Tag: Motley Fool

The world economy’s uncertain outlook could prompt a second stock market crash in 2020. Risks such as political challenges in North America, Brexit and the ongoing coronavirus pandemic may contribute to weaker investor sentiment that sends share prices lower.

Furthermore, market declines have taken place fairly frequently in the past. Therefore, planning ahead for their occurrence could be a prudent strategy.

Through buying the best companies at the lowest prices today, you may be in a strong position to survive a market downturn and prosper from its recovery.

The risk of a second stock market crash

As mentioned, a second stock market crash could realistically occur in the near term. Although many stock prices have rebounded following the rapid downturn in stock markets across the world earlier this year, the outlook for the world economy is extremely challenging. Rising unemployment in many major economies, weak consumer confidence and poor financial performances from many businesses may cause investors to become increasingly risk averse.

Furthermore, upcoming events such as the US election and Brexit may affect trading conditions for some businesses and sectors. Alongside this, the coronavirus pandemic is a known unknown that could improve or worsen before the end of the year. Together, these risks may be sufficient to lead to greater selling among investors in the stock market – especially after the recent bull run.

Regular downturns

Of course, a stock market crash is not a new event. Stock prices have always been volatile at times, and have frequently been impacted by political, economic and other events that change the prospects of a wide range of businesses.

Therefore, it is good practice to ensure that your portfolio is always prepared for a potential fall in stock prices. This means that your holdings should not be overvalued. If they are, a lack of a margin of safety may mean that they suffer to a greater extent versus those businesses with valuations that factor in the potential for a downturn. Similarly, holding businesses with the financial strength and market position to overcome a period of weaker revenue growth could be a simple means of preparing for an economic downturn or bear market.

Capitalising on weak stock market performance

A stock market crash could also present buying opportunities for long-term investors. Cheaper shares can deliver superior capital gains versus the market. And, as the recent bear market showed, in many cases high-quality businesses have low valuations during a downturn as a result of weak investor sentiment towards the general equity market.

As such, holding some cash in preparation for the next downturn could be a shrewd move. It may mean you can buy stocks at cheaper prices for the long run. With risks currently high, it may also provide peace of mind ahead of the next downturn in stock prices.

More reading

• Will you regret calling the Afterpay Ltd (ASX: APT) share price too expensive? 
• Top brokers name 3 ASX shares to sell next week
• Top brokers name 3 ASX shares to buy next week
• 2 great LICs I’d buy for strong total returns
• Is the CSL (ASX:CSL) share price a 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 Why I’d start preparing for stock market crash part 2 today appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/357bQzX

The Afterpay Ltd (ASX: APT) share price has been a standout buy now, pay later (BNPL) performer. With its share price fast approaching the symbolic $100 mark, could it be getting too expensive? 

A true market leader

The Afterpay share price has run more than 20% in the last month, outperforming all its peers including Zip Co Ltd (ASX: Z1P), Openpay Group Ltd (ASX: OPY), Sezzle Inc (ASX: SZL), Splitit Payments Ltd (ASX: SPT) and Laybuy Group Holdings Ltd (ASX: LBY). 

Afterpay is a true market leader of both ASX tech shares and BNPL players. The Afterpay share price is the first to move in the initial stages of a rally, the first to move into new high ground and consistently delivers phenomenal growth. It’s this status that attracts institutional buying and how could we not forget the substantial shareholding from fintech giant Tencent?

I believe Afterpay’s market leader and darling status justifies its ability to outperform its peers. Even when the company’s reporting metrics might make it appear more expensive.

Zip vs. Afterpay share price 

I believe Zip is the nearest competitor to Afterpay with the likes of Sezzle and Splitit trailing behind. Meanwhile, Openpay, Laybuy and even Flexigroup Ltd (ASX: FXL) are lagging even further and investors would do well to avoid them for now, in my opinion.

Let’s take a look at the Zip vs. Afterpay numbers. Afterpay is still pending the release of its first quarter FY21 trading update so I will use FY20 results to compare the two companies. The following was reported in FY20.  

Afterpay 

• $11.1 billion turnover 
• 9.9 million customers 
• $502.7 million revenue 
• $27 billion market capitalisation (today) 

Zip 

• $2.1 billion turnover 
• 2.1 million customers 
• $161 million revenue 
• $4 billion market capitalisation (today)

Interestingly, Afterpay trades at 53 times FY20 revenue while Zip trades at just 24 times. However, on 15 October, Afterpay received yet another broker upgrade with Bell Potter increasing its target price to $121 following its US in-store rollout. 

Its in-store solution will now be available to all US customers. Shoppers can use Afterpay to purchase items in select retail stores using their Afterpay card, a virtual card stored in their digital wallets. 

Foolish takeaway

Even when investors think that BNPL shares are expensive, the Afterpay share price seems to take it to the next level. However, its business was arguably the first to develop momentum in the US and the first to receive substantial interest from a global fintech behemoth, Tencent. Its status and accomplishments cannot be rivalled.

However, I would not be in a rush to buy the Afterpay share price at today’s prices. I would prefer to wait for a pullback for stocks that have experienced a significant run up rather than chasing highs.

More reading

• Top brokers name 3 ASX shares to sell next week
• 5 things to watch on the ASX 200 next week
• 3 brilliant ASX growth shares to buy
• Is the Redbubble Ltd (ASX: RBL) share price a buy after soaring 30% this week?
• 10 must-buy ASX shares to snap up before it’s too late

Lina Lim 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 FlexiGroup Limited and Sezzle Inc. 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 Will you regret calling the Afterpay Ltd (ASX: APT) share price too expensive?  appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3lUwXfG

Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Adbri Ltd (ASX: ABC)

According to a note out of Credit Suisse, its analysts have retained their underperform rating but lifted their price target on this building products company’s shares to $2.10. This follows the release of its quarterly update. While the broker notes that demand has been improving in certain markets, subdued conditions in other areas continue to weigh on its performance. In light of this, it feels its shares are overvalued at the current level. The Adbri share price ended the week at $3.09.

Galaxy Resources Limited (ASX: GXY)

Analysts at Morgan Stanley have retained their underweight rating and $1.25 price target on this lithium miner’s shares. According to the note, the broker believes that the lithium market will remain tough for the foreseeable future due to high inventory levels. In addition to this, it notes that Galaxy’s shipments, grades, and recoveries are lower than expected. As a result, the broker doesn’t appear to be in a rush to change its rating. The Galaxy share price last traded at $1.27.

Zip Co Ltd (ASX: Z1P)

A note out of UBS reveals that its analysts have retained their sell rating and $5.50 price target on this buy now pay later provider’s shares. This follows the release of its first quarter update last week. Although Zip’s customer growth was stronger than UBS expected, its repeat transactions were lower than forecast. In addition, the broker doesn’t appear to believe the current share price factors in the execution risks it faces. The Zip share price ended the week at $7.02.

More reading

• 3 brilliant ASX growth shares to buy
• These were the worst performing shares on the ASX 200 last week
• 3 shares with intelligent fanatics I would invest in today
• Zip (ASX:Z1P) share price slumps 10% this week: is it a buying opportunity? 
• Top brokers name 3 ASX shares to sell today

James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. 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 Top brokers name 3 ASX shares to sell next week appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2H7Zy2k

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:

Bank of Queensland Limited (ASX: BOQ)

According to a note out of Morgans, its analysts have upgraded this regional bank’s shares to an add rating with a $7.20 price target. The broker made the move after Bank of Queensland delivered a full year result ahead of its expectations. This was driven by strong net interest income. Looking ahead, the broker notes that its forecasts are ahead of the consensus estimates. However, it feels these estimates are more than achievable. While I see more value in some of the big four banks, Bank of Queensland does look like a decent option.

Medibank Private Ltd (ASX: MPL)

A note out of Morgan Stanley reveals that its analysts have upgraded this private health insurer’s shares to an overweight rating with an improved price target of $3.10. The broker made the move after lifting its earnings forecasts to account for lower than previously expected claims. In addition to this, the broker believes that Medibank is well-placed to achieve its policyholder growth targets in FY 2021. While I think the broker makes some good points, I still have concerns over affordability issues. Until they are resolved, I’m staying clear of the industry.

Telstra Corporation Ltd (ASX: TLS)

Analysts at UBS have retained their buy rating and $3.70 price target on this telco giant’s shares. According to the note, the broker has lifted its dividend estimates in response to comments at its annual general meeting last week. It notes that the Telstra board has revealed that it is willing to adjust its dividend policy to maintain its 16 cents per share fully franked dividend. This will be done if it believes this dividend can be sustained beyond the NBN rollout. UBS appears confident this is possible. I agree with the broker and feel Telstra would be a great option for income investors.

More reading

• How to make $50,000 of passive income with ASX dividends
• Aussie Broadband (ASX:ABB) share price rockets 122% following IPO
• The Medibank (ASX:MPL) share price rockets on broker upgrade
• Why Beacon Lighting, Medibank, Redbubble, & Tyro shares are racing higher today
• 2 safe ASX shares for your retirement portfolio

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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 Top brokers name 3 ASX shares to buy next week appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3jgNN6V

I think listed investment companies (LIC) can be a really good way to make good long-termtotal returns if you find good investment managers.

The job of a LIC is to invest in other shares on behalf of shareholders. If they make good investment returns then it should lead to good growth of the share price and usually attractive dividends.

Fees are part of the picture. The higher the fees that the LIC charges, the more that detracts from the LIC’s net returns.

There is a complication to consider with LICs. They sometimes trade at a premium to their net tangible asset (NTA) value and sometimes they trade at a discount. That means you can buy $1 of assets for $0.90 if the NTA discount was 10%. Sometimes LICs trade at a premium, so the $1 of assets could cost $1.10. But the best LICs could be worth paying a premium for. 

With that in mind, here are two LICs that could be good for strong total returns:

MFF Capital Investments Ltd (ASX: MFF)

MFF Capital is a LIC that focuses on international shares. It’s run by Chris Mackay, the co-founder of Magellan Financial Group Ltd (ASX: MFG). He owns around $200 million of MFF Capital shares, so he’s very aligned with the regular shareholders.

According to CMC, over the past decade it has delivered total shareholder returns (TSR) of an average of 17.5% per annum, making it one of the best-performing LICs out there.

I think that long-term performance could continue with some of its current holdings. Looking at its positions worth more than 1%, it owns businesses like Visa, MasterCard, Home Depot, CVS Health, Facebook, Berkshire Hathaway, Microsoft, CK Hutchison, Flutter Entertainment, L’Oreal and JP Morgan Chase.

Aside from investing in great businesses, another reason to like MFF Capital is that it has low costs. Its fees are fixed, which means as it gets bigger it will cost even less as a percentage of assets.

The board has provided guidance that MFF Capital is going to increase its half-yearly dividend to 5 cents per share. An annual dividend of 10 cents per share would equate to a grossed-up dividend yield of 5.5% at today’s MFF Capital share price.

WAM Microcap Limited (ASX: WMI)

WAM Microcap is a LIC that targets ASX shares with market capitalisations under $300 million at the time of acquisition. This is the area of the market where investors can unearth some hidden gems if they look hard enough.

The Wilson Asset Management team have done very well at finding undervalued growth companies. Since inception in June 2017, WAM Microcap’s portfolio has delivered average annual returns per annum of 21.2%, before fees, expenses and taxes. This has been a great performance, which includes the COVID-19 period.

The LIC has been rewarding shareholders with special dividends in each financial year since FY18. FY20 saw total dividends of 9 cents per share declared for investors. That represents a big dividend return in one year.

Some of the small caps that it owned at the end of September 2020 included Redbubble Ltd (ASX: RBL), Baby Bunting Group Ltd (ASX: BBN), Temple & Webster Group Ltd (ASX: TPW), Macquarie Telecom Group Ltd. (ASX: MAQ) and City Chic Collective Ltd (ASX: CCX).

At the current WAM Microcap share price it offers a grossed-up ordinary dividend yield of 5.4%. That’s a solid starting yield and it could be boosted by regular special dividends if the strong performance keeps coming.

Foolish takeaway

I believe that both of these LICs are capable of continuing to produce strong returns over the coming years. At the current prices I’d probably go for MFF Capital for the international exposure and NTA discount.  

ASX small caps have had a really strong run over the last six months and the WAM Microcap share price now appears to be trading at a premium to its NTA. Though I must admit that WAM Microcap is one of the biggest positions in my portfolio, so it’s not as though I’m pessimistic about it at this price.

But I’m also looking at other share opportunities at the moment.

More reading

• How to replace your entire wage with ASX dividend shares
• This is where I’d invest $1,000 right now into ASX shares
• Where I’d invest $10,000 into ASX dividend shares
• 3 ASX shares I’d buy if the share market crashes again
• This ASX share is my top contrarian play right now

Tristan Harrison owns shares of Magellan Flagship Fund Ltd and WAM MICRO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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 2 great LICs I’d buy for strong total returns appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3dzyEfs

Is the CSL Limited (ASX: CSL) share price a buy right now?

CSL is commonly regarded as one of the highest-quality businesses out there at the moment.

What has been happening recently?

The CSL share price is still down 12.3% from its pre-COVID-19 high, so it hasn’t recovered as much as many investors would like.

CSL didn’t fall as much as many shares from the peak to the bottom during the COVID-19 crash. On the share price front, it hasn’t done much over the past few months.

The recent CSL updates have been interesting but haven’t moved the market much.

FY20 was a solid result. Revenue went up 9% in constant currency terms and net profit after tax (NPAT) grew 17% in constant currency terms to US$2.1 billion.

At the time of the FY20 profit release, it provided FY21 net profit guidance of between US$2.1 billion to US$2.265 billion. That would have been growth of between 0% to 8%.

The annual general meeting (AGM) sort of included a profit upgrade. It changed that profit guidance to a range of US$2.17 billion to US$2.265 billion. This guidance implies FY21 net profit growth of between 3% to 8%. It’s pleasing to see that CSL is expecting yet another year of profit growth.

It’s still expecting strong demand for plasma and recombinant therapies to continue. CSL also expects strong demand for flu vaccines. Sales of albumin is expected to return to normal after the successful transition to the new business model in China. These are all pleasing points. 

However, COVID-19 restrictions are expected to hurt the company’s ability to collect plasma and this will add to the overall cost of collection. But CSL said it has multiple initiatives to mitigate this impact.

One of the most important developments recently is that CSL is investing in its research and development response to COVID-19. It is responsible for manufacturing the COVID-19 vaccine in Australia. This is on top of its normal R&D expenditure, so it expects to spend about 10% to 11% of revenue on R&D.

Why I think the CSL share price is a buy

It’s the R&D that makes me most willing to buy CSL shares. That’s despite the CSL share price trading at 34x FY23’s estimated earnings.

CSL expenses its R&D each year. In FY20 it spent US$922 million on R&D, compared to its net profit of US$1.9 billion. It would obviously be much more profitable if it spent $0 on R&D. But it’s the R&D that will open up new earnings streams for CSL in the coming years.

There is a potential scenario where people need a regular COVID-19 booster and it’s likely that CSL would be the company to manufacture it for Australia.

Despite its huge size, CSL continues to become more profitable with higher margins, which is the sign of a great business. In FY20 CSL grew its gross profit margin from 56% to 57.1% and the earnings before interest and tax (EBIT) margin rose from 29.3% to 29.7%.

There are few ASX shares in the ASX 100 that are in the healthcare industry, which earn a lot of profit internationally and have a long-term growth runway. CSL offers an attractive combination of growth and defence. 

Even if the CSL share price looks a little expensive, I think it’s worth buying today for the long-term. Quality businesses are able to generate good returns even if economic conditions are a bit tough.

There are also other bigger ASX shares I’d be willing to consider for my portfolio including A2 Milk Company Ltd (ASX: A2M), Magellan Financial Group Ltd (ASX: MFG) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

More reading

• 5 things to watch on the ASX 200 next week
• 10 must-buy ASX shares to snap up before it’s too late
• How to make $50,000 of passive income with ASX dividends
• Should you stay invested in an ASX share after a strong run?
• This is how you can become a millionaire with ASX shares

Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended A2 Milk and Washington H. Soul Pattinson and Company Limited. 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 Is the CSL (ASX:CSL) share price a buy? appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/37gmZRJ

Are you looking for a source of income in this low interest rate environment? Then you might want to consider buying these ASX dividend shares next week.

Here’s why I think they are great options right now:

Accent Group Ltd (ASX: AX1)

The first dividend share that I think income investors ought to consider buying is Accent Group. It is the company behind retail brands The Athlete’s Foot, Platypus, and HYPE DC. It is also the distributor of a number of popular brands such as Vans, Timberland, Dr Martens, and Skechers. While certain areas of the retail sector have struggled during the pandemic, lifestyle footwear hasn’t been one of them.

Accent Group delivered very strong sales and profit growth at the end of FY 2020 and this appears to have carried over into the new financial year. Looking further ahead, I believe the company is well-placed for growth over the coming years thanks to its expansion plans, rapidly growing online business, and strong market position. In FY 2021, I expect the company to pay a 9 cents per share fully franked dividend. Based on the current Accent share price, this will be a 4.9% yield.

Wesfarmers Ltd (ASX: WES)

Another ASX dividend share to consider buying is Wesfarmers. As with Accent Group, Wesfarmers has been a positive performer during the pandemic. This is thanks largely to its key Bunnings business. The good news is that with the government providing home improvement stimulus and tax cuts, I believe Bunnings is well-positioned to continue its positive form over the coming years.

In addition to this, tax cuts are likely to be supportive of its other businesses such as Kmart, Target, and Catch. Combined with potential earnings accretive acquisitions, I believe Wesfarmers can grow its earnings and dividend at a solid rate over the 2020s. For now, I expect it to pay a fully franked dividend of ~$1.50 per share in FY 2021. Based on the latest Wesfarmers share price, this equates to an attractive fully franked 3.1% dividend yield.

More reading

• How ASX 200 investors can collect a rent check from Bunnings Warehouses
• These ASX ETFs could be perfect for dividend-seekers
• Is the Wesfarmers (ASX:WES) share price a strong buy today?
• Forget Westpac savings accounts and earn an income from these ASX dividend shares
• Revealed: ASX Christmas winners and losers

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Accent Group. 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 These ASX dividend shares could be strong buys for income investors appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3j9vZdN

Last week was another positive one for the S&P/ASX 200 Index (ASX: XJO). Despite a soft end to it, the benchmark index finished the period with a weekly gain of 1.2% to 6,176.8 points.

Another busy five days is expected next week. Here’s what to look out for:

ASX futures pointing higher.

According to the latest SPI futures, the ASX 200 is expected to open the week 39 points or 0.6% higher. This follows a reasonably positive end to the week on Wall Street. On Friday night the Dow Jones rose 0.4%, the S&P 500 edged slightly higher, and the Nasdaq dropped 0.35% lower. Stronger than expected U.S. retail sales data gave U.S. markets a lift.

CSL R&D Investor Briefing.

The CSL Limited (ASX: CSL) share price will be on watch on Tuesday when it holds its annual research and development (R&D) investor briefing. In FY 2020 the biotherapeutics giant invested US$922 million in its R&D. Investors will no doubt be keen to hear how this money is being spent and what new therapies are on the way. One treatment of interest is EtranaDez, which was acquired from uniQure this year for US$450 million. It is a new gene therapy undergoing phase 3 trials as a treatment for haemophilia B.

BHP quarterly update.

The BHP Group Ltd (ASX: BHP) share price will also be one to watch on Tuesday when the mining giant releases its first quarter update. According to a note out of Goldman Sachs, it expects BHP to report Petroleum production of 26Mboe, Copper production of 365kt, and iron ore shipments of 71.5Mt. The latter represents a 7% quarter on quarter decline in shipments. On Monday, South32 Ltd (ASX: S32) will be releasing its update.

Annual general meetings galore.

Annual general meeting season goes up a gear next week with a large number of companies due to hold their annual (virtual) events. This includes Cochlear Limited (ASX: COH), IDP Education Ltd (ASX: IEL), Qantas Airways Limited (ASX: QAN), and Webjet Limited (ASX: WEB). These companies could provide updates on their performances during the first quarter.

Tech shares on watch.

Australian tech shares such as Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO) will be on watch next week. Last week the S&P/ASX All Technology Index (ASX: XTX) recorded a solid 3.7% gain, which extended the tech index’s month to date gain to an impressive 11.5%. Investors will be hoping this strong run continues. Though, the Nasdaq index falling 0.35% on Friday night could have some say in that.

More reading

• How to turn $20k in ASX shares into $1 million in 30 years
• Is the Redbubble Ltd (ASX: RBL) share price a buy after soaring 30% this week?
• 10 must-buy ASX shares to snap up before it’s too late
• How to make $50,000 of passive income with ASX dividends
• These were the worst performing shares on the ASX 200 last week

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd., CSL Ltd., Idp Education Pty Ltd, and Xero. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Cochlear Ltd. 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 5 things to watch on the ASX 200 next week appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3lXQufi

The stock market crash could mean there are more bargain shares now available to buy. Company valuations have fallen drastically across a wide range of sectors. While in some cases they may be deserved due weak financial outlooks, other businesses appear to offer excellent value for money given their financial strength and market position.

As such, now could be the right time to invest money in undervalued stocks. They could deliver impressive returns in the coming years that help you to retire early.

Identifying bargain shares

Of course, determining which companies can be viewed as bargain shares is not an exact science. However, it is likely to mean that the price at which a stock is trading does not fully value its long-term potential. This may be because investors are cautious about company prospects ahead of a possible second market crash. They may demand wider margins of safety to compensate them for an uncertain near-term outlook.

As such, a number of companies with strong balance sheets and robust market positions may be trading at low prices at the present time. Certainly, they could struggle to return to previous record highs in the short run due to political and economic risks. But on a long-term basis, they may prove to be very attractive investments that offer sizeable return potential.

Rising valuations in the coming years

Buying bargain shares may provide long-term growth because of improving company financial performance. For example, company profits are likely to increase as the economic outlook strengthens. This may not appear to be a likely outcome at the present time, given the existence of risks such as COVID-19, Brexit and the US election. However, major fiscal and monetary policy stimulus suggests that an economic recovery that boosts corporate profits is ahead in the coming years.

As well as rising profitability pushing share prices higher, improving investor sentiment could lead to capital growth for investors in the long run. As the financial pressure on businesses subsides and investors become less risk averse, they may accept higher valuations for stocks across the market. This could mean that undervalued stocks become more fully valued, thereby producing capital returns for existing investors.

A relatively attractive opportunity

Bargain shares could present the best means of improving your retirement prospects at the present time. Low interest rates are likely to mean disappointing after-inflation returns from cash and bonds, while high house prices may limit capital return prospects in the property market.

Certainly, a second stock market crash in 2020 cannot be ruled out. However, this risk provides investors with an opportunity to buy high-quality businesses when they are trading at low prices. Over time, they may produce impressive returns that boost your financial situation and help you to retire earlier than planned.

More reading

• How to turn $20k in ASX shares into $1 million in 30 years
• 3 brilliant ASX growth shares to buy
• Beat the rate cuts with these ASX dividend shares
• Is the Redbubble Ltd (ASX: RBL) share price a buy after soaring 30% this week?
• 10 must-buy ASX shares to snap up before it’s too late

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 investing money in bargain shares could help you to get rich and retire early appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3dzX5cJ

For ASX share investors, turning a small nest egg into more than $1 million seems impossible. When you make that timeline just 30 years, it seems outrageous.

However, it isn’t impossible and the numbers really do make sense. With some disciplined investing, modest contributions along the way and the magic of compounding returns, a $1 million ASX share portfolio could be within reach.

How the numbers work

I’ve whipped up a very quick example to illustrate just how simple the numbers are. This scenario assumes a starting portfolio of $20,000, an annual return of 9.0% and $5,000 in yearly contributions.

This fictional investor would start out with an ASX share portfolio of just $20,000 in year 0 which would climb to $27,250 by the end of year 1. However, the power of compounding returns really kicks in beyond the 20-year mark.

Just by reinvesting these returns and contributing $5,000 per year, our average Aussie investor builds a $1.01 million portfolio within 30 years. That means if they started at the age of 25, they could have built that nest egg by the age of 55.

The best part? That $1 million portfolio only includes $170,000 of invested money with the rest coming from compounding returns.

Setting up an ASX share portfolio

The numbers show that it’s possible to turn $20,000 into over $1 million in the space of 30 years. That was clearly a simplified example with an assumed set return always reinvested back into the portfolio.

But even in a simplified example, we can see that the numbers work. The hard part is how to build out a portfolio to generate that target return.

There are many ways to set up such a portfolio. It could be done through buying (and eventually selling) ASX growth shares or choosing high-yield dividend shares.

If we go with the latter, it’s easy to see how a 9.0% return is possible. Shares like Scentre Group (ASX: SCG), New Hope Corporation Limited (ASX: NHC) and Westpac Banking Corp (ASX: WBC) all have dividend yields around that mark.

Even the historical averages for major share market indices like the S&P/ASX 200 Index (ASX: XJO) are around 9% per annum.

Foolish takeaway

Portfolio construction is not something that happens overnight. It’s worth taking the time to consider long-term investment goals before diving into buying ASX shares.

Shares can be expensive to buy and sell once you factor in taxes and transaction costs. A high-yield ASX share portfolio can help many Aussie set themselves up for retirement with a bit of hard work and a touch of luck.

More reading

• These were the worst performing shares on the ASX 200 last week
• These were the best performing shares on the ASX 200 last week
• ASX 200 falls, Tyro (ASX:TYR) up on merchant deal
• Class action lawsuit a new challenge for Rio Tinto (ASX:RIO) share price
• Why Afterpay’s (ASX:APT) Nick Molnar is embracing the fashion world

Motley Fool contributor Ken Hall 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 to turn $20k in ASX shares into $1 million in 30 years appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/354KLgN