Tag: Motley Fool

The Crown Resorts Ltd (ASX: CWN) share price is pushing higher on Monday morning after the release of an announcement.

At the time of writing, the casino and resorts operator’s shares are up 1% to $9.90.

What did Crown Resorts announce?

This morning Crown released an update on its operations in Melbourne. This follows an announcement by the Victorian Government at the weekend in relation to the easing of COVID-19 restrictions.

According to the release, the easing of restrictions means that gaming operations at its Crown Melbourne are about to get a whole lot busier.

Crown notes that the number of members of the public permitted at any one time is limited to 50% of the maximum capacity for the facility stated in the occupancy permit.

Furthermore, the number of members of the public permitted in each indoor space at any one time is limited by the density quotient of one person per four square metres.

Though, as always, physical distancing and hygiene protocols remain in place throughout its casino.

When are the changes due to take place?

Management advised that it expects to commence operating under the revised directions from this Wednesday.

It also revealed that it continues to engage with the Victorian Government in respect to the implementation of the directions.

What’s next for Crown?

With Crown Melbourne returning to relatively normal trading, all eyes will now be on the new Crown Sydney operation.

Last month it was prevented from opening its gaming operations due to money laundering concerns.

The New South Wales Independent Liquor and Gaming Authority (ILGA) intends to wait until it has seen the final report from an ongoing inquiry, which is due in February, before deciding whether to grant it a gaming licence in the state.

More reading

• Crown Resorts (ASX:CWN) share price is up 6% despite Fitch downgrade
• ASX 200 rises again on Monday
• Why the Crown (ASX:CWN) share price is dropping lower again today
• Why a2 Milk, Crown, Immutep, & Suncorp shares are dropping lower
• ASX 200 down 0.3%: Altium FY 2021 guidance, Crown drops, insurance shares sink

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts 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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Replacing an entire wage with the passive income from dividend shares could be a more realistic aim than it appears at first glance. Certainly, this year’s stock market crash has highlighted the risks of holding shares. However, with low interest rates and high property prices, there may be few other options to make a worthwhile income elsewhere.

Through purchasing a diverse range of dividend shares with affordable payouts, it may be possible to generate a high and growing income over the long run.

A resilient passive income from robust dividend shares

Clearly, the most important aspect of a passive income that replaces an entire wage is its reliability. There is little point in having high-yielding dividend shares that do not provide stability in terms of their payouts over the long run.

As such, assessing the resilience of a company’s dividend is of great importance. This can be undertaken through analysing its affordability. Comparing net profit to dividends shows how many times a company could pay its dividend. If it is easily covered by profit, and could be paid several times over, it suggests that the business in question may be able to maintain shareholder payouts even if sales and profitability decline.

Furthermore, a passive income from a company with defensive characteristics may be more valuable than a payout from a cyclical business. Defensive stocks may be less impacted by an economic downturn than cyclical shares. This may lead to a more reliable income over the long run – especially given the presence of risks such as the coronavirus pandemic.

Dividend growth opportunities

A growing passive income may become increasingly important in the long run. The large amounts of monetary policy stimulus that have been used to counter this year’s decline across major economies may lift inflation in the coming years.

As such, investing money in dividend shares that can realistically grow their shareholder payouts could be a shrewd move. For example, they may pay out a low proportion of net profit as a dividend. This could indicate that they can afford to make larger shareholder payouts. Similarly, a company with upbeat profit prospects could decide to raise dividends at a fast pace.

Diversifying an income stream

It may be tempting to purchase the highest-yielding stocks for a passive income and disregard other companies. However, the uncertain economic outlook means that building a diverse portfolio of stocks is more important than ever. Some sectors and regions may experience a prolonged period of difficulty that causes their dividend growth to slow.

A diverse portfolio of shares can offer a more resilient income return over the long run. It may be able to replace an entire wage if the amount invested is large enough. It may also provide capital growth over the long run as the stock market recovers from the challenges faced this year.

More reading

• Why the Mesoblast (ASX:MSB) share price is charging higher today
• How do zero-fee share trading apps make money?
• Metcash (ASX:MTS) share price jumps 8% after strong first half growth
• Why ASX iron ore stocks are set to rally today
• 3 great ASX tech shares to buy

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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The Mesoblast limited (ASX: MSB) share price has started the week strongly and is charging higher.

In early trade the allogeneic cellular medicines company’s shares are up 3% to $4.45.

Why is the Mesoblast share price pushing higher?

Investors have been buying the company’s shares this morning after its revealed results from a study of its remestemcel-L product in children with steroid-refractory acute graft versus host disease (SR-aGVHD).

According to the release, the results provide in vivo biomarker evidence linking remestemcel-L’s immunomodulatory activity to survival outcomes in children with SR-aGVHD.

Management advised that the study found that clinically meaningful overall responses and survival in children with SR-aGVHD treated with remestemcel-L were associated with significant reductions in certain biomarkers of inflammation which have been validated as predictors of mortality risk.

These biomarkers provide evidence of in vivo bioactivity of remestemcel-L in paediatric SRaGVHD, where children under 12 are at high-risk for mortality, with no approved therapies in the United States.

Furthermore, the durable reductions in blood levels of certain biomarkers associated with inflammatory diseases of the gut suggest that these could be more generally reflective of remestemcel-L activity in vivo in other inflammatory bowel diseases, such as Crohn’s disease and ulcerative colitis.

The phase 3 trial’s lead investigator and paediatric transplant physician, Dr Kurtzberg, commented: “These results support the bioactivity of remestemcel-L in treating the severe inflammation in children with acute graft versus host disease refractory to steroids and provide evidence linking the immunomodulatory properties of remestemcel-L with the excellent responses and survival we see when treating these desperately ill children.”

Judging by the share price reaction, investors may be optimistic that this data will support its push to get the treatment approved by the US Food & Drug Administration.

The Mesoblast share price crashed lower in October after the regulator didn’t approve the treatment and instead requested that the company undertakes at least one additional randomised, controlled study in adults and/or children. This is to provide further evidence of the effectiveness of remestemcel-L for SR-aGVHD.

More reading

• Why Fisher & Paykel Healthcare, Mesoblast, Splitit, & WiseTech are dropping lower
• The Mesoblast (ASX:MSB) share price jumped 33% in November and could go even higher
• ASX 200 flat on Wednesday
• Why Laybuy, Mesoblast, Sandfire, & Telix shares are charging higher
• ASX 200 down 0.2%: Zip’s November update, Mesoblast jumps, Westpac’s asset sale

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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In the United States, zero-brokerage share trading platforms are now the norm.

It all started with the wildly popular Robinhood mobile app, and the more traditional online brokers were forced to follow.

So how is it that these platforms let users buy and sell for no fee? How does the software recoup its costs, let alone make a profit?

It’s because of PFOF. Payment for order flow.

All the US exchanges, such as NASDAQ and NYSE, have this mechanism and it works like this:

1. The investor submits an order to sell or buy through the online broking app.
2. The app passes the order to a third party called a ‘market maker’ (also known as a high-frequency trading firm) that will actually perform the transaction.
3. The market maker pays the trading platform a small fee for orders coming its way.
4. When the market maker actually performs the transaction, it will buy the shares at a fraction lower price than what it sells for. The market maker pockets this difference, called the bid-ask spread.

So zero-brokerage platforms are entirely reliant on the fees from the market maker for their revenue.

On face value, it seems like the user doesn’t get the best price for her or his order. But Stake chief executive Matt Leibowitz told The Motley Fool that PFOF is an incentive for liquidity.

“There are 13 exchanges in the US and they’re competing for flow,” he said.

“So what they do to provide liquidity is they actually provide a rebate. So if you make liquidity, you get paid say 10 cents. If you take liquidity, you pay 15.”

The exchange generates its revenue from that 5 cent difference. And the PFOF acts as a way to encourage liquidity into its own share market, away from its rival exchanges.

PFOF is lucrative business now

PFOF has always existed. It’s just zero-brokerage apps charge more for it than the traditional platforms did.

“Assume the average stock traded has a share price of $50. It takes 20,000 shares traded at $50 for $1,000,000 in volume, for which E-Trade makes $22 per $1,000,000 traded, which sounds like a small number until you realise they cleared $47,000,000 last quarter from this,” North of Sunset Capital Management founder Logan Kane told CBInsights.

“But off an identical $1,000,000 in volume, Robinhood gets paid $260 from the same [high-frequency trading] firms. If Robinhood did as much trade volume as E-Trade, they would theoretically be making close to $500 million per quarter in payments from [high-frequency trading] firms.”

CBInsights has noted that the cosy relationships between Robinhood and the market makers have caused the platform “significant legal headaches”. 

“The Financial Industry Regulatory Authority (FINRA) fined Robinhood $1.25 million in December 2019 for ‘best execution violations’, and the company remains under investigation by the SEC for its failure to disclose its relationships with market makers until 2018,” its analysis reads. 

“Should the SEC find Robinhood to be in violation, the company could face fines of up to $10 million.”

For Robinhood specifically, it does have an alternative source of income with margin lending available to users who pay a subscription fee.

The free brokerage and the low transaction minimum is dangerous for novice investors, an academic warned earlier this year.

“These trading apps encourage addiction and gambling,” RMIT senior lecturer Angel Zhong told The Motley Fool.

“A big selling point of these apps is the low transactional threshold, which encourages investors to buy low-priced stocks. In finance research, low price [is] a feature associated with what we called the ‘lottery-like’ stocks. They are highly risky.”

More reading

• Metcash (ASX:MTS) share price jumps 8% after strong first half growth
• Why ASX iron ore stocks are set to rally today
• 3 great ASX tech shares to buy
• Could AstraZeneca be a millionaire-maker stock?
• Leading broker puts buy rating on Xero (ASX:XRO) share price

Motley Fool contributor Tony Yoo 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 Metcash Limited (ASX: MTS) share price is jumping higher following the release of its half year results.

At the time of writing, the wholesale distributor’s shares are up 8% to $3.49.

How did Metcash perform in the first half?

Much like rivals Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW), Metcash has been performing very positively over the last six months.

For the six months ended 31 October, the company reported a 12.2% increase in group revenue to $7.1 billion. Including charge-through sales, the company’s revenue increased 12.3% to $8.1 billion.

This led to Metcash reporting a 30.4% increase in underlying group earnings before interest and tax (EBIT) to $203 million and a 43% lift in underlying profit after tax to $129.6 million.

On a statutory basis, profit after tax came in at $125.1 million, compared to a loss of $151.6 million a year earlier.

This allowed the Metcash board to declare a fully franked interim dividend of 8 cents per share.

What were the drivers of its growth?

This solid growth was driven by the strong performance of all its segments.

Total Food sales increased 9.5% to $4.8 billion or 16.3% when excluding the impact of Drakes and 7-Eleven contract losses. Management advised that this was driven by a change in consumer behaviour to more home cooking, an increase in the preference for local neighbourhood shopping, and the success of its MFuture initiatives.

Total Liquor sales were even stronger and increased 14.3% to $2 billion. This reflects strong demand in the retail network, which more than offset COVID-19 trading restrictions on on-premise customers.

Finally, Hardware sales increased 20.6% to $1.3 billion for the half. This was boosted by higher margin DIY sales and acquisitions. Excluding acquisitions, sales increased 16.2% over the prior corresponding period.

Management notes that the strong DIY demand was underpinned by a change in consumer behaviour to more home improvement projects, gardening, and maintenance activity. The success of MFuture initiatives also helped to further improve the competitiveness of the IHG retail network.

Outlook.

Metcash has started the second half strongly and revealed that its sales momentum has continued in all segments during the first five weeks of the half.

Metcash’s CEO, Jeff Adams, commented: “I am pleased to report that the Group has had a good start to the second half, with strong sales momentum continuing in all pillars in the first five weeks of trading. We are also expecting strong trading over the Christmas and New Year period.”

For the first five weeks, Food sales are up 2.4% over the prior corresponding period or 12.1% excluding the 7-Eleven impact, Liquor sales are up 16.9%, and Hardware sales are up 25.3%.

However, due to the high level of uncertainty caused by COVID-19, management hasn’t provided any guidance for the remainder of the half.

More reading

• 5 things to watch on the ASX 200 on Monday
• Top brokers name 3 ASX shares to buy next week
• 5 things to watch on the ASX 200 next week
• Goldman says buy the Metcash (ASX:MTS) share price ahead of next week’s results
• These are the 10 most shorted shares on the ASX

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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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ASX bulls rejoice! The market is set to open higher and it’s the ASX iron ore miners that are likely to lead the charge this morning.

The futures market is pointing to a 0.6% jump in the  S&P/ASX 200 Index (Index:^AXJO) at the open as risk taking fuelled another big jump in the iron ore price.

The price of the steel making ingredient surged 5.8% to US$145.01 a tonne on Friday evening, reported the Australian Financial Review.

Why iron ore prices are surging

It isn’t only promising COVID‐19 vaccine news that’s bringing out the animal spirits for the commodity. The US federal government appears closer to unleashing a new round of economic stimulus that could be worth around US$1 trillion before year end.

Then there is the economic rebound in China, which is the largest buyer of Australian iron ore. The Asian giant is about the only major economy that can boast about a V-shaped recovery.

Rally favours smaller ASX iron ore stocks near-term

That only means more good news for the BHP Group Ltd (ASX: BHP) share price, the Rio Tinto Limited (ASX: RIO) share price and the Fortescue Metals Group Limited (ASX: FMG) share price.

But I won’t be surprised to see the smaller marginal ASX miners benefit more. Rising commodity prices tend to favour these stocks more. These stocks include the Mount Gibson Iron Limited (ASX: MGX) share price and Deterra Royalties Ltd (ASX: DRR) share price.

On the flipside, the big run up in the iron ore price over a short timeframe is causing some to question if the rally is sustainable.

After all, what goes up quickly has a tendency to tumble suddenly.

Why the iron ore price can go higher

But the iron ore run may be more enduring than sceptics believe. Firstly, Vale SA’s production guidance downgrade for 2020 and 2021 clears the way higher for Australian producers. The Brazilian rival is struggling to restore output to pre-COVID levels because of the pandemic.

Even if a vaccine is available today, it will take considerable time for it to be available to the masses.

Meanwhile, demand for iron ore, particularly from China, is likely to increase as its economic recovery gathers pace. Also, the Chinese government needs the ore to build its military capabilities. Thank goodness it doesn’t have alternative suppliers for iron ore as Australia supplies around 60% of its market.

Other tailwinds supporting ASX iron ore stocks

Thirdly, currency forecasters are tipping further weakness in the US dollar in 2021. The massive stimulus that the US will have to undertake under new President Biden to restore growth will weaken the greenback.

A weaker US dollar usually means higher commodity prices as commodities are priced in the US currency.

Finally, history bodes well for the iron ore price. Analysts have repeatedly underestimated the strength in the commodity. There’s no reason to think the pessimists have got it right this time – at least not in the shorter-term.

More reading

• 5 things to watch on the ASX 200 on Monday
• How to get a passive income of $50,000 per year from ASX dividend shares
• 2 ASX dividend shares with generous yields
• 5 things to watch on the ASX 200 next week
• These were the worst performing ASX 200 shares last week

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Deterra Royalties Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article is about three ASX tech shares that may be worth keeping an eye on.

Here are those names:

Betashares Nasdaq 100 ETF (ASX: NDQ)

This exchange-traded fund (ETF) is a collection of many of the biggest technology businesses in the world that are listed in the US.

Its top holdings include businesses like Apple, Microsoft, Amazon, Tesla, Facebook, Alphabet, Nvidia, PayPal, Adobe, Intel, Netflix, Qualcomm and Broadcom.

However, because it’s an index-based ETF rather than a sector-based ETF, it does have some other non-tech holdings like PepsiCo, Costco, Starbucks and Intuitive Surgical.

Since inception it has been one of the best-performing ETFs on the ASX, thanks to outperformance of the overall share market from many of its leading holdings. After the fees per annum of 0.48%, it has produced net returns of 21.7% per annum since inception in May 2015.

BetaShares says that this ETF’s strong focus on technology provides diversified exposure to a high-growth potential sector that is under-represented in the Australian share market.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is an electronic donation ASX tech share that serves many of the largest churches in the US. Its software offering helps in many different ways including the donations, livestreaming services, volunteer scheduling and a custom church app.

The company continues to grow its customer base and it’s benefiting from the shift to cashless transactions. Its growth has accelerated during COVID-19 due to social distancing and restrictions.

Its operating revenue surged by 53% in the FY21 interim result to US$85.5 million. This led to earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) going up 177% to US$26.7 million and operating cash flow jumping 203% to US$27 million.

Over the long-term, Pushpay is aiming for US$1 billion of annual revenue. In FY21 it’s now aiming for EBITDAF of between US$54 million to US$58 million (up from previous guidance of US$50 million to US$54 million).

The ASX tech share’s management are confident that customers are going to be drawn to its combined offering called ChurchStaq which combines the offering of both Pushpay and Church Community Builder, which is a business it acquired not too long ago. Having all of the features and tools in one place is proving to be a popular offering.

At the current Pushpay share price it’s valued at 24x FY23’s estimated earnings.

Kogan.com Ltd (ASX: KGN)

Kogan.com is one of the largest e-commerce businesses in Australia.

It sells a wide variety of different items including TVs, devices, furniture and clothes. The company also offers other services, like Kogan Mobile, and it has a membership program called Kogan First.

Kogan First members purchase on average much more often than non-members, which also demonstrates the significant savings available through the loyalty program. The number of paying Kogan First members increased significantly during FY20.

The ASX tech share has recently decided to acquire Mighty Ape, which is one of the biggest online retailers in New Zealand where it has a major focus on gaming, toys and other entertainment categories.

Before the impact of synergies, Mighty Ape has forecast FY21 revenue of AU$137.7 million, forecast gross profit of AU$45.7 million and forecast earnings before interest, tax, depreciation and amortisation (EBITDA) of AU$14.3 million.

Kogan expects significant revenue and cost synergies across plenty of areas of the business after the Mighty Ape acquisition.

There are not too many ASX tech shares that display consistently rising profit margins. In FY17 it had an EBITDA margin of 4.3%, in FY19 the EBITDA margin was 6.9% and in FY20 the EBITDA margin had grown to 9.3%.

At the current Kogan.com share price, it’s valued at 27x FY23’s estimated earnings.

More reading

• 3 of the best ASX shares to buy in December
• Got cash to invest? Here’s 3 ASX shares to buy
• 3 reasons why Kogan.com (ASX:KGN) shares could be a buy
• Brokers name 3 ASX shares to buy right now
• Why Cashrewards, Doctor Care Anywhere, Kogan, & Treasury Wine are pushing higher

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS, Kogan.com ltd, and PUSHPAY FPO NZX. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS, Kogan.com 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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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.

I’ll cut right to the chase: Yes, AstraZeneca plc (NASDAQ: AZN) could be a millionaire-maker stock. But no, it’s not very likely for most investors. Really, those are the correct answers for nearly any stock when asked if it could make someone a millionaire.

What’s more instructive, though, is to understand what it would take for a given stock to deliver the returns to build such a fortune. It’s also helpful to know what kind of gains a stock could realistically generate, even if it probably won’t be a millionaire-maker. You might be surprised how AstraZeneca fares on both of these fronts.

What it would take

Let’s first delve into what it would take for AstraZeneca to be a millionaire-maker. Of course, it depends largely on two critical factors: (1) the initial investment, and (2) what the investing time horizon is.

Investing writers like myself usually look at an initial investment of $10,000. For that amount to grow to $1 million, AstraZeneca’s share price would need to multiply by a factor of 100. With the big drugmaker’s market capitalisation currently hovering around $140 billion, that would require AstraZeneca’s market cap to explode to $14 trillion.

Given a long enough period of time, that kind of growth could happen. However, we’re talking about a really long timeframe. For example, if AstraZeneca’s stock price appreciated 15% annually, it would take around 33 years to become a 100-bagger. Over the last 20 years, by the way, the big pharmaceutical stock has increased at an annual rate close to 2.5%.

Starting with a much larger initial investment could easily make AstraZeneca a millionaire-maker. If you invested $800,000 in the stock, for instance, you’d only need a 25% return to reach $1 million. Of course, most investors don’t have that much money to invest in a single stock. 

What’s more likely

Now that’s out of the way, let’s turn to something more practical: What kind of return could AstraZeneca realistically generate? You’ll probably like the answer to this one.

While AstraZeneca hasn’t performed all that great over the last two decades, it’s a different story over the last two years. That’s because AstraZeneca is a much different company than it was 20 years ago and even 10 years ago.

Today, AstraZeneca has a lineup loaded with products with strong sales growth. Cancer drugs Tagrisso, Imfinzi, Lynparza, and Calquence are rocking. Diabetes drug Farxiga and asthma drug Fasenra continue to enjoy solid momentum.

The pharma company’s pipeline is also strong. AstraZeneca has over 170 clinical programs in development. These include 24 late-stage programs. One of those is the company’s COVID-19 vaccine AZD1222. Even though AstraZeneca caused confusion with its interim efficacy results announced last month, it could still be a major player in the coronavirus vaccine market. 

Wall Street analysts project that AstraZeneca will generate average annual earnings growth of more than 19% over the next five years. If the stock appreciates at a similar rate, an initial investment of $10,000 would grow to nearly $24,000 in five years.

What if AstraZeneca managed to keep up that growth rate for another 10 years? The initial investment would swell to over $135,000. To be candid, it would be difficult for AstraZeneca to deliver that kind of growth over a 15-year period. However, with the company’s strong pipeline it’s not out of the question.

The bottom line is that AstraZeneca probably won’t make you a millionaire. However, it could make you plenty of money. 

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

More reading

• 3 key advantages Moderna holds over Pfizer and AstraZeneca
• Why AstraZeneca’s potential vaccine is more exciting than you think
• Why Moderna Is Less Risky Than You Think
• ASX energy shares surge ahead as oil rises to 9-month high
• Why fund manager optimism is at almost 3-year highs

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

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The Xero Limited (ASX: XRO) share price has been a strong performer in 2020.

Since the start of the year, the cloud-based business and accounting software provider’s shares have jumped almost 67% higher.

Is it too late to buy Xero shares?

According to a note out of Goldman Sachs, its analysts believe the Xero share price could still go higher from here.

This morning the broker commenced coverage on the company with a buy rating and $157.00 price target.

This implies potential upside of just over 18% for its shares over the next 12 months.

Why is Goldman Sachs bullish on Xero?

Goldman Sachs likes Xero due to the quality of its offering, its large and growing total addressable market (TAM), and its attractive unit economics.

The broker commented: “We estimate Xero has a core TAM of NZ$14bn p.a. across its key markets (4.6% penetrated in FY20). However as it broadens and monetizes its app ecosystem, and expands into new geographies, we estimate this will open a further NZ$62bn in addressable TAM, providing a multi-decade runway for strong revenue growth. Combined with attractive unit economics at maturity (GSe 40% EBIT margins), we believe the long-term earnings opportunity for Xero is material.”

What is it expecting in the coming years?

At the end of the first half of FY 2021, Xero had a total of 2.45 million subscribers and was generating annualised monthly recurring revenue (AMRR) of NZ$877.6 million.

Goldman believes this can grow materially over the 2020s.

It explained: “Based on our penetration assumptions of new market opportunities, which are below current market launch performances, we think Xero can achieve a 2030 subscriber footprint of 7.4mn, generating NZ$3.4bn in annual revenues.”

This, combined with the monetisation of its ecosystem, is expected to underpin strong earnings growth over the decade.

Goldman commented: “A key driver of earnings will be its ability to increasingly monetize the application ecosystem that it has built. This could be done through revenue share agreements (app-by-app, introducing a broader platform fees) or through M&A (example: its purchase of Waddle), which we see as increasingly likely.”

“We estimate that by more aggressively monetizing its ecosystem, Xero can increase its addressable TAM by NZ$44bn in potentially extremely high margin revenues (i.e. app-store fee likely 100% margin). Hence we see material upside to XRO ARPU,” it added.

Overall, while it sees the second half of FY 2021 as challenging due to COVID headwinds, the broker believes Xero’s long term opportunity is considerable.

More reading

• 5 things to watch on the ASX 200 on Monday
• How to benefit from the cloud computing boom with ASX shares
• These ASX shares are growing rapidly in FY 2021
• Why the Xero (ASX:XRO) share price zoomed 20% higher in November
• Why healthcare, tech and consumer staples shares underperformed the ASX 200 in November

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 Xero. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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In this article are two quality exchange-traded funds (ETFs) that have been providing long-term returns for many years.

What does an ETF do?

In the above link is a breakdown of an ETF, but in summary in 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 yourselves.

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:

Vanguard Msci Index International Shares ETF (ASX: VGS)

This ETF is about investing in the global share market in numerous companies based in many countries around the world.

It was actually invested in around 1,550 holdings as at the end of October 2020. It gives exposure to many of the world’s largest businesses. Its top 10 holdings include: Apple, Microsoft, Alphabet, Facebook, Johnson & Johnson, Proctor & Gamble, Nestle, Nvidia and Visa.

Looking at the sector weightings, this ETF has a 22% holding of IT shares, a 13.5% position in healthcare shares, a 12% weighting to consumer discretionary businesses, an 11.7% position in financials businesses and a 10.5% weighting to industrials. The other sectors have a weighting of less than 10%.

The United States gets the biggest allocation of the ETF as it’s the biggest economy and it’s where many global companies are listed. Around 68% of the ETF is invested in US businesses. However, it also has a 8.1% allocation to Japan, a 4% weighting to the UK, a 3.2% holding of French shares, a 3.2% weighting to Switzerland, a 3.1% allocation to Canada and a 2.8% holding of German shares. There are many other countries with representation such as the Netherlands, Sweden, Denmark, Spain and Italy.

Fees can have a major impact on the overall net returns of an investment. Vanguard Msci Index International Shares ETF has an annual management fee of just 0.18%.

In terms of net performance, this ETF has returned an average of 11.1% per annum since November 2014 and 8.6% per annum over the past five years.

According to Vanguard, this ETF has a dividend yield of just over 2% with a return on equity (ROE) ratio of 16.4%.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

VanEck, an ETF provider, says that this ETF gives investors exposure to a diversified portfolio of attractively priced US companies with sustainable competitive advantages according to Morningstar’s equity research team.

This one has many less holdings compared to the global Vanguard one. It has 48 positions. and its biggest positions are different to the biggest companies in the world. The largest holdings are: Applied Materials, Corteva, Charles Schwab, Microchip Technology, Boeing, Compass Materials International, Aspen Technology, Yum! Brands, Cheniere Energy and American Express.

In terms of sector allocation with a double digit weighting, there is a 22.2% allocation to IT, an 18.2% weighting to healthcare, a 17.1% holding of financial businesses, an 11.3% weighting of industrial companies and a 10.1% position in consumer staples.

Despite VanEck Vectors Morningstar Wide Moat ETF’s annual fee of 0.49% per annum, it has produced bigger long-term returns than the Vanguard ETF. Over the past five years it has produced net returns of 16% per annum. This has actually been stronger than iShares S&P 500 ETF (ASX: IVV) as well.

More reading

• Want to invest like Warren Buffett? This ASX ETF is all about ‘the moat’
• 10 hottest (and coldest) Aussie ETFs right now
• 2 leading ETFs to buy for global returns

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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