Two Australian Stocks with long term potential to invest in this Bull Market
Disclaimer : Before we begin ,I would quickly like to mention that this is not financial advice of any sort . This article is purely for education and entertainment purposes only .I am not a financial advisor ,before you consider investing in these stocks please make sure to do your OWN research .
Introduction
Even though the Australian stock market is slowly recovering from its march crash the market still is highly volatile and could be faced with a another re-correction in the coming months. However, I am someone who enjoys bull markets because they allow me to buy good quality stocks at a lower price. These two stocks that we are discussing in this article are currently in a good buying range ,I think this is a good time to buy in these blue chip companies before they take off sky high. We are particularly looking at two different stocks from different sectors ,education and mining .
IDP Education (IEL) ($19.28 - 25/10/20 )
Education sector was among many sectors that was decimated from the corona virus. Education sector is a key player in the Australian economy ,according to the Australian Education minister ,in the years of 2018–2019 international students contributed to a whopping 37.6 Billion Dollars of income to Australia (https://www.macrobusiness.com.au/2019/11/australias-37-6b-international-student-export-con) /. However, thanks to a Chinese guy and his bat soup many students stopped coming to Australia. The effects of the virus left thousands of individuals in the Education sector jobless and stranded.
Perfect Buying Opportunity
However, for us investors this news was somewhat of a silver lining. March crash (stock market crashed when Corona Lockdow was first announced in March) caused the IDP stock price to plummet to $12 range making the high value stock cheaper to buy . Currently it has increased to a $19 dollar range. It might fluctuate up and down because of the volatility in the market .I got in at $16 and I personally believe (again do your own research) IDP education has potential in the coming years because sooner or later the education sector is going to soar sky high again. This will push the price target somewhere above $25 making it expensive back again. But imagine if you bought it now, there is a chance of you making an interesting positive return . But again please do your own research (both fundamentals and technical analysis) before you purchase.
Why IDP ?
Good question ,I dont want to get too deeper in to the company fundamentals because if I do that there is a higher chance that some of you buying this stock without doing your own research . However, I will cover some important information as to why I think you should consider IDP .
- IDP has no direct competitors ,with a market cap of 5.51 Billion Australian Dollars its sitting at top of the Pyramid making it almost untouchable by other companies in the sector. This can be considered as a size advantage ,an Economic Moet (the term was Introduced by Warren Buffet) meaning that the companies with large capitals has an advantage over its competitors.
The term economic moat, popularized by Warren Buffett, refers to a business’ ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders.
2. IDP has been in the education sector since 1969 and was able to create trust with its customers over decades making it a reliable player in the game. Moreover, they are partnered with thousands of universities in 31 countries this showcases how wide their web of clientele is .
3. When investing its important to consider the people who are in charge of the company . IDP is managed by talented forward thinking group of individuals. For instance its CEO Andrew Barkla is the highest paid CEO in Australia in the year of 2019 . He is a highly experienced executive who hasa clear map of the Education sector .More information at (https://www.idp.com/partners/about-idp/board-of-directors/)
4. IDP Recently released their Q4 financial results and as expected their revenue was down 587 million. However their EBIT is up 11% despite corona damages .This shows that the company has managed to stay without going bankrupt while many companies did . Moreover ,they have a cash balance of 307 million dollars ,which I personally think can be used to further their cause in the coming years. More information at ( https://www2.asx.com.au/markets/trade-our-cash-market/announcements.iel)
Fortescue Metals Group (FMG) ($17.37- 35/10/20)
Why FMG?
Mining is one of the major industries in Australia ,mining is princes Leia to Australia’s Luke Sky walker .
Fortescue Metal is the third largest mining company in Australia with a market cap of 23 Billion Aud. The company has seen rapid growth ever since its inception. The company currently ships 170 million tonne of iron ore per year and is considered the lowest cost provider of seaborne iron ore to China.
Furthermore, its an incredibly well run company with a great “just do it” culture that keeps involving its strategies to optimize performance by consistently increasing is production volume while managing to keep the unit cost down. I personally believe that they will be able to enhance their product portfolio with their new Eliwana and Iron Bridge Magnetite projects .
Future market of Iron Ore and FMG’s place in it
FMG and other Australian companies became primary sellers of Iron Ore after a devastating catastrophe that happened in the Brumadinho. The incident resulted in 270 causalities. Vale ,the company that was responsible for the disaster , had to postpone their mining operations and gave the Kangaroo owned Fortescue Metal an opportunity to make their way in to the bigger market.
While it is possible that Vale may now be in a position to substantially lift production after a number of significant issue (rainfall, conveyor belt maintenance, COVID workforce impact, licensing constraints post the Brumadinho dam collapse), the demand in China keeps surprising on the upside, swallowing every tonne available and keeping the market tight I personally believe its highly likely that the demand for Aussie Iron Ore will continue to rise .
Is it a buy ?
All the financials looks really good in my eyes, as seen above they have increased their exports of Iron Ore from 6% and have increased their NPAT. This indicates that they have got free cash in their hands to improve the company in many directions.
Finally, another factor that you should consider when investing in FMG is that their flashy dividend yield. With a whopping annual divedend yield of 10.52% its a company that attracts dividend investors . Refer to the bellow image from (https://www2.asx.com.au/markets/company/FMG)
More reasons to consider
Recently they released their quarterly results and they look promising.
- They have managed to their Total recordable injury frequency rate improved and that is 13% lower than 30th of June in 2020.
- Number of Iron Ore shipments increased 5% than Q1 FY20
One of the important factors to notice that their strong cash flow, they managed to make 1 Billion dollars in September compared to net debt of .3 billion dollars at June 30th 2020.
P.S You can read these details on depth at (https://www2.asx.com.au/markets/trade-our-cash-market/announcements.fmg)
Food for thought
I see two negatives factors that might affect FMG stock prices negatively .1) There is a possibility of Vale resuming its position in the market 2) rising tensions between the Chinese and Australian governments could pose a threat to the stock price. Although I see a glimmer of hope for companies such as FMG because Australia will also be pouring a lot of money into infrastructure improvements in the coming years ,this will somehow increase the FMG price up higher .
