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At the time of writing, the S&P/ASX 200 Index (ASX: XJO) is trading flat at 6,695 points. The ASX 200 still isn’t quite at the heights we saw back in February last year, when it hit a new record high of 7,162.5 points just before the coronavirus-induced market crash.

Even so, we are getting pretty close to those levels again. Since the start of the year, the ASX 200 has really hit the ground running. Even though the new year is only 12 days in (and 7 trading days), the index is already up 0.7% for the year to date.

That doesn’t seem like a lot on face value, but if that pattern holds all year, the ASX 200 would be in for a rollicking good time in 2021.

But why are shares continuing to climb? Let’s be frank, there hasn’t exactly been a stack of good news in 2021 so far, whether that be on the economic or coronavirus fronts.

Well, it’s possible that what’s happening in the United States is helping enormously. I know how that sounds less than a week after the shocking scenes in the US Capitol building emerged.

US Senate elections send shares higher

It has to do with the (somewhat overshadowed) Senate elections that took place last week on 5 January (6 January our time). These were the runoff elections for the 2 US Senate seats of the state of Georgia.

Against the odds, the Democratic Party won both seats in the conservative Southern state. That puts the balance of power in the Senate evenly divided between Democrats and Republicans at 50-50.

And those wins mean that once president-elect Joe Biden and vice president-elect Kamala Harris are sworn in, the Democrats will control the US Senate. Why? According to the US constitution, the vice president breaks a Senate tie if the chamber is evenly split.

That also means that, come 20 January, divided government will end. And the Democratic Party will control the ‘trifecta’ of the House of Representatives, the Senate, and the White House for the first time since 2010.

This situation is what’s got investors hot under the collar. As an indication, the ASX 200 is up 1.9% since 6 January, even though it’s only up 0.7% year to date.

But why? What do US politics have to do with the Australian share market?

Well, as you might gather, the performance of the US markets are one of (if not the) largest influences over our own ASX. And the Democratic sweep of the Congress has also gotten American investors fired up. The US S&P 500 Index (INDEXSP: .INX) is up 2.75% since 5 January.

So what’s so exciting about the Democrats winning control of Congress?

The importance of the ‘trifecta’

Well, in the US, laws need to advance through both Houses of Congress and be signed by the president to become law. If any of those branches are controlled by another party, it greatly reduces the chances of all but the most bipartisan bills becoming law.

But since all 3 are going to be in Democratic hands come 20 January, Joe Biden’s party can get much of their agenda through without Republican support.

According to reporting in the Australian Financial Review (AFR), the priorities for the incoming Biden Administration are going to revolve around a lot more stimulus spending. Over the past month, outgoing President Donald Trump, as well as the Democrats, have been calling for a round of US$2,000 stimulus cheques to go out to most Americans.

But the Republican Senate blocked this measure. It instead limited the cheques to US$600. According to the AFR, one of the first cabs off the rank on 20 January will be getting the larger cheques out as soon as possible.

Additionally, the Democrats are also hoping to ink a new large-scale infrastructure spending bill, send additional monetary aid to the states, and increase spending in healthcare. And that is, of course, in addition to the unprecedented level of monetary easing (near-zero interest rates and quantitative easing (QE)) that the US Federal Reserve is promising to keep up going forward.

All of this stimulatory spending bodes extremely well for the US economy, but more importantly the share market. And that is why investors, both over in the US, and here in Australia, have been sending shares higher in 2021 so far. After these positive developments for investors as we kick off 2021, it will be interesting to see where the rest of the year takes us.

More reading

• Here’s why the Fortescue (ASX:FMG) share price is up 12% in a month
• ASX 200 up 0.4%: Altium disappoints, ARB impresses, Mesoblast charges higher
• Capital returns galore from cashed-up ASX retail stocks
• The biggest ASX bulls are about to get their faith tested
• 5 things to watch on the ASX 200 on Tuesday

Motley Fool contributor Sebastian Bowen 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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The Fortescue Metals Group Limited (ASX: FMG) share price was one of the rather surprising standout performers on the S&P/ASX 200 Index (ASX: XJO) in 2020.

Last year, Fortescue delivered a 115% return to investors. This result was not including the hefty dividend payments shareholders also were happy to receive throughout the year (when, incidentally, many other ASX blue chips were slashing their payouts).

The ASX iron ore miner started 2020 at just under $11 a share, but finished the year up at just a touch over $23 a share. That phenomenal annual return was just the latest piece of good news that long-term Fortescue shareholders have been treated to. Over the past 5 years, this company has given investors an incredible return of 1,529%.

But these numbers have not prevented Fortescue from exploring new heights in recent weeks. Fortescue shares are up another 12.4% over the past month alone. The miner also hit a new all-time high share price of $26.40 a share just last Friday. So why are Fortescue shares continuing to soar of late?

Fortescue shareholders rake in the dough

Well, the most obvious reason why Fortescue shares are exploding ever higher is the soaring price of iron ore itself. As we speak, iron ore is trading for US$169.14 a tonne. That’s a level we haven’t seen since the ‘mining boom’ days of 2012.

Cast your mind back to 23 November, and iron ore was going for ‘just’ US$124 a tonne. This is obviously a massive appreciation and benefits Fortescue disproportionately. Because a miner’s costs to extract ore are relatively fixed, any extra cash the miner can get for its iron pretty much flows straight to the bottom line.

This explains why Fortescue is not the only ASX miner climbing to new perches recently. BHP Group Ltd (ASX: BHP) has also been hitting new all-time highs recently, as has Rio Tinto Limited (ASX: RIO).

But Fortescue (along with the other ASX iron miners) is also benefitting from the political landscape over in the United States. According to reporting in the Australian Financial Review (AFR), the recent US senate elections have also helped. Given President-elect Jo Biden’s Democratic party will soon control the Senate as a result of the Democrats winning two Senate seats in Georgia, the party now controls all three branches of the US government. That means that larger stimulus spending, particularly on infrastructure, is now far more likely in the next two years. More infrastructure spending in the world’s largest economy means more demand for steel. And the key ingredient for making steel is, of course, iron ore.

Is the Fortescue share price a buy today?

I’m sure there are many investors out there who are wondering if it’s too late to buy into Fortescue at these heights. One broker who thinks it might be is Goldman Sachs. This broker currently has a ‘hold’ rating on Fortescue shares, with a price target of just $20.18 a share. That implies a potential downside of almost 20% on current prices.

More reading

• Are the recent US elections turbocharging the ASX 200?
• ASX 200 up 0.4%: Altium disappoints, ARB impresses, Mesoblast charges higher
• Capital returns galore from cashed-up ASX retail stocks
• The biggest ASX bulls are about to get their faith tested
• 5 things to watch on the ASX 200 on Tuesday

Motley Fool contributor Sebastian Bowen 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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On Monday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three that have just been given sell ratings are listed below.

Here’s why these brokers are bearish on these ASX shares:

AGL Energy Limited (ASX: AGL)

According to a note out of Credit Suisse, its analysts have retained their underperform rating and cut the price target on this energy company’s shares to $11.10. The broker believes AGL Energy will have to battle with a sizeable decline in wholesale energy prices in the future. In light of this, it sees significant downside to its earnings in the coming years and has downgraded its estimates to reflect this. The AGL Energy share price is changing hands for $11.97 this afternoon.

Magellan Financial Group Ltd (ASX: MFG)

A note out of Goldman Sachs reveals that its analysts have retained their sell rating and $52.52 price target on this fund manager’s shares. The broker believes that Magellan is not well-positioned for an environment of unified democratic control of government in the US. It also notes that its funds under management fell 1.6% in December due to negative investment returns of 2.1% and its performance fees fell short of expectations. The Magellan share price is under pressure today and has now fallen below this target to $49.55.

QBE Insurance Group Ltd (ASX: QBE)

Analysts at Macquarie have retained their underperform rating and cut the price target on this insurance giant’s shares to $7.70. The broker has concerns over the company operating without a permanent CEO in these tough times and sees risks ahead in FY 2021 because of this. Furthermore, due to the large loss that QBE is expecting in FY 2020, Macquarie is forecasting a significant dividend cut. The QBE share price is trading at $8.51 today.

More reading

• ASX 200 drops 0.9%
• Why the QBE (ASX:QBE) share price is in focus today
• What’s been happening with the Magellan (ASX:MFG) share price?
• 3 highest yielding ASX dividend shares
• Here are 3 ASX shares trading near their 52-week lows

Motley Fool contributor James Mickleboro 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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The Sezzle Inc (ASX: SZL) share price is up 5.44% today, after the company reported a record fourth quarter FY20 performance.

At the time of writing, shares in the ASX buy now, pay later player are swapping hands for $6.59.

New records every month

According to this morning’s update, Sezzle reached new heights every month during its fourth quarter. These gains span across the company’s underlying merchant sales (UMS), active consumers, active merchants and repeat usage numbers. 

Merchant fees, which represented 84% of Sezzle’s total income in the first half of 2020, rose a whopping 195.6% year-over-year to reach US$17.2 million in the fourth quarter.

These latest results aren’t the first time Sezzle has come to the table with record highs. In December, the company announced reaching new peaks for the month of November and four days of the Black Friday/Cyber Monday weekend.

Advancing strategic objectives to boost the Sezzle share price

During the most recent quarter, Sezzle continued taking big steps to expand its industry footprint. As a result of a holiday-period marketing campaign that ran over November and December 2020, the company reported that it more than doubled the pace of daily Sezzle downloads.

Another significant win for Sezzle during the fourth quarter involved teaming up with GameStop Corp (NYSE: GME), the world’s largest video game retailer. Sezzle is now available at GameStop’s more than 3,300 stores as well as online and in GameStop’s mobile app. 

Some thoughts from the CEO

Chairman and CEO Charlie Youakim commented on these results: 

We are extremely excited by the strong momentum in our business. In 4Q20, each month we achieved new records for UMS, Active Consumers, Active Merchants, and Repeat Usage. December’s UMS outpaced November’s (unlike last year’s) even with Cyber Monday moving from December in 2019 to November this year.

Our large enterprise and international expansion efforts are paying dividends as evidenced by our recent addition of GameStop and the growth rates we are experiencing in Canada and India that are exceeding the U.S.

A closer look at Sezzle

Sezzle is a rapidly growing fintech company on a mission to increase the purchasing power for over two million active consumers. The company does this by offering interest-free instalment plans at online stores and select in-store locations in the US.

Over the past 12-month period, the Sezzle share price has launched nearly 240% higher. At the time of writing, the Sezzle share price is sitting at $6.59 per share, giving the company a current market capitalisation of $1.23 billion.

More reading

• How to invest in ASX shares in a post-COVID world 
• 3 exciting ASX payment shares to buy in January
• ASX sector of the year: BNPL goes from strength to strength
• Here are 6 of the top performing ASX fintech shares of 2020
• 3 exciting small cap ASX shares to buy

Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends GameStop and Sezzle Inc. The Motley Fool Australia has recommended Sezzle Inc. 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 that fund managers love the look of. They may be able to generate good returns in 2021 for investors.

In this article is an auto parts business, an IT telecommunications provider and a business involved in digital payments.

Here they those ideas:

Bapcor Ltd (ASX: BAP)

Bapcor is an auto parts business. It’s an ASX share that fund manager Wilson Asset Management likes.

Almost a month ago the company gave a trading update which said that in FY21, to the end of November, revenue was up 26% and net profit after tax (NPAT) benefited from operating leverage from lower expenses in areas such as travel and other areas of discretionary expenditure as well as lower interest rates and the contribution from Truckline, which wasn’t included in the prior corresponding period.

For the first half of FY21, Bapcor thinks revenue growth will be at least 25% and net profit after tax growth will be at least 50%.

WAM said that the ASX share has benefited from an increase in domestic travel, reduced usage of public transport and increased second hand car sales. The fund manager also said that Bapcor has a strong balance sheet and WAM believes it’s well placed to make earnings accretive acquisitions.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is an electronic donation business. It mainly facilitates electronic donations to large and medium churches in the United States.

Fund manager Ben Griffiths from Eley Griffiths said: “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.”

Just today the ASX share updated the market to say that it was increasing its FY21 guidance again. The earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) range is now expected to be between US$56 million to US$60 million, up from a guidance range of US$54 million to US$58 million.

Pushpay also announced that it had appointed a CEO from within its ranks. Molly Matthews will take the reins in a couple of months.

Over The Wire Holdings Ltd (ASX: OTW)

Over The Wire is an IT telecommunications provider. It has a market capitalisation of approximately $214 million according to the ASX. The Over The Wire share price has fallen by almost 20% over the last two months.

This ASX share is a holding of NAOS Small Cap Opportunities Company Ltd (ASX: NSC), which is run by Naos Asset Management.

Over The Wire has various segments including a national voice network, public cloud, cyber security services and on-demand cloud connectivity. The company also recently acquired Digital Sense, which mostly provides services to large and government clients. Over 90% of Digital Sense’s revenue is recurring in nature.

Naos believes that Over The Wire will be able to win over clients with its broad array of services, it can help potential clients with complex needs.

One of the main reasons that Naos is bullish about the ASX share is that it has made two acquisitions which could increase the EBITDA by $14 million over the next two years.

The fundie thinks the ASX share could have a normalised EBITDA annual run rate of more than $35 million in FY22 which could result in significant free cash flow generation and could see Over The Wire command a premium EBITDA multiple.

More reading

• Why ARB, Mesoblast, Pushpay, & Super Retail shares are racing higher
• Why the Pushpay (ASX:PPH) share price could shoot higher today
• Got money to invest? Here are 3 ASX shares to buy
• Top brokers name 3 ASX shares to buy next week
• 3 stellar ASX shares to buy in January

Tristan Harrison owns shares of NAO SMLCAP FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Over The Wire Holdings Ltd and PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended IRESS Limited, Over The Wire Holdings Ltd, and PUSHPAY FPO NZX. 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 multiple vaccines looming and low interest rates, many industries are looking good for a recovery out of the COVID-19 recession.

But one credit agency worries that the retail real estate investment trust (REIT) subsector has been permanently damaged.

“The fallout from COVID-19 will linger beyond lockdowns for rated retail REITs around the world,” said S&P Global Ratings credit analyst Rhys Corry. 

“For Australian and New Zealand retail landlords, revenues plunged over the past few months as stores were shuttered and tenants were unwilling or unable to pay their scheduled rents.”

On the ASX, the most prominent retail REITs include Scentre Group (ASX: SCG), Vicinity Centres (ASX: VCX) and Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP).

While REIT landlords executed capital raisings, cut dividends and slashed expenditure to get through the toughest periods last year, the world has changed for the worse for this subsector.

“The structural pain will prolong as faster adoption of e-commerce and changing consumption patterns continue to buffet the sector,” reported the analyst agency.

“S&P Global Ratings expects the fallout from the pandemic to extend well beyond lower rental collections over the next few months.”

Australia’s now tasted online shopping and it can’t go back

Online shopping has been a looming headwind for many years but the transition to it had been gradual – until the coronavirus hit in 2020.

S&P Global Ratings’ reported a stunning 200,000 Australian households shopped online for the very first time just in the month of April 2020.

“COVID-19 has driven previously reluctant consumers online and encouraged online take-up at a much faster rate than we have witnessed in the past,” S&P Global Ratings reported.

“We believe that much of this online shift represents a more permanent change in consumption trends.”

Many retailers were caught out last year not having a sufficient virtual presence. Their scramble to remediate this had a flow-on impact to their ability to pay rent.

“Given many retailers were already struggling financially leading into the pandemic, the additional investment required in online capability has strained their already stretched balanced sheets,” read the S&P Global Ratings report.

And in Australia, the level of online retail activity still lags behind other comparable nations – leaving plenty of more room for growth.

“The level of e-commerce sales as a proportion of in-store retail sales remains well below markets such as China, the UK, and the US. However, the COVID-19 pandemic has fast tracked growth in online sales, intensifying pressure on retail landlords.”

Sales-linked rent agreements

The struggles in the retail sector have seen some tenants request sales-based rental contracts.

Traditionally in Australia, commercial rent has been a fixed amount regardless of the fortunes of the tenant business.

But the coronavirus pandemic has pushed tenants to call for the sales-based model that’s used in some overseas markets. This would mean landlords receive less in bad times, but also a bit more in good times.

S&P Global Ratings warned if this campaign was successful, it would have negative impacts on retail REITs.

“Fundamentally, it would likely increase the cost of capital and worsen the debt capacity and credit quality of our rated REITs.”

The agency reported Australian REITs have so far resisted the calls for sales-based rents. But if one of them caves, the whole industry could be impacted irreparably.

“Risks remain that landlords of lower-quality shopping centres could succumb to tenant demands and allow sales-based leasing deals to maintain occupancy levels. This could reverberate through the sector, triggering competition among landlords for tenants.”

Big international chains are no longer reliable tenants

The S&P Global Ratings report also noted big “anchor” tenants are no longer reliable to fill vast amounts of shopping mall space.

“These tenants, including retailers such as UNIQLO, H&M, and Zara, had previously been eager to fill space, underpinning centre expansions,” the report read.

“Since the pandemic, however, Zara and H&M announced the permanent closure of a number of stores in their global store network (1,200 stores and 250 stores, respectively) as they both turn their attention to e-commerce. In October 2020, H&M launched its dedicated Australian online store and loyalty program, which offers free delivery.”

More reading

• Why the Vicinity Centres (ASX:VCX) share price is down 38% in 1 year
• What’s in store for the Scentre (ASX:SCG) share price in 2021?
• Investors caught in crossfire as ASX retailers battle ASX property stocks in 2021
• These were the worst performing ASX 200 shares last week
• The ASX sectors hardest hit by COVID-19 in 2020

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Shopping Centres Australasia Property 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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At lunch on Tuesday the S&P/ASX 200 Index (ASX: XJO) is defying the declines on Wall Street and pushing higher. The benchmark index is currently up 0.4% to 6,722.6 points.

Here’s what has been happening on the market today:

Altium guidance disappoints.

The Altium Limited (ASX: ALU) share price has come under pressure on Tuesday after the release of an update on its expectations for the first half of FY 2021. The electronic design software provider revealed that COVID-19 has impacted its sales in the United States and Europe during the half. As a result, it is expecting to deliver revenue of around US$89.6 million for the six months. This will be down 3% on the prior corresponding period.

ARB update impresses

The ARB Corporation Limited (ASX: ARB) share price is racing higher today following the release of its guidance for the first half. The 4×4 accessories company expects to report a 21.6% increase in sales to $284 million and profit before tax of $70 million to $72 million. The latter includes $9.8 million of non-recurring government assistance. Though, even if you exclude this, the company’s profit before tax is more than 75% higher than the prior corresponding period.

Mesoblast share price pushes higher.

The Mesoblast limited (ASX: MSB) share price climbing higher again on Tuesday after recording a strong gain yesterday. Investors have been buying the biotech company’s shares after its run of disappointing updates came to an end. On Monday Mesoblast announced that its rexlemestrocel-L drug provides a reduction in heart attacks, strokes, and cardiac death in patients with chronic heart failure.

Best and worst ASX 200 performers.

The best performer on the ASX 200 today with a 5% gain has been the ARB share price. This follows its aforementioned guidance update for the first half of FY 2021. The worst performer has been the PolyNovo Ltd (ASX: PNV) share price with a 12% decline. Investors have been selling the medical device company’s shares after the release of an underwhelming trading update.

More reading

• Capital returns galore from cashed-up ASX retail stocks
• Why Altium, Clover, PolyNovo, & Tyro shares are dropping lower
• Why ARB, Mesoblast, Pushpay, & Super Retail shares are racing higher
• Why the ARB (ASX:ARB) share price is charging 6% higher today
• Altium (ASX:ALU) share price slips following trading update

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 Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. The Motley Fool Australia has recommended ARB 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 Worley Ltd (ASX: WOR) share price is edging higher today. This comes after the company announced that it has won a contract for its Heartland Petrochemical Complex.

At the time of writing, the Worley share price is slightly higher — up 0.4% to $12.58.

Quick take on Worley

A leading global engineering company, Worley provides design and project delivery services, including maintenance, reliability support services and advisory services. The business operates in the energy, chemical and resources sector.

What is driving the Worley share price higher?

The Worley share price is picking up steam as investors digest the latest news from the company.

According to the release, Inter Pipeline awarded Worley with a master site services and supply contract for its Heartland Petrochemical Complex. Located in Alberta, Canada, the facility will start using locally acquired natural gas (propane) in converting up to 525,000 tonnes of polypropylene per year through propane dehydrogenation.

Polypropylene, a durable and heat-resistant and versatile plastic, is used in almost all modern industries. Examples include protection against corrosive chemicals in packaging, used to make lunch boxes or prescription bottles, car parts and accessories, as well as many more.

Under the agreement, Worley will provide an array of services at the newly constructed complex. This includes commissioning support, direct hire maintenance, small capital construction, turnaround, engineering and consulting expertise.

Worley’s Canadian team will manage the operations, backed by the company’s global integrated delivery team. The contract term is valid for a period of 3 years.

CEO commentary

Worley CEO Mr Chris Ashton welcomed the agreement, saying:

We are delighted that Inter Pipeline has chosen Worley to provide services for their Heartland Petrochemical Complex in Canada. The contract compliments Inter Pipeline’s commitment to sustainable practices and operational excellence and Worley’s strategic focus on sustainability and delivering a more sustainable world.

Worley share price snapshot

Moving on an upwards trajectory, the Worley share price is 171% higher than its $4.63 low reached in March 2020. Although, when looking at a 1-year return, the company’s shares are down 21%.

On current prices, Worley has a market capitalisation of $6.5 billion and a price-to-earnings (P/E) ratio of 38.2.

More reading

• ASX 200 drops 1.1%

Motley Fool contributor Aaron Teboneras 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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Just as you thought outperforming ASX retail stocks are running out of puff, the group could find a second wind through capital returns.

Many consumer discretionary stocks have outperformed the S&P/ASX 200 Index (Index:^AXJO) since the COVID-19 crash.

The fear is that all the good news is already reflected in their share prices. But I don’t think investors are expecting cash handouts or share buybacks.

Cash splash from cashed-up ASX retailers

The chances of some ASX retail stocks undertaking such programs is growing, according to Credit Suisse.

“Whilst the market debates the longevity of above-trend earnings for domestic retail, cash is in the bank as a result of strong trading in 2020 and gearing is almost non-existent for a number of the retailers under our coverage,” said the broker.

“It is likely that a combination of balance sheet capacity and diminishing downside risk to trading from COVID-19 will lead to capital management in 2021.”

Retail sales recovery running hot

Retail sales have been rebounding dramatically since the lockdowns. The latest data from the Australian Bureau of Statistics (ABS) showed a 7.1% surge in November from the previous month. The increase is a more impressive 13.3% from the same period last year.

The easing of harsh lockdown conditions in Victoria released a surge in pent-up buying, while Black Friday and Cyber Monday sales events helped too.

There are four ASX retail stocks that are likely to announce capital management initiatives this year, according to Credit Suisse.

Four ASX retail stocks most likely to return capital

These are the Metcash Limited (ASX: MTS) share price, Wesfarmers Ltd (ASX: WES) share price, JB Hi-Fi Limited (ASX: JBH) share price and Harvey Norman Holdings Limited (ASX: HVN) share price.

Capital management could come in various forms. It may be through a special dividend or a share buyback.

Share buybacks reduce the number of shares issued. This in turn leads to higher earnings per share (EPS) for the stock in question.

Extra franking credits can also be distributed to shareholders via a special dividend or off-market buyback.

Valuation increase for capital management candidates

“We estimate that capital management would result in 2% valuation increases (pre tax benefits) and 9% EPS accretion for HVN and JBH,” said Credit Suisse.

“For MTS, we estimate a 2% valuation increase and 5% EPS accretion. For WES we estimate a 1% valuation increase and 3% EPS accretion.”

Is the ASX retail sector on cum-upgrade cycle?

However, it’s worth noting that Credit Suisse’s bullish take is largely premised on its better than consensus forecasts for the sector.

The broker believes that market expectations for ASX retailers are too low in FY21 and FY22. Credit Suisse believes the tailwinds that lifted the sector in 2020 will persist for longer than what many are expecting.

Retail stock investors will be hoping the broker is right.

More reading

• The biggest ASX bulls are about to get their faith tested
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 drops 0.9%
• Why the QBE (ASX:QBE) share price is in focus today
• 3 ASX dividend shares with yields above 4%

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of Wesfarmers 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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is on course to bounce back from yesterday’s decline. The benchmark index is currently up 0.2% to 6,709.8 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are dropping lower:

Altium Limited (ASX: ALU)

The Altium share price is down 2.5% to $29.98 following the release of its guidance for the first half. The electronic design software provider revealed that it expects to deliver revenue of around US$89.6 million for the half. This will be a drop of 3% on the prior corresponding period. Management advised that COVID-19 lockdowns have been impacting its sales and led to declines in the United States and Europe.

Clover Corporation Limited (ASX: CLV)

The Clover share price has crashed 9.5% lower to $1.43. This is despite there being no news out of the specialist ingredients company. However, in October the company warned that its performance had been impacted by a significant reduction in demand from infant formula producers. Investors may not be confident that demand will rebound quickly.

PolyNovo Ltd (ASX: PNV)

The PolyNovo share price has sunk 8% lower to $3.11. Investors have been selling the medical device company’s shares after the release of a trading update. Although that update revealed that PolyNovo delivered a 31% increase in first half sales, it would have been much stronger had its second quarter performance not underwhelmed. The company delivered a 75% increase in sales during the first quarter, but this was offset partly by soft sales in October and November.

Tyro Payments Ltd (ASX: TYR)

The Tyro share price has fallen 6% to $2.95. Investors appear to have been selling the payments company’s shares amid reports that some of its customers are still dealing with an outage from last week. There may be fears that this bad publicity could have a negative impact on new customer signups.

More reading

• Altium (ASX:ALU) share price slips following trading update
• Why the PolyNovo (ASX:PNV) share price is sinking 10% lower today
• 3 fantastic ASX shares to buy today
• 3 ASX growth shares to buy right now
• Angry Tyro (ASX:TYR) customers jump ship

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 Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited, POLYNOVO FPO, and Tyro Payments. 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.

The post Why Altium, Clover, PolyNovo, & Tyro shares are dropping lower appeared first on The Motley Fool Australia.

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