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Are you looking for some new additions to your portfolio in January? Then you might want to get better acquainted with the ASX 200 shares listed below.

Both companies have been tipped to grow strongly over the 2020s. Here’s what you need to know about these ASX 200 shares:

Altium Limited (ASX: ALU)

Altium is an electronic design software provider which has been growing at a very strong rate over the last few years. Pleasingly, management remains confident that it still has a long runway for growth. This is thanks to its exposure to the growing Internet of Things and Artificial Intelligence markets, which are underpinning solid demand for subscriptions. Also supporting its growth will be the recent release of its cloud-based Altium 365 platform, which has been well-received by users.

It is aiming to almost double its subscriber numbers to 100,000 and its revenue by ~150% to US$500 million by 2025/26. Analysts at Credit Suisse are positive on its outlook. They have an outperform rating and $42.00 price target on its shares.

Nanosonics Ltd (ASX: NAN)

The COVID-19 pandemic has taught us that infection control is very important. This must be music to the ears of this infection prevention company. It is the company behind the industry-leading trophon EPR disinfection system for ultrasound probes. In addition to this, the company is hoping to launch several new infection control products in the near future which reportedly have similar addressable markets.

One broker that thinks investors should be buying Nanosonics’ shares with a long term view is UBS. The broker notes that Nanosonics is a high-quality and structural growth story. It is expecting the company to benefit from post-COVID infection prevention tailwinds. Its analysts have a buy rating on its shares.

More reading

• 3 reliable ASX 200 shares that keep growing
• These were the best performers on the ASX 200 last week
• These were the worst performers on the ASX 200 last week
• 5 fantastic ASX shares to buy in 2021
• ASX 200 rises on Christmas Eve

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 Nanosonics Limited. The Motley Fool Australia has recommended Nanosonics 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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If your risk profile allows you to invest in small cap ASX shares, then you might want to take a look at the ones listed below.

All three of these small cap shares have been growing strongly and have been tipped to continue doing so in the future. Here’s what you need to know:

ELMO Software Ltd (ASX: ELO)

ELMO is a cloud-based human resources and payroll software company which provides a unified platform to streamline processes for employee administration, recruitment, on-boarding, learning, performance, remuneration, compliance training and payroll. It has a massive opportunity in the ANZ and UK markets and the option to expand internationally in the future thanks to its jurisdiction agnostic platform. Morgan Stanley currently rates ELMO as overweight with a $9.70 price target.

Nitro Software Ltd (ASX: NTO)

Nitro Software could be a small cap ASX share worth keeping an eye on. It is a software company aiming to drive digital transformation in organisations around the world across multiple industries. Its core solution is the Nitro Productivity Suite. This provides integrated PDF productivity and electronic signature tools to customers through a horizontal, software-as-a-service, and desktop-based software solution. Analysts at Morgan Stanley are also positive on Nitro and have an overweight rating and $3.50 price target on its shares.

Whispir (ASX: WSP)

Whispir is a software-as-a-service communications workflow platform provider which allows businesses and governments to deliver two-way interactions at scale using automated multi-channel communication workflows. Its platform was used to great effect during the height of the pandemic when 22 government departments used it for COVID-19 communications. Management estimates that the Workflow Communications platform as a Service market could reach US$8 billion per year by 2024. This compares to the revenue of $39.1 million it recorded in FY 2020, which was up 25.5% year on year. Wilsons has an overweight rating and $5.10 price target on the company’s shares.

More reading

• 5 exciting small cap ASX shares to watch in 2021
• 2 ASX growth shares to buy
• 3 top ASX shares to buy in 2021
• Leading brokers name 3 ASX shares to buy today
• 27 ASX companies just got an unwanted knock on the door

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 Elmo Software and Whispir Ltd. The Motley Fool Australia has recommended Elmo Software, Nitro Software Limited, and Whispir 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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Many investors may view today’s cheap dividend stocks solely from a passive income perspective. In other words, their high yields provide a generous income return and little else.

However, undervalued income stocks could deliver impressive capital returns alongside a passive income. Their low prices may equate to capital growth potential – especially as low income returns available on other mainstream assets push investors towards dividend shares.

Capital growth opportunities from cheap dividend stocks

Despite the 2020 stock market rally, there are a wide range of cheap dividend stocks available to purchase today. In many cases, they face challenging operating conditions in the short run that have caused investors to demand a wide margin of safety.

While this may limit their scope to deliver capital growth in the short term, over the long run they could benefit from improving operating conditions as part of a global economic recovery.

Therefore, buying them now while they trade at a discount to their intrinsic values could be a shrewd move. It may enable a long-term investor to lock-in low valuations across the stock market for high-quality businesses that have the financial capacity to survive further operating challenges.

Over time, today’s cheap stocks could experience stronger financial performances and improving investor sentiment that leads to high capital returns for investors.

A lack of passive income appeal elsewhere

Cheap dividend stocks offer a significantly more attractive passive income opportunity than other mainstream assets at the present time. For example, obtaining an income return that is positive on an after-inflation basis has become more difficult over the past year for bondholders and savers. They may even experience a loss of spending power should interest rates remain low and inflation rise in the coming years.

Meanwhile, property investment may produce disappointing income returns over the next few years. High house prices and a struggling economy may produce low yields that fail to improve significantly.

This may increase the appeal of cheap dividend stocks, thereby raising demand for income shares. The end result could be rising share prices – especially if interest rates remain at low levels. Since policymakers seem to be more concerned about the economy’s outlook rather than maintaining modest levels of inflation, it would be unsurprising for a loose monetary policy to remain in place over the coming years.

Reducing risk from undervalued dividend shares

Of course, cheap dividend stocks may experience further difficulties in the short run. Their operating conditions could deteriorate further in the coming months. As such, it is important to buy those companies with solid financial positions and affordable dividends.

Doing so may reduce risk and lead to a higher passive income, as well as a larger capital return in a likely stock market rally over the long term.

More reading

• Leading fund manager names the ASX dividend shares to buy in 2021
• 2 blue chip ASX shares to buy next week
• 2 ASX dividend shares to solve your income needs
• 2 stellar ASX growth shares to buy in January
• 3 reliable ASX 200 shares that keep growing

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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While the probability of a rate increase by the Reserve Bank of Australia in 2021 is incredibly low, income investors need not worry.

That’s because the Managing Director of Plato Investment Management, Dr Don Hamson, revealed that the income-focused investment firm is entering 2021 with a relatively bullish outlook for yield from Australian equities.

Plato Investment Management, the company behind Plato Income Maximiser Ltd (ASX: PL8), is particularly positive on miners with exposure to iron ore.

Dr Hamson commented: “We been getting exceptional yield from Iron Ore miners for some time now and we think this continues into 2021, even if we do see some short-term volatility. COVID-19 economic stimulus across the globe is continuing to evolve from income support to infrastructure spending, led by China, and this is a strong tailwind for demand.”

“There is some concern about the impact of trade wars, but the reality is Chinese steel mills have few options outside of Australia. Brazil being the other major Iron Ore exporter, but all the data indicates Brazil alone can’t provide China with what they need. China is hitting the exports it can get from other countries, like beef, barley, wine and now it seems coal,” he added.

Plato’s picks for dividends in this space are BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO).

What are the other dividend options for 2021?

It isn’t just the iron ore miners that Plato Investment Management sees as dividend options next year. The investment company expects to find strong yields in select domestically focused retailers in 2021.

Dr Hamson explained: “You can’t travel abroad, so if you think about the number of additional Australians who’ll be spending the holiday season at home, buying groceries from supermarkets, buying gifts and taking advantage of post-Christmas sales, we think this is significant. It bodes well for continuing strength from consumer staples stocks and select consumer discretionary.”

In light of this, Plato is expecting good yields from the likes of Coles Group Ltd (ASX: COL), JB Hi-Fi Limited (ASX: JBH), Super Retail Group Ltd (ASX: SUL), and Wesfarmers Ltd (ASX: WES).

And with APRA removing dividend payout limits on the banks, Dr Hamson is also expecting upside in bank dividends.

He commented: “We’ve been underweight banks for most of the year but have become much more optimistic on banks dividends in recent months. We don’t expect bank dividends to go back to where they were two years ago, but we’re confident they will increase in 2021 and begin moving back towards normal payout ratios of between 70-90%.”

“Rising property prices and continued government support for small business are both key factors that strengthen the case for a recovery in the banks,” he concluded.

The Plato Australian Shares income fund is targeting a 7% yield over the coming 12 months.

More reading

• These ASX dividend shares could be top Christmas gifts for income investors
• ASX 200 rises on Christmas Eve
• 3 top ASX dividend shares for a better retirement
• ASX 200 up 0.5%: BHP Samarco update, A2 Milk’s acquisition, Credit Corp rockets
• Why the Woodside (ASX:WPL) share price is edging higher today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and 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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There are a large number of blue chip ASX shares to choose from on the Australian share market.

So many, it can be hard to decide which ones to buy ahead of others.

To help narrow things down, I have picked out two blue chips which have been tipped as buys:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

The first blue chip to consider is ANZ. Although the banks still have COVID headwinds and low interest rates to battle, trading conditions certainly are improving. This was evident in recent decisions to relax responsible lending rules and dividend restrictions.

So with the ANZ share price still trading materially lower than its previous highs, now could be an opportune time to make a patient investment.

Morgans certainly appears to believe this is the case. It has recently reiterated its add rating and lifted its price target on the company’s shares to $26.00.

The broker is also forecasting fully franked dividends of $1.27 per share in FY 2021 and $1.50 per share in FY 2022. Based on the current ANZ share price, this represents 5.5% and 6.5% dividend yields, respectively.

Cochlear Limited (ASX: COH)

Another blue chip to look at is Cochlear. It is a leading medical device company with a portfolio of cochlear implantable devices and other hearing solutions.

It has been a very positive performer over the last decade and delivered consistently strong sales and profit growth. The good news is that Cochlear appears well-positioned to continue this trend over the next decade.

This is thanks to its strong market position, leading technology, and its exposure to the ageing populations tailwind. In respect to the latter, by 2050 there are forecast to be 1.5 billion people over the aged of 65. This will be almost triple the number of over 65s in 2010. 

Analysts at Macquarie are bullish on the company’s prospects and believe Cochlear is winning market share in the United States. They currently have an outperform rating and $241.00 price target on its shares.

More reading

• 2 of the best ASX healthcare shares to buy in 2021
• ASX 200 up 0.5%: Big four banks rise, Smartgroup guidance, Transurban distribution update
• 7 top ASX biomedical shares in 2020
• In a record-breaking year, here are some of the world’s most popular shares
• ASX 200 down 0.85%: ANZ CFO resigns, tech shares tumble, iron ore jumps

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 Cochlear Ltd. The Motley Fool Australia has recommended Cochlear 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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Are you looking to boost your portfolio with some income options when the market reopens?

Then you might want to take a look at the ASX dividend shares listed below. Here’s what you need to know about them:

BWP Trust (ASX: BWP)

BWP Trust is the owner of 68 Bunnings Warehouse sites across Australia. Given the quality of the Bunnings business and its strong performance during the pandemic, BWP has been able to collect its rent largely as normal this year. This, combined with an increase in the fair value of its assets, led to the company reporting an impressive 24.4% increase in full year profit to $210.6 million in FY 2020.

This strong form also allowed the BWP board to increase its distribution to 18.29 cents per unit. Based on the current BWP share price, this represents a trailing 4% yield for investors. Management advised that a similar dividend is expected in FY 2021.

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) that owns a diversified portfolio of high quality Australian agricultural assets. These assets are leased to some of the most experienced agricultural operators in the country.

At the end of the last financial year, the company owned a total of 61 properties with a combined value of $1 billion and a weighted average lease expiry (WALE) of 10.9 years. From these properties it was generating adjusted funds from operations (AFFO) of 11.7 cents per share, which allowed its board to increase its full year distribution to 10.8 cents per share.

Pleasingly, another dividend increase is coming this year. Thanks to its long leases and rental increases, the company intends to lift this distribution by its 4% per annum growth rate target in FY 2021. This will mean a 11.28 cents per share distribution for shareholders. Based on the current Rural Funds share price, this works out to be a 4.35% yield.

More reading

• 2 ASX dividend shares with big yields
• These 4 ASX REITS are about to go ex-dividend
• 2 ASX dividend shares with 4%+ yields
• 4 rock-solid ASX dividend shares to buy for 2021
• 2 ASX dividend shares for 2021’s zero interest rate world

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. 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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Are you a growth investor looking for some new additions to your portfolio? Then you might want to check out the ones listed below.

Here’s why these ASX growth shares have been tipped as buys:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

This pizza chain operator has some bold expansion plans that could underpin strong growth over the next decade. At the end of FY 2020, the pizza chain operator had a network of 2,668 stores across Australia, New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg, and Denmark.

Despite this huge store network, management still sees plenty of room for growth in the future. It is aiming to more than double its network to 5,500 stores by 2033. In addition to this, it has a medium term target of growing its same store sales by 3% to 6% per annum.

One broker that appears confident this will underpin strong growth in the future is Goldman Sachs. Its analysts have put a conviction buy rating and $88.00 price target on its shares. It believes Domino’s has the potential to maintain a double digit operating earnings compound annual growth rate (CAGR) over the medium term.

ResMed Inc. (ASX: RMD)

Another growth share to look at is ResMed. It is a sleep treatment-focused medical device company that has been growing at a very strong rate over the last few years.

This has been driven by its industry-leading products in a sleep treatment market that is growing fast. Pleasingly, management remains confident on its outlook and notes that there are an estimated ~1 billion people impacted by sleep apnoea worldwide. From these, it believes just ~20% have been diagnosed.

Analysts at Credit Suisse believe the company is well-placed for growth and have recently upgraded ResMed’s shares to an outperform rating with a $31.00 price target. It believes ResMed is well-placed to benefit from a shift to home healthcare following the pandemic.

More reading

• Invest like Warren Buffett and buy and hold these ASX shares in 2021
• 3 of the best ASX shares to buy right now
• 7 top ASX biomedical shares in 2020
• 2 blue chip ASX shares to buy for 2021
• Forecast double-digit surge in Aussie dollar could put brakes on ASX rally in 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited and ResMed 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 S&P/ASX 200 Index (ASX: XJO) shares that manage to keep growing over the long-term.

2020 has been a difficult year for many businesses, but there are some that manage to regularly generate growth.

Here are three businesses:

Bapcor Ltd (ASX: BAP)

Bapcor is the leading auto parts business in Australia and New Zealand. Despite a blip through the worst of COVID-19, Bapcor continues to grow in FY21.

In the 2021 financial year to the end of November 2020, group revenue was up approximately 26%.

Bapcor said it’s achieving 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 Truckline, which wasn’t in last year’s comparative period.

For the first half of FY21, Bapcor is expecting revenue growth of at least 25% compared to the prior corresponding period. Net profit after tax (NPAT) growth is expected to increase by at least 50%.

Bapcor said that trade and wholesale make up around 80% of the business, and traded-focused businesses usually perform well in difficult economic conditions. This is showing through with Bapcor’s current performance.

The ASX 200 share said that the changes it has made in its retail businesses helped grow retail revenue grow by around 40% over the prior corresponding period. Some improvements include upgrading its online capabilities as well as changing its product ranges. Bapcor also continues to increase its store count.

Fund manager Wilson Asset Management is a fan of Bapcor, the fundie believes the company has benefited from an increase in domestic travel, reduced usage of public transport and increased second-hand car sales. WAM said that Bapcor has a strong balance sheet and the fund manager believes the company is well placed to make earnings-accretive acquisitions.

Xero Limited (ASX: XRO)

Xero is a cloud accounting software business. It has been growing its subscriber numbers for many years.

The latest result for the ASX 200 share, being the FY21 half-year report, was no exception. Total subscribers grew by 19% to 2.45 million. This helped operating revenue grow by 21% to NZ$409.8 million and annualised monthly recurring revenue increased by 15% to NZ$877.6 million.

Despite already delivering a lot of growth, Xero says that it has ambitions for high-growth whilst being disciplined with costs and targeted allocation of capital. It’s going to keep investing in innovation, new products and customer growth.

A key focus for Xero is the UK, which is a much bigger market than Australia. In the HY21 result its UK subscriber numbers grew by 19% to 638,000 with revenue growing by 33%.

Brickworks Limited (ASX: BKW)

Brickworks is a business that has been growing for decades. It started out as just a brickmaker in Australia, but now it has a diversified portfolio of different building product businesses. Its other products that it’s involved with include paving, masonry, precast, roofing and cement.

The ASX 200 company has expanded recently by acquiring three brickmakers in the US, including Glen Gery. Brickworks is now the leading brickmaker in the north east of the US and it has plans to grow the US business, whilst also improving efficiencies and margins.

A key part of Brickworks’ asset value is its holding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. It owns around 40% of Soul Patts, which is a diversified investment conglomerate which is invested in sectors like telecommunications, resources, listed investment companies (LICs) and financial services.

Another part of the Brickworks business is its growing industrial property trust that it owns half of, along with joint venture partner Goodman Group (ASX: GMG). This trust continues to build new properties for prospective tenants, like Amazon, which should grow the value of the trust and increase the rental profits.

At the current Brickworks share price it has a grossed-up dividend yield 4.3%.

More reading

• These were the best performers on the ASX 200 last week
• These were the worst performers on the ASX 200 last week
• ASX 200 rises on Christmas Eve
• ASX 200 up 0.5%: BHP Samarco update, A2 Milk’s acquisition, Credit Corp rockets
• 10 incredible quotes that sum up investing in 2020

Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of and has recommended Bapcor, Brickworks, and Washington H. Soul Pattinson and Company 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

When considering iconic global brands to invest in, Nike (NYSE: NKE) and lululemon athletica (NASDAQ: LULU) are certainly two of the first that come to mind. The organizations generated bountiful success for shareholders over the years and are well set up to continue doing so.

Which is the better investment? Upon examination, it is abundantly clear that both are fantastic options. Here’s why:

Nike’s promising transition

In Nike’s most recent quarter, sales grew by 9% with earnings growing 11% — both year over year. On the surface, this growth seems somewhat modest. When considering many of Nike’s wholesale partners (department stores) are operating under capacity restrictions or closed altogether, this growth becomes much more impressive.

Nike’s digital sales grew by 84% year over year, powered by triple-digit growth in North America. This outsized expansion more than offset the pain Nike experienced from restrictions on wholesalers and its own brick-and-mortar stores.

What does this successful pivot to digital mean?

In a normalized business environment, the company earns a roughly 10% higher gross margin on digital sales versus sales transacted via wholesale. If any of this shift has staying power, it should therefore result in meaningful profit gains as the world slowly goes back to normal.

While there is no guarantee this will be the case, the company is confident it can maintain its digital momentum. While Nike today earns roughly 30% of its total revenues through digital channels, CEO John Donahoe expects that number to approach 50% in the coming years. If this forecast turns out to be accurate, it should be a very positive trend for investors.

Donahoe has executive experience with three successful technology companies (ServiceNow, eBay, and PayPal Holdings), offering investors good reasons to think he can continue executing a digital transformation at the helm of Nike.

Lululemon is thriving

Lululemon is more expensive than Nike on a price-to-earnings basis, and for good reason. In its most recent quarter, the company grew sales by 22% and profit by nearly 15%; this was despite similar pandemic-related retail restrictions that hurt Nike’s operations. CFO Meghan Frank directly attributed company growth to increased traffic in Lululemon’s digital operations.

LULU PE Ratio (Forward) data by YCharts

For context, the clothing company’s direct sales (which include digital sales) now make up 42.8% of total revenues vs. 26.9% just last year. Clearly, Lululemon’s focus has shifted rapidly due to COVID-19, and it’s paying off.

While some companies are struggling to stay afloat and maintain shareholder returns amid COVID-19, Lululemon managed to initiate a share buyback program of up to $500 million. This does represent roughly 1% of the current market cap, but is a great sign regardless.

Beyond finding success in e-commerce, Lululemon officially expanded into in-home fitness with its acquisition of MIRROR for $500 million. MIRROR offers group and one-on-one floor workouts from the home and plans to broaden its offerings into things like meditation with Lulu’s resources.

Lululemon prides itself on offering its fans compelling omni-channel experiences. This purchase allows it to broaden those offerings by adding connected fitness to the mix. With direct competitors like Peloton Interactive trading at 460 times forward earnings (nearly five times more expensive than Lululemon), any success realized with MIRROR offers Lululemon and its shareholders another promising leg of potential returns.

Both are great options

While investing is sometimes a process of choosing one comparable company over another, I do not think you need to do so in this case. Both Nike and Lululemon are performing exceptionally well and are poised to continue doing so for years to come.

Investors can feel confident going with either company — neither will be going out of style anytime soon.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• 3 things you’ll want to know when Nike announces earnings

Bradley Freeman 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 Nike, PayPal Holdings, Peloton Interactive, and ServiceNow, Inc. The Motley Fool Australia has recommended Nike. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Warren Buffett has a long track record of capitalising on market downturns. Over recent decades he has successfully bought a range of high-quality companies when they trade at low prices. In doing so, he has become one of the most successful investors of all time.

With a stock market crash never far away, adopting a similar approach could be very profitable. As such, having some cash available and identifying high-quality companies prior to a market decline could be a worthwhile move.

The prospect of a stock market crash

There have been numerous market downturns during Warren Buffett’s investing career. In fact, they take place fairly regularly, with no bull market ever having lasted in perpetuity. This means that investors will inevitably have the chance to buy high-quality companies at cheap prices at some point over the coming years. During their lifetime, there are likely to be a number of buying opportunities caused by market falls.

In the long run, following a strategy of buying shares during a market crash could be very profitable. It means that an investor essentially purchases stocks at prices that undervalue their long-term prospects. Since every stock market crash has been followed by a return to previous record highs, it allows an investor to use market cycles to their advantage. The end result, as Buffett has shown in his career, is often market-beating returns that have a positive impact on an investor’s financial situation.

Following Warren Buffett into high-quality stocks

Of course, Warren Buffett does not simply buy cheap stocks during a market crash. Rather, he analyses industries and identifies the best companies. Clearly, what determines the best shares is very subjective. However, for Buffett it usually entails a strong competitive advantage that allows a company to earn higher margins and deliver a more resilient performance during challenging periods.

Certainly, such businesses could experience difficult operating conditions caused by a weak economic outlook that prompted a market downturn. However, their relatively high quality means they are likely to survive a period of weaker sales growth. They may even be able to expand their market presence and grab market share at the expense of weaker rivals. The end result could be higher profits and a rising share price in the long run.

Preparing for the next stock market crash

Warren Buffett seems to be in a state of constant preparedness for the next market crash. His large cash position and analysis of companies means he is ready to pounce on high-quality businesses when they trade at low prices.

While many investors may be feeling upbeat about the stock market’s outlook right now, a market crash can come out of nowhere. By preparing now and using it to their advantage, investors can follow in Buffett’s footsteps and obtain higher returns than the wider stock market over the long run.

More reading

• These were the best performers on the ASX 200 last week
• These were the worst performers on the ASX 200 last week
• 3 top small cap ASX shares to buy
• Are these 2 men vying to be the ASX’s Warren Buffett?
• Why I think today’s cheap dividend stocks can double in the next 10 years

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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