Question 1: Zip (ZIP) has had a really nice run recently. However, I bought the stock at around $6, watched it go down to less than 50 cents, and today it is around $1.80. Should I cut my losses now, or sit back and hope it goes higher?
Answer: I would be inclined to hang on. I am not sure what is driving the rally, but certainly Zip’s US business is doing better than expected and I sense they remain an attractive takeover target. Also, Apple’s decision to stop Apple Pay Layer and instead partner with Buy Now Pay Later operatives is seen as a positive for Zip. The analysts think that Zip is fully priced. According to FN Arena, the consensus target price is $1.50, about 17.6% lower than the last ASX price. The range of targets is a low of $1.40 through to a high of $1.55. Hang on for the ride. The market knows something here.
Question 2: Will a share consolidation impact my cost base for CGT purposes? IAG underwent a 1:0.976 consolidation a couple of years back, so how does this effect my cost base?
Answer: The share consolidation has no direct impact on your CGT cost base and is not a CGT event. However, the per share cost base will change in accordance with the consolidation. With fewer shares, the per share cost base will increase by a factor of 1/0.976 (effectively, multiply the per share cost base by 1.02459).
Question 3: What do the broker analysts think about Wesfarmers (WES)?
Answer: The broker analysts think Wesfarmers is fully valued (arguably, overpriced). According to FN Arena, of the six major brokers that cover the stock, there are 0 “buy” recommendations. There are 4 “neutral” recommendations and 2 “sell” recommendations. The consensus target piece is $60.18, about 9.5% lower than the last ASX price of $66.66. The range of targets is a low of $50.00 through to a high of $66.
Question 4: Why do some of the ETFs pay such a big distribution in July? For example, the Morningstar International Shares Active ETF (MSTR), which is paying a whopper final distribution.
Answer: Exchange Traded Funds utilise a managed fund structure. The latter is a trust, which is required by Law to distribute all the income it has received (dividends, interest, plus realized capital gains/losses). So, if an ETF has generated material capital gains throughout the year, it will need to return this to unitholders. Typically, this is done at the end of the financial year, with distributions paid in July/early August.
