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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.

What happened

The stock market crashed hard on Thursday, Sept. 3. At 1:15 p.m. EDT, the Dow Jones Industrial Average stood 2.6% lower and the broader S&P 500 index had fallen 3.4%. The tech-heavy Nasdaq Composite led the pack with a decline of 4.6%, giving us a big clue to the drivers of this sharp market drop.

A familiar trio of trillion-dollar market caps led the way here. Shares of iPhone maker Apple (NASDAQ: AAPL) posted a 6.8% loss and software giant Microsoft (NASDAQ: MSFT) slumped 5.9%. Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) fared slightly better, limiting its decline to approximately 5.3%.

Together, these sudden dives added up to $382 billion in lost market value at press time.

So what

None of these tech titans had any terrible news of their own yesterday. If anything, their business updates should have moved the stock prices higher. Apple introduced a new feature for mobile app developers designed to boost the number of paying subscribers for iOS apps through easy-to-use subscription offer codes. Google scored a big win with cloud computing services helping the U.S. military predict cancer diagnoses. But investors shrugged off these mildly positive tidbits.

The sell-off starts to make sense when you look at Microsoft’s, Alphabet’s, and Apple’s recent stock charts. Here’s how the tech giants’ stocks have performed in 2020 leading up to Thursday’s dramatic correction:

AAPL data by YCharts.

There’s no reason to cry for tech investors today, though. Alphabet’s stock is still up 22% year to date, trailing Microsoft’s 38% gain and Apple’s enormous 67% price increase.

Now what

It’s true that the COVID-19 health crisis has boosted the profile of many technology companies. Work-from-home policies are undeniably good news for businesses that sell products and services in the office productivity market, and all three of these companies are leaders in that space. At the same time, the stock market as a whole has been overheated lately. The major benchmarks are mostly back where they were before the coronavirus crisis, excepting the Nasdaq. A correction seems to be in order at this point, and things could get much worse if there’s a second wave of COVID-19 cases in store.

To be clear, none of the stocks mentioned above did anything wrong. They’re just being ensnared in the broader market slump. Their charts could very well turn upward again in a hurry, but there might also be further corrections on tap in the coming days. All of this depends on factors outside of Apple’s, Alphabet’s, and Microsoft’s control, including coronavirus trends, election results, and the rate of political progress on a second stimulus bill.

This overdue correction is certainly no reason to panic. Everything you knew about these companies and their business prospects yesterday is just as true today. The only thing that changed was the market’s attitude toward high-flying tech stocks in the face of rising uncertainty. You could even pick up some shares at lower prices today. Perfect market timing is an impossible game, but serious investors can take advantage of temporary price drops when they come along.

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

More reading

• Is the Nasdaq’s 600-Point Plunge the End of the Bull Market?
• This is the one investment Warren Buffett says almost everyone should make
• A strange thing is happening with index funds…
• Apple and Tesla are in the top 5 US shares bought by ASX investors this week
• Apple just split its stock: Here’s why this tech stock might be next

Anders Bylund owns shares of Alphabet (A shares). Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The IOOF Holdings Ltd (ASX: IFL) share price has not had a good week. Last Wednesday, the IOOF share price was asking more than $5 a share. Yesterday, IOOF shares closed at $3.62. IOOFed indeed, it’s not often you see a company’s market capitalisation declined by nearly a third over the space of 9 days. We’re still not at the levels we saw in the March crash (when IOOF got down to around $2.72 a share), but it’s still a significant move, and one that begs the question: are IOOF shares a buy today?

Why the IOOF share price has tanked

IOOF shareholders have not responded well to the mammoth capital raising that the company has completed over the past 2 weeks. IOOF has now completed the institutional placement, which has raised $734 million. Its retail investor placement is still underway and is expected to raise an additional $306 million.

For a company with a market capitalisation of just $1.27 billion, that represents a lot of share dilution. This explains why the company’s shares have tanked over the past week or so, in my view.

Are IOOF shares in the buy zone today?

So with such a massive fall in the IOOF share price, the question must be asked: are IOOF shares in the buy zone today?

Well, first thing’s first. The IOOF share price has declined because the share count has been massively increased. It’s not like this is your standard ‘value play, buy the dip’ opportunity here.

But let’s take a look at what IOOF is actually using all of this cash for. It was revealed on Monday that the company plans to acquire the wealth manager MLC from National Australia Bank Ltd (ASX: NAB) for $1.44 billion. MLC is one of the largest wealth managers in Australia. According to reporting from the Australian Financial Review (AFR), once the merger is complete, IOOF will be the largest wealth manager in the country, eclipsing long-time (and embattled) rival AMP Limited (ASX: AMP). The AFR is describing this outcome as a new ‘duopoly’ of wealth management in Australia.

Whilst this deal does help IOOF grow its market footprint, I still have doubts about its long-term future. Wealth management has not been shown in a good light over the past few years, largely due to the revelations of the 2018 banking royal commission. Retail superannuation funds (like those offered by IOOF and MLC) already have something of a reputation as ‘high fees, low returns’. With competition from industry funds and perhaps the low-fee champion Vanguard Group over the next few years, I think IOOF is facing challenges on multiple fronts. Investors seem a lot more excited about passive exchange-traded index funds (ETFs) than higher-fee active managed funds for outside-super investing these days as well.

Foolish takeaway

As such, I’m not wild on IOOF shares today, even after this share price crash, and I think there are better options elsewhere. If I was after a fund manager, I would choose Magellan Financial Group Ltd (ASX: MFG) shares instead.

More reading

• Why I think the AMP share price is finally looking good enough to buy
• Why IOOF, SKYCITY, Starpharma, & Telix shares are storming higher
• Why a recession shouldn’t matter for the ASX share market
• QBE’s silence triggers shareholder outrage
• ASX 200 rises 1.8%, Afterpay had a volatile day

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. 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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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.

The Nasdaq Composite (NASDAQINDEX: ^IXIC) has been a huge performer for much of 2020, bouncing back quickly from the COVID-19 bear market in late February and March and soaring to new record highs. Yet all of that turned around on Thursday morning, as the index quickly plunged more than 600 points, or 5%, shortly before noon EDT. The move was so abrupt that it took many investors aback with its ferocity.

For a while now, many market participants have believed that the Nasdaq’s gains were unsustainable. It’s tempting to declare that the bull market in stocks must now be over, especially with plenty of uncertainty about the pandemic, the geopolitical situation, and the economic strains faced by those in the U.S. and around the world. Yet before you decide that the end is near, it’s important to keep some perspective.

Where the Nasdaq is, and where it’s been

As I’m writing this, the Nasdaq is down almost exactly 600 points. That puts the index at a level of 11,455, down 4.9% on the day.

That sounds like a disaster, and if you look at your brokerage account on a one-day basis right now, you’ll probably see plenty of red ink.

But here’s something to think about: It was exactly seven trading sessions ago that the Nasdaq set a new record high. It turned out to be one of eight days out of nine in which the index reached new heights for the first time. The reason it’s remarkable here, though, is that its closing level that day — Aug. 25 — was 11,466.

Yes, some investors are in a panic because the Nasdaq has fallen to levels that it first saw a week and a half ago. On the day that new record was set, the Nasdaq was up more than 700 points just since the beginning of August. That monthly gain had only added to immense boosts in April, May, June, and July.

If that seems to you as though investors have totally lost their perspective, then you’re on the right track. Just because the market has corrected after huge gains doesn’t mean that the bull market is over.

The same holds true for individual stocks

There are plenty of people looking at their individual holdings and feeling even more uncertain. In some cases, percentage losses for individual companies are much greater than the market’s decline. Big drops include some of the leaders of the bull market.

Again, though, the declines aren’t all that big when put into context:

• Apple‘s (NASDAQ: AAPL) 6% drop leaves it above its closing value on Aug. 20, which was a record at the time.
• Tesla (NASDAQ: TSLA) is down nearly 8% Thursday morning, but it wasn’t until Aug. 26 that the electric vehicle pioneer’s stock closed above its current level for the first time.
• Zoom Video Communications (NASDAQ: ZM) is off almost 12% from its closing price on Wednesday. But it’s still $50 per share higher than its record close from Aug. 31.

That last point is worth visiting in more detail. Zoom announced blockbuster earnings for the second quarter. That sent its stock up as much as $150 per share. But if the stock had simply risen $50, investors would’ve been happy with the gains. Somehow, the fact that it jumped higher and settled out at current levels is worse than if it had simply risen without the big volatility.

Don’t get head-faked

The lesson here is that if you look at the stock market’s moves on a daily basis, they’ll distract you from the long-term value creation that the Nasdaq has done such a good job of providing to investors for decades. If you have a long-term strategy, stick to it — and don’t worry about whether this is a one-day aberration or the beginning of a more extensive correction.

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

More reading

• Microsoft, Apple, and Alphabet led the stock market lower on Thursday
• Why the Zip share price is plummeting 15% today
• This is the one investment Warren Buffett says almost everyone should make
• A strange thing is happening with index funds…
• Apple and Tesla are in the top 5 US shares bought by ASX investors this week

Dan Caplinger owns shares of Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, Tesla, and Zoom Video Communications. The Motley Fool Australia has recommended Apple. 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 Nasdaq’s 600-Point Plunge the End of the Bull Market? appeared first on Motley Fool Australia.

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

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Given that many savings accounts offer base rates of just 0.05% per annum currently, I would sooner invest any spare funds into the share market than keep it in one of these accounts.

With that in mind, if you’re lucky enough to have $10,000 spare to invest, then the ASX shares listed below could be top options.

Here’s why I would invest this money into these shares:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

I think this pizza chain operator could be a top option for a $10,000 investment. It is the master franchise holder for Domino’s in Australia, New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg, and Denmark. Although its shares have been very strong performers this year, I would still invest due to its positive long term outlook.

Domino’s is aiming to grow its global store network by 7% to 9% per annum for the next 3 to 5 years. At the same time, it is targeting same store sales growth of 3% to 6% per annum over the same period. After which, by 2033 the company is aiming to grow its network to 5,500 stores. This compares to the network of 2,668 stores it had at the end of FY 2020. If it delivers on these targets, then I believe it will lead to strong earnings growth over the next decade. This could make the Domino’s share price a long term market beater.

Ramsay Health Care Limited (ASX: RHC)

Another ASX share to consider investing $10,000 into is Ramsay Health Care. While trading conditions are not easy for the private hospital operator right now due to the pandemic, I remain very positive on its long term prospects. This is because as the global population ages, demand for its services is likely to increase substantially. I feel this puts Ramsay and its sprawling global network of private hospitals in a strong position to deliver solid earnings growth for decades to come.

The company also recently hinted that it might be on the lookout for earnings accretive acquisitions. Management commented: “Ramsay is also committed to expanding our business both in Australia and overseas, in and out of hospital where there is a strategic fit and it meets our strict investment criteria. We have a strong balance sheet to support this growth strategy.”

More reading

• Is the Domino’s share price too expensive?
• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• 3 stellar ASX growth shares to buy right now
• How to turn $20,000 into $350,000 in 10 years with ASX shares
• Domino’s share price gain of 17% in August a good slice of news for shareholders

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited and Ramsay Health Care 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 Where to invest $10,000 into ASX shares appeared first on Motley Fool Australia.

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The Commonwealth Bank of Australia (ASX: CBA) share price dropped 4% in August. Does that mean the CBA share price is a buy?

It’s always nice to buy a business at a cheaper price than it was before. I think the CBA share price movement is particularly interesting considering the S&P/ASX 200 Index (ASX: XJO) actually went up by 2.2% last month.

August was a bit of a strange month for Australia. A lot of the country remained COVID-19 free. But Melbourne went into stage 4 lockdown whilst NSW saw a little bit of community transmission. 

Obviously the biggest piece of news during August 2020 was the release of the CBA FY20 result.

FY20 result

I thought that Australia’s biggest bank’s held up remarkably well. Cash net profit only dropped by 11.3% to $7.3 billion. CBA said net profit was supported by strong business performance but it was impacted by a higher loan impairment expense because of COVID-19.

The loan impairment expense was $2.52 billion (up from $1.32 billion) including the $1.5 billion COVID-19 provision.

CBA’s net interest margin (NIM), a key measure of profitability, declined by 2 basis points to 2.07%. This was expected because of the impact of lower interest rates. The official RBA interest rate declined to just 0.25% during CBA’s 2020 financial year.

What about CBA’s balance sheet?

A key aspect that usually sets CBA apart from the other major ASX banks is that it’s strongly capitalised. Its common equity tier 1 (CET1) ratio was 11.6% at the end of FY20. That’s comfortably above the ‘unquestionably strong’ benchmark of 10.5% set by regulator APRA. I think this is one of the main reasons the CBA share price hasn’t fallen further. 

I think that CBA has proven to be a high-quality bank through this difficult COVID-19 period.

At 31 July 2020 it was providing COVID-19 related loan deferrals for 135,000 home loans (8% of total accounts) and 59,000 business loans (15% of total balances). This was down from 154,000 home loans and 86,000 business loans at the peak.

I’m sure that CBA will hoping that the vast majority of these deferred loans can go back to a normal payment schedule soon, even if it’s just interest only payments.

CBA is one of those ASX shares that does need the overall economy to do well for its profit to grow. Though its faster-than-system home lending growth of $18.4 billion was attractive.

Is the CBA share price a buy?

I think it speaks volumes of the strength of CBA that it was still able to declare a final dividend of $0.98 per share, which was on top of a pre-COVID-19 interim dividend of $2 per share paid at the start of 2020. A strong dividend is good for the CBA share price.

If I had to pick one of the big ASX bank shares for dividends it would be CBA because I think its profit is likely to be the one least affected. That should mean its dividend is able to hold up the best through the current period.

It’s difficult to say when profit growth will return. It’s even harder to say when CBA’s profit will return to 2019 levels (excluding royal commission remediation).

The CBA NIM could be under pressure for a few years with the RBA suggesting that the Australian interest rate isn’t going to be increased for a while. Bad debt levels may be elevated for a while considering all of the long-term impacts of COVID-19 will take a while to flow through the economic system.

A normal economy takes a while to recover from a typical a recession. The economy isn’t like a share price which can go up 10% in a day. A global pandemic that has halted several important sectors like international education, travel and tourism could mean the Australian economy takes longer to get back to normal.

Perhaps the CBA share price was a buy during May for bank investors. But ever since we learned of the jobkeeper overestimation, it seemed the short-term buying opportunity for CBA shares had passed. I don’t think you should focus on past CBA dividends, another dividend cut may be on the cards in six months.

A different opportunity

I’d rather buy investment bank Macquarie Group Ltd (ASX: MQG) over CBA for dividends and growth.

More reading

• Why the Qantas share price has lifted 22% in the past month
• Why I think the AMP share price is finally looking good enough to buy
• ASX 200 rises 0.8%, investors bet on SkyCity
• New to investing? 3 top ASX shares to kickstart your portfolio
• Why I would buy and hold Altium and these top ASX 200 shares

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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 Down in August, is the CBA share price a buy? appeared first on Motley Fool Australia.

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On Thursday the S&P/ASX 200 Index (ASX: XJO) was on form again and charged higher for a second day in a row. The benchmark index jumped 0.8% to 6,112.6 points.

Will the market be able to build on this on Friday? Here are five things to watch:

ASX 200 to crash lower.

It looks set to be a very disappointing end to the week for the ASX 200 following a terrible night of trade on Wall Street. According to the latest SPI futures, the benchmark index is expected to crash 120 points or 2% lower at the open. On Wall Street the Dow Jones sank 2.8% lower, the S&P 500 dropped 3.5%, and the Nasdaq crashed 5% lower. Apple shares were a major drag, falling 8% overnight. This appears to have been driven by profit taking.

Tech shares could tumble.

It could be a difficult day of trade for ASX tech shares such as Appen Ltd (ASX: APX) and Xero Limited (ASX: XRO) following the Nasdaq’s sizeable decline. The local sector has a tendency to follow the lead of the tech-focused Nasdaq index. So with the Nasdaq falling 5% overnight, it doesn’t bode well for Appen and co.

Oil prices lower.

Energy producers including Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could drop lower today after oil prices softened. According to Bloomberg, the WTI crude oil price is down 0.5% to US$41.31 a barrel and the Brent crude oil price has dropped 0.9% to US$44.02 a barrel.

Gold price weakens.

Gold miners such as Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be on watch today after the gold price weakened despite the mini market crash on Wall Street. According to CNBC, the spot gold price fell 0.4% to US$1,937.30 an ounce overnight. Stronger than expected economic data is weighing on the precious metal.

Shares trading ex-dividend.

Another group of shares are going ex-dividend this morning. This could put further pressure on their shares on Friday. Trading ex-dividend this morning are financial technology company Bravura Solutions Ltd (ASX: BVS) and logistics solutions company WiseTech Global Ltd (ASX: WTC).

More reading

• ASX 200 rises 0.8%, investors bet on SkyCity
• New to investing? 3 top ASX shares to kickstart your portfolio
• The Appen share price is down 20% in a week: Is it time to buy?
• The one type of ASX company that outperforms all others
• ASX 200 up 1%: Big four banks charge higher, SKYCITY impresses, Xero tumbles

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 Bravura Solutions Ltd, WiseTech Global, and Xero. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended Bravura Solutions 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 on Friday appeared first on Motley Fool Australia.

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If you’re interested in adding some dividend shares to your portfolio in September, then the two listed below could be great options.

I believe both are well-placed to continue growing their dividends over the coming years despite the tough economic environment. Here’s why I think they are among the best on offer right now:

BWP Trust (ASX: BWP)

BWP is a real estate investment trust (REIT) that invests in and manages commercial assets. These assets are predominantly large format retail properties which are leased to home improvement giant, Bunnings Warehouse. I believe this is a great tenant to have, especially given the strong performance by Bunnings during the pandemic.

While having such a reliance on a single tenant is often a risk, I see it as a strength on this occasion. This is because Bunnings is owned by conglomerate Wesfarmers Ltd (ASX: WES), which also owns a ~23.6% stake in BWP Trust. I believe this means it is very unlikely that you’ll see Bunnings vacating these properties en masse in the future. Overall, I feel this puts BWP in a position to grow its income and distribution at a modest and predictable rate over the next decade. Based on the current BWP share price, I estimate that it offers a forward 4.4% yield.

National Storage REIT (ASX: NSR)

Another option to consider buying is this self storage operator. Due to its strong market position and growth through acquisition strategy, I believe it could prove to be a great long term option. It was thanks partly to this growth through acquisition strategy that National Storage delivered a 9% increase in underlying earnings to $67.7 million in FY 2020 despite the pandemic.

And although management has suggested that its earnings could be flat in FY 2021, I remain confident its growth will resume once the crisis passes. In FY 2021 National Storage expects to post earnings of 7.7 cents to 8.3 cents per share and will then pay out 90% to 100% of this to shareholders. The middle of this range (8 cents earnings per share and a 95% payout ratio) would be a 7.6 cents per share distribution. Based on the current National Storage share price, this represents an attractive 4% yield.

More reading

• Leading brokers name 3 ASX shares to sell today
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• Is the Mirvac share price the best real estate buy right now?
• Why I would buy these strong ASX dividend shares next week
• 2 top ASX results you might have missed on Wednesday

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. 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 Australian share market was on form again on Thursday and charged notably higher for a second day in a row.

While a good number of shares pushed higher with the market, some gained more than most.

This led to a few shares climbing so much they reached all time highs. Here’s why these two ASX shares are flying high right now:

Carsales.com Ltd (ASX: CAR)

The Carsales share price stormed to a new record high of $21.63 yesterday. Investors have been buying the online auto listings company’s shares since the release of a solid full year result for FY 2020. For the 12 months ended 30 June 2020, Carsales posted adjusted revenue of $423 million. While this was only a small 1% increase on FY 2019, investors were expecting much worse given the pandemic.

Positively, improving margins led to Carsales reporting adjusted EBITDA growth of 6% to $218 million. But perhaps what got investors most excited was management’s commentary on current trading conditions. It notes that there has been a strong turnaround in demand for vehicles across a number of international markets following the easing of lockdowns.

Redbubble Ltd (ASX: RBL)

The Redbubble share price jumped to an all-time high of $4.44 on Thursday. The ecommerce company’s shares have been exceptionally strong performers over the last few months. This has been driven by the shift to online shopping caused by the pandemic. This shift underpinned a very strong second half to FY 2020, which ultimately led to Redbubble delivering a 43% increase in full year revenue to $368 million.

The good news is that its strong form has continued early in FY 2021, with marketplace revenue more than doubling in July. Redbubble has been benefiting from demand for face masks during the pandemic. Also supporting the Redbubble share price was a recent broker note out of Morgans. It upgraded its shares to an add rating and lifted its price target from a lowly 54 cents to $4.33.

More reading

• Why Afterpay, IOOF, Redbubble, & Zip shares are dropping lower
• Why it makes sense to invest in ASX tech shares
• How the rising Aussie dollar could drive the Carsales share price to new all-time highs
• Why Lendlease, Redbubble, SeaLink, & Starpharma shares are pushing higher
• This ASX dividend share offers a 9% fully franked yield

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com 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.

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The S&P/ASX 50 index may not be as well-known as the illustrious ASX 200 index, but it is still a very important large cap index.

It is home to 50 of the largest shares on the Australian share market. These are predominantly household names and companies of bona fide blue chip status.

While not all shares on the index are buys, I think there are a few that could be great additions to a balanced portfolio. Two of my favourites are listed below:

Goodman Group (ASX: GMG)

The first ASX 50 share to consider buying is Goodman Group. It is an integrated commercial and industrial property group that owns, develops, and manages industrial real estate across 17 countries. Among its portfolio of 392 properties, you’ll find warehouses, large scale logistics facilities, and business and office parks. It also has $6.5 billion of work in progress at present, which will bolster its portfolio in the coming years.

But why invest in Goodman Group over other property companies? I think it is a standout pick in the industry due to its exposure to markets experiencing structural tailwinds. These include its warehouses and logistics facilities which have exposure to the ecommerce boom through tenants such as tech behemoth Amazon. In fact, the company recently strengthened its relationship with Amazon. The ecommerce giant signed a 20-year lease for a new distribution centre in Western Sydney owned by its joint venture with Brickworks Limited (ASX: BKW).

Telstra Corporation Ltd (ASX: TLS)

Another ASX 50 share I would buy is Telstra. I think the telco giant would be a great option, especially after its shares recently dropped to a 52-week low. This share price weakness has been driven by concerns over the sustainability of its dividend following its softer than expected guidance for FY 2021 due to the pandemic.

Nobody knows what will happen to its dividend this year, but it does appear as though a cut to 12 cents per share has been priced in. I believe this means the downside risk from the current level is limited and the upside potential is substantial should its dividend be maintained. Beyond the pandemic, I believe its outlook is improving greatly and a return to growth could be on the cards in the coming years. This is thanks to the progress of its T22 strategy, the easing NBN headwind, the arrival of 5G internet, and rational industry competition.

More reading

• 3 top ASX shares I would love to buy this September
• Why a recession shouldn’t matter for the ASX share market
• UBS picks the best and worst ASX stocks from the reporting season
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks and 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.

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I think that the A2 Milk Company Ltd (ASX: A2M) share price is a strong buy today.

The A2 Milk share price has declined by 11% over the past month. I think A2 Milk is one of the highest-quality S&P/ASX 200 Index (ASX: XJO) shares, so seeing it drop by more than 10% makes it look even better in my opinion.

The recent FY20 result

We get a true insight into the business performance of an ASX share when it reports its results. A2 Milk recently released its FY20 report which showed impressive growth.

Total revenue grew by 32.8% to NZ$1.73 billion. Earnings before interest, tax, depreciation and amortisation (EBITDA) went up by 32.9% to NZ$549.7 million and net profit after tax (NPAT) increased by 34.1% to NZ$385.8 million. Earnings per share (EPS) went up by 33.5% to NZ 52.39 cents.

It was a very strong result and the cash position of the business is enviable in my opinion. Operating cash flow was NZ$427.4 million for the year and it finished with a closing cash balance of NZ$854.2 million.

If you take the cash pile off the valuation, I think the A2 Milk share price looks even more attractive.

It was a very good FY20 result. But there are a few key reasons why I think it’s a strong buy today:

International growth

I believe one of the most important factors for achieving good long-term growth is the ability to grow overseas. Australia and New Zealand are great countries, but the combined population is quite small. Europe, North America and Asia are very large markets. 

A2 Milk is doing a great job of growing in Asia, specifically China, and the US.

The ‘China and other Asia’ segment saw revenue growth of 65.1% to NZ$699.4 million, with EBITDA growth of 66.7% to NZ$224.9 million. It’s not far off being half of the earnings of the overall business. And it will get to that size if it keeps growing strongly like FY20.

It’s doing so well with Chinese consumers. In FY20 its China label infant nutrition grew revenue by more than double to NZ$337.7 million. According to the Nielsen MBS 12 month market value share, its MBS value share was 2% at 30 June 2020, up from 1.7% at 31 December 2020 and 1.3% at 30 June 2019.

It’s this growing market share that makes me particularly excited about A2 Milk in China. As it expands its distribution it is becoming further entrenched in the minds of consumers. In the second half of FY20 it grew its store footprint from 18,300 to 19,100 stores.

The success in China is a big reason why the A2 Milk share price has grown so much over the past few years. China will be an important part of the success over the next few years.

US milk revenue growth is also proving to be exciting too. In FY20 alone US revenue increased by 91.2% to NZ$66.1 million. Over 50% of the sales growth came from existing stores. During FY20, A2 Milk increased its store distribution from 13,100 stores to 20,300 stores at 30 June 2020. This growth was achieved despite COVID-19 related milk purchasing limits.

The US is a long-term growth runway and it’s setting the scene well for the launch of other products there in the future.

Canada will soon start making A2 Milk some money after an exclusive licensing agreement with Agrifoods.

China, the US and Canada alone offer A2 Milk very attractive growth potential.

Investing in manufacturing capability

A2 Milk is planning to put some of its cash to work by buying a 75.1% stake in Mataura Velley Milk, a New Zealand dairy nutrition business which owns a recently-commissioned manufacturing facility. The investment by A2 Milk will be approximately NZ$270 million.

I think it’s a smart move to secure more manufacturing capacity due to the increasing scale of the company. A2 Milk has quality relationships with Synlait Milk Ltd (ASX: SM1) and Fonterra Shareholders’ Fund (ASX: FSF), but it would be smart to diversify its manufacturing further and actually have a controlling stake.

Valuation

The A2 Milk share price is currently valued at 27x FY22’s estimated earnings. When you compare that to the profit growth rate and the growth runway it has, I think it’s very reasonable.

Look at some of the highly popular ASX growth shares:

Altium Limited (ASX: ALU) is trading at 55x FY22’s estimated earnings.

Appen Ltd (ASX: APX) is trading at 35x FY22’s estimated earnings.

I think A2 Milk looks much more reasonable, and if it expands into Europe in the future then it has even more long-term growth potential.

A2 Milk could be the best ASX 200 share to buy for growth in my opinion.

More reading

• Why a recession shouldn’t matter for the ASX share market
• 3 ASX 200 shares to buy for strong returns
• Some ASX winners and losers from a high Aussie dollar
• 3 ASX shares to buy for international growth
• The a2 Milk share price sank 12% lower in August: Should you buy the dip?

Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia owns shares of A2 Milk and Appen 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.

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