According to Commsec, the City Chic share price is valued at 23x FY23’s estimated earnings.

More reading

• 2 great ASX growth shares to buy for January
• 2 exciting small cap ASX shares to watch
• 3 quality SaaS ASX shares to buy
• Why Galaxy (ASX:GXY) and these ASX shares just hit 52-week highs or better
• 3 small cap ASX shares to buy for 2021

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 recommends VOLPARA FPO NZ. The Motley Fool Australia has recommended VOLPARA FPO NZ. 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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With the interest rates on offer with term deposits falling to such low levels, you would have to invest millions into them to earn a sufficient income.

In light of this, the share market looks set to remain the place to earn a passive income for the foreseeable future.

But which shares should you buy? Here are two ASX dividend shares that are rated as buys:

Accent Group Ltd (ASX: AX1)

The first dividend share to look at is Accent. It is a leading leisure footwear-focused retailer which owns a number of popular retail store brands. It also has a rapidly growing online business that has been performing exceptionally well during the pandemic.

A recent update reveals that the company has been performing very strongly in FY 2021. After an impressive start to the year, the company followed this up with an excellent holiday period. For the two months to 27 December, the company’s total sales were up 12.3% and like-for-like sales grew 7.4%.

This means that excluding the closure of Auckland, Victoria, and Adelaide stores, like-for-like sales grew 12.3% during the first half.

Analysts at Citi were impressed with its update and put a buy rating and $2.60 price target on its shares. The broker is also forecasting a 11 cents per share dividend from Accent in FY 2021. Based on the current Accent share price, this represents a fully franked 4.8% dividend yield.

Coles Group Ltd (ASX: COL)

Another dividend share to look at is Coles. As with Accent, the supermarket operator has been a strong performer during the pandemic.

This has been driven by its defensive qualities, strong market position, and favourable changes in consumer spending.

Pleasingly, this strong form has continued in FY 2021 even as COVID headwinds ease and appears to have put Coles in a position to deliver a strong full year result.

Analysts at Citi are confident on Coles as well. The broker has a buy rating and $21.20 price target on its shares. It is also forecasting a 63.5 cents per share fully franked dividend this year. This represents a fully franked 3.5% dividend yield.

More reading

• Got money to invest for income? Here are 3 ASX 200 dividend shares
• The Accent Group (ASX:AX1) share price just got hit by a broker downgrade
• Retail sales rose 7% in November to boost ASX retail shares
• 2 ASX dividend shares for income investors
• 3 ASX dividend shares with yields above 4%

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended Accent 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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Buying gold today may seem to be a better idea than investing money in dirt-cheap shares. After all, the world economy faces an uncertain outlook in 2021. The coronavirus pandemic may cause further disruption, while political challenges may have a negative impact on GDP growth.

However, buying undervalued stocks and holding them for the long run could be a more profitable move versus holding the precious metal. Their recovery prospects, low prices and track record of performance suggests that they could outperform gold in the coming years.

Gold’s uncertain future

While gold may outperform dirt-cheap shares in the short run due to the aforementioned risks to global economic growth, its long-term prospects may be less impressive. Since global GDP growth has always returned to relatively high levels in the past, it seems likely that investor sentiment will strengthen in future. This may mean that demand for defensive assets, such as gold, weakens to some degree in the coming years. The end result may be a poor performance from the precious metal on a relative basis.

Furthermore, gold may not offer good value for money at the present time. It has traded higher in 2020, while many high-quality companies continue to offer wide margins of safety. Its current price may fully factor in threats to the world economy. Therefore, even if there is a period of further uncertainty for investors, the gold price may lack scope to make further gains.

Buying dirt-cheap shares for the long run

By contrast, buying dirt-cheap shares today could be a profitable long-term move. The stock market has a long track record of recovering from its various challenges to post new record highs. In doing so, stock valuations have historically reverted to their long-term averages. This means that today’s undervalued stocks could make gains as investors become more upbeat about their operating environments in a growing world economic environment.

Investors who have purchased cheap shares in high-quality businesses have generally benefitted from market cycles. In other words, buying equities at low prices and holding them for the long run allows an investor to capitalise on the ups-and-downs of the stock market. Over time, this may mean they can outperform the returns of indices such as the S&P 500 Index (INDEXSP: .INX) and FTSE 100 Index (INDEXFTSE: UKX).

Opportunities to buy cheap stocks today

Even though many of 2020’s dirt-cheap shares have enjoyed strong recoveries, a number of companies continue to offer good value for money. Investors are concerned about the prospects for a number of sectors in 2021, including industries such as banking, hospitality and energy. As such, there may be opportunities to buy undervalued stocks in those, and other, sectors at the present time.

Over time, a diverse portfolio of such companies can deliver high returns that outperform other assets such as gold. In doing so, they could provide an investor with an improving financial outlook.

More reading

• Got cash to invest? Here are 2 ASX shares to buy
• 3 reasons why Xero (ASX:XRO) shares could be a buy
• These were the best performing ASX 200 shares last week
• This fund manager names 2 surging ASX shares to watch
• These were the worst performing ASX 200 shares last week

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. 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 are some ASX shares which may be able to make at least decent investment returns over the longer term.

Here are two ASX shares that could be worth looking at:

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

This investment is invested entirely in businesses listed in the US. The Australian dollar has been getting stronger compared to the US dollar, so it’s getting cheaper for Aussies to buy exposure to US businesses like the ones in this ETF’s portfolio.

VanEck Vectors Morningstar Wide Moat ETF gives investors exposure to a diversified portfolio of attractively priced US companies with sustainable competitive advantages according to Morningstar’s equity research team.

Morningstar’s rigorous equity research process is used to calculate an estimate of fair value. Then the idea is to find companies that are trading at attractive prices compared to that estimate of fair value.

Looking at VanEck Vectors Morningstar Wide Moat ETF’s top holdings at 13 January 2021, its biggest 15 exposures were: Charles Schwab, Corteva, John Wiley and Sons, Wells Fargo, Bank of America, US Bancorp, Cheniere Energy, Constellation Brands, Zimmer Biomet Holdings, Intel, Aspen Technology, Medtronic, Yum! Brands, Raytheon Technologies and Berkshire Hathaway.

Looking at the diversification of the portfolio, there are five sectors that have a weighting of more than 10%: health care (18.8%), financials (17.6%), information technology (17.5%), industrials (12.2%) and consumer staples (10.8%).

The ASX share has an annual management fee of 0.49%, which is higher than some other internationally-focused ETFs but it hasn’t stopped the ETF from generating compelling long-term returns.

Over the past five years the ETF has generated net returns of 16.6% per annum, which was a stronger return than the S&P 500. Over the past 10 years the index that the ETF tracks has returned almost 19% per annum, beating the S&P 500’s return of 17.4% per annum.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is an electronic donation payments business which helps large and medium US churches receive donations from their congregations.

The ASX share is gaining market share as it wins over more churches and more people use the service, particularly during the COVID-19 pandemic.

In the FY21 half-year result Pushpay reported that its total processing volume went up 48% to US$3.2 billion and the operating revenue grew by 53% to US$85.6 million.

Despite the growth that Pushpay has already achieved, it’s expecting a lot more growth.

Fund manager Ben Griffiths from Eley Griffiths said about the ASX share: “Over the last 12 months it has become clear Pushpay is at an inflection point for both cashflow and earnings. Under the stewardship of CEO Bruce Gordon, Pushpay has transitioned from a founder-led investment phase into an optimize/monetization phase. What is more surprising is the very conservative nature of the accounts (a rarity in small cap tech, outside Iress Ltd (ASX: IRE)). We believe the next few years for Pushpay will be rewarding and that COVID-19 will accelerate the already entrenched trend to digital giving/engagement from cash.”

On the revenue and market share side, Pushpay’s management thinks that it can reach a market share of approximately 50% which could translate into annual revenue of US$1 billion.

With its profit margins, Pushpay expects significant operating leverage to accrue as operating revenue continues to increase, whilst growth in total operating expenses remains low. Those thoughts about operating leverage growth are despite the gross profit margin already increasing by another three percentage points from 65% to 68% and the earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin jumping from 17% to 31%.

According to Commsec, the Pushpay share price is values the ASX share at 22x FY23’s estimated earnings.

More reading

• 2 fantastic ASX shares to buy and hold until 2031
• 2 ASX ETFs to buy for 2021 and beyond
• These ASX shares are growing at a rapid rate in FY 2021
• 3 quality ETFs for ASX investors to buy today
• 3 reasons why the Pushpay (ASX:PPH) share price could be a buy

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 PUSHPAY FPO NZX. The Motley Fool Australia has recommended IRESS Limited, PUSHPAY FPO NZX, and VanEck Vectors Morningstar Wide Moat ETF. 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 Xero Limited (ASX: XRO) share price has been volatile in recent times. There are some reasons why investors may want to research Xero.

What’s Xero?

Xero describes itself is one of the fastest growing software as a service (SaaS) companies globally. It boasts that it leads the New Zealand, Australian, and United Kingdom cloud accounting markets, employing a quality team of more than 3,000 people. Forbes identified Xero as the world’s most innovative growth company in 2014 and 2015.

It operates cloud-based accounting software to connect people with the right numbers anytime, anywhere, on any device. For accountants and bookkeepers, Xero helps build a trusted relationship with small business clients through online collaboration.

Reasons why Xero shares may be a compelling idea

The Xero share price has fallen by 13% since 5 January 2021. These are some reasons that investors may like Xero:

Reason 1: High gross profit margin

Xero is an ASX technology share with one of the highest gross profit margins in Australia or New Zealand.

In the FY21 half-year result Xero reported that its gross profit margin percentage improved from 85.2% to 85.7%.

Whilst the gross profit margin is not the bottom line net profit, it is a contributing factor to boosting that profit. The high gross profit margin is one of the main reasons why the 21% increase in operating revenue to NZ$410 million led to a NZ$56 million increase in earnings before interest, tax, depreciation and amortisation (EBITDA), a NZ$33 million rise in net profit after tax and a NZ$49.5 million jump in free cash flow.

The ASX share may be able to achieve more operating leverage as it continues to scale with more global subscribers.  

Reason 2: Global subscriber growth

Xero’s revenue comes from its subscribers in the form of monthly subscription payments. In the FY21 half-year period it saw global subscribers grow by another 19% to 2.45 million. This drove annualised monthly recurring revenue higher by 15% to NZ$877.5 million and the total lifetime value of subscribers went up 15% to $6.17 billion.

Some of the strongest performing ASX shares over the last decade have been businesses exposed to international growth. Look at large caps like CSL Limited (ASX: CSL), Macquarie Group Ltd (ASX: MQG), Goodman Group (ASX: GMG) and Aristocrat Leisure Limited (ASX: ALL).

In the FY21 half-year result, Xero revealed that its Australian and New Zealand subscribers grew by 21% and 13%.

Management were pleased that UK subscribers went higher by 19% to 638,000. North American subscribers went up 17% to 251,000. Rest of the world subscribers rose by 37% to 136,000 with growth being led by South Africa and further growth was made in Singapore.

Reason 3: Platform effects

Businesses that boast of platform effects can create a very strong ecosystem. For example, accountants that love Xero may want their clients to shift to using Xero. Clients that love Xero will want to stick around – Xero does have a high retention rate.

The cloud accounting software business also offers various add-ons and access for third party developers to create their own modules to work and add further functions for users.

Xero recently acquired Hubdoc. Hubdoc is a data capture tool which extracts key data from documents, then creates transactions in Xero. It has also made an alliance with US payroll provider Gusto and it has acquired invoice lending platform Waddle.

More reading

• 2 super ASX tech shares to buy
• What’s next for WAAAX shares in 2021? 
• 2 stellar ASX growth shares to buy this week
• The Xero (ASX:XRO) share price is down 10% in 2021: Is this a buying opportunity?
• ASX 200 down 0.4%: Afterpay tumbles, bank shares lower, gold miners crash

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 CSL Ltd. and Xero. The Motley Fool Australia owns shares of and has recommended 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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The S&P/ASX 200 Index (ASX: XJO) was out of form last week and dropped lower. The benchmark index fell 0.6% to end the week at 6,715.4 points.

Fortunately, not all shares dropped lower with the market. Here’s why these were the best performing ASX 200 shares last week:

Pro Medicus Limited (ASX: PME)

The Pro Medicus share price was the best performer on the ASX 200 last week with a massive gain of 17.1%. Investors were buying the health imaging software company’s shares after it announced another major new contract win. Pro Medicus has signed a seven-year contract worth $40 million with Salt Lake City based Intermountain Healthcare. The deal will see its Visage 7 Viewer and Visage 7 Open Archive products implemented across all of Intermountain’s radiology and subspecialty imaging departments. This is its fifth major contract win in the space of six months.

Afterpay Ltd (ASX: APT)

The Afterpay share price wasn’t far behind with a 14.8% gain over the five days. Bullish sentiment in the buy now pay later sector following Affirm’s IPO in the US and a positive broker note out of Morgan Stanley gave its shares a boost. In respect to the latter, Morgan Stanley retained its overweight rating and lifted its price target on the payments company’s shares to $136.00. The broker points out that app downloads have been increasing strongly in the US and UK. It is expecting Afterpay to report 13.6 million active customers for the first half of FY 2021. This will be a 37.4% increase from 9.9 million active customers at the end of FY 2020.

Whitehaven Coal Ltd (ASX: WHC)

The Whitehaven Coal share price was on form last week and recorded a sizeable 13% gain. This followed the release of its quarterly update, which reaveled that Whitehaven Coal achieved a 64% increase in managed run-of-mine (ROM) production to 5.1Mt for the three months ended 31 December. And while its sales were flat on the prior corresponding period, management has tightened its sales guidance range to between 19Mt and 20Mt from 18.5Mt and 20Mt. The company also revealed that coal prices have been improving strongly.

Mesoblast limited (ASX: MSB)

The Mesoblast share price returned to form at last and jumped 9.4% over the five days. Investors were buying the biotech company’s shares after it finally released a positive announcement. Mesoblast announced that its rexlemestrocel-L drug provides a reduction in heart attacks, strokes, and cardiac death in patients with chronic heart failure. According to the study, heart attacks and strokes were reduced by 60% from a single dose.

More reading

• These were the worst performing ASX 200 shares last week
• ASX 200 ends flat on Friday
• What’s in store for the ASX tech sector in 2021?
• Singular Health IPO, another medical imaging contender?
• Pro Medicus (ASX:PME) share price hits record high: Is it too late to invest?

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 Pro Medicus Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Pro Medicus Ltd. 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 are some fund managers out there that have positive or bullish thoughts about some ASX shares.

Spheria Emerging Companies Ltd (ASX: SEC) is one of the listed funds on the ASX, it recently shared some thoughts about some of the positions in its portfolio.

Spheria’s portfolio has outperformed its benchmark by more than 10% over the last six months.

These are two of the ASX shares that it talked about:

Fletcher Building Limited (ASX: FBU)

Fletcher Building was the largest position in the Spheria portfolio at the end of November 2020. It made up 4.3% of the portfolio.

This company is a diversified construction business. It makes building products including insulation and cement. Fletcher Building also operates retail businesses that sells those products and others to tradespeople across the Tasman. The company also builds homes, buildings and infrastructure.

Spheria said that Fletcher Building was the lead contributor to the portfolio, gaining 39% during the month on the back of a strong trading update for the first four months of the year followed by a strong profit guidance increase towards the end of the month.

In the first four months it saw revenue up slightly by 1%, with earnings before interest and tax (EBIT) growing by $80 million to $227 million. The EBIT margin rose by 2.9 percentage points to 8.4% because of the improved operating efficiency. In the first half of FY21, Fletcher Building is expecting EBIT to be in the range of $305 million to $320 million, up from $219 million in the prior corresponding period.

The fundie explained that Fletcher Building is seeing the benefit of a recovering housing market in both Australia and New Zealand plus the benefits of streamlining its operations over the recent housing downturns. Since the sale of the Formica division around two years ago, the Fletcher Building balance sheet has been lowly geared, putting the business in a good position for a re-bound according to Spheria.

Fletcher Building also said recently that the board expects the company will resume dividend payments in FY21.

A2B Australia Ltd (ASX: A2B)

A2B was another performer for the Spheria portfolio in November, rising by 37%.

It’s the business behind Cabcharge, Silver Service, 13cabs and other brands. Cabcharge allows passengers and drivers access to fast and secure cashless payment methods. Silver Service is a premium taxi service. 13cabs provides the booking service platform, it trains drivers and helps them obtain a taxi licence, buying a vehicle and it also helps with insurance.

Spheria said that the ASX share is perceived as being a beneficiary of social movement. Having Melbourne emerge from lockdown has clearly helped the short-term outlook for A2B. The fund manager believes the company is misperceived on many levels.

The first misconception, according to the fundie, is that it’s suffering major disruption from ridesharing companies. It thinks this is an incorrect view because ridesharing has grown the overall personal transport market, it hasn’t dramatically reduced the number of cab trips being taken.

The fund manager believes the second major misperception is that the company doesn’t have any growth potential. Spheria pointed that A2B has been heavily re-investing into payments and cab-hailing technology.

The ASX share’s present valuation is still incredibly supportive and the outlook for the business both here and internationally has hardly been stronger. Despite the re-rating over the month, the fundie believes A2B is still only trading on an enterprise value / EBIT ratio of 7 times.

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Motley Fool contributor Tristan Harrison 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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