Tag: Motley Fool

A new month is here, so what better time to look at giving your portfolio a little lift with a few new additions.

Three top ASX shares which have been tipped as potential market beaters over the next few years are listed below. Here’s what you need to know about them:

Kogan.com Ltd (ASX: KGN)

Kogan is one of Australia’s leading ecommerce companies. It has been growing very strongly this year after the pandemic accelerated the adoption of online shopping. Pleasingly, its strong form has continued even after bricks and mortar stores reopened. And with more and more spending expected to shift online in the future, Kogan looks well-positioned to benefit. The company is also looking to accelerate its growth with earnings accretive acquisitions such as Mighty Ape. Last week analysts at Credit Suisse upgraded Kogan’s shares to an outperform rating with a $20.60 price target.

NEXTDC Ltd (ASX: NXT)

NEXTDC is an innovative data centre-as-a-service provider with a growing network of centres in key locations across Australia. It has been a very strong performer this year because of the accelerating shift to the cloud. This has underpinned a significant increase in demand for capacity in its data centre. So much so, the company brought forward capacity expansion plans. Management is also looking to bolster its growth with an expansion into Asia. It has opened offices in a number of key locations and is weighing up its options. Late last month analysts at Morgan Stanley put an overweight rating and $14.60 price target on its shares.

Pushpay Holdings Group Ltd (ASX: PPH)

Pushpay is a leading donor management and community engagement platform provider for the faith sector. It has aspirations to win a 50% share of the U.S. medium to large church market in the future. This represents a US$1 billion market opportunity, which is many times larger than its current revenue. For example, in FY 2020 the company reported a 32% increase in revenue to US$129.8 million. One broker that is very positive on its prospects is Goldman Sachs. Its analysts have a conviction buy rating and $10.35 price target (now $2.59 after its 4-1 share split) on its shares.

More reading

• 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
• How to benefit from the cloud computing boom with ASX shares

James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and PUSHPAY FPO NZX. The Motley Fool Australia has recommended 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.

The post 3 of the best ASX shares to buy in December appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/2JDuqcg

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price may be a buy according to fund manager Rhett Kessler from Pengana Capital Group (ASX: PCG).

A quick overview of ANZ

ANZ is one of the biggest banks across Australia and New Zealand. It has a market capitalisation of $65.4 billion according to the ASX.

It’s one of Australia’s biggest banks along with Commonwealth Group of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB).

What happened in the latest result?

ANZ reported its FY20 result to investors just over a month ago.

Its profit had a difficult year with (continuing operations) cash profit falling by 42% to $3.76 billion. Statutory net profit after tax fell by 40% to $3.58 billion.

When ANZ excluded certain items, the profit decline didn’t look as steep. Profit before the credit impairments and tax fell by 16% to $8.37 billion. Profit before credit impairments, tax and large notable items only fell by 1% to $10.1 billion.

The ANZ share price has gone up over 20% since the release of the result. But there are have been other major news items since then such as the US election winner and the effectiveness of COVID-19 vaccines.

The major ASX bank explained that the total provision charge in the second half was $1.06 billion and followed the $1.67 billion charge taken at the first half. The bank wanted to strengthen its credit reserves for its retail and commercial customers affected by COVID-19. The collective provision balance increased to $5 billion at 30 September 2020.

ANZ revealed that its gross loans and advances increased by 1% to $622 billion whilst customer deposits grew by 8% to $552.4 million.

Its common equity tier 1 (CET1) ratio declined by 2 basis points to 11.3%.

Why the ANZ share price may be a buy

Mr Kessler from Pengana said there are a few reasons why his fund recently increased its exposure to banks including ANZ shares.

The first point was accelerating home loan growth (supported by low-interest rates and first homeowner support). The second point was a supportive federal budget, improving housing finance approvals and house prices holding up better than expected. The third point was a meaningful reduction in loan deferrals. The final point was lower than anticipated loss provisioning.

What about the dividend?

In FY20 ANZ decided to reduce its dividend by 62.5% to $0.60 per share. Under the Australian Prudential Regulation Authority’s (APRA) guidance, banks were limited to paying dividends of 50% of the statutory profit.

There is now talk that APRA may end those dividend restrictions. According to reporting by ShareCafe, APRA boss Wayne Byers told a Sydney finance conference that:

“We have deliberately never put in place guidance for a long period of time. Obviously we will be minded how the situation has evolved. On the whole, I think the outlook has improved, bank capital has certainly increased, the economic situation looks more positive. I think it is time we look at the issue again.”

At the current ANZ share price it has a trailing grossed-up dividend yield of 3.7%. According to Commsec, it’s valued at 13x FY22’s estimated earnings. By FY23 it’s projected to be paying an annual dividend per share of $1.41, which equates to a forward grossed-up dividend yield of 8.6%.

More reading

• ASX 200 up 0.3%: Premier Investments update, big four banks rise, gold miners tumble
• Here are the ASX bank shares rated as a buy today
• Cashrewards (ASX:CRW) share price lifts on successful IPO debut
• Banks rejoice: House prices to return to 2019 levels
• CBA (ASX:CBA) and the ASX banks just had an amazing month

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 Why the ANZ (ASX:ANZ) share price may be a buy appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/37BH9Ed

Last week saw a large number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

Macquarie Group Ltd (ASX: MQG)

According to a note out of Morgan Stanley, its analysts have retained their overweight rating and $148.00 price target on this investment bank’s shares. This follows the announcement of the acquisition of Waddell & Reed’s asset manager business for $2.3 billion. While the broker doesn’t seem 100% convinced by the acquisition in respect to strategy, it does see it as compelling financially. It is expected to be upwards of 3.5% earnings accretive in FY 2022 pre-synergies. The Macquarie share price ended the week at $141.82.

Metcash Limited (ASX: MTS)

A note out of Credit Suisse reveals that its analysts have retained their outperform rating and lifted the price target on this wholesale distributor’s shares to $3.77. The broker believes Metcash has a very positive outlook which is being underappreciated by the market. It notes that reinvestments in the independent food retail sector have been made and traditionally generate a sizeable uplift in sales. It also believes the outlook for its hardware business has improved greatly in the last few months. The Metcash share price last traded at $3.22.

MyDeal.ComAu Pty Ltd (ASX: MYD)

Analysts at Morgans have retained their add rating and $1.70 price target on this ecommerce company’s shares. According to the note, the broker was pleased with its recent update, which saw its gross transaction value almost triple in November. It also notes that it is making stronger than expected progress with its private label offering. As a result, it suspects MyDeal could outperform its forecasts in FY 2021. The MyDeal share price closed the week at $1.26.

More reading

• 5 things to watch on the ASX 200 next week
• The Nuix (ASX:NXL) share price zoomed 69% higher following its IPO
• Goldman says buy the Metcash (ASX:MTS) share price ahead of next week’s results
• ASX 200 rises on Thursday
• MyDeal (ASX:MYD) share price falls despite record November sales

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Top brokers name 3 ASX shares to buy next week appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/2VJWgpL

Do you have some money to invest into ASX dividend shares? There are three ideas in this article.

The official Reserve Bank of Australia (RBA) interest rate is now just 0.1%. That means the interest return from the bank is less than the rate of inflation. 

With that in mind, here are three ASX dividend shares:

Brickworks Limited (ASX: BKW)

Brickworks is biggest brickmaker in Australia and it’s one of the biggest building products businesses in the country. Aside from bricks, it sells things like masonry, paving, roofing and precast. 

It is also the leading brickmaker in the north east of the US after making some acquisitions such as Glen Gery.

Brickworks funds its dividend purely from the cashflow of its investments. It has two main asset segments.

The first segment is its large holding of Washington H. Soul Pattinson and Co Ltd (ASX: SOL) shares which it has held for decades. Soul Patts is an investment conglomerate with a diversified portfolio in many sectors. It is invested in telecommunications, building products, property, resources, financial services, agriculture and swimming schools.

Soul Patts itself is an ASX dividend share with a history of growing dividends going back to 2000. Soul Patts pays Brickworks a growing dividend from its investment income.

The other asset that Brickworks owns is half of an industrial property trust joint venture alongside Goodman Group (ASX: GMG).

Industrial properties are in higher demand because of logistics and and e-commerce demands. Brickworks is benefiting from this as the trust is building large distribution warehouses for Coles Group Ltd (ASX: COL) and Amazon. This is expected to send the gross asset value of the trust above $3 billion and increase the rental distributions from the trust by at least 25%.

At the current Brickworks share price it offers a trailing grossed-up dividend yield of 4.25%. 

APA Group (ASX: APA)

APA owns a large network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets and delivers half the nation’s natural gas usage.

APA has been one of the most consistent ASX dividend shares. It has been increasing its distribution every year since before the GFC.

The infrastructure giant recently announced that it is going to invest in and construct new pipelines in WA to connect emerging gas fields in the Perth Basin to the resource rich Goldfields region. This new Northern Goldfields Interconnect (NGI) will connect to APA’s Goldfields Gas Pipeline (GGP). APA also expects that this could encourage nearby miners to want to connect to it which could unlock another stage of pipelines.

APA continues to invest in new projects which may unlock more growth of the cashflow and fund higher distributions.

At the current APA share price it offers a trailing distribution yield of 4.9%.

Bapcor Ltd (ASX: BAP)

Auto parts business is an ASX dividend share that is a popular holding of Wilson Asset Management. It’s a holding of both listed investment companies (LICs) WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).

A recent trading update by Bapcor showed that in the first three months of FY21 (the first quarter), overall revenue went up by 27% with retail revenue growing by 47% and specialist wholesale revenue rising by 45%.

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

Bapcor has been steadily increasing its dividend over the past several years, including during the COVID-19-affected FY20. At the current Bapcor share price, it has a trailing grossed-up dividend yield of 3.5%.

More reading

• Got cash to invest? Here’s 3 ASX shares to buy
• 3 reasons why Brickworks (ASX:BKW) shares are a buy for dividends
• 2 turnaround ASX shares to buy
• 2 turnaround ASX shares rated as buys by leading fundie
• 3 ASX dividend shares to buy in December

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Bapcor, Brickworks, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group and COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Got money to invest? Here are 3 ASX dividend shares to buy appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/2Ld6OvB

It was another positive week for the S&P/ASX 200 Index (ASX: XJO) last week.

The benchmark index continued its strong form and recorded a weekly gain of 33 points or 0.5% to end at 6,634.1 points.

Another busy week is expected next week. Here are five things to watch:

ASX futures pointing higher.

The Australian share market looks set to start the week on a high. According to the latest SPI futures, the ASX 200 is poised to open the week 42 points higher. This follows a strong finish to the week on Wall Street. On Friday night, the Dow Jones jumped 0.8%, the S&P 500 climbed 0.9%, and the Nasdaq rose 0.7%. This led to the Dow Jones reaching a new record high.

Metcash results.

The Metcash Limited (ASX: MTS) share price could be on the move on Monday when the wholesale distributor releases its half year results. According to a note out of Goldman Sachs, its analysts are expecting Metcash to report an 11.5% increase in revenue to $7,011 million. This is expected to be driven by a 7.6% increase in Food sales, a 12% lift in Liquor sales, and a 27.5% jump in Hardware revenue. On the bottom line, Goldman is forecasting an underlying net profit after tax of $116.3 million.

Westpac AGM

The Westpac Banking Corp (ASX: WBC) share price will be on watch on Friday when the banking giant holds its annual general meeting. This annual general meeting looks set to be very different to 2019’s event. A year earlier, the bank was facing the backlash of shareholders who were angry with its handling of the money laundering and child exploitation scandal. Westpac could provide an update on its COVID-19 provisions and current trading conditions.

Bank of Queensland AGM.

The Bank of Queensland Limited (ASX: BOQ) share price will be in focus on Tuesday when it holds its annual general meeting. Shareholders will no doubt be keen to see how the regional bank is faring in the first half of FY 2021. In the last financial year the bank recorded $133 million in COVID-19 collective provisions. They will be optimistic that no further provisions will be necessary.

Dividends being paid.

A number of companies will be paying their dividends next week. This includes banking giant National Australia Bank Ltd (ASX: NAB), which is paying shareholders 30 cents per share. Also paying dividends are building products company CSR Limited (ASX: CSR), which is paying a 12.5 cents per share dividend, and grain exporter GrainCorp Ltd (ASX: GNC), which is rewarding shareholders with a 7 cents per share dividend. 

More reading

• These were the worst performing ASX 200 shares last week
• These were the best performing ASX 200 shares last week
• ASX 200 goes up on Friday
• Elixinol (ASX:EXL) share price tumbles on capital raising update
• Are ASX stocks about to get an earnings upgrade boost in the new year?

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 5 things to watch on the ASX 200 next week appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3mKVTXW

The 2020 stock market crash means that many sectors currently contain cheap shares. They could face difficult near-term futures due to economic risks being high. However, they may also offer long-term growth potential in a new bull market.

As such, focusing on companies with solid fundamentals and strong track records of growth could be a shrewd move. It may lead to the purchase of must-own stocks that can deliver impressive returns in the coming years.

Searching for cheap shares in troubled sectors

Many cheap shares are likely to be priced at low levels because of their uncertain near-term prospects. For example, they may operate in an industry that faces a difficult period because of factors such as weak consumer sentiment or disruption caused by the coronavirus pandemic.

While this may mean further paper losses for investors in the short run, it can provide buying opportunities in the long run. Many undervalued stocks may have the capacity to successfully recover as operating conditions and investor sentiment improve. Therefore, searching in sectors with a troubled future in the coming months could be a shrewd move. It may allow an investor to unearth the best bargains available in the stock market.

Analysing company fundamentals

Of course, some cheap shares may be priced at low levels for good reason. For example, they may have a relatively low chance of surviving a difficult economic period. Or, they may lack a sufficiently large competitive advantage to deliver improving profitability in a fast-changing global economy.

As such, analysing company facts and figures could be a profitable move. This may involve an investor assessing a company’s recent updates and determining whether it has a solid financial position through which to invest for the long run. A company that trades at a low price despite having strong fundamentals may be a good value investing opportunity that can deliver market-beating performance in a new bull market.

Track record of growth prior to the stock market crash

Must-own cheap shares that can deliver growth in a new bull market may be those companies that have a solid track record of outperformance in a variety of operating conditions. For example, they may outperform peers in terms of sales and profit growth in positive and negative economic conditions. This may prove to be useful in the coming years, given the uncertain outlook for the global economy and the companies that operate within it.

Furthermore, diversifying across a range of companies may help an investor to reduce risks. After all, cheap shares may carry greater risk than their premium-priced peers due to facing more difficult operating conditions or having other threats to their performance. Through owning a wide range of them for the long term, it may be possible to obtain high returns while keeping risks to a minimum.

More reading

• 2 stellar ASX tech shares to buy next week
• The meaning of ‘diversification’ when it comes to ASX shares
• How a stock market recovery could boost my chances of making a million
• How to turn $20,000 into $950,000 in 10 years with ASX shares
• Got cash to invest? Here’s 3 ASX 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.

The post How I’d find must-own cheap shares in the new bull market appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/36J9KZi

If you’re looking to take advantage of recent weakness in the tech sector, then the ASX tech shares listed below might be worth a look.

Here’s why these tech shares have buy ratings on them:

Altium Limited (ASX: ALU)

Altium is the leading electronic design software provider behind the Altium Designer and cloud-based Altium 365 platforms. This software is used to design the printed circuit boards (PCBs) that are found in almost all electronic devices.

Thanks to the Internet of Things (IoT) and Artificial Intelligence (AI) booms, demand for its software is predicted to grow strongly over the next decade. This should be supported by its other growing businesses. These include the Octopart search engine for electronic and industrial parts and the NEXUS workflow solution.

Analysts at Morgan Stanley are positive on the company. They currently have an overweight rating and $40.00 price target on Altium’s shares. This compares to the latest Altium share price of $35.72. The broker believes the company is in a strong position for growth once COVID headwinds ease.

Appen Ltd (ASX: APX)

Another ASX tech share which has been tipped for big things in the future is Appen. It is the global leader in the development of high-quality, human-annotated training data for machine learning and AI. Through its massive team of 1 million+ crowd-sourced workers across the globe, it helps to improve the artificial intelligence models of blue chips, tech giants, and government agencies.

Pleasingly, given the growing importance of AI and machine learning, demand for Appen’s services has been increasing strongly in recent years. The good news is that experts are tipping these markets to continue their meteoric growth for some time to come. This bodes well for Appen in the future.

Analysts at Macquarie currently have an outperform rating and $43.00 price target on the company’s shares. This compares to the current Appen share price of $29.74. The broker expects the company to benefit from an increase in spending on AI.

More reading

• 3 ASX growth shares to buy for 2021
• Why Appen, Chalice Gold Mines, Piedmont Lithium, & Zip shares are dropping lower
• 5 things to watch on the ASX 200 on Wednesday
• 3 ASX shares growing the dividend rapidly
• 10 fantastic ASX shares to buy in December

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 Appen 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.

The post 2 stellar ASX tech shares to buy next week appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3mLuwg7

Diversification… Here we have one of those sharemarket ‘buzzwords’ that is probably thrown around a bit more than it should be. Every fund manager on the market will tell you about the importance of diversification, and perhaps how every one of their investment portfolios is ‘diversified’.

But then you have legendary investors like Warren Buffett, who has said that “diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing”.

So what’s the deal on the D?

Diversification and its benefits

So the whole idea of diversification comes from risk management. The concept revolves around the simple proposition that if one of your investments gets hit by the proverbial bus, it won’t have a ruinous impact on your wealth. It’s the old ‘don’t have all of your eggs in one basket’ strategy.

This does make sense. And it is important to try and plan for any scenario that might come to pass, no matter how inconceivable it might seem at the time. I’m sure no one thought there was too much external risk owning seemingly-good quality businesses like now-delisted Virgin Australia, Qantas Airways Ltd (ASX: QAN), Webjet Limited (ASX: WEB) or Corporate Travel Management Ltd (ASX: CTD) at the start of the year.

Yet, if you had a substantial portion of your wealth in one or more of these companies back then, your portfolio would have looked very dire in March and April. Virgin has since gone bankrupt, wiping its shareholders out. It was no fault of these businesses’ or their management of course. But that doesn’t really matter when it comes to the value of one’s portfolio.

Thus, you can see how it is important to not have ‘all of your eggs’ in one sector or industry.

Geography matters too

But does ‘good diversification’ stretch beyond just one sector of one share market? Well, let’s take a look at that famous disparager of diversification: Mr Buffett. Warren Buffett has always been a patriot who routinely tells investors to “never bet against America”.

Yet, Buffett has spent 2020 ‘diversifying’ Berkshire Hathaway Inc‘s (NYSE: BRK.A)(NYSE: BRK.B) from American companies, selling US shares like his bank positions, Costco Wholesale Corporation (NASDAQ: COST) and Apple Inc (NASDAQ: AAPL), and buying massive stakes in large Japanese industrial conglomerates like Mitsubishi.

Every country has its own set of intrinsic risks, such as currency stability. Thus, spreading out your investments (diversifying) across multiple countries can mitigate risk as well. Especially if you might be worried about your own country’s unprecedented quantitative easing (QE) programs, as Buffett might be. If you don’t fancy buying Japanese industrials like Buffett, an internationally-focused exchange-traded fund (ETF) might be a good alternative to consider.

Foolish takeaway

You might not be able to afford the same apathy towards diversification that Buffett boasts of (you’re not alone there). Thus, it pays to remember that none of us can know what is just around the corner. Diversification is one easy way you can acknowledge this in your portfolio of investments, so use it wisely!

More reading

• These were the worst performing ASX 200 shares last week
• Are ASX stocks about to get an earnings upgrade boost in the new year?
• Why BetMakers, Medical Development International, Qantas, & Zip are dropping lower
• REX Airlines (ASX:REX) share price rockets up 13%, smashing 52-week high
• Qantas (ASX:QAN) share price in focus after market 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 and recommends Apple, Berkshire Hathaway (B shares), and Costco Wholesale and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post The meaning of ‘diversification’ when it comes to ASX shares appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/2L8YBsi

A stock market recovery has always taken place following previous bear markets. As such, the long-term prospects for indexes such as the FTSE 100 Index (FTSE: UKX) are relatively attractive.

Certainly, some stocks may experience further challenges due to risks such as the ongoing coronavirus pandemic. However, buying them at a discount to their intrinsic values could mean capital appreciation potential that makes it easier to generate a portfolio valued in excess of a million.

Improving investor sentiment in a stock market recovery

A stock market recovery can encourage investors to become more optimistic about the future. They may see the value of their own holdings increase, and determine that further gains are possible. A rise in share prices may also remind them that the stock market operates in cycles. No downturn or upturn has ever lasted in perpetuity. However, it is easy to forget this during periods of extreme market performance. As share prices rise, investors may become less risk averse. This can help to sustain a bull market over the long term.

As such, holders of today’s cheap stocks could benefit the most from improving sentiment. Such companies may currently be relatively unpopular due to their weak near-term outlooks. However, as investors become less risk averse, they may begin to focus on undervalued companies to a greater extent. This may mean that investors who have purchased cheap stocks during the 2020 stock market crash see the value of their portfolios increase in a stock market recovery.

Stronger economic conditions after the stock market crash

A stock market recovery is often linked to the world’s economic outlook. If investors believe that economic conditions are improving, they generally become more bullish about equities.

Improving economic conditions suggest that the operating environment for businesses is likely to strengthen. This may mean that those companies which have struggled to post rising sales and profit this year are able to deliver stronger financial performances. This may help to justify even higher share prices, since a higher earnings per share figure equates to a higher share price when its multiple of earnings remains constant.

Clearly, company operating conditions can change quickly in a stock market recovery. However, the economy’s past performance suggests that they are likely to rebound after the challenges experienced in 2020. Therefore, investors who have purchased struggling companies this year may benefit from an upturn in their operating outlook in 2021 and beyond.

Making a million in a stock market rally

Even if a stock market recovery only allows an investor to generate the market rate of return, they can still build a large portfolio over the long run. For example, the stock market has produced an annual total return of around 8% over the long run. Such a rate of return would turn $100,000 into $1 million within 30 years. Similarly, a $750 monthly investment would be worth a seven-figure sum over the same time period at the same return.

However, through buying today’s cheap stocks and holding them ahead of a long-term stock market recovery, it may be possible to earn a higher return. Investors who have purchased undervalued stocks this year could stand to benefit the most from a likely improvement in investor sentiment and company operating conditions in the coming years.

More reading

• How to turn $20,000 into $950,000 in 10 years with ASX shares
• Got cash to invest? Here’s 3 ASX shares to buy
• 2 highly rated ASX dividend shares to buy
• 3 ASX growth shares to buy for 2021
• These were the worst performing ASX 200 shares last week

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The post How a stock market recovery could boost my chances of making a million appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/33JK4K1

I’m a big fan of buy and hold investing and believe it is the best way for investors to grow their wealth.

To demonstrate how successful it can be, I like to pick out a number of popular ASX shares to see how much a single $20,000 investment 10 years ago would be worth today.

This time around I have picked out the three ASX shares that are listed below:

ARB Corporation Limited (ASX: ARB)

This 4×4 accessories manufacturer has been a bit of a quiet achiever over the last decade. Without much fanfare, ARB has grown its sales, earnings, and dividend at a consistently solid rate over this time. This has been supported by the growing popularity of 4×4 vehicles and increasing demand for its products internationally. This positive form has led to the ARB share price providing investors with an average total return of 16% per annum since 2010. Which would have turned a $20,000 investment into just over $88,000 today.

Carsales.Com Ltd (ASX: CAR)

The Carsales share price has been a market beater over the last decade. This has been driven by its consistently solid sales and earnings growth over the 2010s, which has been underpinned by the seismic shift to online auto listings. Also supporting its growth has been its global expansion. Carsales now has a presence in both South America and Asia. Overall, this has led to its shares generating an average total return of 17.15% per annum. This means that a $20,000 investment in its shares would now be worth just under $100,000.

Magellan Financial Group Ltd (ASX: MFG)

Thanks to its expert stock picking and popular global investment funds, this fund manager has experienced a tidal wave of fund inflows over the last decade. For example, in August 2010 the company had funds under management of approximately $1.3 billion across its global equities and infrastructure equities. At the end of October, this had grown to $103.5 billion. Unsurprisingly these stunning fund inflows have been reflected in the performance of the Magellan share price. As a result, its shares have generated an average total return of 47.2% per annum over the last decade. This would have turned a $20,000 investment into a massive $955,000.

More reading

• These were the worst performing ASX 200 shares last week
• Why the Magellan (ASX:MFG) share price dipped lower today
• Top brokers name 3 ASX shares to sell today
• ASX stock of the day: Platinum (ASX:PTM) shares up 6%
• 3 ASX shares with large dividend yields

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ARB Limited and carsales.com Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post How to turn $20,000 into $950,000 in 10 years with ASX shares appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/37uvMhe