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Despite improving investor sentiment since the 2020 stock market crash, the near-term prospects for many companies continue to be uncertain. Risks such as political challenges in Europe and the ongoing coronavirus pandemic could cause investor sentiment to come under pressure.

Furthermore, the stock market has always experienced downturns following its gains. As such, now could be the right time to start planning for a market decline through holding some cash and identifying potential buying opportunities that may become more attractively priced in the coming months.

The potential for a second stock market crash

This year’s stock market crash was caused by the impact of the coronavirus pandemic on the world economy’s outlook. Although investors may be feeling more optimistic about the economy’s prospects, a number of threats could hold back its performance in the near term. For example, Brexit may mean that investors are more risk averse due to it being an unprecedented event.

Furthermore, factors such as weak consumer confidence and a lack of investment from businesses that have struggled this year could mean that economic growth remains disappointing in the near term.

Another stock market crash is also likely to be experienced at some point in future because the track record of the stock market shows that it does not experience perpetual growth. Ultimately, an event is likely to take place that causes investor sentiment to weaken in response to the prospect of more challenging operating conditions for a range of businesses. Therefore, planning for such an occurrence in advance could allow an investor to take advantage of it.

Preparing for a market downturn

Clearly, it is extremely difficult to know when a stock market crash will occur. However, taking steps such as holding additional cash could be a sound move. This may enable an investor to react more quickly and decisively to temporary market declines that can rapidly be reversed. Cash savings may offer disappointing returns at the present time due to low interest rates. However, buying undervalued stocks in a market decline may mean superior long-term growth for patient investors.

Preparing for a market downturn may also involve assessing future buying opportunities. This may mean creating a watchlist, for example, of companies that have solid financial positions and wide economic moats. Waiting for their share prices to fall in a market decline can require a large amount of patience and discipline. However, it can be worth it if an investor is able to buy high-quality companies at low prices.

Certainly, planning for a stock market crash may mean there is an opportunity cost in the short run as share prices could move higher. However, it could be a sound strategy to use over the long run, as market cycles are likely to remain in place in the coming years.

More reading

• 2 outstanding ASX shares to buy and hold for a decade
• Here’s how ASX buy now, pay later (BNPL) shares have performed in 2020
• 2 ETFs offering strong international diversification
• Why the IOOF (ASX:IFL) share price is one to watch on Friday
• 27 ASX companies just got an unwanted knock on the door

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking to follow in the footsteps of Warren Buffett and make some buy and hold investments, then you might want to take a look at the ASX shares listed below.

Here’s why they could be long term market beaters:

CSL Limited (ASX: CSL)

If you’re looking for a buy and hold option, then this biopharmaceutical giant could be one to consider. Its shares have been market beaters over the last decade and have been tipped by many to repeat these heroics over the next 10 years.

This is thanks to the quality therapies and vaccines it has in its portfolio, the increasing demand for immunoglobulins, its expanding plasma collection network, and its investment in research and development. The latter will see the company invest in the region of US$1 billion in these activities in FY 2021. It is because of these investments that CSL has a pipeline of potential treatments which have market opportunities in the billions.

Analysts at UBS recently looked through its pipeline and saw enough in it to put a buy rating and $346.00 price target on its shares. This compares to the current CSL share price of $288.16.

NEXTDC Ltd (ASX: NXT)

Another option to consider as a buy and hold investment could be NEXTDC. It is a technology company that provides innovative data centre outsourcing solutions, connectivity services, and infrastructure management software.

Due to the ongoing shift to the cloud, demand for data centre services is expected to increase materially over the coming decades. This puts NEXTDC in a fantastic position to profit. Particularly given its partner ecosystem, which hosts Australia’s largest independent network of carriers, cloud, and IT service providers.

The company is also in the process of looking at an expansion into Asia and has opened up offices in Singapore and Tokyo. If it can repeat its success in this market, its growth could continue for a long time to come.

Analysts at Goldman Sachs are positive on its future. Last month they put a buy rating and $13.20 price target on its shares. This compares to the current NEXTDC share price of $12.25.

More reading

• ASX healthcare shares could outperform in 2021: Fundie
• These are 8 of the best performing ASX healthcare shares of 2020 so far
• 2 ASX healthcare shares to buy for 2021 and beyond
• Why the Medical Developments International (ASX:MVP) share price is sinking lower
• These are 10 of the best performing ASX tech shares of 2020 so far

James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. 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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Were there any four letters hotter than B-N-P-L (buy now, pay later) on the ASX in 2020? I think not. BNPL shares have confounded and delighted ASX investors for years now. After a thunderous 2019 (and 2018, and 2017), many were predicting that the sector would blow off some steam in 2020 as investors eventually came back to Earth.

The opposite has occurred. Not only have some BNPL shares outperformed almost every other ASX share in the financials sector, but some have handily outperformed most ASX blue chips. Especially if you take their performances since the March share market crash. But some others haven’t, and instead delivered handy losses.

Let’s have a look:

ASX BNPL share	YTD share price gain (as of 17 December)	Market capitalisation
Afterpay Ltd (ASX: APT)	292.78%	$34.29 billion
Sezzle Inc (ASX: SZL)	289.76%	$657.34 million
Openpay Group Ltd  (ASX: OPY)	97.58%	$264.63 million
Splitit Ltd (ASX: SPT)	85.07%	$553.44 million
Zip Co Ltd (ASX: Z1P)	59.04%	$2.92 billion
Zebit Inc (ASX: ZBT)	(1.9%)	$97.24 million
Laybuy Holdings Ltd (ASX: LBY)	(35.37%)	$231.16 million
Humm Group Ltd (ASX: HUM)	(35.65%)	$576.99 million

Afterpay still sits on the BNPL throne

No surprises as to the king of this particular hill. BNPL pioneer and titan Afterpay comes in at the front of the pack so far for 2020. At the time of writing, the Afterpay share price has in fact just made a fresh new all-time high of $120.77, putting its year-to-date gains at almost 300% – an eye-watering sum on its own, but especially so if you consider that Afterpay also banked year-to-date gains of more than 100% in both 2018 and 2019 as well (close to 150% for the latter).

And here’s the real kicker: Afterpay shares plummeted all the way down to $8.01 at one point during the March share market crash. If you count the gains between 23 March and today, the Afterpay share price has returned 1,402%.

So what has gone so right for this company? Well, quite a lot, as it turns out.

Back in May, Afterpay announced that the Chinese gaming and e-commerce giant Tencent Holdings had acquired a 5% stake in the company. At the time, investors were a little worried that the coronavirus-induced recession would ‘pop the Afterpay bubble’ by eliciting a wave of payment delinquency. That, as it turns out, did not come to pass. But at the time, the Tencent move shored up a lot of confidence. Especially when Afterpay’s management said the deal would help the company expand into the Asian region.

Since then, it has only been onwards and upwards for Afterpay. The company announced some stunning growth numbers in its FY2020 earnings report, and later made inclusion into both the ASX 50 and the ASX 20 indexes. All of these factors have worked marvelously for sentiment surrounding Afterpay shares, and have likely been the driving factors behind the recent all-time highs.

Some other top performers

But it’s not just Afterpay that’s been doing well in 2020. Sezzle has also been a top performer. It claims the No. 2 spot on 2020’s BNPL gainers, but also outperforms even Afterpay since 23 March, giving investors a 1,749% gain to today.

We can probably thank raw growth for these gains. Just this month, Sezzle reported that underlying merchant sales for the month of November 2020 were 188.5% higher than November 2019.

Turning to Openpay and we have an interesting story. Yes, Openpay shares are up a more-than-respectable 97.58% for the year. However, the Openpay share price remains more than 50% below its 52-week high of $4.98 seen back in September. At that point, Openpay was up around 280% year to date. What happened? Well, it’s not clear. Openpay is still growing at a healthy clip. It recently reported record user growth and transactional volume across both October and November. Perhaps investors just decided they wanted Afterpay shares instead.

Split and Zip

We see a similar pattern with Splitit. The Splitit share price is also boasting healthy year-to-date gains on today’s prices. But it is also down around 33% from its 2020 high watermark. Again, we have seen some strong numbers out of the company recently. At the end of October, Splitit reported 214% year-on-year growth in sales volume, and a 318% increase in quarterly revenue over the prior corresponding period. It also touted some ambitious expansion plans over in the United States.

Turning now to Zip Co, the perpetual ‘bridesmaid’ of the BNPL shares. Zip’s successes have been a little more muted in 2020 than the companies we’ve discussed so far. And, like Openpay and Splitit, Zip shares are also quite a way from their own 52-week high. Back in September, the Zip share price hit $10.64, more than 40% away from its current share price.

With this company, investors were initially highly welcoming of Zip’s acquisition of the US-based QuadPay that was announced back in June. Zip’s subsequent trend lower can likely be put down to (again) investors preferring Afterpay, or perhaps as a result of some negative broker attention over the past few months.

Some not-so-impressive BNPL shares

Now to the losers of the group – Laybuy, Humm and Zebit.

Laybuy and Zebit both only had their initial public offerings (IPOs) in 2020, Zebit just back in October. The BNPL sector has attracted a lot of froth and volatility in 2020, as you’ve probably picked up. These kinds of IPOs tend to attract investors trying to make a quick buck, as it were. A similar pattern emerged with both companies’ floats: a spike, followed by net selling pressure.

Finally, let’s look at Humm (formerly known as FlexiGroup until last month), the wooden spoon recipient of the ASX’s BNPL shares. Humm has posted some unimpressive numbers in 2020, including a 62% drop in profits for FY2020 back in July, and has recently launched into the New Zealand market. However, its modest growth compared to its peers and a recent capital raise seems to have dimmed investors’ appreciation of this company. The Humm share price remains down by almost a third in 2020 so far.

More reading

• Why Afterpay (ASX:APT) and these ASX shares just hit 52-week highs or better
• Why the Afterpay (ASX:APT) share price just smashed its record high
• ASX 200 rises on Thursday
• Why Codan, Pro Medicus, Uniti, & Zip shares are storming higher
• ASX 200 up 0.7%: Zip capital raising, A2 Milk trading halt, Sydney Airport dividend update

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Humm Group Limited and 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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The two exchange-traded funds (ETFs) in this article offer diversification to investors.

What is an exchange traded fund?

In the above link is a breakdown of an ETF, but in summary it provides investors exposure to a group of assets or businesses through a single investment. You don’t have to go out and buy the 100, 500 or thousands of individual businesses yourself.

This would save a lot on brokerage and it also provides instant diversification. This diversification can supposedly lower risks because if there’s a problem with one business (or sector) then the exposure to the other businesses and sectors can mitigate that.

Here are two examples that could give you a lot of diversification:

Vanguard Msci Index International Shares ETF (ASX: VGS)

This ETF is about giving investors exposure to many of the world’s largest companies listed in major developed countries. It allows Aussies to participate in the long-term growth potential of international economies outside Australia.

It actually has a total of more than 1,500 holdings that are spread across many countries. Whilst the US makes up just over two thirds of the ETF’s portfolio, the following countries account for more than 0.5% each: Japan, the UK, France, Canada, Switzerland, Germany, the Netherlands, Sweden, Hong Kong, Italy, Denmark and Spain.

The biggest holdings are the ones that have the biggest influence on the ETF’s overall returns. At the end of November 2020 its biggest positions were: Apple, Microsoft, Amazon, Alphabet, Facebook, Tesla, Johnson & Johnson, JPMorgan Chase, Visa and Proctor & Gamble.

Looking at the sector allocation, IT has the biggest exposure with 22.2%. There’s a 13.1% weighting to healthcare businesses, a 12.2% exposure to financials, a 12.2% weighting to consumer discretionary and a 10.8% position in industrials. The other sectors weightings are less than 10%.

Vanguard Msci Index International Shares ETF has an annual management fee of 0.18% per annum. Since inception in November 2014, its net returns per annum have been an average of 12.3%.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

This ETF aims to give investors exposure to a diversified portfolio of attractively priced US companies with sustainable competitive advantages, in other words ‘wide economic moats’, according to Morningstar’s equity research team.

The call on attractive valuation is based on the ETF targeting companies trading at attractive prices compared to Morningstar’s estimate of fair value.

VanEck Vectors Morningstar Wide Moat ETF has 48 holdings. The biggest 10 positions each have a weighting of at least 2.6%. Those largest exposures are: Applied Materials, Corteva, Charles Schwab, Microchip Technology, Boeing, Compass Minerals International, Aspen Technology, Yum! Brands, Cheniere Energy and American Express.

It has an annual management fee of 0.49% per annum. Over the past five years, the ETF’s average return per annum has been 16% – this has outperformed the S&P 500’s return of 13.6% over the same time period.

As the name suggests, the entire portfolio is invested in US shares, so there’s no diversification in terms of the country of listing, but each individual company will have its own percentage split of domestic and overseas earnings. The underlying earnings aren’t 100% American. 

In terms of sector allocations, the ones with a weighting of more than 10% in this ETF are: technology with a 22.2% allocation, healthcare with a 18.2% weighting, financials with a 17.1% holding, industrials with a 11.3% weighting and consumer staples with a 10.1% allocation.

More reading

• 2 high quality ETFs for ASX investors to buy
• 3 ASX ETFs to buy in 2021
• 2 ETFs delivering solid returns
• 2 quality ETFs to buy for long-term investing

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended VanEck Vectors Morningstar Wide Moat ETF and Vanguard MSCI Index International Shares 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 IOOF Holdings Limited (ASX: IFL) share price will be on watch this morning after the release of an announcement.

What did IOOF announce?

This morning IOOF announced that it has made changes to its arrangements with external platform providers.

According to the release, effective yesterday, IOOF and Westpac Banking Corp (ASX: WBC) have agreed to terminate the existing relationship agreement between IOOF and Westpac’s BT brand.

IOOF’s CEO, Renato Mota, commented, “IOOF and BT worked collaboratively to reach agreement with regard to the future of our arrangement. As IOOF embarks on its own platform simplification strategy, alignment with providers who fit within our open architecture approach will be key to continuing to enable choice for our clients.”

The release explains that IOOF’s agreement with BT included termination rights for both parties on 12 months’ notice. It also provided IOOF with the right to unwind the current arrangements and transition clients and funds to other providers.

However, the latter option was ruled out by management. It estimated that the cost of such a transition from BT would cost IOOF between $30 million to $70 million. When combined with anticipated customer attrition, this strategy was deemed unattractive.

What now?

IOOF has entered into an agreement with HUB24 Ltd (ASX: HUB).

Subject to trustee and service operator approvals, under this agreement, HUB24 would act as the platform administration and custody provider and IOOF and HUB24 would collaborate to develop a range of solutions.

This includes private label super and investment products with IOOF entities as the responsible governing entities.

Mr Mota commented: “The new partnership arrangement with HUB24 is a positive step forward for IOOF. We continue to focus on our proprietary Evolve platform however, it is important that we continue to work with partners whose long-term business strategy and ability to enable choice aligns with our own.”

Financial impact.

In a separate announcement, Westpac advised that to avoid complex, costly, and time-consuming separation provisions, the bank will pay IOOF a one-off amount of $80 million.

However, as the agreement will see BT continue to provide platform and related services to clients and advisers including those with a relationship with IOOF, Westpac expects the one-off amount to be partially offset by other net platform revenues.

As for IOOF, it expects its FY 2021 revenue to decrease by approximately $15 million pre-tax on $18.8 billion Funds under Advice as at 30 November 2020.

More reading

• 2 quality ASX dividend shares with 5%+ yields
• ASX stock of the day: Why are Netwealth (ASX:NWL) shares up 7%?
• Here are the best 5 ASX financials shares of 2020
• The ASX bank with the best dividend yield under APRA’s new guidelines
• Here’s how ASX 200 bank shares have performed in 2020 so far

James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia has recommended Hub24 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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The corporate regulator has revealed it’s had to make enquiries with 27 ASX listed companies about their 2020 financial reports.

The Australian Securities and Investments Commission (ASIC) announced Thursday that it had reviewed financial reports for the year ending 30 June 2020 for 170 listed companies.

This resulted in the regulator contacting 27 companies regarding 58 different matters to demand a ‘please explain’.

Issues around disclosures about the effect of COVID-19 dominated this year’s enquiries.

“Many companies made useful and meaningful disclosures on the impact of COVID-19 conditions. However, some entities with businesses adversely affected by the pandemic did not appear to give sufficient attention to the reporting of asset values and financial position,” stated ASIC.

The commission also enquired when it thought the company “made unrealistic and unsupportable assumptions about future cash flows“.

Four of the 27 companies have been let off so far, while investigations into the other 23 are continuing.

$60 million of profit wiped from 4 companies

An ASX company is sometimes compelled to amend its reported numbers after an ASIC enquiry.

This has already happened to Nitro Software Ltd (ASX: NTO), Kresta Holdings Ltd (ASX: KRS), Elixinol Global Ltd (ASX: EXL) and Lawfinance Ltd (ASX: LAW) for their 30 June 2020 reports.

Collectively $60 million of profit was wiped from these companies due to the corrections.

ASIC did acknowledge that the coronavirus pandemic would have forced many companies to use “probability-weighted scenarios” to come up with their figures.

A simple disclosure of assumptions in the financial report would have covered this, according to the commission.

Listed companies need to improve to keep investors sufficiently informed.

“Our findings emphasise that directors and auditors need to focus on impairment of non-financial assets given the extended impact of the COVID-19 pandemic, to ensure that the market is properly informed about asset values and the expected future performance implied by those values,” stated ASIC.

ASIC had previously warned that directors are “primarily responsible” for the quality of the company’s financial report. 

“Companies should apply appropriate experience and expertise, particularly in more difficult and complex areas of accounting policies and estimates.”

More reading

• 3 ASX tech shares that have delivered strong returns in 2020
• Elixinol (ASX:EXL) share price tumbles on capital raising update
• Why the Elixinol (ASX:EXL) share price popped 43% today
• The Nitro (ASX:NTO) share price is down 20% in a month. Time to invest?

Motley Fool contributor Tony Yoo owns shares of Nitro Software Limited. The Motley Fool Australia has recommended Nitro Software 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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With the market continuing its ascent this week, it will come as no surprise to learn that a number of shares have climbed to 52-week highs or better.

Three ASX shares that have just given investors an early Christmas present are listed below. Here’s why they are flying high right now:

Accent Group Ltd (ASX: AX1)

The Accent share price hit a record high of $2.31 yesterday. Investors have been buying the footwear-focused retailer’s shares this year thanks largely to its strong performance during the pandemic. At a time when many retailers were struggling, Accent was experiencing a surge in its sales. Pleasingly, this positive form has continued in FY 2021, with Accent on course to deliver a strong half year result in February. In addition to this, the company has continued opening new stores to strengthen its market position. It plans to add 80 new stores to its network in FY 2021, this includes stores from new brands Pivot and Australian Stylerunner.

Afterpay Ltd (ASX: APT)

The Afterpay share price stormed to another record high of $120.77 on Thursday. When the payments company’s shares hit that level, it meant they were up a remarkable 294% since the start of the year. There have been a number of catalysts for this impressive gain. These include its explosive sales growth in 2020, global expansion plans, the upcoming launch of new financial products, and, most recently, its inclusion in the ultra-exclusive ASX 20 index.

Metcash Limited (ASX: MTS)

The Metcash share price continued its strong run and hit a two-year high of $3.60 yesterday. This means the wholesale distributor’s shares have now risen 36% since the start of October. Investors have been buying Metcash’s shares following the release of a very strong first half result. Thanks to positive performances across its business, Metcash reported a 12.2% increase in group revenue to $7.1 billion and a 43% lift in underlying profit after tax to $129.6 million. Pleasingly, the company revealed that it has started the second half strongly, with all segments continuing their positive sales momentum.

More reading

• These are the 7 best ASX retail shares in 2020
• Why the Afterpay (ASX:APT) share price just smashed its record high
• Why 2021 may be an even better year for ASX investors
• The Tyro (ASX:TYR) share price is down 20% in one month. Time to buy?
• Openpay (ASX: OPY) share price rockets up 8% after major announcement

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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The People Infrastructure Ltd (ASX: PPE) share price will be on watch this morning. This comes following the company’s announcement after yesterday’s market close that it will acquire a leading technology staffing firm.

The People Infrastructure share price finished Thursday’s trading session at $3.41, up 0.89%

People Infrastructure focuses on the delivery of workforce management, contract staffing, recruitment and human resources outsourcing services. The company operates under four main industry sectors being healthcare, information technology, specialist services and labour hire.

What did People Infrastructure announce?

In the release, People Infrastructure advised is has entered an agreement to acquire eCareer Employment Services Pty Ltd and Illuminate Search and Consulting Pty Ltd.

According to People Infrastructure, the businesses were established in 1999 and, together represent a leading technology staffing firm focused on the New South Wales market but also with Victoria operations.

The firms mainly provide workforce personnel to the New South Wales Government, as well as large corporations in the banking, finance and insurance industries. They have 16 employees and around 200 technology contractors that have been on-hired by customers. 

Terms of the deal

People Infrastructure will acquire both businesses for $5.15 million. The transaction is due to be finalised in the coming weeks, pending customary conditions.

The purchase of the businesses will come from People Infrastructure’s existing cash reserves.

Furthermore, the company is projecting the procurement will generate $1.3 million in earnings before interest, tax, depreciation and amortisation (EBITDA) over the next 12 months.

What did the CEO say?

Mr David Cuda, People Infrastructure CEO, commented on the takeover, saying:

The acquisition of eCareer and Illuminate is highly complementary to our existing Victorian and Queensland focused technology staffing businesses. The Business is well entrenched in the NSW market and will enable further growth in the technology on-hire contracting market to NSW government departments, large banking, finance and insurance organisations, all of whom are large users of on-hire staffing services.

People Infrastructure is especially attracted to the Business due to its strong position in the NSW technology on-hire contracting market, its long-term relationships with its customers and proven leadership team who all have significant tenures within the Business and technology staffing industry.

About the People Infrastructure share price

The People Infrastructure share price has rebounded strongly since its March lows of 90 cents. Since the beginning of the year, the company’s shares have risen by around 8%, outperforming the All Ordinaries Index (ASX: XAO).

People Infrastructure has a market capitalisation of $314.9 million and a price-to-earnings (P/E) ratio of 16.7.

More reading

• 3 small cap ASX tech shares growing at a rapid rate
• 3 little-known ASX shares rated as buys by fundie

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has recommended People Infrastructure 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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Respected fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in its portfolio.

WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).

There’s also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.

WAM says WAM Leaders actively invests in the highest quality Australian companies.

The WAM Leaders portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 12.7% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 8.5%.

These are the two ASX shares that WAM outlined in its most recent monthly update and were one of WAM Leaders’ biggest 20 positions:

National Australia Bank Ltd (ASX: NAB)

WAM Leaders said that November marked a turning point on sentiment for the banking sector, driven by falling mortgage deferrals, the US presidential election result and several coronavirus vaccine developments.

The LIC also pointed out a positive from NAB’s FY20 result in early November compared to the other major banks was that the net interest margin (NIM) only declined by three basis points, whereas the other big major banks showed double digit NIM declines.

NAB also reported that its underlying profit in FY20 only fell by 12% to $8.2 billion. However, cash earnings dropped 36.6% to $3.7 billion and statutory profit fell 46.7% to $2.56 billion. Statutory earnings per share (EPS) declined by 51% to 80.5 cents.

FY20 credit charges for the ASX share included $1.86 billion of provisions to reflect the potential COVID-19 impacts, which included $388 million for targeted sectors experiencing elevated levels of risk including aviation, tourism, hospitality and entertainment, retail trade and commercial property.

The decline in profit caused the bank to reduce its full year dividend by 64% to 60 cents per share.

The fundie said that with a new management team driving a turnaround strategy, conservative provisions and a strong balance sheet, the investment team is confident on the outlook for NAB and expect the positive recovery trends to continue into 2021.

Santos Ltd (ASX: STO)

In November, WAM Leaders positioned the portfolio to take advantage of the rotation towards base metals and oil companies.

Santos is headquartered in Adelaide and it’s Australia’s second largest oil and gas producer.

The outperformance of the Santos share price during November was driven by oil prices reaching an eight month high in late November amid a weakening US dollar, a surprise decline in US crude supplies and coronavirus vaccine news.

On 1 December, Santos upgraded its 2020 production guidance to 87 to 89 million barrels of oil, and WAM Leaders believes it is well positioned to benefit from the economic recovery going forward. The new guidance represents 15% to 18% production growth for the year and it’s growth of more than 50% since 2015.

The ASX share also said that it’s on track to deliver production cost reductions announced in March in response to the COVID-19 pandemic, which sees 2020 guidance lowered to $8 to $8.50 per barrel of oil.

Santos CEO and managing director Kevin Gallagher said: “Our strategy has been to establish a disciplined low-cost operating model that delivers strong free cash flows through the oil price cycle. Our 2020 forecast free cash flow breakeven oil price is less than US$25 per barrel before hedging and around US$20 per barrel after hedging.”

Santos has been a core position in WAM Leaders due to management’s cost discipline and focus on profitable projects.

More reading

• 5 things to watch on the ASX 200 on Friday
• ASX stock of the day: Why are Netwealth (ASX:NWL) shares up 7%?
• NAB almost had $22m defrauded before man’s arrest
• Are ASX energy shares the best pandemic recovery play in 2021?
• Why the NAB (ASX:NAB) share price climbed higher today

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.

The post Wilson Asset Management thinks these 2 ASX shares are a buy appeared first on The Motley Fool Australia.

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Respected fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in its portfolio.

WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).

There’s also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.

WAM says WAM Leaders actively invests in the highest quality Australian companies.

The WAM Leaders portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 12.7% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 8.5%.

These are the two ASX shares that WAM outlined in its most recent monthly update and were one of WAM Leaders’ biggest 20 positions:

National Australia Bank Ltd (ASX: NAB)

WAM Leaders said that November marked a turning point on sentiment for the banking sector, driven by falling mortgage deferrals, the US presidential election result and several coronavirus vaccine developments.

The LIC also pointed out a positive from NAB’s FY20 result in early November compared to the other major banks was that the net interest margin (NIM) only declined by three basis points, whereas the other big major banks showed double digit NIM declines.

NAB also reported that its underlying profit in FY20 only fell by 12% to $8.2 billion. However, cash earnings dropped 36.6% to $3.7 billion and statutory profit fell 46.7% to $2.56 billion. Statutory earnings per share (EPS) declined by 51% to 80.5 cents.

FY20 credit charges for the ASX share included $1.86 billion of provisions to reflect the potential COVID-19 impacts, which included $388 million for targeted sectors experiencing elevated levels of risk including aviation, tourism, hospitality and entertainment, retail trade and commercial property.

The decline in profit caused the bank to reduce its full year dividend by 64% to 60 cents per share.

The fundie said that with a new management team driving a turnaround strategy, conservative provisions and a strong balance sheet, the investment team is confident on the outlook for NAB and expect the positive recovery trends to continue into 2021.

Santos Ltd (ASX: STO)

In November, WAM Leaders positioned the portfolio to take advantage of the rotation towards base metals and oil companies.

Santos is headquartered in Adelaide and it’s Australia’s second largest oil and gas producer.

The outperformance of the Santos share price during November was driven by oil prices reaching an eight month high in late November amid a weakening US dollar, a surprise decline in US crude supplies and coronavirus vaccine news.

On 1 December, Santos upgraded its 2020 production guidance to 87 to 89 million barrels of oil, and WAM Leaders believes it is well positioned to benefit from the economic recovery going forward. The new guidance represents 15% to 18% production growth for the year and it’s growth of more than 50% since 2015.

The ASX share also said that it’s on track to deliver production cost reductions announced in March in response to the COVID-19 pandemic, which sees 2020 guidance lowered to $8 to $8.50 per barrel of oil.

Santos CEO and managing director Kevin Gallagher said: “Our strategy has been to establish a disciplined low-cost operating model that delivers strong free cash flows through the oil price cycle. Our 2020 forecast free cash flow breakeven oil price is less than US$25 per barrel before hedging and around US$20 per barrel after hedging.”

Santos has been a core position in WAM Leaders due to management’s cost discipline and focus on profitable projects.

More reading

• 5 things to watch on the ASX 200 on Friday
• ASX stock of the day: Why are Netwealth (ASX:NWL) shares up 7%?
• NAB almost had $22m defrauded before man’s arrest
• Are ASX energy shares the best pandemic recovery play in 2021?
• Why the NAB (ASX:NAB) share price climbed higher today

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.

The post Wilson Asset Management thinks these 2 ASX shares are a buy appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/38hYuCm