The Tassal Group Limited (ASX: TGR) share price has fallen roughly 20% since the beginning of August and now trades at around $4.10 per share. This share price fall coincides with Tassal raising capital through issuing shares, with the aim being to use the additional capital to fund an "accelerated prawn growth strategy".

Tassal has issued shares on two recent occasions at prices above the current share price. In August, Tassal raised $108 million of capital through a share placement at $4.40 per share. In September, $17.4 million of capital was raised via a share purchase plan for existing shareholders. This was achieved at $4.16 per share.

Is Tassal's strategy good for shareholders?

The information released by Tassal suggests that its prawn business could increase the return that Tassal is able generate for its shareholders. This is, in part, because prawn farming requires less ongoing capital expenditure and has quicker growth cycles than salmon farming. Based on this, accelerating the growth of its prawn business makes sense for Tassal and its shareholders.

Expanding more heavily into prawns also offers benefits to Tassal through diversification. Salmon farming, like all farming, has risks and by growing an alternative income stream Tassal will be less exposed to negative changes in this aspect of its business. This added diversification might make some risk-averse investors prefer to own Tassal shares as opposed to shares in Tassal's competitor Huon Aquaculture Group Ltd (ASX: HUO).

Foolish takeaway

I like Tassal's strategy to accelerate growth in its prawn business and believe that it will likely create value for shareholders. I also feel that strong demand for salmon and prawns will ensure that Tassal has a bright future. However, after only delivering a return on equity (ROE) of 10% each of the last two years, the current Tassal share price appears to me to be above intrinsic value. This is even after taking into account a potential boost to ROE in the coming years from prawn farming. Therefore, I wouldn't recommend investing in TGR shares at this stage.

At a lower price I might be more inclined to invest in Tassal shares. A lower share price would offer protection against falling salmon and prawn prices or the failure of Tassal to realise an improvement in its return.

The post Tassal shares are down 20% in less than 3 months. Are they a buy today? appeared first on The Motley Fool Australia.

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• Is BHP the best ASX mining share to buy for the next 5 years?
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• 3 ASX 200 shares I think could rise more than 10% in a year

Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

When buying ASX shares, a key consideration is the price, as paying too high a price can lead to poor investor returns and capital erosion.

The price paid per share is an important consideration not only for individual investors, but also for companies implementing share buy-back programs. Like an investor, if a company pays a price that is above fair value for its own shares, it will reduce its overall wealth.

In order to prevent loss of wealth, companies should only implement share buy-back schemes if their shares are available for a fair price. If this is not the case, dividends might be a more appropriate means of returning excess capital or profits to shareholders.

With this in mind, here is a list of 4 ASX companies currently undergoing a share buy-back program. If my logic holds, these companies should each have a management team that views its shares as at least fairly priced.

ASX companies undergoing share buy-back

• Aurizon Holdings Ltd (ASX: AZJ) – trading at $5.90 per share.
• BlueScope Steel Limited (ASX: BSL) – trading at $12.47 per share.
• Computershare Limited (ASX: CPU) – trading at $15.90 per share.
• Scentre Group (ASX: SCG) – trading at $3.92 per share.

The management teams of these 4 companies may believe that now is a good time to buy. Unfortunately, this type of assessment does not guarantee strong investor returns into the future.

For me, the fact that these companies are buying back shares instead of funding growth is a cause for concern. Additionally, I like to invest in companies with low debt and a track record of high return on equity. These two factors are enough to make me weary of an investment in Aurizon, Computershare and Scentre.

Bluescope Steel's recent financial performance does make it a more appealing investment alternative. However, its future performance will likely be tied heavily to the price of the commodity it sells, making investor returns hard to predict. Without a better understanding of the steel market I won't be investing in Bluescope either.

Foolish takeaway

Unfortunately, despite what may be cheap prices I won't be investing in any of the 4 companies listed. However, I still believe the concept of share buy-backs is important to understand and that it can be useful in assessing value.

The post 4 ASX shares undergoing buybacks. Are they a buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Computershare and Scentre Group. 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.

At the beginning of October, Flight Centre Travel Group Ltd (ASX: FLT) shares were available for $47.43 per share. At this price, I considered Flight Centre shares to be a worthwhile investment.

Since then, FLT shares have fallen in price by 9%, off the back of an announcement that stated H1 profit for Flight Centre would be below that of the previous year. This comes despite total transaction volume (TTV) increasing. The reasons given for this fall in profit were tougher trading conditions and increased costs. A one-off cost associated with re-accommodating customers due to the collapse of Thomas Cook was also mentioned in this announcement.

Reasons to buy FLT shares

The announcement made by Flight Centre and the subsequent share price fall are disappointing events for investors. However, I still consider FLT shares to be a worthy investment. In fact, for me, the lower share price has increased their appeal.

In my eyes, the main reason to own Flight Centre shares is to gain exposure to the excellent growth opportunities this company has internationally and in the corporate travel space. From my perspective, the value of this opportunity is not significantly hurt by short-term changes in trading conditions. This is because market conditions should be expected to vary over the short-term. If these changes were seen as more permanent there would be much more cause for concern.

Additionally, Flight Centre has a long track record of delivering strong returns to shareholders. This is evidenced by a return on equity in excess of 20% over the past 10 years, achieved while maintaining low debt, and growing dividends. This gives me confidence that Flight Centre will be able to withstand tougher trading conditions for short periods of time. A company with a shorter history of success might be harder to trust in these circumstances.

Foolish takeaway

It is my view that FLT shares are a good buy at their current price, in comparison to what else is available on the ASX.

Buying FLT shares is not without risks and changes in trading conditions could lead to some variance in the FLT share price. However, over the long-term, as Flight Centre grows internationally, so too should its share price, leading to what I believe will be good returns for investors.

If you are less keen on Flight Centre, ARB Corporation Limited (ASX: ARB) is another high-quality stock that has seen its share price fall in October and might be worth considering.

The post Why I'm buying Flight Centre shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia has recommended ARB Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The justification for an investment in water seems pretty straightforward. Many people predict that demand for water will increase significantly over the coming decades. If this occurs, while supply remains constant, then the price of water will increase. This, in turn, will make the rights to water more valuable and as a result, investors will profit through capital growth.

Water rights may also become more valuable through a fall in supply. This could occur from reduced rainfall or by depleting natural reserves before they have time to renew. However, in times of drought, there might also be limited water to on-sell.

ASX companies with exposure to water

On the ASX there are a few companies which offer investors exposure to water.  The most obvious is Duxton Water Ltd (ASX: D2O), which is a company that owns a portfolio of Australian water assets, mostly in the Southern Murray Darling Basin. Duxton shares were first listed on the ASX in 2016 and currently, trade at a price of $1.39 per share. Interestingly, the company currently values its water assets at $1.62 per share.  This means the current share price could represent a discount to the true value.

A less direct approach to investing in water could involve buying shares in Webster Ltd (ASX: WBA). Webster is an Australian agricultural company and while it does own the rights to a large amount of water, it also requires a large amount of water to operate. If the water investment theory holds, these water rights should increase in value over the long term, which will increase the value of the Webster share price.

Foolish Takeaway

There appears to be a sound strategy behind investing in water but there are also risks. For starters, heavy amounts of rain over a consistent period of time could easily shift down the perceived value of water rights in a specific area. Alternatively, high water prices may force change in relation to water use, which will reduce demand. There is also risk from government intervention.

If I was to invest in water via the ASX, I would choose to buy Duxton shares as the company gives the greatest level of exposure. However, given the risks, I won't be investing until an even more attractive price is on offer. 

Other companies with access to large amounts of water include Rural Funds Group (ASX: RFF) and Select Harvests Limited (ASX: SHV). These could also be worth adding to the watch list if you're keen on water.

The post How to invest in water through the ASX appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia has recommended DUXTON FPO. 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.

On Monday it was announced that China Mengniu Dairy Company had made a takeover bid for Bellamy's Australia Ltd (ASX: BAL) at a price of $13.25 per share. This price represented a 59% premium compared to the last close price of $8.32. Unsurprisingly, this news caused the price of Bellamy's shares to skyrocket.

If the takeover is successful, Bellamy's shares will no longer trade on the ASX. However, for Australian investors looking to gain exposure to the growing infant formula market there are still plenty of other options. These include A2 Milk Company (ASX: A2M), Bubs Australia Ltd (ASX: BUB), Synlait Milk Ltd (ASX: SM1) and Wattle Health Australia Ltd (ASX: WHA).

Is it the right time to invest in infant formula?

Prior to the Bellamy's takeover announcement, I did not believe the market price for Bellamy's shares constituted good value and therefore I would not have recommend investing. I hold a similar view for the remaining infant formula companies listed on the ASX. I am also concerned by the level of competition present in this industry.

The ASX listed infant formula companies must compete with a host of international competitors including Nestle, the world largest producer of infant formula. This is bad news for investors as competition usually drives down prices, margins and earnings of competing companies. Smaller companies can also be driven out of business by larger companies, which can survive for longer on lower margins.

Some of the ASX listed infant formula companies have attempted to distinguish themselves from the competition and I believe this is a smart move. a2 milk, for example, specialises in A1 protein-free milk products while Bubs' infant formula is derived from goats' milk. Unfortunately, it's hard to know at this stage if this product differentiation will lead to any form of long-term competitive advantage.

Foolish takeaway

ASX listed infant formula companies do have an opportunity to grow sales and earnings as they expand overseas. However, I would not recommend investing due to shares prices which, in my opinion, do not accurately reflect the challenges these companies face from heavy competition.

Investing in Clover Corporation Limited (ASX: CLV) might be a worthwhile alternative investment if a sensible price becomes available. Part of Clover's business is selling nutritional powders for use in infant formula. An investment would therefore offer exposure to this growing industry but from a slightly different perspective.

The post Is the Bellamy's takeover a signal to invest in infant formula? appeared first on The Motley Fool Australia.

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Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended BUBS AUST FPO. 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.

Diversification in investing is a great tool for reducing risk and something all investors should prioritise. However, a large amount of diversification can also reduce the rate of return that an investor is able to achieve. This can make the decision about how much to diversify a dilemma for some investors.

An investor with a high-risk tolerance might choose to own a concentrated portfolio of ASX shares. Investors with a lower risk tolerance might choose to own shares in an index fund like the Vanguard Australian Shares Index ETF (ASX: VAS). This is a lower risk, more diversified approach to investing.

The advantage of less diversification

A well-diversified portfolio is less risky compared to a portfolio of only a few stocks as the investor is less exposed to the performance of each individual share. However, the potential return that can be achieved from a well-diversified portfolio is also lower, as the returns from the top performing shares are weighed down by the returns of the shares that haven't performed as well.

For example, an investor who bought Afterpay Touch Group Ltd (ASX: APT) shares 1 year ago would have achieved a level of return above 88%. Had they also bought an equal value worth of Challenger Ltd (ASX: CGF) shares, a share which returned -35%, their total investment return would have been reduced to 53%. A clear example of how diversification can hurt the upside of an investment.

The risks associated with lower levels of diversification

The above example could also be flipped to show the perils of avoiding diversification. Had an investor only purchased Challenger shares, their investment return would have been -35%, far less than the 53% achieved by an owning an equal amount of both shares. There's no doubt that -35% is a terrible result, but it's not as bad as losing everything, which is also a possibility when investing with very limited diversification.

Foolish takeaway

By reducing diversification and creating a more concentrated portfolio an investor may achieve a higher rate of return. However, to achieve this, the investor is still required to pick shares that will perform well over the long term and must be willing to accept a higher level of risk.

I believe the ideal portfolio size is around 10 shares. Buying shares simply for diversification purposes is not sensible but neither is putting all your eggs in one basket. Investing more heavily in shares which you believe have the best chance of success makes sense, but the risks associated with this approach should be considered.

The post The challenge of diversification on the ASX appeared first on The Motley Fool Australia.

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Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

WiseTech Global Ltd (ASX: WTC) has delivered tremendous returns to shareholders over the past 3 years, with an average annual rate of return in excess of 90%. However, WiseTech shares currently trade with a price-to-earnings ratio in excess of 200, which indicates to me that these shares are incredibly expensive. This is why I'll be avoiding WiseTech shares at this time.

Reasons to be cautious with WiseTech shares

Given WiseTech's performance over the past few years, I can understand why some investors would like to own its shares. Unfortunately, a previous history of strong returns to shareholders does not guarantee strong returns into the future. Likewise, even if WiseTech continues to be a very successful company, new investors may not be handsomely rewarded. This is because the price paid for WiseTech shares will be a limiting factor in the long-term returns investors receive.

An obvious but important rule of investing in shares is to buy low and sell high. Logically, when you pay a price that is high initially, this becomes harder to achieve. I believe a high price is one that is well above the underlaying value of a share and I consider this to be the case for WiseTech shares. If this premium above value is not maintained the share price will fall, irrespective of changes in the share's underlying value.

Other expensive ASX 200 shares

There are a number of other shares currently trading on the ASX that I believe are expensive. These include shares in A2 Milk Company Ltd (ASX: A2M), Altium Limited (ASX: ALU) and CSL Limited (ASX: CSL). I will avoid buying shares in these companies until more attractive prices are available.

Foolish takeaway

I believe long-term investors should pay close attention to the price of a share before investing. In my opinion, a share investment should only take place when there is confidence that the future share price will be much higher than the current price. This likely involves investing in shares that trade at a price close to or below true value.

Value is subjective and can be hard to calculate. Therefore, in an ideal world investors would only invest when the share price is well below true value, giving the investor a margin of safety. This may, however, make it impossible to buy into a high-quality companies, like Cochlear Limited (ASX: COH), which are unlikely to trade at any significant discount.

The post Why I'm avoiding WiseTech Global shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. 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.

Trying to determine which ASX shares to buy can be a tough and time-consuming process.

To speed things up, I suggest only focusing on companies which have consistently produced high returns on equity while maintaining little or no debt. Companies which fit these criteria are, in my opinion, usually a pretty good bet over the long-term. Unfortunately, this is not a fool-proof method, but by significantly reducing the number of potential investments there will be more time for in-depth analysis.

What's so good about high return on equity and low debt?

Return on equity is a measure of how well a company has been able to use shareholder capital to generate profit. A company with a high return on equity has been able to generate a large profit relative to the amount of capital invested, while a company with a low return on equity has not. 

Debt can help a company increase its level of return on equity, but it can also increase the risk of owning that company. I believe a company that is able to generate a high return on equity while holding little debt is economically superior to those companies that cannot. These are the companies I would prefer to own.

ASX shares with high ROE and low debt

There are a number of ASX listed shares which fit the criteria I have outlined. They include Altium Limited (ASX: ALU), Bellamy's Australia Ltd (ASX: BAL), Pro Medicus Limited (ASX: PME) and Regis Resources Limited (ASX: RRL). All of these ASX shares have generated significant returns back to shareholders over the past 5 years. In particular, Altium and Pro Medicus shares have both produced an average rate of return in excess of 70% per annum. Unfortunately, I don't believe any of these shares are available for fair prices.

Foolish Takeaway

I believe focusing on companies with high returns on equity and low debt is the fastest way to identify high-quality ASX shares. Holding shares in companies with these characteristics has the potential to provide investors with excellent returns. 

Unfortunately, this method is not perfect and is best used as a way to narrow down the search. Additionally, an investor will still need to spend time assessing when is a good time to buy and what is an appropriate price to pay for each share. Waiting for an affordable entry price will help maximise returns over the long-term. 

The post The fastest way to identify high quality ASX shares appeared first on The Motley Fool Australia.

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Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. The Motley Fool Australia has recommended Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Avita Medical Ltd (ASX: AVH) share price has risen more than 500% since January. This may lead to some investors avoiding Avita Medical shares in fear of paying too much. However, even after this massive price rise, I believe the shares are a tempting investment, which is a testament to the massive potential of this company.

What I like about Avita Medical

Avita Medical develops and sells technology that is used to treat burns and other skin conditions. Its RECELL system was launched in the US in January and has been approved for the treatment of adults with acute thermal burns. Since its launch, it has already been ordered by 41 of 132 US burn centres. Additionally, recent studies suggest that for the treatment of burns the RECELL system reduces hospital costs as well as patient recovery times.

Avita Medical believes the potential market for its RECELL system is more than $2 billion in the US alone. Its RECELL product is also approved in Australia, Europe and China with Avita Medical also seeking approval to enter the Japanese market. With these approvals, Avita Medical seems poised to finally be able to capitalise on its long-held potential.

Reasons to be cautious with Avita Medical

Avita Medical has a market cap of $889 million, yet is only expected to deliver $17 million in revenue in FY19. Its market valuation is therefore based on potential rather than any long-standing track record of delivering profits to shareholders.

The opportunity for its RECELL product may be worth more than $2 billion in the US, however, further approvals will be required before the vast majority of this potential can be accessed.

Avita Medical has released a lot of positive news of late but this might not always be the case. After all, the company has been listed since 1993 but it was only this year that Avita was able to launch a product into the large US market. A future without setbacks or delays is unlikely.

Foolish takeaway

I believe investing in Avita shares at current prices will yield a long-term profit. However, I also believe that the best plan of action will be to hold off buying Avita's shares until there is more evidence of strong sales growth. This will make a higher share price more justifiable. There is also the potential that the Avita share price might fall if sales are not as strong as expected.

If you are desperate to enter the biotech space, Starpharma Holdings Limited (ASX: SPL) is another ASX listed company worth considering.

The post Are Avita Medical shares a buy after rocketing 500% YTD? appeared first on The Motley Fool Australia.

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Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Starpharma Holdings Limited. The Motley Fool Australia has recommended Starpharma Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Cochlear limited (ASX: COH) share price has fallen almost 8% in August. This is a positive sign for those of us waiting for an opportunity to buy COH shares. At $202.17 per share (at the time of writing), I still think Cochlear shares are too expensive to buy, however; if the current trend continues, I'm hopeful there might be an opportunity to buy in the not too distant future.

Cochlear's performance

Cochlear has performed extremely well over the past decade. It has averaged a return on equity of more than 35% and has almost doubled its earnings. This has been achieved while maintaining a relatively low amount of debt and while consistently paying out at least 69% of its earnings as dividends.

The company generates 88% of its revenue from the sale of its cochlear implants. These implants are considered to be an industry leading product and are used to treat hearing loss. Cochlear aims to spend 12% of its revenue on R&D, which should help it in maintaining its current position as a market leader.

Is Cochlear a buy? 

I expect Cochlear to continue to perform exceptionally well over the long-term. However, this view also appears to be the view of the market with COH shares trading at a price-to-earnings ratio of 46 times.

I believe $170 is a rough estimate of fair value for Cochlear shares at the moment, but there is no way of knowing if the Cochlear share price will ever reach this level. Nevertheless, I would prefer to wait patiently and potentially miss out rather than risk paying too much. Paying a price above fair value could mean weak investor returns, despite owning a highly successful company.

Cochlear is due to release its full-year results tomorrow, so I'll be watching with interest what impact it has on the share price.

Foolish takeaway

In my view, it is not the right time to buy Cochlear shares, but I would strongly consider investing in the future at a lower price. CSL Limited (ASX: CSL) is another biotech company I would love to own but again, its share price seems overvalued. This means that I will be waiting patiently before investing in the biotech space. I believe waiting for a cheap price is a far better approach than investing simply due to the fear of missing out on short-term gains.

The post Is the Cochlear share price a buy? appeared first on The Motley Fool Australia.

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Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear 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.

I am avoiding buying shares in Transurban Group (ASX: TCL), Virgin Australia Holdings Ltd (ASX: VAH) and other high debt ASX-listed companies as I have a preference for investing in companies with little or no debt.

In my opinion, companies with little or no debt are easier to value. This is because their earnings are less susceptible to changes in interest rates and their dividends are less likely to change due to a company's decision to pay down debt. Companies with lower debt also have less risk of defaulting on loan repayments.

When debt is used effectively, it can boost a company's profits. This is easier to achieve when interest rates are low, as it's inexpensive to borrow money. For this reason, some investors are happy to buy shares in companies with debt, especially when rates are low like they are today.

ASX 200 companies with debt

Debt to equity is a common ratio used for comparing and measuring debt levels. It measures how much debt a company has relative to the amount of equity contributed. The ASX market average is a debt level of approximately 30% of equity.

Transurban has a debt to equity ratio above 2. This means it has a debt level which is more than double its level of equity. This is a high level when compared to the broader market. Transurban's total debt level has risen each of the past 10 years and over this same time period, Transurban shares have averaged a superb annual rate of return over 20%.

Virgin Australia owns and operates Virgin Australia Airlines. At the end of FY18, Virgin Australia also had a debt to equity ratio above 2. Again, a high level of debt when compared to other Australian public companies. Over the last 10 years, Virgin Australia shares have averaged an annual rate of return of -8.4%. For comparison, Qantas Airways Limited (ASX: QAN), a competitor of Virgin Australia, averaged 10.3%

Foolish takeaway

Companies like Transurban and Virgin Australia that have high levels of debt can, but are not guaranteed to, deliver superior long-term results to investors. They are also, in my opinion, harder to value accurately than companies with little or no debt. This is why I generally choose to avoid them when investing as I only want to invest when I am confident that I'm getting shares for a cheap price.

My preference would be to invest in a company like Altium Limited (ASX: ALU). Altium has been able to demonstrate an ability to grow with little debt. Unfortunately, Altium shares are not cheap and therefore I will need to wait for a price drop before investing.

The post Why I'm avoiding high-debt companies like Transurban and Virgin Australia appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. The Motley Fool Australia owns shares of Altium. 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.

When most ASX listed companies raise the prices of their products or services, they sell fewer of those products or services. However, for some ASX 200 companies, this is not the case. A company that can maintain volumes while charging more likely holds a monopoly type position in its industry. These types of companies are unique and valuable.

ASX Ltd (ASX: ASX) might be an example of this type of company, as it has no Australian competitors. This leaves its customers with little choice but to pay the prices it charges. ASX shares have performed well over the past 10 years, with its dominant market position translating into an average annual rate of return to shareholders of 15%. 

Commodity companies on the ASX

Some companies are not able to set their own prices. These are usually companies which sell commodities. That is, products or services which are not unique and can be bought from more than one supplier. These companies must accept the price set by the market. If they try to charge more than this price, customers will simply go elsewhere. The performance of this type of company will be tied strongly to the price of the commodity they are selling.

Mining companies like BHP Group Ltd (ASX: BHP), Newcrest Mining Limited (ASX: NCM) and Rio Tinto Limited (ASX: RIO) are examples of traditional commodity companies. These companies may perform well for sustained periods of time, however, changing metal prices could put this to an end with little these companies can do to prevent it.

Companies like Qantas Airways Limited (ASX: QAN) and Bellamy's Australia Ltd (ASX: BAL) could also be viewed as businesses which sell commodities. This is because their product offerings are not all that unique from other products available on the market. These companies use branding as a means of distinguishing their products from their competitors. This tactic can be successful, however, it requires a very strong and distinguishable brand before a higher price can be charged.   

Foolish Takeaway

In my view, companies which sell commodities are less desirable to invest in than those companies which are able to set their own prices. A company which can raise the price of its products or services with little reduction in volume is the most desirable. However, the share price of a company is also a key consideration and should be factored into any investment decision. The price paid for shares will be a significant factor in the long term returns achieved.

The post Why I'm wary of these 5 ASX listed 'commodity' companies appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Bellamy's Australia. 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.

When investing, I like to choose shares in ASX-listed companies that have been able to consistently generate high returns on equity (ROE).

ROE is a measure of the amount of profit generated by a company, in a given year, relative to the amount of equity which has been contributed by investors. As a company grows it becomes harder to generate high ROE, as bigger companies have greater amounts of capital that need to be invested.

A company that is able to consistently generate high ROE is usually a highly desirable business to own. This is because, for whatever reason, that company has the ability to continually invest its additional capital at high rates. Over the long term this will lead to significant wealth creation for shareholders.

Two ASX 200 companies that generate high ROE

CSL Limited (ASX: CSL) is one ASX-listed company that has been able to generate high ROE over a sustained period. Over the last 5 years, CSL has averaged an ROE in excess of 40%. Over the same time period CSL shares have returned an average annual rate of return to shareholders of more than 25%. This is a demonstration of how rewarding it can be to own a company that generates a ROE.

Lovisa Holdings Ltd (ASX: LOV) is a jewellery retailer that listed on the ASX in 2014. Since listing, Lovisa has averaged an ROE close to 200%. ROE has fallen each year since listing, nerveless, the returns generated have been exceptional. Over the last 3 years Lovisa shares have generated an annual rate of return to shareholders of more than 50%. This is another example of the success investors can have by holding shares in companies that generate high ROE.

Foolish takeaway

Buying shares in companies that produce high ROE over a long period can be a profitable strategy for investors. However, along with ROE there are a number of other factors which should be considered before making an investment. This includes the price of the shares and the debt level of the company. Debt can be used to boost ROE and therefore companies with high ROE and little or no debt are the most desirable.

The post 2 high ROE shares to consider in August appeared first on The Motley Fool Australia.

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Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

When investing in ASX shares, I like to choose companies which have little or no debt.

In general, companies which have low debt have less financial risk than those companies which have high debt.  They are also easier to value, as there is one less variable which needs to be considered.  Additionally, low debt can mean strong cash flow, as the company has not needed to borrow money to operate.

With this constraint in mind, here are 3 companies currently trading on the ASX which have no long-term debt.

ASX listed debt-free companies

Codan Limited (ASX: CDA) stated in its half-year investor presentation that it has been debt-free since 2017. Codan has also just announced higher than expected profits for FY19 and a new communications contract with the Kenyan Government worth $15 million.  Positive signs for owners of CDA shares.

ARB Corporation Limited (ASX: ARB) has not taken on any long-term debt in the past 10 years. This remains the case and according to ARB's latest market update leaves the company "well placed to react to opportunities". With a 10-year average rate of return of 20.4%, this has been a rewarding strategy for ARB shareholders.

Altium Limited (ASX: ALU) is another company currently trading on the ASX which has no long-term debt. Altium is a software company and currently has a market cap of $4.71 billion. ALU shares have averaged an annual rate of return of more than 60% over the past 3 years. This demonstrates that companies do not have to be highly leveraged to generate high returns.

Foolish Takeaway

Buying shares in companies with low or no debt can lead to high investor returns. However, although I believe looking for companies with low debt is a smart first step, it should not be the sole justification for an investment. Other worthwhile considerations include return on equity, earnings growth and cash flow.

Close attention should also be paid to the price of the shares. The price needs to be justifiable based on the future prospects of the company. The aim is always to buy low and sell high. As an investor, if you can't be sure of this over the long term then you will need to look elsewhere for opportunities.

The post 3 debt-free ASX shares to consider in August appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended ARB Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Codan Limited (ASX: CDA) share price has been experiencing significant positive momentum over the past few months, with the stock price up 20% since June. This rally in CDA shares has come off the back of two positive announcements by Codan, and puts the share price close to $4. This share price means that Codan shares have produced an average annual rate of return of more than 55% over the past 3 years.

What announcements did Codan make? 

In May, Codan announced that its profit for the second half of 2019 would be higher than originally anticipated. Management suggests full year profit will be in the range of $42–45 million, which is considerably higher than what the core business was expected to deliver. Strong metal detector sales and a strong performance by Codan's communication business have been the main contributing factors.

In this same announcement, Codan stated that its Minetec business unit would make a small operating loss in FY19. However, Codan also indicated that a trial of Minetec technology with Caterpillar's Minestar system was successfully completed in March. This a positive sign for this business unit's future.

In July, Codan announced the signing of a new communications contract with the Kenyan Government. This contract is said to be worth $15 million and will be delivered in the first half of 2020. This is will help ensure another strong performance for the Codan communications business next year.

Foolish takeaway 

Codan is a company with no debt and a management team that has demonstrated the ability to generate high returns on equity. Additionally, Codan's biggest business unit, metal detection, continues to hold market-leading technology and grow revenue consistently. These factors make me believe Codan has a bright future.

Despite a bright future, I will be choosing not to invest in Codan. This is because I believe that the recent share price rise has eroded much of the safety margin associated with CDA shares. In order to ensure capital preservation and maximum returns, I will be looking to invest elsewhere while keeping Codan on my watchlist for a future buying opportunity.

The post Why has the Codan share price rocketed 20% in 2 months? appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

I like the idea of investing in companies that have market-leading products or services – I believe they have the best chance of sustained success over the long term. This is especially true if, by offering these product or services, the company is able to create a long-term competitive advantage.

Unfortunately, being a market leader in a particular industry is not enough on its own to justify an investment. It is, however, a valid reason to conduct further analysis on the viability of an investment.

Based on my research, the companies listed below have market-leading products or services and are all part of the S&P/ASX 200 (INDEXASX: XJO) index.

3 ASX 200 companies with market-leading products or services

According to its 2018 annual report, Brambles Limited (ASX: BXB) is "the clear global leader in platform pooling". That is, in the sharing of transportation equipment like pallets. Brambles has averaged a return on equity of more than 20% over the past 10 years, which indicates that Brambles has found considerable success by dominating this industry.

In 2008, Codan Limited (ASX: CDA) acquired Minelab, the world leader in metal detection technologies. Since this acquisition, Codan has averaged an impressive annual rate of return to shareholders of more than 20%. Although Minelab is only one part of the Codan business, the results appear to indicate it has been a successful acquisition.

A2 Milk Company Ltd (ASX: A2M) was described by its chair "as the pioneers and leaders of the A1 protein free category" for dairy products. The company listed in 2015, and over the last three years has averaged a shareholder annual rate of return in excess of 100%. The significant upward momentum of the share price appears to demonstrate that investors have faith in the products and strategy of a2 Milk.

Foolish takeaway

Owning shares in a company that is an industry leader has the potential to be very profitable for investors. However, it's still important to assess the price of the shares and the company's fundamentals. These factors also contribute to a company's success and therefore will influence investor returns.

The post Investing in ASX companies with market-leading products and services appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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.

Investing in companies with a sustainable competitive advantage is often cited as a shrewd investment strategy. I believe this strategy is logical, as companies with a competitive advantage in their industry have the opportunity to generate abnormally high returns without the risk of competitors entering the market to erode profits.

When dealing with companies that have a competitive advantage, it is still important to consider the price that must be paid to buy shares. Waiting for a reasonable price should ensure better returns over the long run.

ASX 200 companies with a competitive advantage

Identifying ASX 200 companies with a competitive advantage is not a straightforward process. Nevertheless, I believe ASX Ltd (ASX: ASX), Cochlear Limited (ASX: COH), SEEK Limited (ASX: SEK) and Sydney Airport Holding Pty Ltd (ASX: SYD) all likely have a competitive advantage in their respective industries. Over the last 10 years each of these companies has generated an average annual rate of return in excess of 14%, with SEEK generating a return above 20%. These stats bode well for the investment strategy of investing in companies with a competitive advantage.

The 'Big Four' banks in Australia are also often cited as having a competitive advantage. Over the last 10 years, Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have all averaged an annual rate of return of between 8% and 13%. These results take into account any share price impact from the Banking Royal Commission.

Woolworths Group Ltd (ASX: WOW) is another company that would appear to have a strong competitive advantage, along with its rival Coles Group Ltd (ASX: COL); however, over the last 10 years, Woolworths has only been able to generate an average annual rate of return of 6.5%.

Foolish takeaway

From looking at these companies and their average annual rates of return we can see that investing in companies that appear to have a strong competitive advantage can be profitable. However, high returns are not guaranteed, as we can see from the performance of Woolworths.

I believe this strategy is still worthwhile, but attention needs to be paid to the price of the shares and the ongoing performance of the business.

The post Should you invest in ASX 200 shares with a competitive advantage? appeared first on The Motley Fool Australia.

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Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Cochlear Ltd. and SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

I believe learning to invest in shares is a worthwhile endeavour for anyone. For Australians, picking a share from the All Ordinaries (INDEXASX: XAO) index is a good place to start. There is risk attached to buying shares in publicly traded companies. There is also potential for returns well in excess of bank interest. Additionally, a small initial investment offers the opportunity to learn without too much at stake.

The upside of investing

The returns generated from investing in a share from the All Ords can be significant. As an example, 10 years ago REA Group Limited (ASX: REA) shares traded as low as $5.24 per share. Today, REA shares are trading at a price of $97.52 per share (at time of writing). That means an investment of $1,000 10 years ago would now be worth more than $18,000.

What to look for in your first share

When picking your first share, I suggest finding a company that is easy for you to understand. This will enhance the learning experience by making company announcements and their impact on the share price easier to follow. Picking a company which you believe has a bright future would also make sense.

Buying shares in a company that is financially sound is also smart. This can be a reflection of a good business model and/or sound management. Common metrics which indicate a financially strong company are low debt relative to equity, positive cash flow and high return on equity.

Price is another key element when making a share purchase. Even as a beginner, attempting to calculate what is a reasonable price to pay for a share is a valuable exercise. Paying a price well above true value can make it difficult to generate high returns over the long run.

Companies worth considering

Some companies which I believe are currently worthwhile considering as a first investment include Lendlease Group (ASX: LLC), Reliance Worldwide Corporation Ltd (ASX: RWC) and Westpac Banking Corp (ASX: WBC). I consider these companies to be reasonably priced and to have a strong long-term outlook.

Foolish takeaway

Buying a share trading on the ASX has the potential to generate significant returns for the investor. There are many elements that should be considered when making a share purchase, one of which is price. As a new investor, a small investment can also be beneficial from a learning perspective. Regardless of returns generated initially, this process could lead to greater wealth creation possibilities into the future.

The post How to invest $1,000 in the All Ords appeared first on The Motley Fool Australia.

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Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia has recommended REA Group Limited and Reliance Worldwide Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Sims Metal Management Ltd (ASX: SGM) is the largest dedicated metal recycler in Australia, New Zealand and the United States (US) and makes the majority of its revenue through the sale of recycled metals. Sims Metal Management is also indirectly responsible for helping to reduce global greenhouse gas emissions by producing metals using less energy than is traditionally required through non-recycled methods. This company has a positive impact on the planet and because of this might be an attractive investment for those investors who place a strong focus on sustainability.

The Sims Metal Management share price has fallen more than 40% from its 52-week high. SGM shares currently trade at $10.11 per share with a price-to-earnings ratio of below 12 and a price to book ratio of below 1. These metrics make the current share price appear reasonable and as such now might be a good opportunity to buy. However, a cheap price and operations that benefit the planet do not alone guarantee strong returns for investors.

Is there a compelling investment case for Sims Metal Management?

Sims Metal Management has failed to consistently grow revenue and earnings over the past 10 years. It has also failed to produce significant returns on equity for investors. Over this time period, book value per share has declined and investors have received an annual rate of return of -7.5%, which is disappointing.

The last two years have been an improvement, however, with earnings considerably higher than the five years prior. This has come off the back of stronger metal prices. Debt has also declined to low levels. Both positive signs for SGM shares.

Despite these recent financial improvements, I'm still not rushing to invest in this company. This is because I believe the performance of this company is closely tied to the prices of the metals it recycles. With metal prices hard to predict, so too is the future performance of this company and therefore I would prefer to invest elsewhere.

Foolish takeaway

I can understand why some investors might take an interest in Sims Metal Management shares, given the positive impact this company can have on the planet. However, as an investor I would much prefer to invest in a company that is able to set its own price rather than one which has to accept the price set by the market. This makes forecasting future returns more feasible.

The post The Sims Metal share price is down 40%: is it a buy for 'green' investors? appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The BlueScope Steel Limited (ASX: BSL) share price closed yesterday at $11.65, which is a discount of 38% in comparison to its 52-week high.

I have recently spent some time reviewing Bluescope to assess the merit of buying BSL shares and have found various pieces of evidence that its shares might be trading below fair value. This evidence, and my conclusions about whether to invest or not, are detailed below.

Is BlueScope Steel undervalued?

BlueScope Steel recently announced an extension of their share buy-back program, which began in December 2018. In my opinion, a share buy-back program indicates that a company's management believe its shares are undervalued. If correct, this is an effective way to return profits to shareholders. A company that generates lots of cash that can then be returned to shareholders is great to own; however, companies that are able to invest this excess cash to generate further high returns are preferable.

Book value per share is another indicator that can be used to assess value. If you consider book value as a representation of net assets, then BSL shares are currently trading at a price below book value per share. In theory, this means you can buy assets in BlueScope Steel for less than what they are worth. However, intangible assets like goodwill should really be excluded when determining book value. This adjusted calculation reduces BSL's book value per share to below the current price.

The price to earnings ratio is another indicator often used to assess value, but I wouldn't suggest relying too heavily on this measure to determine if a share is cheap or not. The current multiple of just above 8, based on 2018 earnings, does not appear excessive.

Foolish takeaway

Although I have been able to find evidence that BlueScope Steel may be undervalued, I am not rushing to invest in this company. I believe BlueScope Steel's success will be tied to the price of steel as well as the strength of the Australian dollar.

Additionally, this company is in a capital intensive and cyclical industry. Until I have a better understanding of the future market conditions, I would prefer a larger margin of safety before investing.

The post BlueScope Steel shares selling at a 38% discount appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.