BUSINESS INVESTMENT REPORT
Student name
Institutional affiliation
INTRODUCTION
The stock market is the aggregation of the buyers and seller engaging under agreed terms and conditions which seek to increase their wealth. The stock market has experienced evolution due to the sophistication of technology and has become the best way to increase wealth. Trading in the stock market includes the exchange of securities and bonds. The investment decision is the allocation of funds to the current opportunities to increase the income by an individual or an organization (Rattner, 2013).
This article seeks to review the best investment strategy in the Australian stock market through analysis of the economic or financial indicators and events affecting investment shortly. Further, analyze the techniques of the shares of a potential competitive company in the same sectors. Finally, recommend and justify the strategy through comparative analysis.
CURRENT INVESTMENT ENVIRONMENT IS AUSTRALIA
Investment faces implication by the changes in the inflation rate, interest rates, unemployment rate and overall economic growth of the country. Australia’s stock exchange market faces high volatility and rapid changes due to the trend of these factors (Al-Tamimi, Alwan, & Abdel Rahman, 2011).
Inflation rate
The inflation rate of 2019 experienced a rise of about 1.8% as compared to 1.7% in the prior period way above the market expectations. In 2018 the inflation rate was at 1.93%, 2019 recorded 1.61%. In 2020 the inflation has dropped to 1.43%. the inflation is expected to hit high level by June due to the recent pandemic
Interest rates
Interest rate is a significant concern to the investors in the stock market. The reserve bank of Australia has left the interest rates unchanged at its lowest in history. The interest rate at the moment has been kept at 0.25%. The economy is full of uncertainty, and the policymakers have said the interest will remain unchanged due to foreseen economic fallout of the COVID 19.
Unemployment rate
Currently, the country faces the highest unemployment rate at 5.1% due to the novel coronavirus (Economy of Australia). Unemployment is foreseen to hit most senior levels of 10% since the previous global financial crisis (Economy of Australia).
The economic growth of Australia
Australia’s economy is one of the developed markets. In 2019 the country estimated a Gross domestic product of A$1.89 trillion, which is the growth of 1.85% from 2018. In the year 2018, the economy rose by 2.73% from 2017. In 2021, the economy is expected to go through a severe recession, experiencing a drop of 6.67%. However, by 2021 the economy is expected to increase by 6.11% (Economy of Australia).
INVESTMENT STRATEGY
RECOMMENDED COMPANY: The A2 Milk Company Ltd
The company deals in milk products. The products are A1 protein products and A2 in global markets. The Earnings per share is 0.419. The earnings yield is 2.24%. The net tangible assets are $ 1.22. Geoffrey Babidge leads the company. Fifty-two weeks ago, the price of the share was $11.28 and targeted to close at $19.23 estimating one year return of 20.48%. The current share price is open at $18.59. The price-earnings ratio is 44.6(Zhang, & Skiena, 2010.
Technical analysis
The company shares in the year 2015 were at 0.64. The following year experienced a rise to $1.75. The trend continued with a continued increase to $3.76 in 2018. The economic growth in 2018 saw the shares rise $10.52. The company faced high demand for its share in June 2019, recording a rise to $13.85. A2 Company is flourishing, and the investors are at the high demand for its shares. Despite eh economic situation, the products are still at high demand, and there is a projected rise in the shares prices (Stock Market index).
COMPARATIVE COMPANY IN THE SAME SECTOR: Bellamys Australia
Bellamy Australia headed by the chief executive officer Mr Andrew Cohen offers full ranges of food and formula products. The company has operations in Australia, China and South Asia. The company aims at providing the best customer experience tailored towards satisfying babies and toddlers needs. The company current share price is at $13.23. The net tangible assets are at $1.70. The Earnings per share of the company is $0.195. One year return estimates are 81.73%. In 52 weeks the estimated return is 81.73% opening price per share was $6.88 and closing at $13.27 (Stock Market index)
Technical analysis
From the chart above the company had a share price of $4.37. The following year the share price rose to $10.21 due to considerable revenues in the company. The prices dropped to $6.91 in the year 2017. Sue to the new marketing strategies, the demand of the company shares rose dramatically to $15.54. The company enjoyed huge profits, but due to the recent economic situation, the company began experiencing a drop in June 2019 the prices came to a close at $8.31 with an expectation of a continuous decline in the global markets (Stock Market index).
Return on investment
Return on investment= net investment/initial investment
A2 Company
Buying price=$18.59
Total shares=1,000,000/18.59=53792 shares
Expected prices after 1 year=$21.40
Initial investment= $1,000,000
Return on investment = ($21.40-$18.59)*53792/1,000,000=0.15
Bellamys Australia
Buying price=$13.27
Earnings per share=$0.195
Initial investment= $1,000,000
Return of investment = ($8.50-$13.27)*75357 shares/1,000,000=-4.77
Liquidity and time horizon
Liquidity can be defined as the ability of the returns to be converted to liquid assets such as cash close to the market value. At the same time, the time horizon is another determinant of investment. Time horizon is the time length of investment and in the stock market, the time to maturity determines the liquidity needs of the shares and the risk level of the portfolio. Both companies have high capability converting the earnings to cash quickly, which suits Pr. Dignity. The returns have a time horizon of one year, which means the portfolio has high liquidity and shorter time length. At the retirement of age of 65, professor dignity will start earning huge returns if he invests with A2 Company (Rattner, 2013).
Risk tolerance
Professor dignity is high risk-tolerant, which means he will take the bids with the high return but risky. A2 Company has top-priced shares but high yield despite the uncertainty projected in the company
Tax considerations
The tax code of the country complicates the portfolio. Australia imposes a marginal tax rate on income from dividends; therefore, the portfolio will be limited by the tax by the government overall. With earnings bracket of $90,000-$180, 000, the tax imposed will be 37%.
Total tax =37%*$100,000=$37,000.
JUSTIFICATION OF THE RECOMMENDED COMPANY
The A2 Company limited hold more promises of future capital growth compared to Bellamy’s. From the analysis of the past trend in the share prices, A2 holds a very high likelihood of rising dramatically compared to the counterpart (Zhang, & Skiena, 2010). Historically, the company has been recording huge revenues due to the simplicity of its business and is the top company in the industry with a huge market share globally.
REFERENCES
Al-Tamimi, H. A. H., Alwan, A. A., & Abdel Rahman, A. A. (2011). Factors affecting stock prices in the UAE financial markets. Journal of Transnational Management, 16(1), 3-19.Retrieved from https://www.tandfonline.com/doi/abs/10.1080/15475778.2011.549441
The economy of Australia. (n.d). In Wikipedia, Retrieved April 25, 2020, from https://en.wikipedia.org/wiki/Economy_of_Australia
Rattner, S. (2013). Who’s right on the stock market. The New York Times. Opinion pages available from http://www. nytimes. com/2013/11/15/opinion/rattner-whos-right-on-the-stock-market. html.
Stock Market index, (n.d). In Wikipedia. Retrieved April 25, 2020, fromhttps://www.marketindex.com.au/asx/a2m
Stock Market Index. (n.d.). In Wikipedia. Retrieved April 25, 2020, fromhttps://www.marketindex.com.au/asx/bal
Zhang, W., & Skiena, S. (2010, May). Trading strategies to exploit blog and news sentiment. In Fourth international aAAI conference on weblogs and social media. Retrieved from https://www.researchgate.net/publication/221297824_Trading_Strategies_to_Exploit_Blog_and_News_Sentiment