Article originally published: 22 April 2020. Last Updated: 18 February 2021
We know that many investors are unsure where to put their money after the crazy year that was 2020. As some markets rebound to new highs, commentators reiterate that evaluations don’t make sense and the noise seems louder than ever. So here’s what we’re telling our members (and the world) right now: stay the course. Investing is a long-term game, and quality companies make suitable investments irrespective of timing.
Here at The Motley Fool, we’re not in the game of trying to time the market. Borrowing from Warren Buffett: “We have no idea – and never have had – whether the market is going to go up, down, or sideways in the near- or intermediate-term future.” However, we firmly believe investors will be rewarded over the long term. History shows us that in the long run, the market has always gone up, despite various pandemics, recessions and world wars.
So, it’s essential to keep in mind that this post focuses on investing from a long-term perspective. The most surefire way to make money in the share market is to buy great businesses at reasonable prices and hold on to them for as long as they remain great businesses. If you do this, you’ll experience some volatility along the way, but over time you’ll likely reap the rewards of compounding returns and long-term wealth creation.
Before we get to the shares, let’s also acknowledge that these lists are challenging. Choosing the best ASX shares to buy today heavily depends on your financial situation. To get a good read on where you stand, go through our beginner’s guide to investing in ASX shares. It walks you through a wide range of topics, including establishing an emergency fund, asset allocation, and understanding your investment goals.
Now, onto the 10 ASX share ideas. Here’s the entire list, followed by a summary investment thesis for each one.
- BetaShares NASDAQ 100 ETF (ASX: NDQ)
- BetaShares Asia Technology Tigers ETF (ASX: ASIA)
- Sonic Healthcare Limited (ASX: SHL)
- Macquarie Group Ltd (ASX: MQG)
- Dicker Data Ltd (ASX: DDR)
- Jumbo Interactive Ltd (ASX: JIN)
- Netwealth Group Ltd (ASX: NWL)
- Nearmap Ltd (ASX: NEA)
- ELMO Software Ltd (ASX: ELO)
- Bigtincan Holdings Ltd (ASX: BTH)
Broad-based, index-tracking exchange-traded funds (ETFs) can be an excellent way for beginner investors to dip their toes into the world of share market investing. ETFs allow you broad exposure to a basket of shares in a single purchase, and the two ETFs below may just be some of the best around.
- US shares: BetaShares NASDAQ 100 ETF
- Asia Technology shares: BetaShares Asia Technology Tigers ETF
BetaShares NASDAQ 100 ETF
The BetaShares NASDAQ 100 ETF (NDQ) gives you exposure to the world’s second-largest exchange, located in New York City, the Nasdaq. The Nasdaq exchange is home to some of the largest, high-quality, innovative and influential businesses in the world. Think tech heavyweights like Apple, Amazon and Microsoft as well as household names such as Netflix and Starbucks.
BetaShares Asia Technology Tigers ETF
ASIA provides low-cost exposure to the fast-growing Asian tech space, giving you access to the 50 largest listed technology and online retail companies in Asia (excluding Japan). This ETF balances its holding allocations based on the market capitalisation of the 50 stocks. Some holdings in this fund are globally recognisable such as Samsung, while others are more central to the Asian region such as Alibaba, JD.com, and Netease.
With the local market heavily skewed towards banks and miners, along with Australia’s low population, investors have to head offshore for true diversification. Both of these ETFs provide diversification and new growth opportunities, with exposure to some of the very best businesses on the planet – all from the comfort of the ASX.
With some companies still heavily impacted and volatility seemingly ever-present, investors may feel uncomfortable investing in individual companies. But for those who still believe markets will appreciate in the long-run, accumulating units in broad-based ETFs could be a prudent way to invest for the future.
A dividend-paying company is, essentially, writing a check to its shareholders out of the profits it generates. Dividend shares make sense for many kinds of investors, not just those looking for a regular income stream. After all, many long-term studies have shown that dividend payers have outperformed those shares that haven’t paid dividends. And, notably in our current environment, share dividends have historically been more stable than share prices.
So, let’s take a look at 4 appealing candidates for today’s market. While many ASX dividend payers cut distributions in 2020, the long-term outlook for these payments is less bearish.
- Sonic Healthcare- 2.45% trailing dividend yield (2.77% grossed-up)
- Macquarie Group Ltd– 2.40% trailing dividend yield (2.81% grossed-up)
- Dicker Data Ltd – 3.13% trailing dividend yield (4.48% grossed-up)
- Jumbo Interactive Ltd – 2.51% trailing dividend yield (3.58% grossed-up)
Sonic Healthcare is the world’s third-largest medical laboratory company. It provides pathology and radiology services in several countries including Australia, the US, Germany, Switzerland and the UK. Sonic has consistently grown its revenue, net profit and dividend over the last 25 years and, as such, is now one of the largest operators in its field.
Although Sonic reported that 2020 was the most challenging year in its 33-year history, the company still managed to grow revenue and maintain its dividend. Moreover, Sonic has benefitted from being instrumental in utilising its labs for COVID testing through a range of government collaborations. During this time, Sonic also developed in-house production of various supplies to negate the impacts and costs of impeded suppliers.
Sonic Healthcare appears well-positioned to capitalise on an ageing population in the markets it operates in, supported by a greater awareness of the need for pathology brought about by the current crisis. Sonic offers a sound alternative in this low interest environment with a 2.77% grossed up trailing dividend yield and a rock solid 33-year track record.
Next on the list is Macquarie Group, the fifth-biggest bank in Australia. Although Macquarie does offer retail banking, its focus is predominantly on investment banking, commercial banking, and asset management. Macquarie is a global player, with two-thirds of its profits sourced from outside of Australia. Macquarie Group generates 63% of its net profits from its annuity-style businesses. These include providing investment solutions to clients in infrastructure, renewable energy, real estate and wealth management, to name a few.
In December 2020, Macquarie Group announced plans to acquire US-based asset and wealth manager Waddell & Reed Financial (NYSE: WDR) for US$1.7 billion. Among W&R’s two business segments, Macquarie will only keep its asset management business. This move will increase Macquarie’s total assets under management from A$556 billion to A$650 billion. Upon completion, Macquarie will sell W&R’s wealth management platform business to US brokerage firm LPL Financial holdings (Nasdaq: LPLA) for US$300 million, with Macquarie becoming one of LPL’s strategic asset management partners.
Macquarie Group is a well managed financial group generating value for shareholders and could also benefit from the rebound in the US and European economies.
Making its way into our list for 2021 is Dicker Data, a wholesale distributor of hardware, software and other related products. Due to its multi-dimensional business, Dicker Data is the exclusive distributor to over 5,500 resellers. The company distributes a broad portfolio of products from leading global technology vendors, including HP, Microsoft, Lenovo and Cisco. Dicker Data has been a consistent long-term generator of top and bottom line growth over 15 years, which has led to an ever-rising fully franked dividend – paid quarterly.
The working from home movement experienced last year resulted in a heightened demand for Dicker Data’s remote and virtual working solutions, boosting its top line growth by 17.7%. While there remains an element of uncertainty with ongoing developments as some believe the brought forward demand will leave a gap down the track, the company’s tight focus on cost control could support it in navigating any future variances.
Notably, CEO and co-founder David Dicker remains highly aligned with investor interests through his significant inside ownership of 60.74 million shares, worth approximately $728.9 million at current prices.
Next we have Jumbo Interactive, an online lottery retailer with operations in Australia and the UK. Over the years, the company has become a leader in creating engaging digital experiences for purchasing lottery tickets online. Through a recently renewed agreement, Jumbo resells Tabcorp lottery tickets throughout Australia, excluding Western Australia (WA), via its Oz Lotteries banner. Furthermore, Jumbo shored up WA operations by signing an agreement with the Western Australian State Government-owned and operated Lotterywest, to provide its SaaS platform ‘Powered By Jumbo’ for selling tickets via digital channels for up to the next 10 years.
Jumbo Interactive’s business model consists of two parts: the margin on resold tickets through OzLotteries.com, and a ‘service fee charged to the charities and other lottery providers who opt to use the ‘Powered By Jumbo’ experience to gain online sales. Through founder and CEO Mike Veverka’s leadership, Jumbo aspires to reach $1 billion in annual ticket sales by FY2022. To reach this milestone, Jumbo has been expanding into the UK via the acquisition of local lottery system provider, Gatherwell. Since then, Jumbo has also obtained its Great Britain Gambling Commission Software License, which allows the company to offer its SaaS platform to other operators.
Jumbo has managed to operate its business profitably, at a margin of 36.4% for FY2020. Over the years, this level of profitability has delivered a $72.26 million cash war chest for Jumbo but has also enabled the business to continue to pay some juicy dividends.
In contrast to dividend shares, growth shares often pay little (or none) of their earnings to investors as dividends. In fact, many growth shares are at the pre-earnings stage or have such small earnings that their price-to-earnings (P/E) ratios are stratospheric. And if they do have earnings, they tend to plough them back into their business for, you guessed it, growth.
Here are 4 ASX shares that are arguably the riskiest on this list, but make up for it with the highest potential returns:
- Netwealth Group Ltd
- Nearmap Ltd
- ELMO Software Ltd
- Bigtincan Holdings Ltd
First cab off the rank is the Australian financial services company, Netwealth. As described by the company, it was created in 1999 with an entrepreneurial spirit to challenge Australia’s financial services conventions.
The company offers a range of financial products including superannuation, investor directed portfolio services, managed accounts, managed funds, via a tailored online platform. Netwealth strives to challenge the status quo, efforts that are underpinned by its focus on offering its clients an online platform that is intuitive and valuable.
It is clear that Netwealth is fast becoming a major contender to the big banks that dominate most funds under administration (FUA). At 4.1% market share, making it the seventh-largest platform in terms of FUA; the company is on the doorstep of Westpac, AMP, Commonwealth Bank, and NAB, who between them hold around 60% share. Netwealth is rapidly growing its FUA by continuing to invest in technology — doubling the number of technology-based employees and acquiring big data-driven accounting tool Xeppo.
Despite high investments into growth and innovation, Netwealth has a highly profitable business at a 35.2% profit margin. This puts the company in a fantastic position to self-fund further growth initiatives rather than tapping the market or relying on debt, of which it currently has none.
Up in the sky! It’s a bird; it’s a plane — no, it’s Nearmap. From a little online startup in 2009 trading around 6 cents at the time to the billion-dollar aerial-imaging unicorn that it is today, Nearmap has come a long way by innovating at every step of the journey. The company is now on its fourth generation of camera system technology. This technology allows the company to regularly capture high fidelity 3D imagery sets that businesses and governments access through Nearmap’s subscription service.
You might ask, ‘well who needs frequently updated aerial images?’ and the answer is, more organisations than you may have thought. Think roofing companies measuring up for your next roof replacement, insurance companies evaluating the damages after a hailstorm for an insurance claim, or government-use cases such as property tax assessments and environmental planning. The toolsets and high-quality images available through Nearmap’s platform allow up-to-date, measurable, and annotatable data.
Nearmap’s growth in Australia and New Zealand over recent years has been explosive. But now Nearmap’s sights are set on the United States for further geographic expansion. In the last year alone, US subscriptions have grown by 30%, while average revenue per subscription is three times greater in the US than the Australia and New Zealand segment. After successfully raising $95.2 million, Nearmap is now heavily focused on scaling its US operations with added marketing and product solutions.
The next growth share on our list is ELMO Software — and no, we’re not talking about the furry red monster from an iconic children’s show. ELMO Software provides a suite of cloud HR, payroll, and rostering solutions that are integral for many businesses seeking simplified management from anywhere, at any time.
ELMO’s software requires no special purpose hardware, no maintenance, and no network administration — all of which are typical issues with traditional HR and payroll systems. Paired with the software’s ability to be integrated with legacy systems, ELMO offers a scalable, fast and simple solution to its users.
Since 2016 ELMO has consistently grown its top line by double-digit figures. A list of acquisitions has partly fed this growth over the last four years, broadening the company’s footprint and product offering. The most recent acquisition opening more doors for ELMO is British cloud-based expense management solution provider, Webexpenses. The business comes with over 1,000 existing customers in the UK, adding to the 6,700 existing UK customers obtained by ELMO’s prior acquisition of Breathe — a human resources platform provider.
The company’s ability to bolt-on complementary offerings, while also expanding geographically, makes ELMO Software appealing for its future growth potential. Throw in the fact the company has a tidy balance sheet with zero debt and $71.45 million in cash and cash equivalents as at 31 December 2020, ELMO has plenty more fodder for expansion.
Finally, we have Bigtincan, the smallest company on this list with a current market capitalisation of around $450 million. Bigtincan is a sales enablement software-as-a-service (SaaS) company that supports its corporate customers by providing a platform for document automation, content management, product cataloguing, sales coaching/training and communication. Bigtincan operates globally and supports some of the top Fortune 500 companies and other recognisable brands including Red Bull, Sephora and T-Mobile.
What has us excited about Bigtincan is its recent acquisition frenzy. The acquisition of ClearSlide, a US sales engagement company, adds new engagement capabilities to Bigtincan’s current offerings along with a boatload of new customers as well. This should open the door for cross-selling and up-selling of Bigtincan’s current products, which would increase the average revenue per user. Other acquisitions such as VoiceVibes adds voice coaching to the platform to sharpen the good-ole-fashioned sales pitch that’s crucial in any sales context.
Bigtincan’s annualised revenue rate has also been growing at a rapid pace. The reported rate increased by 49.3% from December 2019 to December 2020. It appears the company’s acquisitions have been instrumental to growth and with another $71.3 million in cash as at 31 December 2020, Bigtincan is loaded for further expansion.
So there you have it, 10 of our top ASX shares to buy in 2021. As we prefaced at the start of this post, we’re not in the game of trying to predict short-term market movements. The ASX could very well retreat to bear market territory within the coming months, or it could continue to rally.
It’s important to keep in mind that more than half of the market’s best days come within just a few weeks of its worst days. So trading in and out around volatility, trying to time the market, often proves futile. And very un-Foolish.
While history doesn’t repeat, it does rhyme. And what we know of past market dislocations – be it the oil crash, the dot.com bubble, or the global financial crisis – is that these ‘black swan’ events eventually pass. So stay safe, stay rational, and stay Foolish.
Figures correct as of 18 February 2021. Mitchell Lawler contributed to this report and as of 18 February 2021 owns shares of Sonic Healthcare Limited and Macquarie Group Ltd. Cathryn Goh contributed to this report and as of 22 April 2020 owns shares of BetaShares NASDAQ 100 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS and Nearmap Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends BIGTINCAN FPO and Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF, BIGTINCAN FPO, Dicker Data Limited, Jumbo Interactive Limited, and Macquarie Group Limited. The Motley Fool Australia owns shares of Netwealth. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS, Elmo Software, Nearmap Ltd., and Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.