Key points

• Both the ASX and global share markets have had a tough few months
• Many are blaming this on inflation and the prospect of rising interest rates
• But why would higher rates affect ASX shares?

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As many ASX investors would know by now, the S&P/ASX 200 Index (ASX: XJO) has been in a bit of a funk for a few months now. Friday in particular saw the ASX 200 shed a nasty 2.27% to finish the trading day at 7,175.8 points. That leaves the ASX 200 below where it was 6 months ago, and at its lowest point since June last year. Ouch.

Over in the United States, markets haven’t been quite as gloomy. But even so, the flagship S&P 500 Index is now down around 6.5% from its last peak. Many investors have blamed the prospect of inflation, and the higher interest rates that come with it, for the slump in global markets that we’ve seen.

Indeed, the 40-year high inflation reportedly hit earlier this month in the US aligns rather well with the share market slump we have seen across the US and Australian markets since then.

But why is this the case? Wouldn’t the debt-destroying powers of inflation be good for markets?

Why do inflation and higher interest rates spook investors?

Well, not exactly. Sure, inflation does normally mean that both corporate and government debt can be ‘inflated away’. But it’s what normally walks hand-in-hand with inflation that could be spooking markets. That would be higher interest rates.

As the great Warren Buffett once said, interest rates are like financial gravity, pulling everything down to earth. Over the past few years, interest rates around the globe have been at virtually zero. This was a deliberate consequence of central bank intervention to assist the global economy in dealing with the COVID-19 pandemic. Lower rates typically result in cheaper loans, helping to give consumers a spending boost.

But as rates start rising, so too does the cost of borrowing money for every participant of the economy. That includes consumers, businesses, and governments.

If rates were to rise, so too would the cost of a business wanting to borrow money to expand its operations. And that goes for homeowners too. If the Reserve Bank of Australia (RBA) were to raise our own cash rate from the current 0.15% to say 1% or even 2% over the next couple of years, it would mean anyone with a home loan would see their mortgage repayments increase substantially.

So in an inflationary environment, businesses would have to watch their own borrowing costs rise, as well as the purchasing power of many of their consumers fall. All while inflation is driving up the cost of production and labour. So you can see why investors might be spooked by the prospects of inflation and higher rates today.

That is possibly the reason why we have seen both the ASX and the global share market go through some pretty nasty volatility over the past few months. But only time will tell how the macro-economic environment will treat shares in 2022.

The post Is the prospect of rising interest rates battering ASX shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It has been a difficult month for growth investors. But every cloud has a silver lining. That lining is that the shares of some quality companies have pulled back meaningfully, potentially making them attractive investment options today.

Three ASX growth shares that could be in the buy zone are listed below. Here’s why they are rated as buys:

Adore Beauty Group Limited (ASX: ABY)

The first growth share to look at is Australia’s leading online beauty retailer, Adore Beauty. Although the company has been growing at a rapid rate since being founded in a Melbourne garage in 2020, it still has only a modest slice of the Australian beauty and personal care (BPC) market. This market is estimated to be worth $11.2 billion a year at present. This means Adore Beauty has a long runway for growth, which will be supported by the structural shift online and its growing customer base which is approaching 1 million.

UBS currently has a buy rating and $6.00 price target.

Goodman Group (ASX: GMG)

Another growth share to look at is Goodman Group. It is a leading integrated commercial and industrial property company which focuses on investing in and developing high quality industrial properties in strategic locations. These are global locations close to large urban populations, particularly around major gateway cities, where demand is strong and transformational changes are driving significant opportunities. This strategy is working wonders and has been driving strong and sustainable growth for years.

Citi believes Goodman is well-placed to continue its growth and is tipping it to outperform its earnings guidance in FY 2022. The broker has a buy rating and $27.50 price target on its shares.

Hipages Group Holdings Ltd (ASX: HPG)

Another ASX growth share to look at is Hipages. It is a leading Australian-based online platform and software as a service (SaaS) provider connecting consumers with over 30,000 trusted tradies. It was a strong performer in FY 2021, delivering a 22% increase in revenue to $55.8 million. Pleasingly, it built on this with a 14% increase in first quarter revenue to $14.9 million despite lockdowns. Looking ahead, the company has an enormous market to grow into, which bodes well for the future.

Goldman Sachs is very bullish on its growth prospects and sees opportunities for Hipages to win a significant share of industry advertising spend. As a result, it currently has a buy rating and $5.15 price target on its shares.

The post 3 ASX growth shares to buy after the market meltdown appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Hipages Group Holdings Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group Limited. The Motley Fool Australia owns and has recommended Hipages Group Holdings Ltd. The Motley Fool Australia has recommended Adore Beauty Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Key points

• Some quality ASX shares have taken a dive in recent weeks
• Fast food business Collins Foods is achieving compelling progress in Europe
• Pro Medicus shares have seen a sharp decline, but profit and its client base continue to grow

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January 2022 has been a rough month for plenty of ASX shares. Does that make them now buys?

Well, just because a share price drops it doesn’t automatically make it better value or a buy. Sometimes shares of businesses drop because they genuinely are worth less than they used to be because of a problem.

However, a decline in the share price can provide an opportunity to buy good businesses at better prices.

With that in mind, here are two that have suffered recently:

Collins Foods Ltd (ASX: CKF)

The Collins Foods share price has fallen by 16% since 4 January 2022.

Collins Foods is a large franchisee of KFCs. It has 260 outlets in Australia, 16 in Germany and 35 in the Netherlands. But it also has a small but growing network of Taco Bells in Australia as well, there are 13 in Queensland, four in Victoria and one in Western Australia. Its goal is to expand these networks across the regions it operates.

At the end of November, the company reported another period of growth for the first of FY22. It said that the result was underpinned by a return to growth in its European operations. Total revenue increased 8.5% to $534.2 million, whilst underlying net profit after tax increased 31.6% to $28.9 million.

Collins Foods also recently announced its corporate franchise agreement in the Netherlands commenced on 31 December. It now has full responsibility for developing, marketing, operating and support the KFC business in the Netherlands.

Is the ASX share a buy now? Macquarie thinks so, with an ‘outperform’ rating and a price target of $14.80. The broker notes that inflation and other short-term issues could be problematic, but continuing growth of its restaurant numbers will help in the longer-term.

Macquarie’s projections put the Collins Foods share price at 21x FY22’s estimated earnings.

Pro Medicus Limited (ASX: PME)

The Pro Medicus share price has fallen 28% since 4 January 2022.

This business is a healthcare IT company which specialises in enterprise imaging and radiology information system (RIS) software.

It has a global presence which is growing, particularly in the US as well as the EU. In FY21 it had six major client wins, with five in North America. The business also received FDA clearance for the breast density algorithm.

Pro Medicus has a very high earnings before interest and tax (EBIT) margin, it was 63.2% in FY21. This helped underlying revenue rise by 19.5% whilst profit after tax jumped 33.7%. The company is debt free and continues to grow its full year dividend by double digits.

Its cloud services give it a “huge strategic advantage” over competitors according to the company. Pro Medicus also believes it’s strategically positioned to leverage AI. Management are expecting to win more contracts – the pipeline continues to grow strongly.

Morgans currently rates the ASX share as a hold. However, the price target is $54.49, which implies a rise of around 20% over the next year.

The post Are these 2 beaten-up quality ASX shares now buys? appeared first on The Motley Fool Australia.

More reading

• Here are 4 ASX shares insiders are putting their money behind
• These were the worst performing ASX 200 shares last week
• Why Accent, Careteq, Pro Medicus, and Xero shares are dropping
• ASX 200 (ASX:XJO) midday update: AGL and Novonix shares shoot higher
• What’s going on with the Pro Medicus (ASX:PME) share price?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Pro Medicus Ltd. The Motley Fool Australia owns and has recommended Pro Medicus Ltd. The Motley Fool Australia has recommended Collins Foods Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The BrainChip Holdings Ltd (ASX: BRN) share price had an eventful week.

The artificial intelligence technology company’s shares were up as much as 56% at one stage to a record high of $2.34 before closing the day 17% higher for the week at $1.76.

When the BrainChip share price reached its peak, it took its market capitalisation to approximately $4 billion.

Why did the BrainChip share price rocket?

Investors were bidding the BrainChip share price higher following the release of a couple of announcements.

One was the granting of a new patent in the US which protects the company’s neuromorphic processor. In particular, it covers a function that revolves around performing complex tasks on a digital input data, which allows artificial intelligence to process images.

Another announcement that got investors excited revealed that the company has begun taking orders for the first commercially available Mini PCIe board leveraging its Akida advanced neural networking processor. It notes that this rounds out its suite of AKD1000 offerings.

Is BrainChip the real deal?

Given how the BrainChip share price rise last week took its valuation to approximately $4 billion at its peak, investors may be wondering if BrainChip is the real deal. Particularly given its tiny revenues and competition with some of the biggest tech companies in the world on only a relatively small research and development (R&D) budget.

In respect to competition, a few of the company’s most prominent rivals are tech behemoths IBM, Intel, Nvidia, and Qualcomm. They are among the leaders in their fields, have a combined market capitalisation of over US$1.1 trillion, and spend billions of dollars each year on R&D.

For example, in 2020 Intel spent US$13.56 billion on R&D, in FY 2021 Nvidia spent US$3.9 billion on R&D, IBM spent US$6.33 billion on these activities, and Qualcomm put US$7.2 billion into R&D in FY 2021. As a comparison, BrainChip spent just $5.15 million on R&D during 2020.

Among the most exciting chips under development is Intel’s Loihi 2 neuromorphic chip.

Late last year, the company stated: “Advances in Loihi 2 allow the architecture to support new classes of neuro-inspired algorithms and applications, while providing up to 10 times faster processing, up to 15 times greater resource density with up to 1 million neurons per chip, and improved energy efficiency.”

“Benefitting from a close collaboration with Intel’s Technology Development Group, Loihi 2 has been fabricated with a pre-production version of the Intel 4 process, which underscores the health and progress of Intel 4. The use of extreme ultraviolet (EUV) lithography in Intel 4 has simplified the layout design rules compared to past process technologies. This has made it possible to rapidly develop Loihi 2.”

Why hasn’t BrainChip being taken over?

Another concern that some investors have about BrainChip’s technology is the lack of M&A interest. The theory goes that if BrainChip’s technology is a game-changer like management suggests, then why didn’t its larger rivals acquire the company 18 months ago for a fraction of today’s valuation?

For example, both pre and post the emergence of COVID-19 in 2020, BrainChip’s shares were trading at a lowly 5 cents per share. As its technology was no secret then to those in the industry, see here, the company could have been picked up for chump change in comparison to today’s valuation.

Only time will tell if these tech giants missed out with BrainChip.

The post Is BrainChip (ASX:BRN) the real deal? appeared first on The Motley Fool Australia.

More reading

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• Why did the BrainChip (ASX:BRN) share price have such a stellar year in 2021?
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• Could BrainChip (ASX:BRN) crack into the ASX 200? Here’s what it takes

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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