Day: 23 March 2022

The Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) share price is under pressure on Wednesday.

In morning trade, the medical device company’s shares are down 6% to $24.20.

Why is the Fisher & Paykel Healthcare share price sinking?

Investors have been selling down the Fisher & Paykel Healthcare share price this morning following the release of a trading update out of the company.

According to the release, with the end of its financial year rapidly approaching, management now has a good idea of the revenue it will generate in FY 2022.

Based on current exchange rates, Fisher & Paykel Healthcare expects full year operating revenue for the 12 months ending 31 March to be in the range of NZ$1.675 billion to NZ$1.70 billion.

This represents a 13.7% to 15% decline year on year from NZ$1.97 billion in FY 2021.

Based on this, there has been a marked softening of its performance during the second half, as Fisher & Paykel Healthcare’s half year operating revenue was only down 2% over the prior corresponding period.

What’s happening?

Management explained that its performance has been impacted by softening demand in the hospital consumables segment due to the Omicron variant causing lower respiratory intervention requirements and a mild flu season in the Northern Hemisphere.

Fisher & Paykel Healthcare’s Managing Director and Chief Executive Officer, Lewis Gradon, said: “Our second half hospital consumables revenue is currently tracking to be similar to the hospital consumables revenue that we reported in the first half of the 2022 financial year. This is consistent with reports of the increasing prevalence of the Omicron variant over the last two months and its associated lower respiratory intervention requirements, as well as a relatively mild flu season in the Northern Hemisphere.”

“In our Homecare product group, growth in sales of our OSA masks is currently tracking above our first half growth rate despite supply constraints of treatment hardware in the market,” he added.

Also putting pressure on the Fisher & Paykel Healthcare share price is news that its margins have been impacted by higher freight costs.

Mr Gradon said: “Freight rates remain elevated and for the 2022 financial year are expected to impact our long-term gross margin target of 65% by approximately 250 basis points.”

Nevertheless, the Chief Executive Officer remains positive on the long term future of the company.

He concluded: “Regardless of how COVID-19 effects unfold over the short term, we are confident our business is well-placed to contribute to a positive change in clinical practice and improving outcomes for respiratory patients in general over the long term.”

The post Why the Fisher & Paykel Healthcare (ASX:FPH) share price is sinking 6% today 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. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

In 2006, Tesla (NASDAQ: TSLA) CEO Elon Musk laid out an audacious plan for the electric car company to go from a start-up with an expensive sports car in development to a volume manufacturer of fully electric vehicles. Few believed the CEO at the time — and for good reason. Starting a capital-intensive business in and of itself is no easy feat, let alone starting an auto manufacturing company.

Here’s how Musk summarized his plan in a 2006 blog post. 

Build sports car

Use that money to build an affordable car

Use that money to build an even more affordable car

While doing above, also provide zero emission electric power generation options

The plan was simple in words. But as investors would find out, the journey would be rife with challenges. Yet somehow Tesla managed to do the impossible. It has become a volume auto manufacturer, on pace to deliver well over 1 million vehicles in 2022 alone. At the same time, long-term investors in the growth stock have been rewarded handsomely.

Since then, Musk has provided a master plan update, which focused largely on the company’s aspirations to expand its energy business and develop autonomous driving technology. With these efforts well underway since the 2016-released ‘Master Plan, Part Deux’, the CEO has confirmed that Tesla is now working on part three to its master plan.

So, what’s next?

Bigger is better

The next growth phase of Tesla is about getting big — much bigger.

“Main Tesla [master plan part 3] subjects will be scaling to extreme size, which is needed to shift humanity away from fossil fuels, and [artificial intelligence],” Musk said on Twitter this week. The plan, Musk noted, will also include some details regarding his other two companies: space technologies giant SpaceX and underground tunnel specialist The Boring Company.

It’s no secret that Tesla’s current growth rates already put the company on a path to be one of the biggest auto manufacturers (by volume) in the world someday. Consider that Tesla exited 2021 with its vehicle deliveries growing at a rate of 71% year over year and management guidance for deliveries to grow about 50% or greater this year.

Further, Tesla has two new high-volume factories that it recently finished building. Altogether, the company has the pieces in place to be building several million vehicles per year as early as 2023.

Despite a wild trajectory already, Tesla may be planning on doubling down even more on its growth ambitions.

Streamlining manufacturing

Investors may have got an early glimpse into Tesla’s part three to its master plan in the company’s most recent earnings call. Management said it had shelved its efforts to bring to market new vehicles in the near term and even completely discarded aspirations to bring to market an even cheaper Tesla model at some point.

The rationale behind these moves was that (a) demand was sufficient without new models, and (b) bringing to market new models during a supply-constrained environment simply didn’t make sense.

“The fundamental focus of Tesla this year is scaling output,” Musk said in Tesla’s fourth-quarter earnings call. To do this, the company is focusing its engineering resources on the successful products it has already brought to market.

“So if we’d actually introduced an additional product, that would then require a bunch of attention and resources on that increased complexity of the additional product,” Musk added later in the call, “resulting in fewer vehicles actually being delivered. And the same is true of this year. So we will not be introducing new vehicle models this year.”

Of course, Tesla said it still plans to bring to market some new vehicles, including its long-awaited Cybertruck, Tesla Semi, and a redesigned Roadster sports car. But manufacturing streamlining and, ultimately, significant growth in production and delivery output appears to be the company’s main focus. And based on Musk’s preview of Tesla’s part three to its master plan, the company may be even more committed to this priority now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Elon Musk wants Tesla to be much, much bigger appeared first on The Motley Fool Australia.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Zip Co Ltd (ASX: Z1P) share price has sunk around 90% since February 2021.

Looking at the last 12 months, it is the worst performer in the S&P/ASX 200 Index (ASX: XJO). It’s down by around 80%.

It has been a painful period for many of the ASX’s buy now, pay later operators.

The Sezzle Inc (ASX: SZL) share price has dropped approximately 80% over the last year, with a 54% decline in 2022.

Another significant decline has been seen by the Splitit Ltd (ASX: SPT) share price, which dropped around 80% over the last year. In 2022 it has fallen around 40%.

The Openpay Group Ltd (ASX: OPY) share price has fallen around 86% in the last year. It has halved since the start of this calendar year.

Despite the massive decline of the Zip share price, its market capitalisation is still above $1 billion according to the ASX.

Growth to restart BNPL investor sentiment?

According to reporting by The Australian, the global buy now, pay later (BNPL) sector is expected by RBC Capital Markets to achieve a compound annual growth rate of 30% to 2025.

The United States was the location of the most growth in spending through e-commerce last year. US e-commerce spending grew 155% to US$56 billion. Globally, BNPL accounted for 2.9% of global e-commerce spending according to RBC, up from 1.6% two years prior. By 2025, this is expected to double, “bringing total spending to about US$440 billion.” Could this growth help the Zip share price?

The Australian noted that in Australia, BNPL grew by 40% last year, with BNPL amounting to US$5 billion of sales and 11% of the e-commerce market.

Why is buy now, pay later resonating so much with customers?

The Australian quoted RBC Capital Markets’ comments on the BNPL sector:

We think BNPL as a payment method helps to solve a number of consumers’ pain points, including affordability for larger items without the need to revolve, access to credit for those consumers who have an aversion to credit cards, while also tapping into meaningful demographic tailwinds (greater exposure to a younger customer).

On the merchant side, we think incremental sales, higher average baskets and access to deeper customer insights are all supportive for merchants’ desire to offer BNPL as a payment method at checkout.

Zip continues to scale quickly

In the Zip half-year result, the company announced rapid growth. Revenue rose 89% to $302.2 million.

It reported that Australian operations had delivered 14 consecutive quarters of positive cash flow. According to Zip, the US operations are also on a path to positive cash flow.

However, during the half year, the cash transaction margin declined to 2.1% (down from 3.7% in the prior corresponding period), reflecting rising bad debt costs reflective of current credit headwinds as well as an increased weighting towards the rest of the world.

Zip said it’s addressing its risk decisioning policies and collections and recoveries processes to immediately address the credit performance.

Is the Zip share price a buy?

UBS thinks there is more pain to come despite the considerable decline, with a price target of just $1.

From today’s share price, that price target implies a drop of more than 30%. That came after the lower-than-expected cash earnings and the recent corporate action of a planned acquisition of Sezzle as well as a capital raising at a price of $1.90. Those newly-issued shares are already down around 20%.

Morgans is much more optimistic, with a price target of $3.94. That suggests a rise of over 150% in the next 12 months.

The post From over $12 to $1.53 in little more than a year, why it may not be all bad news for the Zip share price appeared first on The Motley Fool Australia.

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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 ZIPCOLTD FPO. 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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BHP Group Ltd (ASX: BHP) is investing millions into an artificial technology business which could help it become even better at finding and processing resources.

BHP is one of the largest resource businesses in the world. But it continues to look for ways to become even more efficient and profitable. That’s why it is taking a greater interest in a business called Platlogic.

BHP invests in Plotlogic

The ASX mining share and venture capital company Innovation Endeavours (associated with former Google boss Eric Schmidt) have invested $25 million into Plotlogic, according to reporting by the Australian Financial Review.

This capital injection will be used to help grow Plotlogic’s international expansion, as well as bringing the newest scanning products to commercialisation. It has a revenue pipeline over the next year worth $93 million, so it is close to that hurdle of $100 million of revenue.

Plotlogic CEO Andrew Job founded the company in 2018 while completing his PhD at the University of Queensland.

Plotlogic uses advanced imaging and AI to ‘characterise’ ore in real-time. OreSense, the first commercial product, “combines LiDAR and hyperspectral imaging technology with advanced machine learning algorithms to deliver highly accurate ore characterisation.”

OreSense technology has been extensively developed and tested, with partnerships in place with BHP and other major mining companies. The AFR reported that it has clients including BHP, Anglo-American, South32 Ltd (ASX: S32), and Glencore.

Why the interest in Plotlogic?

BHP has already utilised Plotlogic to extend the Yandi iron ore mine’s life by at least another five years. Previously, it had told investors that this mine would come to the end of its life in 2021. Asian steelmakers reportedly favour the mine because of its low levels of impurities.

Job explained that drilling holes based on geological estimates can be costly and risky. It was described as “hit-or-miss” and that it can also create extensive environmental damage.

The AFR quoted Job explaining the benefits:

Geologists and miners are always looking for ways to strip out person risk on a site, as well as strip out long time-consuming processes.

Using sensors to scan an area and inspect a face without having to manually mark it up gives them so much extra time and saves them so many land management costs.

Talking about the Yandi mine, Job said to the AFR:

That project worked out great for us because it gave us a chance to develop our technology alongside BHP.

Knowing what they need means we can replicate the basics across different mine sites, and concentrate on the customisable part.

But BHP has also been looking for a better way to sort through leftover ore, which is deemed lower-quality. Reportedly, the Plotlogic technology made that process much easier.

Is the BHP share price a buy?

The brokers at Macquarie think so, rating the miner as a buy with a price target of $61. That implies a potential upside of around 25%.

The reason for the optimism is the stronger prices for its commodities, including iron and coal. BHP shareholders can also benefit from the stronger oil price, helping increase the value that BHP shareholders can receive from the Woodside Petroleum Limited (ASX: WPL) shares they will get from BHP’s petroleum divestment.

The post Why is BHP investing in this little-known AI company? appeared first on The Motley Fool Australia.

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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. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie 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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The Westpac Banking Corporation (ASX: WBC) share price has travelled sideways over the past decade.

In comparison, the S&P/ASX 200 Index (ASX: XJO) has zoomed higher across the same timeframe.

During 2020, Westpac shares fell to a decade low of $13.47 after the worldwide pandemic shocked global markets. Since then, the bank’s shares have somewhat recovered, however, they are still some way off reaching their pre-COVID-19 highs.

Nonetheless, let’s take a look and see how much an investor would have made if they had invested $10,000 in Westpac shares a decade ago.

How much would your initial investment be worth now?

If you spent $10,000 on Westpac shares exactly 10 years ago, you would have picked them up for $21.03 each. The purchase would deliver approximately 475 shares without reinvesting the dividends received from the company.

Looking at yesterday’s closing price, the Westpac share price finished at $23.62. This means those 475 shares would be worth $11,219.50.

In percentage terms, the initial investment implies a return of 12.2% or a yearly average return of 1.16%. Comparing that to the ASX 200, the benchmark index has given back 5.56% over a 10-year period.

What about the dividends?

Over the course of the last decade, Westpac has made a total of 21 dividend payments including 2 special dividends from 2012 to 2022. It’s worth noting that the last few dividend distributions were significantly reduced due to the pandemic severely affecting the company’s operations and bottom line.

Adding those 21 dividend payments gives us an amount of $16.16 per share. Calculating the number of shares owned against the total dividend payment gives us a figure of $7,676.00.

When putting both the initial investment gains and dividend distribution, an investor would have a total amount of $18,895.50.

As you can see from above, the dividends made up for the sagging Westpac share price over the decade.

In particular, the major banks have always been well regarded as strong dividend payers to investors.

Westpac share price snapshot

Over the past 12 months, the Westpac share price has travelled 4% lower but is up 10% year to date.

Westpac presides a market capitalisation of roughly $82.69 billion, making it the third-largest bank by value.

The post Here’s what $10,000 worth of Westpac (ASX:WBC) shares bought 10 years ago looks like today appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras 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 recommended Westpac Banking Corporation. 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 Flight Centre Travel Group Ltd (ASX: FLT) share price will be one to watch on Wednesday.

This follows the release of an announcement out of the travel agent giant after the market close yesterday.

Why is the Flight Centre share price on watch?

Investors may want to keep an eye on the Flight Centre share price today after the company revealed that two of its founders have been selling shares.

According to the release, change in substantial holding notices have been lodged for Flight Centre Travel Group’s three founding families. This follows trades by James Management Services and Gehar, which are entities associated with founders Bill James and Geoff Harris respectively.

And while a change in substantial holding notice has been filed for fellow founder and current Flight Centre Managing Director, Graham Turner, he hasn’t actually sold any shares.

Mr Turner’s notice was filed due to his involvement in a shareholders’ deed of pre-emption between the three founding families.

What does this mean?

The release explains that the deed, which was put in place ahead of Flight Centre’s ASX listing in 1995, grants each founder certain pre-emptive rights in relation to the other founders’ Flight Centre shares.

This means that, subject to limited exceptions, these rights restrict the founders from disposing of their shares unless those shares are first offered to the other founders on a pro rata basis.

As a result, each of the founding shareholders is deemed to have a relevant interest in the founders’ combined holdings and therefore each founder is required to provide a change in substantial shareholder notice if trades by the founding shareholders increase or decrease their combined holdings by more than 1%, as reflected in today’s announcements.

The three founders still have a sizeable stake between them. Flight Centre highlights that their combined interest represents 22.08% of Flight Centre as of the date of this announcement.

The post 2 founders have been selling Flight Centre (ASX:FLT) shares. Here’s what you need to know 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. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel 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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Supermarket giant Woolworths Group Ltd (ASX: WOW) has had a loyal following among investors in recent years.

Despite dipping more than 6% this year with the rest of the market, the stock has grown 64% over the past 5 years. This is all while giving out a handy 2.6% in dividend yield.

Groceries are always in demand, regardless of economic cycles. And Woolworths, as market leader, has enviable pricing power to cancel out headwinds like inflation and rising interest rates.

But, believe it or not, there is a growth stock that’s rarely talked about in the same sentence as Woolies, that is comparably better.

That’s the opinion of Firetrail portfolio manager Blake Henricks who has high conviction on Resmed CDI (ASX: RMD) shares.

“It’s a world leader in sleep apnoea,” he told a Pinnacle webinar.

“The reason it’s got such an attractive business is there’s around 400 million people who suffer from a sleep disorder or sleep apnoea. And today, Resmed has 16 million customers.”

Resmed’s biggest rival stumbles

The Firetrail team’s conviction in Resmed ramped up in June last year when its major competitor Koninklijke Philips NV (AMS: PHIA) was forced to recall its sleep breathing machines.

“They’re going to be replacing and repairing 5 million devices,” said Henricks.

“We believe that these market share opportunities that Resmed’s been offered up because of the product recall are material — and will last multiple years.”

The recall is significant because Philips is the second biggest player in the market, immediately behind the leader Resmed.

And the impact of Philips’ misfortune isn’t just a finger-in-the-air guess. Henricks’ team had a precedent in mind.

“We’ve seen this movie before. Cochlear Limited (ASX: COH) had a major recall back in 2011,” he said.

“Subsequently, their market share dropped the next 8 years.”

Resmed vs Woolworths: I know which one I’d choose

The Resmed share price has dropped almost 13% over the past 6 months, but Henricks puts this down to macroeconomic forces.

While the world worries about rising interest rates and wars in Europe, the future potential for the medical device business just cannot be denied, according to Henricks.

“When we compare it to other growth stocks, quality stocks or defensive stocks — of which Resmed is all 3 — we now see an amazing opportunity to buy Resmed at a major discount.”

Henricks added that investors can currently buy Resmed shares for less than 30 times PE [ratio], based on projected financial year 2023 earnings.

“It’s actually not too far away from Woolworths,” he said.

“When we compare the two, Resmed is the clear winner… Resmed is a standout opportunity — it’s got a low valuation and very high growth.”

Resmed shares closed Tuesday at $34.41 each.

The post Cheap ASX share better than Woolworths (ASX:WOW)– and it pays dividends appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo owns ResMed Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has recommended ResMed Inc. 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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Long-time investors would be well aware of the ASX shares that have put smiles on the faces of shareholders over many decades.

The team at QVG Capital likes to call them the ‘ASX Hall of Famers’.

“Names like REA Group Limited (ASX: REA), CSL Limited (ASX: CSL), Aristocrat Leisure Limited (ASX: ALL), Reece Ltd (ASX: REH), Cochlear Limited (ASX: COH), Domino’s Pizza Enterprises Ltd (ASX: DMP), ARB Corporation Limited (ASX: ARB), Resmed CDI (ASX: RMD), and JB Hi-Fi Limited (ASX: JBH) are all undisputed ‘winners’,” QVG portfolio manager Chris Prunty posted on Livewire.

“All these companies have been at least 20-baggers with CSL and REA returning over 100x to patient shareholders.”

So what makes a hall of famer?

Prunty’s team’s analysis showed up 3 specific attributes these evergreen stocks had in common:

• High return on capital combined with revenue growth
• Pricing power or unit economics that “crush the competition”
• Strong balance sheet

“What’s clear from the data is that high returns on capital and compounding revenue growth for many years in the teens is the ‘secret’ to gaining access to this elite cohort.”

So that’s all fine, but the existing Hall of Famers have already had their exponential growth.

How do you find the next one?

A prime candidate for the Hall of Fame

Prunty singled out Objective Corporation Limited (ASX: OCL) as a stock that’s bound for the hall of fame.

To be fair, Objective has already served investors pretty well, rising more than 680% over the past 5 years.

“But the combination of very low customer churn and consistent reinvestment in product R&D means that we think Objective can continue to grow revenue in the mid-teens for many years.”

Last year, NAOS Asset Management portfolio manager Robert Miller told The Motley Fool that he would hold Objective shares for years to come. 

“They are continually reinvesting in the product and the software offering to make it a benefit for their customers, which in turn drives growth, which they in turn reinvest back in the businesses, and it becomes a bit of a perpetual cycle like that.”

The Objective share price has fallen just short of 17% this year to date, presenting a buying opportunity.

According to Prunty, the drivers for long-term returns are quite different to making a quick buck on the share market.

“In the short-term, the change in multiple — or sentiment — accounts for almost half the returns from holding a stock,” he said.

“However, as time frames extend beyond a year, fundamentals such as revenue growth and margins — the sum of which is earnings growth — come to dominate as the source of returns.”

He added that hall of famers also have low debt.

“The maths is irrefutable. If we can identify companies that can deliver these numbers for many years and are patient enough to hold them, then good things will happen.”

The post The next ASX share ready to join the 20-bagger club: expert appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo owns CSL Ltd., Cochlear Ltd., and ResMed Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended CSL Ltd., Cochlear Ltd., and Objective Corporation Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has recommended ARB Corporation Limited, Cochlear Ltd., Dominos Pizza Enterprises Limited, REA Group Limited, and ResMed Inc. 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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If you’re looking for growth shares, then look no further. Listed below are two ASX growth shares which have been tipped for strong growth in the future.

Here’s why analysts have rated them as buys:

Dicker Data Ltd (ASX: DDR)

The first growth share to look at is Dicker Data. It is a leading technology hardware, software, and cloud distributor with over 44 years of experience and over 8,000 reseller partners across the ANZ region. From its new state of the art distribution centre, the company distributes a wide portfolio of products from the world’s leading technology vendors. This includes Cisco, Citrix, Dell Technologies, Hewlett Packard Enterprise, HP, Lenovo, Microsoft, and other Tier 1 global brands.

The team at Morgan Stanley is very positive on Dicker Data’s outlook thanks to ongoing industry tailwinds. As a result, it recently commenced coverage on the company with an overweight rating and $16.00 price target.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another growth share to look at is Domino’s. It is one of the world’s largest pizza chain operators with stores across the ANZ, Asia-Pacific, and European regions. At the end of the first half, the company had a total of approximately 3,200 stores across its network. While this is a large number, management still sees plenty of expansion opportunities. In fact, it is aiming to double its store network in existing markets by 2033. It also has the balance sheet capacity to expand into other markets through acquisitions.

Morgans is bullish on the company. It currently has an add rating and $115.00 price target on Domino’s shares. It said: “DMP remains a growth story. It has a platform to deliver a positive trajectory of sales and earnings as its store rollout strategy continues and network efficiencies increase.”

The post Experts name 2 stunning ASX growth shares to buy now 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 Dicker Data Limited. The Motley Fool Australia owns and has recommended Dicker Data Limited. The Motley Fool Australia has recommended Dominos Pizza Enterprises 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 largest listed investment company (LIC), Australian Foundation Investment Co. Ltd (ASX: AFI), has billions of dollars invested in S&P/ASX 200 Index (ASX: XJO) shares.

AFIC’s investment style is to buy shares in listed companies and hold them for the medium to long-term. It aims to reduce costs with minimal transacting, generating “sound, tax-efficient, long-term returns.” AFIC does not seek to trade business cycles.

By combining the benefits of investing in quality companies with diversification, the AFIC investment process seeks to produce attractive returns with lower volatility.

What counts as quality for AFIC?

AFIC says that it looks for ASX shares that are in attractively structured industries with unique, high-quality assets, brands and/or business footprints that can withstand the business cycles.

It looks for company leadership strength, with disciplined financial metrics covering returns on investment, profit margins, cash flow and gearing. The AFIC view is that those businesses will generate superior returns over the long term.

What ASX 200 shares does the LIC own?

AFIC has a diversified portfolio of many names. However, on 28 February 2022, there were nine positions where it had more than $250 million invested in each holding:

Commonwealth Bank of Australia (ASX: CBA) was 8.6% of the portfolio, with $738.3 million allocated.

BHP Group Ltd (ASX: BHP) was 7.5% of the portfolio, with $649.8 million allocated.

CSL Limited (ASX: CSL) was 7.2% of the portfolio, with $616.5 million allocated.

Macquarie Group Ltd (ASX: MQG) was 4.6% of the portfolio, with $398.9 million allocated.

Transurban Group (ASX: TCL) was 4.2% of the portfolio, with $365.4 million allocated.

Wesfarmers Ltd (ASX: WES) was 4.1% of the portfolio, with $355.3 million allocated.

Westpac Banking Corp (ASX: WBC) was also 4.1% of the portfolio, with $354.6 million allocated.

National Australia Bank Ltd. (ASX: NAB) was 3.7% of the portfolio, with a $322.8 million allocation.

Woolworths Group Ltd (ASX: WOW) was 3% of the portfolio, with $254.6 million allocated.

As readers can see, these are very large bets on the nine different ASX 200 shares, demonstrating investment confidence by AFIC.

Recent AFIC investments

While the above businesses are the current holdings, AFIC’s most recent investments may indicate where it has recently seen long-term value.

Four of the ASX shares it has invested in recently include CSL, Transurban, JB Hi-Fi Limited (ASX: JBH) and Coles Group Ltd (ASX: COL).

AFIC thinks that Transurban has a good track record of allocating capital, which has driven long-term free cash flow higher. The LIC is expecting a recovery for Transurban in FY23. The toll road operator also has an attractive pipeline of potential opportunities, according to AFIC.

Another ASX 200 share that AFIC has recently invested in is CSL, a huge biotechnology business that specialises in the treatment of rare diseases and influenza. AFIC likes CSL’s track record of achieving growth while investing around 10% of global sales into research and development. AFIC is also a fan of the Vifor Pharma acquisition, which is a new growth area for CSL treating kidney disease and iron therapy.

The post Which ASX 200 shares is AFIC (ASX:AFI) betting on to make money? appeared first on The Motley Fool Australia.

More reading

• The company outperformed when it last reported, so why has the CSL share price been languishing?
• 3 buy-rated blue chip ASX 200 shares according to experts
• Why expert says this supermarket ASX share is a better bet than Woolworths (ASX:WOW)
• Worried about how rising petrol prices might impact the Transurban (ASX:TCL) share price? Read this
• Do ASX biotech shares offer ‘good buying’ after the sell-off? Experts weigh in

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 CSL Ltd. The Motley Fool Australia owns and has recommended COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. 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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