Invest in this Top 3 Companies in the ASX for a Greater Profit over the Next 12 Months
The ASX has performed quite well given the state of the global economy in 2020. The crash in March was followed by steady recovery.
The graph shows that last year in January-February ASX was trading at around 7000 points and right now it is around 6800-6900 mark which is a good recovery. This shows that the companies listed in ASX have been creating decent returns. So let us look at the top 3 companies to invest in ASX.
These rankings are based on our own analysis. Analysing the companies in any stock exchange, depends on a lot of factor and profitability is just one factor. It also depends on what your investment strategy is, so if you are going to follow our advice, then please carry out your own due diligence as well, to make sure that the companies match your portfolio and strategy.
Commonwealth Bank of Australia(CBA)
The Commonwealth bank of Australia is one of the biggest companies listed on the ASX in terms of market capitalization.
The graph shows the stock performance of CBA over the last six months or so. The trend clearly shows that the stock price of CBA is stable and ticking upwards steadily.
This graph shows a more long term view of the stock price and it can be seen that the stock price of CBA has remained stable more or less over the last decade. CBA has also recovered almost completely from the global market crash in March last year.
CBA has also been regularly paying the dividends, which makes CBA a good stock to purchase if your strategy involves collecting dividends from stable stocks over time. You can either use the dividend for savings or reinvest them to increase your portfolio size. CBA usually paid out dividends of 2c per share but the last dividend paid in 2020 was for around 0.93c, due to the pandemic.
The graph above shows the revenue and profitability of the bank. It can be seen that the net profit for the last four years has been quite consistent around the AUD 9.5 billion mark.
The price earnings ratio is an important ratio, it shows the value that the market places on the stock. A high P/E ratio shows that the market places more value on the stock as compared to its original performance and underlying fundamentals. Some investors avoid stocks with high P/E ratio because it also signifies that the stock is over valued and may correct its true value soon. Many traders therefore wait for high P/E stocks to drop in value before investing in them.
CBA has a P/E ratio of 21.2 as compared to the industry ratio of 10.3. This means that the P/E ratio of CBA is quite high, the market is placing a lot of trust and value into the stocks of CBA right now and this also suggests that the price may go up in near future.
So if you intended to collect dividends and invest your savings into a stock that is stable, then CBA is a good company to invest in. There is very low risk with CBA stock, even if market corrects itself, the stock trend suggests that the mean reversion will cover up for any loss in market value in due time. CBA is a very simple stock, if you simply want to invest and not worry about the market value fluctuating a lot.
Afterpay Holdings Ltd (AFY)
After pay is an Australian company that started up in the wake of the 2008 financial crisis. Afterpay offers an easy payment solution for online shopping, Afterpay users can purchase items on deferred payments over a 4 week period without the accumulation of any interest. So it is payment in installment but without any interest, the point is to make availability of finance easy without adding extra burden on the borrower. Afterpay is situated in the financial services and digital payments sector and this is yet another sector that has benefited from the pandemic because demand for these services has gone sky high.
The graph above shows the stock performance of Afterpay over the last one year. Since Afterpay is in the fintech sector, it was not affected as badly as other companies, in fact the pandemic induced lockdowns turned out to be good for Afterpay because the increase in online shopping also resulted in more business and customers for Afterpay.
The graph above shows the revenue and profitability for Afterpay. While the revenue has been growing steadily for Afterpay, the profitability has not been good. Afterpay has been in losses since the last few years but it can be seen that the loss position seems to be decreasing. This however also means that Afterpay does not pay dividends.
So if you are a long term investor looking to benefit through dividends, then Afterpay is not going to be a good option for you. Afterpay is behaving like a growth stock which means that the real charm for investors is in the stock price, which has skyrocketed. So if you want to generate profit by buying and selling Afterpay stocks, then this is the right time to do so.
BHP Group – BHP
BHP Group is the biggest company in the ASX in terms of market capitalization. It is situated in the mining sector, which makes it a less risky and safe stock because the mining sector has shown steady performance even during the pandemic. Furthermore, the mining sector is linked with the exports of Australia, which makes it a very lucrative sector.
The graph above shows the stock performance for BHP over the last six years, as it can be seen, the BHP stock is trading at its highest point in the last six years. The company also has a history of regularly paying the dividends.
The dividends levels have been shown in the above graph. The last two dividends have been relatively low as compared to the dividends paid out in 2019 because of the pandemic. BHP pays out interim dividends usually in March, it remains to be seen if the company will pay the interim dividend this year. The swell up in the stock price may indicate that the market is anticipating interim dividends.
If you want to purchase the BHP stock right now, then you`ll have to pay extra because the price right now is high because of the possible dividend pay out.
The graph shown above, shows the revenue and profitability position of BHP. It can be seen that the revenue and profitability have both been relatively stable. This makes BHP a stable stock for long term investors. The beta is low which makes it less volatile, which is typical for stocks in the mining sector. The free cash flow is also stable and the dividend yield is around 4%.
All of this makes BHP a good stock if you are looking to invest your savings into a company that will not only give you profit but also stability to the value of your investments.
Once again, before you invest your hard-earned savings, do your own due diligence to make sure that your investments are based on informed decision making.
Australia Unwrapped provides only general, and not personalised financial advice, and in no way has taken your personal circumstances into account. Investments go up and down, any questions talk to a financial advisor. This blog is opinion only and in no way should investment decisions be based on this information.
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