Here’s what you need to know about the GHIV merger

Gores Holdings IV Inc (NASDAQ: GHIV) is set to close in on its merger with United Wholesale Mortgage. The merger marks an exciting new chapter for the mortgage lender, as it will list on the NASDAQ under the ticker UWMC. Shareholders of Gores Holding stock voted yesterday to seal the merger, which is the final obstacle until finalisation. In addition, investors expect the merger deal to be completed by early next week if the vote is successful. This article will breakdown everything investors need to know as the GHIV merger moves closer to finalisation.

Key Details surrounding the merger 

  • GHIV closing in on its merger with United Wholesale Mortgage, LLC. UMW is the largest wholesale mortgage lender for the United States five years running. 
  • The merger is worth approximately $16.1 Billion, making this figure the biggest business combination for a SPAC company, to this date. 
  • GHIV raised $425 million from IPO which is being reinvested to UWM, and an additional $500 million raised from the private placement. 
  • Existing UWM investors will retain 94% stake in the combined company, while GHIV investors will own the remaining 6% of the combined company. 
  • The combined company will trade on NASDAQ with a ticker of “UMWC” .UMWC has plans to distribute an annual dividend of $0.40 per share. 

“After evaluating a number of potential partners for Gores Holdings IV, this transaction clearly stood out as a superior option for our stockholders. The public company currency of a newly listed business will enable the Company to continue to benefit from the ongoing tailwinds in the mortgage industry and capitalize on growth opportunities in a massive addressable market. We are excited to participate in UWM’s continued value creation through a meaningful remaining equity stake in the business.”

Mark Stone, Chief Executive Officer of Gores Holdings IV

UWMC stock forecast for 2021 and beyond

Firstly, it is clear why this SPAC merger is making so much noise on Wallstreet. Investors are banking that United Wholesale Mortgage’s can provide a potential gain as we move into the new year. Here’s what investors are banking on:

Revenue forecasts for UWM

United Wholesale Mortgage’s (UMW) net income went from $67 million in 2018 to $303 million in 2019. Furthermore, as of last year the company was estimated to reach over $2 Billion in net income. The general increase in revenue is contributed by borrowers taking advantage of the current low-interest rates by refinancing their mortgages. Furthermore, UWM has projected earnings for 2022 of $1.8 Billion. 

In addition, if the transaction proceeds it will enable UWM to accelerate the implementation of its business plan. For example, this includes the focus of providing ‘superior services’ to the companies broker-clients and to capitalize on growth opportunities.

External factors to play a role

Secondly, the company forecasts the market share of wholesale mortgages to grow to 33% by 2026, compared to past figures of 20% in 2019. According to a Barron article, CEO Mat Ishbia says “UWM is poised to succeed as rate-sensitive refinance business dies down and home buyers seek out brokers for help obtaining a mortgage”. Furthermore, the U.S. mortgage market is experienced $3.3 trillion in anticipated mortgage originations, according to data from the Mortgage Bankers Association. 

Summary

We remind our viewers that this is not financial advice. Instead, the information above is an investment commentary from extensive research.

In conclusion, it is clear this is an exciting new chapter for the mortgage broking company. Assuming the merger is to proceed, investors have vouched their interest in the mortgage broking giant. Firstly, the positive net income growth in the past year is a strong sign for investors. In addition, external factors have positively impacted the United Wholesale Mortgage business. Lastly, the cash injection from the SPAC offering will allow the business to thrive in its business planning for 2021 and beyond. However, investors should tread with caution as negative external factors could also impact the companies performance in the future.We will continue to cover developments as the companies prepare to finalise the merger assuming the vote goes through as planned.

Written by Zac Lorschy and Tyger Fitzpatrick

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Bank of America stock forecast 2021 – bullish or bearish?

Bank of America (NYSE: BAC), like most Banks, is laying the groundwork for a 2021 recovery. Buffett still stands firm by the company, but hedge funds are beginning to exit. Who is right? The future looks bleak for the coming months, but the long-term future is bright. (opinion not advice) This article looks to breakdown what the smart money, options chain, and financials are saying about the Bank of America stock forecast for 2021.

Table of contents 

  1. What does the smart money say? 
  2. Are BAC options for 2021 bullish or bearish? 
  3. Is BAC financially healthy? 
  4. Summary – YIG Takeaway 

Bank of America stock forecast – smart money?

To a certain extent, the smart money is saying suggesting a short-term bearish correction. Analysts and price targets remain optimistic, which might make it difficult to see what’s happening under the surface. For example, 14 out of the 22 Wall Street analysts covering BAC have a buy rating. Also, the price target consensus is $29.50 (15/10/2020), which would translate to a share price appreciation of 24.89%. Despite the analyst optimism hedge funds are exiting BAC. For example, the number of hedge funds in BAC between Q1 and Q2 dropped from 94 to 91. To add insult to injury, 91 is the lowest number of total hedge funds in BAC over the past five years. It is crucial to note hedge fund positions change quarterly through SEC filings. Contrast that to short-term changes in analyst ratings and price targets.

Bank of America stock forecast – Options chain

The options chain is suggesting a bearish to stagnate 2020 but a bullish 2021. For example, the volume for October 20 calls, in particular, strikes of 24, 24, and 26 is 10,995, 4,512, and 37616, respectively. Contrast that to the put volume of 10,415, 9018, and 5978 for 24, 23, and 22 strikes. In turn, you get an image where the bears are slightly winning the 2020 tug of war. However, the further into 2021 you go the volume favours the call options. Especially for the March 2021 options chain.

Bank of America stock forecast – financials

Positive financials

Bank of America is showing financial strength in three areas. These include forecasted earnings growth, long-term EPS growth, and its price to earnings ratio (P/E ratio or earnings multiple). Usually, investors want a low P/E ratio because there is more chance the stock is in the undervalued territory. However, low P/E multiples also indicate that future earnings are slowing. In BAC’s case, its earnings multiple is 11.2x. When comparing it to the industry average of 9.8x investors can interpret BAC’s P/E ratio as bullish for 2021. Because it is expected to grow earnings at a better rate than peers. Analysts are forecasting EPS to surpass its pandemic level by 2022, which supports the bullish P/E argument.

Furthermore, earnings understandably took a hit for BAC. However, analysts are projecting earnings to follow an upward trend from here on out. More specifically, BAC’s earnings are expected to grow by 47% between December 2021 to 2022, totalling $21.834 billion. The bullish earnings forecasts should thus see revenue return to a positive linear progression. However, analysts are only expecting a modest 4.4% increase in revenue over the same time period.

Negative financials

Despite the weight to the bullish argument, BAC still does have areas of financial concern. These include a 2021 EPS dip, low ROE, a low P/E to market comparison, and debt. While Bank of America’s P/E multiple is higher than its peers, it fails to beat the market multiple of 18.9x. Consequently, Bank of America’s earnings, and possibly share price are likely to grow at a slower rate in comparison to the market. (opinion not advice) BAC has a D/E ratio of 192% with a total of $510 billion in debt. At face value, the D/E ratio and historically high debt levels are distressing. However, BAC holds $909.4 and $55.4 billion in cash and receivables, respectively. Consequently, BAC can cover all of its debt with cash. Thus, for now, debt is palatable, but investors should watch Bank of America’s cash debt relationship in 2021.

Q3 earnings show mixed signals 

Bank of America’s Q3 earnings yesterday indicated the bank’s financials are on the recovery track but still need some work. Revenue came in at $20.3 billion, which was 2.4% lower than analyst estimates of $US 20.8 billion. Not to mention, revenue was down 11% Year on Year (YoY). Also, despite net income beating estimates by 14%, they are still down 16% YoY. Therefore, BAC is improving quarterly but still has to catch up to its 2019 performance.

Summary – YIG Takeaway

Before I begin, I remind our viewers that this is not financial advice. Instead, the information above is an investment commentary from extensive research.

Overall, Bank of America is likely to pull back as we enter 2021. The fleeting hedge funds and slightly bearish options activity supports this notion. Despite the short-term pessimism, BAC should reach an inflection point for EPS and begin regaining strong earnings momentum at the end of 2021. (opinion not advice). In which case, the share price should continue its upward ascent. Considering the world expects a vaccine by April and the digital world will continue to grow the banking customer base, a BAC pullback followed by a long-term slingshot sounds relatively realistic (opinion not advice).

If you enjoy our articles or are wanting to learn more, you can subscribe to us by turning on notifications to get updates when we post a new article. From all of us at YIG, thank you for the support.

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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

Afterpay and ZIP rally 20% before Thursday’s earnings – Does YIG see value?

Afterpay (ASX: APT) and Zip Co (ASX: Z1P) are putting on an impressive show before Thursday’s earnings with APT, and Z1P eyeing $100, and $10 respectively. The BNPL rockets seem to be poised for blast off come Thursday as institutions, main street, and analysts remain bullish. However, as the BNPL hill climbs higher, could a post-earnings cliff edge see thousands of bulls in free fall? Only time will tell. However, objectively breaking down the analysts ratings, the industry’s long-term future, and the current climate should give us a clearer picture?

Table of contents 
1. Institutions lead the Afterpay and ZIP earnings rally 
2. Are investors betting on more than just hype? 
3. Does YIG see value in an investment?

Analysts upgrade Afterpay and ZIP ahead of earnings

Institutions and their analysts were hesitant to give Afterpay and Zip the stamp of bullish approval in March. However, the enormous rally and international expansion of the BNPL giants, particularly APT, saw many analysts push the bullish narrative.

Morgan Stanley, Wilson, and Bell Potter all raised their price targets on Afterpay today above the current market price. For example, Morgan Stanley’s new price target is $106, while Bell Potter’s is $96.70. Consequently, the above market ratings continues to make Afterpay incredibly bullish.

However, it is also the analysts commentary that is driving the optimism. For example, Wilson’s analyst Cameron Halkett stated:

We previously held reservations around Afterpay’s ability to ward off strong global competitors and endure the systematic upheaval of COVID-19 on end-customer repayment ability. To date, these concerns have yet to materialise, and rather than focusing on what could go wrong, we take a fresh view of what has, and what could continue to go right.

Is there more to the BNPL hype than earnings speculation?

The past month attracted the earnings investors, but the question still remains: is ZIP and APT still hype or is there value in an investment? Afterpay and Zip’s core offering of innovative payment solutions holds tremendous value for a digital society. Especially in times of crises, when financial strife runs rampant for businesses and individuals. While investors and legal bodies raise the red flag of unethical purchasing habits for young people we should see legislative action curb the potential for mass-individual BNPL bankruptcy.

Furthermore, as Afterpay inches closer to the ASX/S&P 20, more investors view APT as a safe haven blue chip. However, investors’ buying reaction after a market correction will truly reveal whether APT and Z1P hold value. Increased buying after a sell-off would indicate investors snapping up discounted shares of a quality stock. Conversely, a severe bearish decline, similar to Nikola Motors, would indicate investors were just in it for the momentum.

Does YIG see value in an Afterpay/ZIP earnings investment ?

Before I begin I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research

Short answer: A short-term investment holds the most potential (opinion not advice) 

Short-term investments in Afterpay and Zip carry a significant amount of volatility. Allowing retail investors to capture massive upswings in the BNPL giants. The buying spree following Q3 2020 earnings was a perfect example. It seems another investing party for the APT and Z1P bulls is increasing in volume as we inch closer to Thursday. Especially, considering the relentless raising of buy ratings from analysts. Ultimately, adding significant weight to investors championing the strategy to invest and ride the earnings momentum.

The dark side of riding the APT wave

However, the issue on a pre-earnings investment is timing your exit. Because when euphoria erupts within, it is difficult to exit the position as you believe your investment is going to the moon. Most investors understand and tell themselves they will exit the position moments before the sell-off. However, how can you exit something moments before when you do not know when that something will come. Warren Buffet phrases it like this, “all the giddy participants plan to leave the party seconds before midnight. However, they are dancing in a room in which the clocks have no hands.” Overall, riding the ZIP and APT earnings fever with a modest profit target should increase your chance of leaving before midnight.

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post a new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Patrick McLoughlin, Senior Manager of YIG

Afterpay hits a new all-time high – could they reach $100?

Afterpay (ASX:APT) stunned the entire market after hitting a new all-time high of $75, resulting in a 725% rise in three months. APT’s recovery from COVID-19 instantly caught the eyes of many investors. However, doubt crept in that Afterpay’s growth mimicked that of a bubble. The entire BNPL is surging like a missile. Making many investors wonder if the bears got it wrong and whether they should jump on the rocket before it truly takes off. In saying that, let us get to the bottom of the Afterpay, and more importantly, BNPL speculation.

Table of contents 
1. Why is Afterpay up? 
2. Is the BNPL industry a safe bet?
3. YIG breakdown of APT

 

Why is APT up 725% in just a few months?

The initial rebound came from the forced recovery from the 23rd of March. Thus, most investors did not bat an eye-lid as APT rose back up to its pre-COVID 19 levels. Investors instantly began to scream a bubble is forming when APT, and the rest of the industry soared past their pre-coronavirus levels. However, it does makes sense that a stay at home economy would catapult Afterpay into financial heaven. Everyone was at home, and the urge to purchase items on credit was at its peak. Not to mention not having to make interest payments makes BNPL an attractive credit source.

Also, more investors are flooding the market now than at any point in human history. Humans gravitate towards the familiar. Hence, when new investors entered the market, investing in the known, relatively cheap, and emerging companies such as Z1P and Afterpay only seemed natural. Overall the tsunami of new investors combined with FOMO, and a growing digital economy is a recipe for BNPL success.

The recent growth of APT reflects their astronomical business growth, recent audited financials, and BNPL fever. Afterpay experienced a 112%, 116%, and 72% increase in sales, customers, and merchants respectively for FY20. Ultimately, signifying strong businesses growth, causing the bulls to rally behind the BNPL giant. Also, the BNPL industry represents the saying a rising tide lifts all boats to a T. When Zip Co, Split it, or Openpay surge Afterpay also seems to rise despite not announcing anything new. For example, today Sezzles announced their strong FY20 financials, which caused APT to rise 11%.

Afterpay and the post-COVID-19 market

The world is well and truly in the information age, and there is no going back. Businesses that have thrived off the digital economy so far, such as Netflix, Amazon, and Afterpay, should continue to rise(opinion not advice). Buy-now-pay-later, whether you love it or hate it, is now embedded in the digital banking industry. Digital banking should experience an upward surge in customers, funding, and partnerships from here on out. Especially, as digital businesses are an integral part of many nations post-COVID/recession recovery plan. Thus, many investors see APT as a smart investment as they expect Afterpay to remain the industry captain of BNPL.

YIG breakdown APT for investors

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area. 

Short answer: Investing in Afterpay could potentially pay-off in the short-term. However make sure your investment reflects your financial interests and not just because everyone is investing in APT. (opinion not advice)

Short term Investment

Over the past few months the BNPL industry has revealed two key times for investors to enter. These include riding the momentum of another companies price sensitive event or entering off a pullback after the announcement. First, use the rising tide to your advantage. So far, Sezzles, and Split it payments have posted their FY20 financials. When Zip co, Afterpay, or Openpay post their results BNPL fever will could go out of control (opinion not advice).

Secondly, it seems investing at the open while trying to capture a short-term profit  swings the odds against your favour. At the bell APT experiences high volatility. Thus, it is best to wait for a pullback before cementing your position. However, investors must understand that the COVID-19 fear is still lurking below the surface. Meaning that the bears could come out of the woods again, clawing off any capital gains you might have made.

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post a new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Patrick McLoughlin, Senior Manager of YIG

 

 

 

What TVIX investors need to know before Credit Suisse delists the ETN on July 12th

Credit Suisse announced its intention to delist the popular Exchange Traded Note VelocityShares Daily 2x VIX (TVIX). Alongside 8 other publicly listed ETN’s, TVIX will no longer be traded on the NASDAQ effective of July 12th while new issuances suspended on the 3rd of July. If you aren’t completely familiar with ETN’s we will breakdown what they are and what happens when they delist from a public exchange such as the NASDAQ.

Table of Contents
1. What is an ETN
2. What does delisting mean for TVIX investors?
3. What current holders can do before and after the ETN delists?

What is an ETN?

An ETN such as TVIX is issued notes (bonds) from a financial institution that promise to pay the principle + the return on a certain index over an agreed period of time. The “due date” is when the financial institution will pay this principle+return amount to the note holder.

So what does this mean for investors currently holding TVIX?

Short Answer: History tells us low levels of liquidity in the OTC market is the biggest threat.

In comparison to ETF’s which pay a cash value to the owner on the effective delisting date. ETN’s generally move over to an Over-The-Counter (OTC) market. An OTC market trades financial securities without a brokerage or third party. This leaves only two parties entering a transaction to buy and sell. An OTC market is notorious for lower liquidity levels, meaning it will make it a lot harder to find a buyer willing to buy the security at the price you are willing to sell at. OTC’s are less regulated and transparency around the current “market driven” price is non-existent. This creates a larger transparency issue for both the buyer and the seller.

If we go back to 2016, Credit Suisse’s VelocityShares 3x Long Crude Oil ETN (UWTI) was one of the more infamous delisting cases in ETN history. At the time, the ETN was one of the most heavily traded of its type. Just two weeks after the announcement from Credit Suisse, a Thomas Reuter fund researcher estimated a $675 million sell off. This left many investors who were not experienced in ETN’s or OTC to become stranded on a boat with no paddle.

Taking the ETN over to OTC proves a challenge most investors would not want to take. Experienced traders may look to sell TVIX at a greater premium in 6-12 months time on the OTC. If we are talking risk-reward, taking the ETN into OTC will provide you absolutely no guarantee of finding a seller. Let alone selling at a marked up price to flip a profit.

What tools are in place for investors in TVIX?

As we do not offer financial advice only market commentary, I have left a statement by Credit Suisse in regards to what steps investors can take before and after the ETN delists. The full press release entails further details as to what investors can do before a delisting of an ETN.

Subject to the minimum redemption amount and other conditions, investors can continue to exercise their early redemption right with respect to the ETNs prior to, and following, the ETNs’ delisting, pursuant to the terms of the ETNs as described in the Pricing Supplement. If investors wish to exercise their early redemption right, they and their broker must follow the procedures set forth in the Pricing Supplement, which can be accessed on the Securities and Exchange Commission website at www.sec.gov

Credit Suisse Press Release 22/06/2020

The Link for more information is here 

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Black Lives Matter rally sees BYFC skyrocket 300% – is this another UONE?

Broadway Financial Corporation (NASDAQ: BYFC) is up over 300% from what seems to be an enormous Black Lives Matter rally. Google (NASDAQ: GOOGL), Facebook (NASDAQ: FB), Netflix (NASDAQ: NFLX), Twitter (NASDAQ: TW), Apple (NASDAQ: AAPL), and Amazon (NASDAQ: AMZN) injected a combined total of $1.1billion into black-run businesses. Hence why every investor under the sun is investing in wholly-owned African American businesses. However, investors are wondering whether BYFC’s explosive growth is here to stay?

Table of contents 
1. Why is Broadway Financial up? 
2. Who is Broadway Financial? 
3. Is it too late to invest in BYFC?

Why is BYFC up?

Broadway experienced a modest 30% increase over this week. However, this week’s growth is almost ant-sized compared to the 200% explosion at the bell this morning.

BYFC began rising after the company said in its filing on Tuesday “that activist investors Commerce Home Mortgage, LLC intended to nominate a director to Broadway’s board at the annual meeting”. However, the nomination is rendered invalid as Commerce was not a shareholder of BYFC on the 1st of May.

However, Broadway Financial is currently experiencing a hostile takeover, from former CEO Steven Sugramn, which is causing many eyes to lock onto the stock. A hostile takeover is when one company acquires another company against the existing management’s will.

Sugarman resigned from CEO back in 2017. However, after leaving Surgman instantly founded the “The Capital Corporation, and acquired lender Commerce Home Mortgage. Sugarman, through his subsidiaries, owns 9.66% of BYFC, making him the largest shareholder. Then on the 13th April, Capital Coprs attempted to buy out the bank. BYFC rejected the offer. However, ever since the rejection Sugarman’s interest to take over the company has only grown.

Thus, it seems BYFC is experiencing backing from the African American community to support the management against Sugarman. Because if the stock rises, it decreases the chance that Steven Surgman can takeover the company. Ultimately causing Surgman to sell his position, relinquish his takeover efforts.

 

Who is Broadway Financial Corporation?

BYFC is a historically black savings and loan holding company. However, when the corporation went public, it was no longer called “black-owned.” Because anyone could purchase shares in the company. Nonetheless, Broadway’s underlying  mission is to “serve the real estate, financial, and business needs of customers in underserved urban communities.” 

Is it too last to invest in BYFC?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Short answer: Yes, but understand the risks first (opinion not advice) 

Many investors are wondering is it too late to board the BYFC train. Especially as the window of opportunity for African American stocks like Urban One (NASDAQ: UONE), and Carver Bancorp (NASDAQ: CARV) is slowly closing. (opinion not advice)

Riding the BYFC wave

There is extreme investor backing behind Broadway Financial. The stock is already up 350% in a day (at the time of writing). Robinhood and Webull investors are calling it the “Black stock to Buy”. Investors all know that when Robinhood and Webull investors rally behind a stock it usually goes to the moon before crashing in spectacular fashion (opinion not advice).

Don’t disregard the risks

Despite the alluring nature of Broadway’s astronomical growth we must assess the risks. Because here at YIG, we believe every investor should have a balanced perspective on speculative stocks. The overarching risk is a sell-off could occur at any given moment.

For example, we saw a small sell-off (20%) occur between 10:50am – 11:45am. Leaving investors who got in towards 11am already suffering a loss. Thus, to mitigate the risk of a being caught in a possible dump, I would set an exit point. Anywhere between 10-20% is usually a reasonable profit target. However, you might want to increase this range considering the extreme bullish activity (opinion not advice).

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post a new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Patrick McLoughlin, Senior Manager of YIG.

 

 

 

 

 

 

Zip is up 450% – is it too late to invest?

Investors always viewed Zip Co (ASX: Z1P) as the little brother to Afterpay. However, the investor sentiment is beginning to change as Z1P is up an impressive 70% for the week. Almost every investor is jumping on the Z1P train. However, many investors standing at the station are wondering whether there is time to invest before the doors close. Especially when Australia’s entrance into a recession could de-rail the ZIP train.

 

Why is Z1P rising like a rocket?

Z1P’s acquisition announcement of QuadPay, an American BNPL company, catalysed this week’s growth. The acquisition will ultimately allow Zip to enter the US ring and go head to head with Afterpay. To understand why the bulls got behind Z1P, we must understand Quadpay.

QuadPay is the leading BNPL company that is disrupting the American credit industry.  Just like Afterpay, QuadPay allows their 1.5million users to split their debt into four repayments over six weeks. All four payments are interest-free. Ultimately attracting people who are tight with money, which is increasing as inflation and taxes kick in.  Quad Pay generates around $70 million in revenue a year. In turn, the eyes of ZIP investors lit up with dollar symbols.

Furthermore, Z1P’s announcement signifies more market share and thus more revenue potential. Meaning investors expect Z1P to post pleasing financials in the months ahead. Hence, buy orders went through the roof. We saw a similar market reaction when Afterpay began venturing oversees and beyond the saturated market of Australia.

 

Should Z1P investors worry about a fragile economy?

The short answer is yes, especially if you are investing in the short term. The bears were shorting the entire sector as they forecasted a recession would cause BNPL customers to default on their debt. For example, Afterpay plummeted down to $8. However, now look at the BNPL giant, just hit a new all-time high of $52.26 today. Economic reality is being ignored. However, now that Australia is entering a recession we could see the bears emerge with even more powerful claws.

The economy just entered a recession and is extremely fragile. However, the most important lesson YIG could teach investors is that buyers buy on what they believe to be real, even if it is not true. Let’s put that into context. Ever since March 23rd, buyers entered the market and believed a recovery was on. Whether a true recovery was on it did not matter. Because buyers bought APT, ZIP, and OPY on the belief that the economy would recover. Also, greed infiltrated the minds of investors, convincing them to invest – because the “price can only go upright”.

The bullish activity, whether false or not, created significant support for Zip and Afterpay. Now catalysts, like Zip’s acquisition of Quadpay, are simply adding fuel to the BNPL rocket. Overall, Zip is surging, even when negative news floods the market. Buyers believe Z1P will continue to climb (greed). If the belief remains, short term investors could pocket a nice return even within a recession. Still it is extremely risky (opinion not advice). However, with Australia entering a recession the belief that Z1P will continue to rise could evapourate tomorrow.

Is Z1P worth the investment?

Before I start, I am obliged to remind our viewers that this not advice, only general commentary from my extensive research into this area

Short answer: No if you are a short-term investor (opinion not advice) maybe if you are a long-term trader.

If I were investing, I would set aside some cash and wait. Early ZIP investors should look to sell and take their profits in fear of a recessionary crash. Meaning Z1P should experience bearish activity in the following weeks. If the week wipes off a significant amount of gains from the ASX and ZIP then you might want to consider waiting. Because we know how much carnage fear can cause. Exhibit A the COVID-19 crash in March.

Keep in mind that greed is on steroids for ZIP. Remember, “be greedy when others are fearful and be fearful when others are greedy” – Warren Buffett.

Also, Split it Payments (ASX: SPT), Open pay (ASX: OPY), and Sezzles (ASX: SZL) are all up following Z1P’s catalyst. None of the above companies reported any news. Thus, the gains in these respective companies are ridiculous. However, investors are wondering could we see Z1P or APT acquire rival Australian BNPL companies in the future? If so, then the respective ASX BNPL companies would skyrocket.

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Patrick Mcloughlin, Senior Manager of YIG.

Greenpro surges 600% after acquiring 4% in the Millenium Sapphire – is the future bullish?

Written by Sergeo Domtchenko 

To say that the financial sector is going through a “rough patch” is an understatement. Profit plunges, dividend cuts, frozen loan repayments, and suspended executive pay increases have been the fallout of the COVID-19 pandemic.

Since the market highs recorded on February 20, the S&P 500 Financial Index fell by over 22.6%. However, amidst the struggling financial sector, Greenpro Capital Corp (NASDAQ: GRNQ) continues to captivate the investing community with impressive growth.

Article Outline:
1. Who is Greenpro Capital?
2. Why did the company make headlines this week?
3. Greenpro's financials.
4. Is it worth the investment?

Who is Greenpro Capital (NASDAQ: GRNQ)?

Greenpro Capital Corp is a financial & corporate services company that was born in 2013. While the Company is headquartered in Hong Kong, its shares are traded on the NASDAQ. Greencorp primarily serves Small to Medium Enterprises (SMEs) based in Hong Kong, China, and Malaysia. Some areas that the company notably specialises in include:

  1. Cross-Border Advisory
  2. Tax Planning
  3. Acquisition & Rental of Real Estate
  4. Bank Product Analysis
  5. Wealth Management
  6. Asset Protection
  7. Insurance Brokerage.

Why did the Company make Headlines This Week?

Investors rallied behind Greenpro after the company announced it acquired a 4.4% stake of the Millenium Sapphire for U.S. $4 million. For those who aren’t aware, the Millenium Sapphire is a gemstone sculpture that was sculpted by Italian artist Alessio Boschi. The blue gemstone is the biggest sapphire sculpture in the world, weighing in at a whopping 61,500 carats (a unit of measurement for precious stones).

Since its reveal in 1995, it has changed hands between only a handful of investors. The company plans to capitalise on the commercial potential from the Millenium Sapphire. This was reiterated by CEO, CK Lee, “We will develop the business and cash flows through branding and licensing along with royalties and ticket sales through major museums worldwide.”

Hence, it should come as no surprise why Greenpro’s share price rose by over 69% on Wednesday.

Greenpro Capital’s Financials

Positives

In 2019, Greenpro posted a 6.5% increase in revenue to U.S. $4.4 million. This was accompanied by an 18.7% increase in the company’s gross profit ratio to 69.3%. Also, Greenpro posted as a cash flow to assets analysis result of 0.5. When compared to the generally accepted standard of 0.3, Greenpro has a very efficient asset structure.

Negatives

Despite the very pleasing financials, we must address the negatives at Greenpro. At YIG, we believe that every investor deserves a balanced perspective.

Greenpro posted a 39.1% decrease in its current ratio to 46.4%. When combined with the 56% increase in its D/E ratio, it may become difficult for the company to meet its current financial obligations.

More concerningly, Greenpro posted a net profit ratio of -30%. This can be attributed to the company’s gargantuan expense ratio of 104.2%. All of this combined meant that Greenpro recorded a ROI ratio of -42.5%.

Is Greenpro Worth the Investment?

Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this area.

Short answer: Not for the time being but possibly in the future (opinion not advice).

While there is a massive commercial potential for Greenpro associated with the Millenium Sapphire, an investment holds immense risk. None more so than the company failing to meet its financial obligations with a meagre current ratio.

Also, earlier this week, Mike Pompeo announced that Hong Kong isn’t a sovereign state to China. This means that there is a likelihood that Greenpro Capital may need to restructure itself so that it complies with Chinese commercial law. Moreover, the U.S. Senate passed a bill that allows the SEC to delist any Chinese company that fails to adhere to U.S. accounting standards. With so many unknowns surrounding the U.S. – China political tensions, I would hold off from investing in Greencorp Capital (opinion not advice).

If you enjoy our articles or want to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Here is our free, uncomplicated, and comprehensive breakdown of smart COVID-19 Strategies

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Sergeo Domtchenko, Associate of YIG.

 

Is Afterpay a bubble ready to burst?

Why is APT soaring?

Chinese tech giant Tencent bought a 5% equity share of Afterpay (ASX:APT) ASX investors then rallied behind APT, triggering a 30% surge. Tencent was attracted to Afterpay after seeing its rapid expansion in the US, gaining 4.4 million customers in 2 years.

Before this news, many investors were sceptical about Afterpay surviving the COVID-19 crisis. Because investors were concerned about the BNPL business model (in fact, as of 27 April, there were 10.3 million short-sellers of APT stocks, representing 3.86% of Afterpay’s shares issued). One of its main issues was the possibility of the customers defaulting their payments, causing Afterpay’s bad debt to increase. The debt-default speculation is because many users of Afterpay are millennials. Millennials that earn less than $40,000, and are usually the first to be let go in a pandemic. APT’s share price went down to as low as $8.90 in late March (23 March 2020) and is now trading at $39.88 (8 May 2020).

How is Afterpay going to benefit?

One of the most significant benefits Afterpay can expect from Tencent is the expansion into the Asian market. Currently, the company focuses on the English-speaking market, and it has been successful so far. However, the opportunity in China looks enormous as McKinsey estimates the online retail market in China to be valued at $2.3 trillion. A valuation which is 2.5 times bigger than the size of the US market. Further, the millennial demographic makes up around 30% of China’s population, offering further opportunities for Afterpay.

Tencent may also be a potential funding source for Afterpay, providing capital for global expansion of the business. Providing confidence for shareholders despite concerns on credit losses and falling consumer sentiment.

How has Afterpay performed during the pandemic, and what are the expectations?

According to its 2020 1st quarter sales result, Afterpay outperformed analyst expectations. In the first quarter, Afterpay reported underlying sales of $2.6 billion, up 97% as compared to the same period in 2019. They were also able to gain more customers, currently at 8.4 million, up from 4.6 million in 2019 1stquarter. Despite the credit concerns, Afterpay had enough cash and liquidity in their accounts and have no plans to raise capital anytime soon.

For Afterpay, the Australia and New Zealand market seems crucial until further slowdown of the outbreak in the US and UK. In the first quarter, sales declined sharper than expected in the US and the UK market. Mainly because of a lack of diversification of merchants. The ANZ market is more diversified, including retailers selling essential goods, who remains open for the business. Further, COVID-19 seems to be slowing down in Australia and New Zealand, causing restrictions to ease and help many retailers to re-open. Ultimately, allowing Afterpay’s revenue to pick back up temporarily.

 

Afterpay a growing bubble within a tech bubble

APT’s share growth should alarm current investors. After rising 400 +% it seems everyone is buying their tickets for the Afterpay train. However, why is everyone boarding? Maybe momentum, the Tencent announcement, or Institutional recommendations.

APT is taking off with concerning speculation. Most investors do not sell straight away because they want to make more money (greed.) Hence, the astronomical 400% rise. If APT continues to rise, the stock will enter a state of uncontrollable euphoria.

It seems like a lot of sheep are soon to be slaughtered. Now yes, APT should rise in the coming weeks as the re-opening of the economy fuels a bullish run. However, the fear of a wave second could send APT spiraling down again. Also, the world economy is damaged. Meaning, even if Australia flattens the curve for good APT still relies on overseas, customers. Considering they saturated Australia. Lastly, the BNPL industry should be put in a legal cage in the coming years. A legal restructure, in regards to lending to people with poor credit, would see APT fall. Once the fear is re-injected into the market, short sellers will flock to APT. Shorter sellers make retail investors panic and sell. Ultimately causing the APT bubble to pop.

Thus, APT is a growing bubble. When will the bubble burst is anyone’s guess?

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

 

Here is our free, uncomplicated, and extensive breakdown of smart COVID-19 Strategies

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Jaewon Jung, Associate of YIG.

Macquarie surges after slashing dividends by 50%

Written by Sergeo Domtchenko 

What was once considered “safe investments” don’t look to be so secure now. To say that the banking industry is going through a challenging period would be an understatement. Profit plunges, dividend cuts, and frozen loan payments have all been the fallout of the Coronavirus pandemic.

Since COVID-19 began infecting the markets, the Big Four banks have taken an average 37% hit.

Stock Trading Price Fall since Market Peak on February 20 
Commonwealth Bank of Australia (ASX: CBA) $59.60 -32.2%
Westpac Banking Corporation (ASX: WBC) $15.51 -39.6%
Australia and New Zealand Banking Group Limited (ASX: ANZ) $15.73 -41.8%
National Australia Bank Limited (ASX: NAB) $16.08 -41.3%

 

Article outline 
1. MQG's year-ending 2020 financials. 
2. The market's reaction to MQG's earnings. 
3. Whether MQG is worth the investment at its current price?

 

Year-Ending 2020 Financials

  • Full-year profits are down 8% YTD = $2.7 billion.
  • Dividends to be cut by 50% = $1.80
  • Impairment charges rose sharply by 81.2% = $1 billion.
  • Funds management & retail banking saw a 13% increase in profits.
  • Commodities trading and M&A profitability fell by 35%.

Apart from seeing a slight increase in profitability in its funds management and retail banking divisions, MQG saw falls in profitability across the board. The plunge in MQG’s commodities profits is largely due to the current oil crisis. The oil crisis is outside of  MQG’s control. However, Macquarie successfully avoided larger profit losses by preparing for a bearish 2020. Thus, commodity and M&A losses are not too concerning.

MQG’s CEO Shemara Wikramanayake stated that “Macquarie’s full-year result has also been subject to the effects of this crisis and was impacted by a material increase in credit and other impairment charges.”

Moreover, the bank said that it expects market conditions to remain challenging in the coming months. In turn, investors should expect similar if not worse financials come June 2020.

 

What was the Market’s Reaction

Macquarie Group’s shares rose by 5.7% to finish the day at $105.19. While MQG did see an 8% decrease in profits, this fell in-line with what many analysts were predicting. Moreover, this deterioration in profits pails in comparison when compared to Westpac’s 62% plunge in profitability.

The minimal fall in profitability can be attributed to the very diverse nature of MQG’s investment portfolio. Hence, it should come as no surprise why investors boarded the MQG express.

Overall, Macquarie is suffering significantly less, in comparison to its retail peers. Making it the favoured ASX bank in the eyes of investors.

Is MQG Worth the Investment?

Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this area.

Short answer: Yes (opinion not advice).

Personally, I see MQG as a quality blue-chip stock to invest in during these uncertain times. Before the outbreak of the COVID-19 pandemic, MQG continued to post astounding financial results. The company saw an 18.3% increase in revenues in 2019 when compared to the prior year. Revenue growth was reflected in MQG’s outstanding EPS value of 11.65 (2x CBA’s EPS).

Furthermore, the bank posted a ludicrous net profitability ratio of 54%. This was accompanied by a 1.3% increase in its ROI ratio to 16.8%. Also, the bank reported a P/E ratio of 11.65. When compared to the average P/E ratio of 106.7 of the Big Four banks, the stock is currently trading at a heavily discounted price. When combined with a D/E ratio of 1040.6% (473.6% less than ANZ’s), this stock exposes investors to lower risk (when compared to the Big Four banks).

To add the cherry on top, MQG’s dividend yield remains at 5% (despite the 50% cut in dividend payouts). When compared to the likes of NAB & ANZ (who suspended interim dividends), MQG enables investors to generate cash flow from their shares.

It is for these reasons why I can’t think of a better stock to invest in during these unprecedented times.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

 

Here is our free, uncomplicated, and extensive breakdown of smart COVID-19 Strategies

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Sergeo Domtchenko, Associate of YIG.

 

 

 

 

Westpac’s profit plunges by 62% – Is a long term investment pointless?

First, it was NAB, then ANZ and now Westpac (ASX:WBC) . The stereotypical safe investments are not looking so safe anymore. Profit plunges, dividend cuts, and frozen mortgage paymentsscream banking instability.

Westpac’s $23 million lawsuit for money laundering, sex trafficking, and terrorism was bad enough. However, the dire consequences of COVID-19 could be the straw that breaks the camel’s back.

 

Article Outline 
1. WBC posts disappointing H12020 financials.
2. Why is Westpac up after poor financials?
3. Is WBC even worth considering?

 

H1 2020 Financials

  • Statutory net profit down 62% = $1.1 billion.
  • Cash earnings down 70% = $993 million.
  • Earnings per share (EPS) down 71% = 28 cents.
  • Impairment charge of 2.2 billion = Including possible COVID-19 impacts.
  • Decision to slash dividend deferred.

 

Westpac is financially suffering on all fronts. Similar to Germany towards the end of WW2. However, the financial carnage has only just begun. Because COVID-19 remains uncertain, and an economic recession is looming. Moreover, WBC is expecting COVID-19 to create a wave of bad loans from households and businesses.

CEO Mr. King is searching for possible asset sales across superannuation, retirement products, life insurance, and investments. However, asset sales will only mediate WBC’s financial fallout slightly.

Unappealing financials because of COVID-19 is just the tip of the iceberg. Underneath the water, WBC is still dealing with loan repayments from the Royal Commission, servicing their lawsuit, and trying to prepare for a recession. Thus, investors should strap themselves in for even greater losses come June 2020.

 

Mixed Market Reaction

Westpac’s shares were tumbling at the start of the day. Because of poor H1 financials and the weakness in US futures. However, the negative sentiment rapidly changed as a bullish run took off for the day.

The rally can leave many investors scratching their heads. Especially when WBC released a negative ASX announcement.

Tom Piotrowski provides a possible explanation for WBC’s unexpected market activity below. Essentially, WBC fell 39% in the GFC, and so far, COVID-19 caused a 35% decrease, making buyers think the worst is factored in. Also, with the economy reopening and restrictions getting relaxed, buyers are more optimistic. Thus, today represents opportunists snapping up WBC at a great price.

However, the long-term future for WBC’s share price is worrying. Because COVID-19 has no expiration date, and a recession is yet to wreak havoc.

 

Is WBC worth the long term investment?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Let’s be honest, no one is investing in WBC for its dividend. Well, at least not anymore. Instead, people are only considering Westpac as a long-term hold because of its current discount.

Can WBC recover? 

WBC, like the other banks and airlines, is essential to the Australian economy. Thus, Westpac will likely receive a bailout so that Australians can get back on their feet. Because Westpac is bailout-proof, I would argue WBC is a viable long-term investment. However, I firmly believe that Macquarie (ASX:MQG) and Commonwealth Bank(ASX:CBA) are better investments.

However, Westpac will still have to face their $23 million money laundering lawsuit and the Royal Commission charges. Meaning Westpac, could be the last to recover out of the ‘Big Four’.

 

What is an attractive price?

Your economic outlook (bullish or bearish) dictates the price that you would deem desirable. Personally, I see the economy tanking, and thus, WBC suffering a prolonged bearish decline.

Businesses are frozen, causing irreversible damage, housing prices are plummeting, all while the government is devaluing our currency and burying itself in debt.

The mortgage payment dilemma would significantly decrease WBC’s profit. Also, the lack of business activity during COVID-19 should see WBC receive a wave of bad loans.

All in all, I would deem a nice entry point for WBC to be:

  • $12.50-$13.50 factoring in a prolonged COVID-19 and a recession.
  • $13.50 – $14 factoring in a prolonged COVID-19 but no recession.
  • $14 – $14.50 if COVID-19 fizzled out in the coming months.

 

 

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

NAB is now too risky – here are the banks that you should be looking at.

Banks are like the sails on a ship as they propel the country towards economic growth. Banks finance our businesses, allow millions of people to take out mortgages, and allow us to save money.

When banks begin to topple, the likelihood of the ship sinking is high. Thus it should come as no surprise that the collapse of the banking industry in 2008 gave rise to the GFC. 

COVID-19 is taking the wind out of the sails. People are not spending because they are unemployed, businesses are contracting, and people are delaying their mortgage payments. To say the stability of the banking industry is under threat would be an understatement.

Most banking stocks are now trading at a discount. Causing many opportunists to consider investing in the Big Four Banks and Macquarie Bank. However, NAB’s negative news paints a disturbing picture of what’s in store for our Aussie banks. Making many investors re-consider what banks to invest in and when?

Why is NAB not worth the investment?

Investors use a banks earnings, dividends, and financial ratios when deciding whether to invest. NAB’s earnings (September 2019 to March 2020) plummeted. Causing NAB to significantly slash its dividend and place its shares into a trading halt. Also, the Aussie bank is undertaking a $3.5 billion capital raising.

  • 51% decline in net profit
  • 64% dividend cut, 83 cents to 30 cents
  • 33% decrease in cash earnings

The dividend cut will deter many retail investors from buying up shares. Because strong dividend yields often gravitate investors towards the banks. Also, capital raising will dilute existing shares in NAB. Ultimately, driving down the price. Lastly, NAB’s forecast on GDP and unemployment highlights how the worse is yet to come.

  • GDP will not return to PRE COVID-19 levels until early 2022
  • Unemployment should peak in Mid-2020 around the 12% mark

Thus, all signs point towards a significant bearish decline in NAB’s share price.

Which banking stocks should you look at?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Most banks should experience a bearish decline from here onwards. However,  you must choose the banks that best  meet your financial interests. If I were investing in the banks during COVID-19 I would be looking for:

  • Experienced management
  • The banks least effected by the virus
  • Banks with historically high dividends and an impressive recovery post GFC

Commonwealth (ASX:CBA)

CBA is trading at a 35% decrease because of COVID-19. However, CBA’s decline is nowhere near as bad as the other three banks.

  • NAB down 43%
  • WBC down 43%
  • ANZ down 41%

CBA’s focus on household lending is a dominant factor in why the bank has not fallen as much as it peers. Because the government is significantly supporting Australian households through the Jobkeeper initiative.

CBA is the heavyweight out of the Big Four Banks, in terms of market cap. Thus, it is no surprise that CBA’s share price grew the most between the GFC and COVID-19. If history is anything to go off, then CBA will likely grow by the most post-coronavirus.

Also, the amount of investors creating commsec accounts is unprecedented. Allowing CBA to generate revenue from brokerage fees still. Generating revenue now is extremely tough. Considering mortgage payments are frozen, interest rates are incredibly low, and businesses are contracting.

To add the cherry on top, CBA provides the highest dividend. While I do expect a cut in the imminent future, CBA’s dividend should increase post-coronavirus. Therefore, making CBA an excellent value investment. (opinion not advice)

 

Macquarie Bank (ASX: MQG)

Unlike the Big Four, Macquarie focuses less on retail banking and more on investment banking. Thus, making MQG less susceptible to declining interest rates and property prices.

Also, MQG has countless investment divisions when compared to the Big Four. Macquarie’s diversified investment arms were a key factor in driving up MQG’s earnings pre-coronavirus.

The financial intelligence of Macquarie bank’s management adds an extra layer of confidence. For example, MQG expected the markets to be down for 2020. In turn, management adapted its 2020 investing strategy to suit a more stable approach. Allowing the investment bank to mitigate the risk of COVID-19 to a small degree.

Without a doubt, Macquarie’s earnings should decline, followed by a dividend cut. However, Macquarie’s minimal exposure to the declining property market, increases in FUM, and their diversified investments make them arguably the best bank on the market (opinion, not advice).

If you would like to understand our MQG COVID-19 strategy,  then click here. 

Overall, CBA and Macquarie Bank have the history, management experience, and financials to navigate their ship through the COVID-19 storm.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

If you aren’t already subscribed to us, you can subscribe for free via email below and get updates when we post new articles and stock market news. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

Goldman Sachs earnings plunge by 50% – is this the best COVID-19 investment?

Written by Sergeo Domtchenko 

Quarterly financial reports often produce extremely turbulent market conditions. Earnings season breeds two types of investors. For example, you have the investors who sell/buy after a company releases weak/strong financials. On the other hand, you also have opportunists who aim to snap up companies at a discount.

Reporting season saw the Dow Jones pinball between lucrative gains and sharp losses, finishing the week at a mere 0.65% higher (at the time of writing).

The true extent of the Coronavirus is only just starting to sink in. Massive quarterly earning contractions among the major banks in both the U.S. and Australia sent markets tumbling on Tuesday.

In the U.S:

Financial Institution Share Price Reported Quarterly Earnings Contractions Weekly Gain / Loss
JP Morgan Chase & Co. (JPM) $87.33 -63% -9.9%
The Goldman Sachs Group, Inc. (GS) $177.04 -49% -2%
Wells Fargo & Company (WFC) $26.89 -89% -13.7%
Morgan Stanley (MS) $38.36 -12% -4.7%
Citigroup Inc. (C) $40.52 -46% 13.3%
Bank of America Corporation (BAC) $21.42 -50% -11.1%

In Australia:

Financial Institution Share Price Reported Quarterly Earnings Contractions Weekly Gain / Loss
Commonwealth Bank of Australia (CBA.AX) $61.06 -4.3% -0.8%
Westpac Banking Corporation (WBC.AX) $15.87 -16% 1.5%
National Australia Bank Limited (NAB.AX) $16.39 -13.6% 3.3%
Australia and New Zealand Banking Group Limited (ANZ.AX) $16.56 -7% 2.9%

Despite the weak earnings, three of the Big Four Australian Banks experienced a slight increase. In turn, the poor financials above, coupled with the ever- evolving pandemic is making investors wonder whether these banks are a wise investment?

Investing Based on the Fundamentals

Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this area.

There is no one standalone financial institution that trumps the rest (opinion not advice). Because some banks perform better than others in certain areas. Thus, I will be discussing the best banks for the respective fundamental sections below. Most importantly, the analysis below should allow our readers to make more informed decisions that best meet their investment goals.

1. Profitability & Return on Investment

It’s all well and good if your revenue is increasing. However, if your profits are not rising, why would someone invest?

Despite the U.S. banks earning more revenue, the Big Four Australian banks recorded exceptional net profitability ratios. For instance, net profitability averaged 33.1% for 2019, with CBA topping this at a whopping 37%.

Hence, it should come as no surprise that the average return on investment for the major Australian banks was 10.3%. However, this falls short when compared to JP Morgan’s return on equity ratio of 13.9% for 2019. Therefore, any investor who bases their investment decision on profitability and ROI should look at JP Morgan and the ‘Big Four’ Australian banks.

2. Dividends

Dividends can provide steady passive income and/or offset any capital losses. Westpac and NAB offer phenomenal dividend yields of 10.05% and 10.2%, respectively. If we look to the States, Wells Fargo is the leader in this department, with a 7.17% dividend yield.

However, based on the global trend, we should see the big US and Australian banks significantly reduce their dividends in the imminent future. If you are a long-term investor then the short-term impact of a dividend cut should not be concerning.

3. Future Earnings 

For long-term investors, the future earnings of a company will significantly influence whether you invest. An excellent way to measure this is by using the price-to-earnings ratio (P/E). It indicates a company’s capacity for revenue growth, and financial stability. Ultimately, reflecting how the company is being managed.

JP Morgan’s  (777.2) and Goldman Sach’s  (1697.8) P/E ratios captivated investors. Consequently, investors expect JP Morgan and Goldman Sachs to grow their earnings by 777 and 1697.8 times, respectively! Thus making Goldman Sachs and JP Morganthe more attractive investments for value investors.

Furthermore, when looking at Australia, CBA boasts a sensational P/E ratio, when compared to other banks, of 336.4. Therefore, CBA is the preferred Australian bank for long-term investors.

Summary

In conclusion, the COVID-19 pandemic has left us spoiled for choice in deciding which discounted blue-chip to snap up. Thus, irrespective of which blue-chip, you choose, it’s vital that you understand the companies financials. Above all, it’s critical that you know how behavioural economics is playing its part in moving the market.

Therefore , research on the fundamentals and people’s behaviour should minimise any losses while also maximising the potential gains.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

 

If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Sergeo Domtchenko, Associate of YIG.