We’re now into the last quarter of 2020. I think there could be some opportunities to buy some quality ASX shares in October to beat the market.
If I were going to buy an ASX share this month, it would be one of these three ideas:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
WHSP, the investment conglomerate that has been operating since 1903, is usually at a good price to buy for the long term.
I think the next few months could be volatile because of COVID-19 and/or the US election. WHSP has stood the test of time, so I think it’s a good business to buy for this type of scenario.
The ASX share owns lots of different types of assets. It owns unlisted businesses like agriculture, swimming schools and resources. It also owns listed ASX shares like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW) and Clover Corporation Limited (ASX: CLV).
One of the most pleasing elements of WHSP is its dividend, which has been increased for 20 years in a row. WHSP has a fully franked dividend yield of around 2.5% at the WHSP share price. I covered WHSP at length in this article.
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is an exciting ASX growth share. It’s a digital donation business that is largely serving the large and medium US church sector. There is so much money that gets donated to churches that Pushpay thinks that one day it can make US$1 billion of annual revenue.
The company is aiming for EBITDAF (click here to learn what EBITDA means – the F stands for foreign currency) of between US$50 million to US$54 million. That would be growth of EBITDAF of at least 100%.
It’s one of the ASX shares I’d buy in October because I believe it’s still at a reasonable price. According to CommSec estimates, it’s priced at 39 times the estimated earnings for the 2021 financial year.
It seems like a very compelling idea to me because of how fast its profit margins are growing. Ultimately, I think a business should be valued on its future profit potential. As Pushpay grows its margins, its profit can grow even faster than the revenue. In FY20 alone its gross margin improved by 5% from 60% to 65%, and the EBITDAF margin also increased by 5% from 17% to 22%.
A2 Milk Company Ltd (ASX: A2M)
I don’t often like to look in the ASX 100 for buying opportunities. Normally those ASX shares are too big to offer compelling returns potential. But the A2 Milk share price has fallen 28% since 17 August 2020. This is presenting a good chance to buy at a much cheaper price.
That decline came about because the company warned of COVID-19 impacts. The daigou channel is being disrupted because of the lack of students and international visitors, as well as the lockdowns in Melbourne. Pantry destocking is also having a bit of an effect.
As a result, in the first half of FY21 the company is now expecting revenue of $725 million to $775 million (all figures are in NZ dollars). In the first half of FY20, the company generated revenue of $806.7 million – this means A2 Milk is expecting revenue to fall by 4% to 10.1%.
A2 Milk also said that group revenue for FY21 is expected to be in the range of $1.8 billion to $1.9 billion. In FY20 A2 Milk made $1.73 billion – which means over the whole year management are expecting revenue growth of 4% to 9.8%. A2 Milk is expecting a strong second half.
Over the longer term I think A2 Milk still has lots of growth potential in China and North America.
Summary
Each of these ASX shares seem fairly defensive with whatever happens next with COVID-19 or the economy. Pushpay is the one I’d buy first because of its software and scalable nature. But the other two could be very good choices for the next few years too.
But there are other ASX growth shares that I’ve got my eyes on like Bubs Australia Ltd (ASX: BUB) at this price.
