Article Last Updated: 22 April 2020
We know the ups and downs of the stock market during volatile times like these can be nerve-wracking. So here’s what we’re telling our members (and the world) right now: don’t panic, don’t sell. Investing is a long-term game, and we believe this, too, shall pass.
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, in spite of various pandemics, recessions and world wars.
So, it’s important 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 tough. 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 12 ASX share ideas. Here’s the entire list, followed by a summary investment thesis for each one.
- BetaShares NASDAQ 100 ETF (ASX: NDQ)
- Vanguard MSCI Index International Shares ETF (ASX: VGS)
- CSL Limited (ASX: CSL)
- Wesfarmers Ltd (ASX: WES)
- Telstra Corporation Ltd (ASX: TLS)
- Amcor PLC (ASX: AMC)
- Sonic Healthcare Limited (ASX: SHL)
- Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
- Dicker Data Ltd (ASX: DDR)
- EML Payments Ltd (ASX: EML)
- Audinate Group Ltd (ASX: AD8)
- Whispir Ltd (ASX: WSP)
The first 2 are a bit of a cheat because they’re actually exchange-traded funds (ETFs). ETFs allow you broad exposure to a basket of shares in a single purchase, and these 2 may just be some of the best around:
- US shares: BetaShares NASDAQ 100 ETF
- International shares: Vanguard MSCI Index International Shares ETF
The first ETF (NDQ) gives you exposure to the Nasdaq exchange which is home to some of the largest, high-quality, innovative and powerful businesses in the world. Think tech heavyweights like Apple, Amazon and Microsoft as well as household names such as PepsiCo and Starbucks.
The second ETF (VGS) provides lower-cost, broader exposure than the NDQ ETF, giving you access to the largest listed companies on the markets of 22 developed countries. This ETF covers around 85% of the market capitalisation of each exchange, tracking roughly 1,600 companies. If a company is listed, not Australian and you have heard of it, it’s probably in there.
With the local market heavily skewed towards banks and miners, along with Australia’s low population, for true diversification, investors have to head offshore. Both of these ETFs provide diversification and new opportunities for growth, with exposure to some of the very best businesses on the planet – all from the comfort of the ASX.
With share prices down around the world and economies in hibernation, 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.
Broad-based, index-tracking ETFs like the 2 mentioned above can be a great way for beginner investors to dip their toes into the world of share market investing. However, for those looking to purchase individual shares, here are some large-cap ASX shares that can get you started.
CSL holds the mantle as the largest company on the ASX by market capitalisation, recently overtaking Commonwealth Bank of Australia (ASX: CBA) for the top spot. CSL is a global biotechnology leader, providing a range of life-saving and life-extending products to treat various medical conditions.
Despite the coronavirus affecting blood plasma collections and clinical trials, CSL’s US$1.1 billion of available liquidity and defensive nature of its commercial activities puts the company in a strong position to weather the storm. Additionally, CSL could well play a direct role in overcoming the pandemic.
As such, CSL is one of the few companies that have managed to maintain its guidance so far in FY20. Put simply, CSL is a high-quality company with a strong research and development pipeline and a phenomenal track record for creating wealth for its shareholders. Thus, it commands serious thought for a spot in a beginner’s long-term portfolio.
Moving outside of the healthcare space, Wesfarmers is an Aussie conglomerate of retail, industrial and mining businesses. These businesses include household names such as Bunnings, Officeworks, Target, and Kmart, as well as lithium miner Kidman Resources and the growing online retailer Catch. After completing a demerger in late 2018 and recently selling a big chunk of its retaining stake, Wesfarmers also has a 4.9% holding in Coles Group Ltd (ASX: COL).
The diversified nature of the conglomerate, along with its long-term track record and the brand power afforded to its businesses, makes Wesfarmers a potentially ideal candidate for a beginner investor. Although some of its revenue streams will be impacted in the short term, Officeworks and Bunnings have reported a recent spike in demand on the back of the growing number of people being confined to their homes. The latter is particularly significant as Bunnings contributes almost two-thirds of Wesfarmers’ earnings.
The conglomerate also has plenty of dry powder to weather the current storm and continue to diversify its earnings through acquisitions following its $1 billion sale of Coles shares in March 2020.
Shifting gears, Telstra is Australia’s largest and longest-running telecommunications provider and needs little introduction for most investors. The latter is one of the reasons why Telstra may be a prime contender for many Aussies starting out on the share market. When it comes to investing, it’s important to know what you own and why you own it. Being familiar with a company’s products and/or services goes a long way in achieving this.
Given the number of Aussies now working from home, demand for Telstra’s services has arguably never been higher. Although this has meant a delay in cost-cutting measures and the hiring of additional staff, Telstra’s earnings should at least remain steady in the current environment, which is more than can be said for many other ASX blue-chips.
Looking further ahead, Telstra is investing heavily in the next generation of mobile technology known as 5G. As the apparent leader in the 5G network space, this offers a potentially lucrative new revenue stream for the Aussie telco.
Finally, Amcor is a global packaging company that develops and produces a broad range of specialty cartons and plastic packaging for industries such as food, beverages, healthcare and personal care. There’s a good chance that many of the products you’ll see at your local supermarket are presented to you in packaging that has been sourced from Amcor. Hence, Amcor is an important part of the supply chain for many consumer product companies worldwide.
Amcor might be considered by a beginner investor due to the relatively stable and defensive nature of its overall business. The majority of Amcor’s revenue is generated from the sale of packaging for defensive consumer products, the demand for which is typically inelastic. In fact, Amcor could even be a beneficiary of the increase in demand for fast-moving consumer goods, a trend that has taken off due to the recent stockpiling of products.
With a global footprint in all of the major world markets, Amcor now has greater scale and an ability to extract a great deal in value, which could lead to a more profitable business over the longer term.
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, there have been many long-term studies that have shown that dividend payers have outperformed those shares that haven’t paid dividends. And, importantly in our current environment, share dividends have historically been more stable than share prices.
So, let’s take a look at 3 appealing candidates for today’s market. While many ASX shares are facing dividend cuts or suspensions in FY20, the long-term outlook for these payments is less bearish.
- Sonic Healthcare – 3.39% trailing dividend yield (3.83% grossed-up)
- Washington H. Soul Pattinson – 3.18% trailing dividend yield (4.54% grossed-up)
- Dicker Data – 4.47% trailing dividend yield (6.38% grossed-up)
Sonic Healthcare is the world’s third-largest medical laboratory company, providing pathology and radiology services in a number of countries including Australia, the US, Germany, Switzerland and the UK. Sonic has been able to consistently grow 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 there is potential for diagnostic testing volumes to be impacted in the short to medium term, 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.
Next we have Washington H. Soul Pattinson, commonly known as ‘Soul Patts’, which is a diversified conglomerate that invests across a broad section of the Australian economy; everything from agriculture, retail, mining, telecommunications, building materials and, of course, its original business in pharmacy.
The diversified nature of the company, along with its long-term focused management, proven track record and growing dividends, makes Soul Patts a promising candidate for all sorts of investors. What’s more, Soul Patts has withstood the test of time since listing on the ASX in 1903, surviving (and thriving) through all types of economic conditions. The investment conglomerate has an enviable record of never failing to pay a dividend to shareholders since being publicly listed in 1903. And if you still aren’t impressed, this dividend has increased every year since 2000.
Rounding out our dividend shares is Dicker Data, a wholesale distributor of hardware, software and other related products. Due to its now multidimensional business, Dicker Data is the exclusive distributor to over 5,500 resellers. The company distributes a wide portfolio of products from leading global technology vendors, including HP, Microsoft, Lenovo and Cisco. Dicker Data has been a marvellous long-term generator of increasing profits over a number of years, which has led to an ever-rising fully franked dividend – paid quarterly.
With many employees now working from home, it’s likely that certain areas of Dicker Data’s business will see heightened demand despite a difficult market environment. While there remains an element of uncertainty regarding the true short-term impact of COVID-19 on sales, recent distribution agreements and the company’s tight focus on cost control will support it in navigating through this tough period.
Notably, CEO and co-founder David Dicker remains highly aligned with investor interests through his significant inside ownership of 60.69 million shares, worth approximately $400 million on current prices.
In contrast to dividend shares, growth shares often pay little (or none) of their earnings back to investors as dividends. In fact, many 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 3 ASX shares that are arguably the riskiest on this list, but make up for it with the highest potential returns:
- EML Payments
EML Payments is a financial services company that specialises in issuing and managing prepaid stored value products. EML shares were hit particularly hard in the recent crash, losing nearly 80% of their value to sit at a low of $1.20 in late March. This was due to EML’s large exposure to both gift cards and sports betting, as well as uncertainty surrounding its recently announced acquisition of Prepaid Financial Services (PFS). However, EML has since renegotiated the contract terms for its acquisition of PFS, which then put a rocket under the EML share price.
PFS is a leading provider of white label payments and banking-as-a-service technology across the UK and Europe. This acquisition provides EML with exposure to the previously untapped financial services sector, particularly in the rapidly emerging European neo-banking segment, and shifts its revenue mix towards reloadable cards. The PFS acquisition was completed at the beginning of April 2020 and EML now has more than $100 million of cash on its balance sheet post-acquisition.
In the near-term, EML’s revenues will take a hit due to lockdown restrictions and the likely recession that will soon transpire. Looking further ahead, however, EML appears well placed to weather the current storm and may even come out stronger now that it is a more diverse and comprehensive business.
Moving outside of the S&P/ASX 200 Index (ASX: XJO) for the first time so far in this list, we find ourselves at Audinate, a global leader in digital audio networking technologies. The company provides key products such as chips, modules and cards embedded with its core technology, Dante, to around 300 original equipment manufacturers, including the likes of Yamaha, Bose, Bosch, Roland and Sony.
It is becoming clear that Dante is establishing itself as the de facto standard for audio networking and as the ecosystem of Dante-enabled products grows, it creates a ‘network effect’, which is a strong competitive advantage.
Although Audinate recently reported weakness in growth following the double-whammy of the trade war and now the coronavirus, the company remains a quality business that offers significant potential future upside. Despite being a top dog in its industry, the migration of the audio networking industry to digital solutions is still in its infancy, providing Audinate with a potentially long runway of growth ahead. Importantly, as at 31 March 2020, Audinate had $30.9 million in cash on its books and no debt.
Last but not least we have Whispir, the smallest company on this list with a current market capitalisation of around $150 million. Whispir is a software-as-a-service (SaaS) company that supports its corporate customers by helping automate their communications with employees, customers, suppliers, job applicants and other stakeholders. Whispir operates globally and supports some of the world’s most renowned brands including Disney, Coca Cola and Qantas Airways Limited (ASX: QAN).
Whispir ticks a lot of the boxes that investors commonly look for in a software company. It has a capital-light business model, high recurring revenue growth, high dollar-based retention rates, an owner-operator in charge and an extreme market opportunity.
What’s more, amid the current COVID-19 crisis, it is as essential as ever that business communications with employees, customers and other stakeholders are done in a timely and streamlined manner. The reliance and demand for Whispir’s platform could very well increase in response to this shift. Notably, the Whispir platform is now being used by Victoria’s Department of Health and Human Services to interact with Victorians as part of its coronavirus containment plan.
So there you have it, 12 of our top ASX shares to buy in 2020. Cluey readers might have already figured out that we’ve worked our way down this list in order of largest to smallest (in terms of market capitalisation).
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 back 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 22 April 2020. Cathryn Goh contributed to this report and as of 22 April 2020 owns shares of Amcor PLC, BetaShares NASDAQ 100 ETF, and Washington H. Soul Pattinson and Co. Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and Emerchants Limited. The Motley Fool Australia owns shares of and has recommended Amcor Limited, AUDINATEGL FPO, BETANASDAQ ETF UNITS, Dicker Data Limited, Telstra Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Emerchants Limited, Sonic Healthcare Limited, Vanguard MSCI Index International Shares ETF, and Whispir 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