Tag: Motley Fool

The S&P/ASX 200 Index (ASX: XJO) is today (at the time of writing anyway) sitting at 6,117.2 points, up 0.95% so far in today’s trading.

Since bottoming out at 4,546 points on 23 March, the ASX 200 is now up more than 34% off those lows where it sits today. For the year so far, it remains down 8.6%. The last time the ASX 200 was at these levels, it was back in February 2019 — a time that now seems a blissful, pandemic-free utopia in hindsight.

So what exactly is the ASX 200 telling us? Markets are supposed to be forward-looking mechanisms, so what kind of future is being priced in today?

I think this is a pertinent question.

Yesterday, we found out that the Australian economy just had its worst quarter (ending 30 June) since records began. Gross domestic product (GDP) slumped by 7% in just the quarter. We are now firmly in recession for the first time in three decades. Notes from this month’s Reserve Bank of Australia (RBA) meeting suggest that it will take years for the economy to return to ‘normal’. Unemployment is expected to be high for years, and inflation low. That’s partly why interest rates are at a record low of 0.25% (which is virtually zero).

And yet, the share market is apparently telling us that things are just as good as they were in February last year.

A strange new world for the ASX 200 and US markets

Over in the United States, things are even stranger. The American economy is unquestionably in a worse state than Australia’s. According to reporting in the Australian Financial Review (AFR), US GDP fell by a painful 9.1% in the quarter ending June 30. And the previous quarterly result (ending March 31) was also worse than Australia’s, falling by 1.3% against Australia’s 0.3%.

And yet the US markets are doing even better than Australia’s. Both of the US’s flagship market indices — the Nasdaq Composite and the S&P 500 — are at record highs as of today. As in, they-have-never-been-higher-in-history record highs.

So what can we assume the markets are telling us? Well, only one thing really, in my view. That this economic crisis will be either V-shaped, or else a very steep U-shaped one. That things will return to normal very soon. That there’s nothing to worry about with these record-breaking GDP numbers. That the monetary stimulus from central banks around the world is enough to mask anything the world throws at it.

I don’t mean to be a pessimist, but I don’t buy it.

I’m not selling everything and going to cash of course. But I am looking hard at my portfolio and weeding out investments that I don’t think are being priced fairly. I’m also building up a cash buffer, in case the markets do realise that things aren’t back to February 2019, that central banks can’t solve every problem under the sun. And if I’m wrong, hey, I’m still mostly invested in (I hope) good quality shares.

More reading

• Why I would buy and hold Altium and these top ASX 200 shares
• How household savings could boost these ASX share prices
• ASX 200 up 1%: Big four banks charge higher, SKYCITY impresses, Xero tumbles
• Why a recession shouldn’t matter for the ASX share market
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor Sebastian Bowen 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 Appen Ltd (ASX: APX) share price has been a surprisingly poor performer over the last seven days.

Since peaking at a record high of $43.66 on the 26 August, the artificial intelligence company’s shares have lost 20% of their value.

Why is the Appen share price down 20% from its high?

Investors have been selling Appen’s shares since the release of its half year results last Thursday. Although the company delivered solid growth, it fell a touch short of expectations.

For the six months ended 30 June 2020, Appen reported a 25% increase in revenue to $306.2 million.

The key driver of its growth was its key Relevance segment, which posted a 34% increase in revenue to $273.9 million. This offset weakness in the company’s Speech & Image segment, which reported a 20% decline in revenue to $31.9 million.

However, due partly to growth investments, its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew only 6% to $49.1 million.

This means that the company will need a stellar second half to achieve its FY 2020 underlying EBITDA guidance.

Appen reiterated its guidance of $125 million to $130 million, which means it will need to achieve underlying EBITDA of $76 million to $81 million in the second half.

However, as well as COVID headwinds, the company will be battling currency headwinds during the half after the Australian dollar strengthened. Appen’s guidance was based on an average exchange rate of 70 U.S. cents during August to December. Whereas the current exchange rate is 73.1 U.S. cents.

Should you invest?

Although I’m not overly convinced the company will achieve it guidance in FY 2020, I believe this has been factored into the Appen share price now.

In light of this, I think it would be worth taking advantage of this pullback to pick up shares. Especially given its extremely positive long term growth outlook thanks to the artificial intelligence boom.

I’m not the only one that is positive on Appen. A note out of UBS last week reveals that its analysts have put a buy rating and $44.00 price target on its shares. It expects the company’s growth to accelerate in 2021.

More reading

• Where to invest $5,000 into ASX shares right now
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Tuesday
• Top ASX Stock Picks for September 2020
• Where to invest $20,000 into ASX shares immediately

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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Shares in Austral Gold Limited (ASX: AGD) surged more than 30% higher this morning before being sold down to currently trade only marginally higher for the day. Shortly after the market’s open, the Austral share price soared to 41 cents before dropping back to 32.5 cents at the time of writing. Austral’s share price rally came following the company’s announcement of a potential acquisition.    

What moved the Austral share price?

Investors drove up the Austral share price this morning after the company announced it has signed a non-binding letter of intent to acquire all the outstanding shares of Revelo Resources Corp.

The transaction would see Revelo shareholders receive 0.9184 common shares in Austral in exchange for each share. As such, the deal will result in Revelo shareholders having a 5.9% ownership in Austral.

In addition, Austral will also pay a cash consideration to Revelo shareholders.

Austral’s management highlighted the strategic nature of the deal. Revelo is a Canadian company that holds interests in a substantial portfolio of gold, silver and copper projects in northern Chile.

According to the announcement, Revelo owns seven interesting assets, three of which are precious metals projects located in the Paleocene-Eocene belt, in the vicinity of Austral’s flagship Guanaco/Amancaya site.

In addition, Revelo is pursuing an attractive transaction in West Pacific Ventures Corp that it believes will allow expansion of its portfolio and exploration assets.  

The announcement also noted that Austral shareholder approval would not be required for the acquisition.

In order to be completed, the transaction still requires a number of terms and conditions to be approved. These include approval from Revelo shareholders and completion of satisfactory due diligence by both parties. 

More about Austral Gold

Austral Gold is a growing gold and silver mining and exploration company. It has a portfolio of quality assets in Chile, the United States and Argentina. The company’s flagship Guanaco/Amancaya project in Chile is a gold and silver producing mine.

Earlier this year, Austral’s operations at its Guanaco and Amancaya mines were halted as a result of a workers strike. The outcome of the strike was the company renegotiating a 3-year collective labour agreement. Despite the disruptions associated with the strike, Austral’s operations in Chile were not significantly impacted by the COVID-19 pandemic. 

Following today’s announcement, shares in Austral soared more than 30% in early trade to record highs. At the time of writing, the Austral share price is trading 3.2% higher for the day. 

More reading

• The Mesoblast share price rocketed 40% higher in August: Is it too late to invest?
• Myer’s share price is rocketing up. Here’s why.
• Why I would buy and hold Altium and these top ASX 200 shares
• What exactly is the ASX 200 telling us today about 2020?
• The Appen share price is down 20% in a week: Is it time to buy?

Motley Fool contributor Nikhil Gangaram 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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Due to populations around the world getting older and chronic disease burden increasing, demand for healthcare services continues to rise.

I believe this trend will continue for several decades, which could make the healthcare sector a great place to look for investments.

Two ASX healthcare shares that I feel could be long-term market beaters are listed below. Here’s why I like them:

CSL Limited (ASX: CSL)

The first ASX healthcare share to consider buying is CSL. It is one of the world’s leading biotherapeutics companies. I feel it would be a great long term option for investors due to the quality of its CSL Behring and Seqirus businesses. CSL Behring is the global leader in plasma therapies and Seqirus is the second largest influenza vaccines business.

I believe both businesses are well-placed for long-term growth due to their leading therapies and their lucrative research and development pipelines. This pipeline contains a number of highly promising products that have the potential to generate significant revenues in the future. This includes clazakizumab, which is being developed to treat kidney transplant rejection. This product alone could generate peak sales of US$5.4 billion eventually.

ResMed Inc. (ASX: RMD)

A final healthcare share to consider buying is ResMed. It has been growing at a very strong rate over the last decade and is now one of the world’s leading sleep treatment companies. Pleasingly, it has started the new decade just as strongly as it finished the last. It was a strong performer in FY 2020, delivering a 15% constant currency increase in revenue to US$2,957 million and a 32% jump in net income to US$692.8 million.

The good news is that I believe it is well-placed to continue this strong form for some time to come. This is thanks to its world-class products and the massive number of undiagnosed sleep apnoea sufferers globally. The company also has a rapidly growth digital health ecosystem, which reached over 12 million cloud connectable medical devices this year. This provides ResMed with strong recurring revenues and an invaluable amount of high quality data.

More reading

• Why a recession shouldn’t matter for the ASX share market
• Where to invest $5,000 into ASX shares right now
• 3 ASX 200 shares to buy for strong returns
• UBS picks the best and worst ASX stocks from the reporting season
• A strange thing is happening with index funds…

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 CSL Ltd. The Motley Fool Australia has recommended ResMed 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.

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On Wednesday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three ASX shares that have just been given sell ratings by brokers are listed below.

Here’s why these brokers are bearish on them:

Evolution Mining Ltd (ASX: EVN)

According to a note out of UBS, its analysts have retained their sell rating and $4.90 price target on this gold miner’s shares following its investor day update. The broker notes that its production targets at Red Lake and Mungari are notably higher than expected. Though, it isn’t overly convinced this is achievable. As such, it sees no reason to change its rating at this stage and continues to believe its shares are overvalued given its outlook. The Evolution share price is changing hands for $5.66 this afternoon.

Sigma Healthcare Ltd (ASX: SIG)

A note out of Morgan Stanley reveals that its analysts have retained their underweight rating but lifted their price target on this pharmacy chain operator and distributor’s shares to 60 cents ahead of its half year results. The broker is expecting the company to report a sharp decline in sales and profits during the half. This is largely due to the loss of its contract with the Chemist Warehouse. The Sigma share price is trading at 65 cents on Thursday.

Zip Co Ltd (ASX: Z1P)

Analysts at Citi have downgraded this buy now pay later provider’s shares to a sell rating with a $6.70 price target. The broker made the move partly on valuation grounds after a strong gain in recent months and due to concerns over the entry of PayPal into the buy now pay later market. Especially given the company’s late entry into the key US market with its Quadpay business, which trails the market leaders by some distance. The Zip share price is trading at $7.09 today.

More reading

• The Future Fund is stockpiling cash. Should ASX investors take the hint?
• Here’s why the Sezzle share price crashed 37% lower in just a few days
• Why the Zip share price is plummeting 15% today
• Why Afterpay, IOOF, Redbubble, & Zip shares are dropping lower
• PayPal scares investors in BNPL shares, time to sell?

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 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.

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Well, we’re officially in spring and the S&P/ASX 200 Index (ASX: XJO) has certainly sprung today, up 0.89% at the time of writing to 6,113.50 points. With the turn of the month and the season, I’m taking a good look at my portfolio and wondering which ASX shares I would love to add this month, at the right price of course. So here are the top 3 ASX shares I would love to buy this September (not in any particular order):

3 ASX shares I’d like buy this month

Telstra Corporation Ltd (ASX: TLS)

Telstra shares have just had a shocker of a month, falling 15% over August. The catalyst for this dive was Telstra’s FY2020 earnings report, which wasn’t exactly optimistic about how much money the company will be earning in FY2021. Even so, Telstra reaffirmed its generous 16 cents per share dividend, which on current prices offers a trailing yield of 5.48%. Investors clearly aren’t too certain that Telstra will continue to be able to fund this dividend beyond next year, but I beg to differ. Telstra has more than enough free cash flow to keep the dividend going in my view. As such, I think Telstra is a buy at these near 52-week lows we are seeing today.

2) MFF Capital Investments Ltd (ASX: MFF)

MFF is a listed investment company (LIC) that I would also love to add to my portfolio this September. MFF mostly invests in United States-listed shares that it aims to hold long term. Payments companies Mastercard Inc (NYSE: MA) and Visa Inc (NYSE: V) currently top MFF’s portfolio, but it also includes Home Depot Inc and Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) among others. I like MFF as its managers aren’t afraid to go against the crowd. The portfolio currently holds more than 38% of its assets in cash, which should give the company plenty of ammunition if the share market drops again in the next few months. Because of this defensiveness, I’m looking to add more MFF to my portfolio this September.

3) BetaShares FTSE 100 ETF (ASX :F100)

My last share is this exchange-traded fund (ETF) from BetaShares. F100 tracks the 100 largest companies listed on the London Stock Exchange (LSE). The LSE has a similar reputation to the ASX in that British companies tend to offer large dividends. Some of the top stocks in this ETF are Unilever, AstraZeneca, BP, GlaxoSmithKline, HSBC Holdings plc (LSE: HSBA) and British American Tobacco. I like this ETF as it still looks fairly cheap to me right now. Since 23 March, F100 units are ‘only’ up around 11%, compared to the ASX 200, which is up more than 33%. Currently, this ETF is offering a trailing distribution yield of 2.6%, which I think will rise even higher in a few years’ time once the coronavirus pandemic is (hopefully) history.

More reading

• UBS picks the best and worst ASX stocks from the reporting season
• Should you buy Telstra and these beaten down ASX shares?
• The Telstra share price just hit a 52-week low: Is it time to buy?
• 2 ASX dividend growth shares I would buy right now
• Here’s why the Telstra share price fell 15% in August

Sebastian Bowen owns shares of Magellan Flagship Fund Ltd, Mastercard, Telstra Limited, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares), Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends HSBC Holdings 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 September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Berkshire Hathaway (B shares) and Mastercard. 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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Oil Search Limited (ASX: OSH) shareholders haven’t had the best of years. The Oil Search share price has been pummelled by falling energy prices as COVID-19 ushered in a big drop in demand for oil and gas.

From its 2020 high on 15 January until the low on 23 March, the Oil Search share price crashed 76%. Although it’s come roaring back from that low, up 75%, the share price is still down 58% from its 2020 peak.

At time of writing, the share price is down 0.8% in intraday trading. A fairly muted reaction in light of the latest sabre rattling from Papua New Guinea’s prime minister.

What does Oil Search do?

Oil Search was established in Papua New Guinea in 1929 and began trading on the ASX in 1999. The company operates all of PNG’s oil fields. It owns 29% of the ExxonMobil-operated PNG LNG Project, a major exporter to Asian markets. The company also holds interests in the Elk-Antelope and P’nyang gas fields.

The company is part of the S&P/ASX 200 Index (ASX: XJO).

How is PNG’s prime minister impacting the Oil Search share price?

As a company that holds all of its oil and gas fields in PNG, Oil Search’s share price depends on a good relationship with the local government just as much as it depends on a profitable price for oil and LNG.

And in a statement to parliament yesterday, Prime Minister James Marape threw down the gauntlet to international energy and mining companies, demanding a larger share of the resources they extract from PNG.

According to Bloomberg,

Marape said that the state must take a 60% to 65% share of revenue from future projects, up from just 40% on recent petroleum ventures. His government also wants to see the financial benefits flow through to the state coffers quicker, and for developers to commit to using local labor, goods and services in their operations wherever possible…

PNG “has been unfairly held to ransom” by Exxon and its partner Oil Search Ltd., Marape said.

Exxon stated that negotiations were ongoing and it was hopeful for a positive outcome, while Oil Search has not yet commented on the latest developments.

Although I believe the Oil Search share price represents good long-term value at its current price of $3.22 per share, the situation in PNG is a good reminder for investors to take sovereign risk into account when investing in shares operating internationally.

More reading

• Why the Oil Search share price is a great opportunity for long-term investors
• Where to now for the ASX energy shares?
• Oil Search share price rises after interim half year result

Motley Fool contributor Bernd Struben 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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A long-term study has found family-owned listed companies have thoroughly outperformed non-family businesses.

Credit Suisse Global Research on Thursday revealed companies in its international Family 1000 database outperformed the rest of the market over 14 years by an annual average of 370 basis points.

Family-owned businesses in Asia returned 500 more basis points per year than their rivals, while in Europe it was 470. The gap was far narrower in North America, where it was 260 basis points per annum.

Six Australian companies are in the Family 1000: Fortescue Metals Group Limited (ASX: FMG), Crown Resorts Ltd (ASX: CWN), TPG Telecom Ltd (ASX: TPG), Flight Centre Travel Group Ltd (ASX: FLT), Seven Group Holdings Ltd (ASX: SVW) and WiseTech Global Ltd (ASX: WTC).

Those businesses have collectively returned an “exceptional” 23% per annum since 2006, according to Credit Suisse.

Family businesses also shined through COVID-19

The “Credit Suisse Family 1000: Post the Pandemic” report showed that even through the COVID-19 downturn, family-owned businesses have fared better.

“In previous work, we highlighted that family-owned companies tend to have above-average defensive characteristics that allow them to perform well, particularly during periods of market stress,” the report stated.

“Return data for the first six months of this year supports that view, given an overall year-to-date outperformance of around 300 basis points relative to non-family-owned companies.”

Why do family companies do so well?

There is a theory that family-owned and run businesses take a longer-term investment view than listed companies owned and run by “independents”.

“Family-owned companies have lower gearing ratios than non-family-owned companies, implying that they fund their operations more through internal funds rather than debt,” stated the Credit Suisse report.

“We also observe that family-owned companies tend to focus more on research and development, which is arguably a long-term indicator.”

Over the 14 years of the study, revenue growth from the Family 1000 companies was more than 200 basis points greater than other businesses.

Family companies are more profitable as well.

“Average cash flow returns are around 200 basis points higher than those generated by non-family-owned companies. These superior returns are observed across all regions globally,” read the report.

A more recent pattern is that family-owned businesses rate better on environmental, social and governance (ESG) issues than its competitors.

But not on all three.

“This overall better performance is mostly led by better environmental and social scores as family-owned companies appear to lag their non-family-owned peers in terms of governance,” said the report.

“What is interesting in our view is that relative performance appears to have been a more recent phenomenon and has been strengthening over the past four years.”

What family businesses fail on

While family-owned companies have outperformed over the past 14 years, there are weaknesses that could leave them exposed in the future.

One area Credit Suisse identified was diversity and social justice.

“Our survey shows that, compared to non-family-owned companies, family-owned companies on average have less-diverse management boards, fewer of them have support groups for the lesbian, gay, bisexual and trans (LGBT) and black, Asian and minority ethnic (BAME) communities, or have made public statements concerning respect for human rights or the related United Nation principles,” stated the report.

“The growing relevance of ESG investing is likely to put increased pressure on corporates to address these issues.”

In order for a publicly listed company to make Credit Suisse’s Family 1000 database, it must meet one or both of these conditions:

• The founder or her/his family owns at least 20% of shares
• The founder or her/his family controls at least 20% of voting rights

There are now 1,061 companies in the database, with almost half located in Asia.

More reading

• How household savings could boost these ASX share prices
• ASX 200 up 1%: Big four banks charge higher, SKYCITY impresses, Xero tumbles
• Why Bubs, Perseus, WiseTech, & Xero shares are dropping lower
• WiseTech Global share price lower after CEO sells $10m of shares and plans even more sales
• Strike Resources share price wanes despite moving closer to an off-take agreement

Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. The Motley Fool Australia has recommended Crown Resorts Limited and Flight Centre Travel 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.

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It was another great day for global share markets yesterday.

Here in Australia the S&P/ASX 200 Index (ASX: XJO) closed 1.8% higher. And it’s off to another strong start today, up 1.0% in late morning trade.

But it wasn’t just ASX share prices running higher. Every major exchange in the US and Europe finished in positive territory, as did the major Asian exchanges.

At the risk of sounding like a broken record, the 1.0% gain on the Nasdaq Composite Index (NASDAQ: .IXIC) brings the tech-heavy index to another new record high. It also brings its 1-year gains to a whopping 53.1%.

The ASX 200 is still 14.9% down from its February 20 highs. And with the latest quarterly economic figures in from the Australian Bureau of Statistics (ABS) you might think that record is out of reach for the foreseeable future.

But there’s a silver lining in the data that could provide a big tailwind for more ASX share price gains.

Saving like it’s 1974

I won’t delve into all the details of the ABS quarterly report, which covers the period from March through June. (You can find that here.)

The headline-making news is the big hit the coronavirus pandemic delivered to the Aussie economy. Over the quarter, GDP fell 7.6% in seasonally adjusted current price measures.

Though that’s certainly bad news, it was widely expected. What was unexpected was the huge surge in household savings.

Yes, savings had been forecast to rise as the virus restricted the amount of money people are spending on travel, leisure and dining out. This saw household spending fall $35.2 billion in the quarter. But the extent of the savings rise – driven in part by government JobKeeper and boosted JobSeeker payments – surprised most analysts.

According to the ABS, net household savings reached $59.5 billion in the June quarter, an increase of $42.0 billion. That saw household saving grow to 19.8%, up from 6.0%. You have to go back to 1974 to find more frugal Aussie households. And this savings rate doesn’t include the money people have withdrawn via the early superannuation access scheme. If you include that, the savings rate works out to 24.8%.

This silver lining in the ABS report – coupled with continuing stimulus from the Reserve Bank of Australia (RNA) and the government – should spell good news for ASX share prices.

The spending trigger that could boost select ASX share prices

With Aussie households cashed up and itching to travel, eat out and spend money on the leisure activities they’ve been denied, an effective vaccine or other means to control the coronavirus is likely to see a surge in spending.

That could well see a shift in the big share price gains witnessed in technology shares and online retail favourites like Kogan.com Ltd (ASX: KGN), whose share price is up 190% year-to-date.

While the well-placed tech shares should continue to do well, when people re-emerge from their COVID-cocoons ,it’s some of today’s still depressed shares that could enjoy the biggest boost.

Yet, as L1 Capital co-founder Mark Landau points out, most investors aren’t giving enough weight to the fact that an effective vaccine may well be on the near to mid-term horizon. And the impact this will have on today’s still depressed energy and travel shares.

According to Landau (as quoted by the Australian Financial Review):

We think that a lot of the COVID hit stocks are still not reflecting any improvement in the likelihood of a vaccine and we think that that represents by far the best risk-reward that we can see in the market at the moment

So whether it’s travel stocks or casinos or shopping centres or oil stocks – they all are clear COVID losers. And many of them are trading 50 per cent lower than where they were trading back in January, so the nice thing about maths is that means 100 per cent upside…

We’ve been consistently saying that we think the likelihood of a safe and effective vaccine is much better than I guess the consensus opinion.

As one example, retail property giant Scentre Group‘s (ASX: SCG) share price is still down 41% in 2020.

And then there’s Crown Resorts Ltd (ASX: CWN), one of Australia’s largest entertainment groups, which owns and operates hotels, casinos and restaurants. Year-to-date Crown’s share price is still down 23%.

As for Qantas Airways Limited (ASX: QAN), its share price is down more than 44% since 2 January.

Now there’s no proven vaccine out there yet. But once there is, it’s shares like these that have the potential to see their share price soar as cashed up households go out and spend big.

More reading

• The one type of ASX company that outperforms all others
• ASX 200 up 1%: Big four banks charge higher, SKYCITY impresses, Xero tumbles
• Why a recession shouldn’t matter for the ASX share market
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises 1.8%, Afterpay had a volatile day

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Crown Resorts Limited and Kogan.com 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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I recently decided to buy more of ASX share WAM Microcap Limited (ASX: WMI) for my portfolio.

A quick overview of WAM Microcap

WAM Microcap is a listed investment company (LIC). The job of a LIC is to invest in other ASX shares with market capitalisations under $300 million at the time of acquisition.

The LIC is run by the investment team at Wilson Asset Management (WAM), a high-performing investment outfit.

What has happened recently?

WAM Microcap has had a very strong recovery from the COVID-19 crash.

The WAM Microcap portfolio returned 23.6% over the three months to 31 July 2020 before expenses, fees and taxes. That gross return was 13.7% better than the S&P/ASX Small Ordinaries Accumulation Index’s return of 9.9%.

In July 2020 alone WAM Microcap’s gross portfolio return was 6.7%, which was 5.3% better than its benchmark.

The LIC recently reported its FY20 result. Over the 2020 financial year, WAM Microcap’s portfolio outperformed the benchmark by 17.5% with an increase of 11.8%.

In that result the ASX share’s board decided to declare a fully franked final dividend of 3 cents per share, bringing the full year ordinary dividend to 6 cents per share – an increase of 33%.

WAM Microcap also declared a fully franked special dividend of 3 cents per share due to the strong performance of the LIC since inception. Indeed, at 31 July 2020 WAM Microcap’s gross portfolio return since June 2017 has been an average of 17.8% per annum.

Why I decided to buy shares

WAM Microcap recently decided to do a capital raising. Aside from scale benefits, a major benefit from the capital raising is that it will gain additional access and exposure to market opportunities such as capital raisings and pre-IPO investments.

I took part in that capital raising. It was priced at $1.379 per new share, which was the net tangible assets (NTA) value at the end of July 2020. A clear immediate benefit by taking part was the discount between the raising price and the traded share price. Using the current share price of $1.46, I’m already up about 6% if I were to sell today.

But I don’t have plans to sell any time soon. Indeed, I want to hold WAM Microcap shares for at least the next decade.

I’m not a big fan of ASX blue chip shares like Westpac Banking Corp (ASX: WBC) or Telstra Corporation Ltd (ASX: TLS) because I don’t think they offer much long-term growth potential.

However, smaller ASX shares have much more growth potential. WAM Microcap has proven to be one of the best investment teams at identifying those opportunities over the past few years. It is (or was) invested in high growth ASX shares like City Chic Collective Ltd (ASX: CCX), Redbubble Ltd (ASX: RBL) and Temple & Webster Group Ltd (ASX: TPW).

WAM Microcap offers investors high returns but it’s also diversified. At 30 June 2020 it was invested in 66 different companies. During FY20 it was invested in 221 individual companies.

Dividends

I like that WAM Microcap is committed to paying a high level of dividends to shareholders each year. It’s nice to benefit from the strong returns with cash payments. Those dividends can be used to buy more WAM Microcap shares, buy other (ASX) shares, sit in cash for a while or just paying for life expenses.

At the current WAM Microcap share price it offers an (ordinary) grossed-up dividend yield of 5.8%. That’s not as high as it was a few months ago, but it’s still solid in this era where the RBA official rate is just 0.25%.

Is the ASX share a buy today?

We’ll have to see what the WAM Microcap’s NTA per share at the end of August 2020 was, but I’d guess it’s now trading at a premium to the NTA. I only like buying LICs at their NTA, or preferably at a discount. WAM Microcap fell heavily during the COVID-19 crash because small caps usually fall more, so the next large market drop could be the best time to buy more of this ASX share.

Whilst I’ve bought enough WAM Microcap shares for my portfolio for now, if I didn’t own any I’d be happy to buy a small parcel today and buy more on weakness.

More reading

• 3 ASX shares I’d buy if the share market crashes again
• Are ASX banks or miners buys for dividends?
• 5 top ASX dividend shares you should never sell
• 3 must-have ASX income shares for your portfolio
• 2 easy ASX shares to buy for small cap exposure

Tristan Harrison owns shares of 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 owns shares of and has recommended Telstra Limited. 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.

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