Month: May 2022

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.

If you want to outperform the market over the long term, buy stocks in growing companies that generate high and/or rising returns on invested capital (ROIC) at fair or better valuations.

Comparing ROIC	Company A	Company B
Current EPS	$1	$1
Desired EPS growth rate	5%	5%
Return on invested capital (ROIC)	20%	10%
Reinvestment rate (solve using G = ROIC x Reinvestment)	25%	50%
Growth	5%	5%
Left to distribute (100% less reinvestment rate)	75%	50%
Free (or distributable) cash flow per $1 of EPS	$0.75	$0.50

Adapted from McKinsey & Co. book Valuation: Measuring and Managing the Value of Companies. 

As the first two charts above clearly show:

1. Companies with high ROIC outperform the market by a country mile and
2. Companies with rising ROIC outperform the market by a light-year.

This is because ROIC is the most important financial metric. It is the ultimate measure of profit and performance and a main driver of free cash flow (FCF), which is ultimately what we are after as investors.

Here’s a simple formula to show you just how powerful ROIC really is. That formula is

 

 

ROIC x Reinvestment Rate = Operating Profit Growth

 

 

Assume we have two companies (Company A and Company B) that aim to grow earnings at a rate of 5% per year, but Company A has an ROIC of 20% and Company B has an ROIC of only 10%. Under these parameters, Company A only has to reinvest 25% of its profits to grow earnings 5% (20% x 25% = 5%), but Company B has to reinvest 50% of its profits to grow earnings at the same 5% rate (10% x 50% = 5%). See the table above for the math.

The company with the higher ROIC has a lower reinvestment rate and will need to reinvest less capital to achieve the same level of earnings growth. And because the higher-ROIC business requires less capital (or reinvestment) to grow, it generates higher free cash flow (FCF), and free cash flow is what determines intrinsic value. Mathematically, companies with higher ROIC generate more FCF per dollar of earnings.

Let’s all say that together: Businesses with higher ROIC generate more FCF per dollar of earnings, and growth of free cash flow is what drives growth of intrinsic value!

Because these high-ROIC businesses generate so much FCF, they can finance their growth internally rather than relying on outside capital (other people’s money) to grow. This means less debt or less equity dilution for shareholders. They can invest more in fortifying their moats. They can invest in new initiatives to build new moats and new profitable growth streams over time. They can invest in taking care of stakeholders, including employees, customers, suppliers, communities, and the planet. They can set their own time frames, remain adaptable, and future-proof their businesses.

Finally, some of the excess FCF can be used to pay down existing debt, and what’s left over will sit on the balance sheet to build up an even larger net cash position (for many of our companies at least), which further strengthens the balance sheet and builds optionality.

Before moving on from the formula, it’s important to point out that a company cannot grow operating profit faster than its incremental ROIC without taking on outside financing. Basically, a business that generates an ROIC of 20% can’t grow operating profit faster than 20%, and to do so, it must reinvest 100% of its profits (20% x 100% = 20%). Remember this the next time you hear that so-and-so company can sustainably grow earnings at 40% or 50%. The answer is that it probably can’t without taking on outside financing.

Here’s more:

An increase in ROIC always increases intrinsic value.

But an increase in revenue growth does not always increase intrinsic value. Growth only increases business value if a company’s ROIC is greater than its weighted average cost of capital (WACC).

 

 

If ROIC > WACC then growth increases intrinsic value.

If ROIC = WACC then growth neither creates nor destroys value.

If ROIC < WACC then growth destroys intrinsic value.

 

 

This is why return on invested capital is more important than revenue growth…an increase in ROIC is always value added, but an increase in growth can actually destroy value, which is a big reason you’re seeing some profitless growth stocks blow up and fall 50% to 70% or even more.

Now, if ROIC is high, a percentage-point increase in revenue growth creates more value than does a percentage-point increase in an already-high ROIC. So when ROIC is high, companies should focus on growth and can even sacrifice some ROIC to drive growth (yes, some modest decline in ROIC can be a good thing). But when ROIC is low, a company must focus on increasing its ROIC (to get it above the WACC) before it shifts into growth mode.

Don’t overthink it. Understand the basics of intrinsic value growth! Focus on finding companies with strong balance sheets, high or increasing ROIC, and growing FCF, and then just don’t pay too much.

At the end of the day, FCF growth, what we pay for it, and having the proper mindset are pretty much all that matter for long term market-beating returns. 

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

The post Why return on invested capital is the most important investing metric appeared first on The Motley Fool Australia.

More reading

• Will the $2 billion Telus International up its bid for ASX-listed Appen?
• Why Catapult, Costa, Endeavour, and Whitehaven Coal shares are dropping
• Here’s what’s impacting the Qantas share price on Thursday
• What’s going on with the Australian Vanadium share price today?
• What’s the outlook for ASX 200 dividend shares in the second half of 2022?

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 Scott Phillips.

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

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a decline due largely to weakness in the resources sector. At the time of writing, the benchmark index is down 0.35% to 7,130 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

Catapult Group International Ltd (ASX: CAT)

The Catapult share price is down 11% to $1.02. This follows the release of a full-year result which revealed solid top line growth but widening losses. Annual contract value (ACV) was up 19.7% to US$63.9 million but Catapult’s underlying EBITDA swung from a profit of US$3.5 million in FY 2021 to a loss of US$5.8 million. Management advised that this reflects its additional investment in accelerating ACV growth.

Costa Group Holdings Ltd (ASX: CGC)

The Costa share price is down over 2% to $3.09. This morning the horticulture company clarified that its trading update yesterday didn’t include any concrete earnings guidance. This was in response to many media outlets mistakenly reporting the opposite.

Endeavour Group Ltd (ASX: EDV)

The Endeavour share price is down 4% to $7.36. Investors have been selling this drinks company’s shares following the release of its investor day update which revealed an increase to capital expenditure plans. While the market doesn’t appear pleased with this news, analysts at Goldman Sachs remain positive. They commented: “Overall, we view this announcement as being positive vs street expectations but in-line with GSe. We remain comfortable with the Group’s balance sheet ability to fund this increased capex obligation.”

Whitehaven Coal Ltd (ASX: WHC)

The Whitehaven Coal share price is down 4% to $5.08. This has been driven by weakness in the resources sector today, which is weighing heavily on the performance of the ASX 200 index. At the time of writing, the S&P/ASX 200 Resources index is down 1.2%.

The post Why Catapult, Costa, Endeavour, and Whitehaven Coal shares are dropping appeared first on The Motley Fool Australia.

More reading

• Why are ASX coal shares sliding today?
• ASX 200 midday update: Appen rockets, Westpac super update
• Why is the Catapult share price tumbling 6% lower today?
• Australia’s renewable energy output could triple by 2030 under Labor. Will that impact these ASX 200 shares?
• Here’s why the Costa share price is shooting 8% higher today

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 positions in and has recommended Catapult Group International Ltd. The Motley Fool Australia has positions in and has recommended Catapult Group International Ltd. The Motley Fool Australia has recommended COSTA GRP FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Qantas Airways Limited (ASX: QAN) share price is up 1.31% during afternoon trade. The flying kangaroo is currently trading for $5.42 per share.

The Qantas share price is marching higher even as the S&P/ASX 200 Index (ASX: XJO) has returned its early gains to be down 0.39% at this same time.

What’s impacting the Qantas share price?

Investors could be bidding up the airline after it received positive coverage from UBS.

The broker just added Qantas to its ‘best ideas’ list.

If you’re not familiar with that, the list includes UBS’ most preferred ASX shares to hold over the next 12 months. Its analysts look at both the broader macro picture as well as company specific fundamentals.

While inflation, geopolitical turmoil and rising interest rates throw up plenty of headwinds, Australia’s unemployment rate is at historic lows and households remain cashed up post the lengthy COVID restrictions.

And it’s the strength of the Aussie economy during the reopening that has UBS bullish on the Qantas share price.

“Qantas is also added to our most preferred as a means to fully capture the domestic economy’s reopening momentum, and the strength in Airlines globally,” UBS said.

Higher jet fuel costs to trim capacity

In a press release this morning, Qantas reported that rising fuel costs over the past months will see it rebalance its capacity and fares.

Looking ahead to flying levels for July and August, the airline said domestic capacity would be reduced from 107% of pre-COVID levels to 103%.

The reduced capacity is unlikely to have a materially negative impact on the Qantas share price. As the airline reported, “These adjustments are not expected to materially impact customers due to the large number of flights on most routes.”

This could see its aircraft flying with fewer empty seats.

Qantas added that it “will continue to monitor market conditions and adjust capacity as needed”.

On the international front, capacity is forecast to remain just under 50% of pre-COVID levels by the end of the fourth quarter of FY22. Qantas expects international capacity to increase to some 70% by the end of the first quarter of FY23.

Qantas share price snapshot

The Qantas share price has gained 8% in 2022. That compares to a year-to-date loss of 4% posted by the ASX 200.

The post Here’s what’s impacting the Qantas share price on Thursday appeared first on The Motley Fool Australia.

More reading

• Guess which ASX 200 shares UBS just added to its ‘best ideas’ list
• Qantas share price on watch after massive acquisition
• 2 ASX blue-chip shares this top fund manager thinks are good value
• ‘Never waste a crisis’: Expert picks one ASX share he’d buy right now
• Zip just joined forces with another ASX 200 company

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 Scott Phillips.

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The Australian Vanadium Ltd (ASX: AVL) share price is slipping today, down 4.3% in afternoon trade.

Shares in the vanadium explorer closed yesterday at 4.7 cents and are currently trading for 4.5 cents.

Atop broader weakness in the ASX resources sector today, here’s what looks to be impacting the company.

Share purchase plan opens today

The Australian Vanadium share price is in the red after the company reported that its share purchase plan (SPP) is now open.

Eligible shareholders can invest as much as $30,000 in new AVL shares at the offer price of 4.7 cents. That’s 17.5% below the Australian Vanadium share price on 17 May, the company’s last day of trading before announcing the SPP offer.

The company is looking to raise $7.5 million but said it could raise more if there was sufficient investor appetite. And it may be the idea of unspecified additional share dilution that’s seeing the resource explorer trade lower today.

Commenting on the reasoning behind the capital raising, Australian Vanadium chairman Cliff Lawrenson said:

The funds raised under the Placement and SPP will be used to fund ongoing work at the company’s Australian Vanadium Project and to develop key downstream markets ahead of finalising debt financing and a Final Investment Decision, and for working capital, including costs.

In a separate announcement this morning, the company reported that its 100% owned subsidiary, VSUN Energy, has signed a memorandum of understanding (MOU) with North Harbour Clean Energy.

The MOU opens the door for VSUN Energy to help develop vanadium redox flow batteries being developed by North Harbour Clean Energy.

Commenting on the agreement, Australian Vanadium managing director Vincent Algar said: “Jointly the companies aim to grow the Australian vanadium energy storage sector and do justice to this Australian invented technology.”

Australian Vanadium share price snapshot

The Australian Vanadium share price has come under selling pressure since hitting five-year highs of 9 cents on 1 April.

Despite a significant retrace since those highs, shares remain up 50% year-to-date. That compares to the 7% loss posted by the All Ordinaries Index (ASX: XAO) so far in 2022.

The post What’s going on with the Australian Vanadium share price today? appeared first on The Motley Fool Australia.

More reading

• Why Australian Vanadium, John Lyng, Nufarm, and Unibail-Rodamco-Westfield are dropping
• Why is the Australian Vanadium share price crashing 17% today?
• Why has the Australian Vanadium share price crashed 31% in a month?
• 3 critical minerals you might not have heard of (and the ASX shares that have surged because of them)

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 Scott Phillips.

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Owners of ASX 200 dividend shares likely saw their payments cut during the COVID-19 pandemic. But they’ve also seen their shares go through one of the most impressive recoveries in the world.

And now, ASX 200 dividends could reach record levels in 2022. According to a new report, the second half of this year has the potential to be astronomical for dividend payments.

Australian shareholders may be handed more than $100 billion in dividends this year, according to the latest Global Dividend Index report from Janus Henderson Group (ASX: JHG).

Let’s take a closer look at the best ASX dividend stocks highlighted by the fund manager. These are the companies that Janus Henderson thinks are likely to continue doling out strong dividends.

Which ASX 200 shares could keep boosting their dividends?

ASX 200 shares could lead the way for Australia to post a record-breaking year of dividends in 2022. That’s despite the nation’s payouts plummeting during the pandemic.

The fund manager found Australia’s dividends slumped a whopping 37.3% during the height of COVID-19 while the rest of the world’s dipped just 16.7%.

But the reasons behind the ASX’s dividend dump also boosted payouts to a record high over the 12 months ended 31 March. Over the period, ASX companies handed investors $97.9 billion in dividends.

So which sectors have been driving this upwards trend? Perhaps unsurprisingly, higher commodity prices saw ASX 200 mining shares highlighted as some of Australia’s biggest and best dividend stocks.

BHP Group Ltd (ASX: BHP) was the world’s biggest dividend payer in the March quarter. It accounted for 32% of all dividends handed to ASX investors at that time. Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) were also among Australia’s best ASX dividend providers.

The fund manager expects miners’ dividends to continue growing over the rest of 2022. However, it warns that volatile commodity prices make its outlook less certain.

ASX 200 bank shares are also behind much of Australia’s dividends. They’re also expected to stay on track in the second half.

Commonwealth Bank of Australia (ASX: CBA) delivered the third-biggest dividend payout of the year ending March 31. Westpac Banking Corp (ASX: WBC) paid the fifth-highest dividend.

Interestingly, CBA, Rio, Fortescue, BHP, and Westpac accounted for nearly two-thirds of all ASX dividends over the year to March. That’s likely welcome news to those invested in the ASX 200 quintet.

However, the fund manager warned that this leaves shareholders dependant on fewer dividend stocks. This makes them vulnerable to difficulties that could cause big dividend-paying companies to cut their payouts.

Either company-specific events or broader catastrophes like pandemics or market crashes could see Australia lose a significant portion of its dividends in one swipe due to this high level of concentration.

The post What’s the outlook for ASX 200 dividend shares in the second half of 2022? appeared first on The Motley Fool Australia.

More reading

• Why is the Fortescue share price tumbling 4% today?
• ASX 200 midday update: Appen rockets, Westpac super update
• Are ASX 200 mining shares good options for dividends?
• Here’s why the Westpac share price is pushing higher today
• Australia’s renewable energy output could triple by 2030 under Labor. Will that impact these ASX 200 shares?

Motley Fool contributor Brooke Cooper 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 Scott Phillips.

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ASX coal shares are struggling on the market today.

The Whitehaven Coal Ltd (ASX: WHC) share price is falling 3.88% — having earlier been down almost 11% — and Allegiance Coal Ltd (ASX: AHQ) is dropping 4.35%. The S&P/ASX 200 Energy Index (ASX: XEJ) is 0.74% in the red at the time of writing.

Other ASX coal shares to fall include New Hope Corporation Limited (ASX: NHC), sliding 7%, and Coronado Global Resources Inc (ASX: CRN), falling 2.6%. Meanwhile, Yancoal Australia (ASX: YAL) is in a trading halt.

Let’s take a look at what could be impacting ASX coal shares today

Coal prices fall

ASX coal shares appear to be reacting to a decline in the coal price. Coal prices have descended 1.96% to US$400 per tonne, Trading Economics data shows.

Meanwhile, ministers from the G7 are considering phasing out coal energy by 2030. The energy, climate, and environment ministers are meeting in Berlin from Wednesday to Friday. A draft meeting document seen by Reuters states:

We commit to phase out domestic unabated coal power generation and non-industrial coal-powered heat generation aiming at the year 2030.

New Hope shares are declining today amid the company releasing its quarterly results. Coal sold in the quarter fell by 26.7% compared to the previous quarter.

Unseasonal rainfall and COVID-19 impacts on the workforce led to a “challenging quarter” at the company’s Bengalla operations in NSW. This operation lost 20,354 hours due to weather and labour issues. Despite this, the company reported thermal coal prices hit record highs after the Russian invasion of Ukraine.

In today’s AGM, Coronado Resources also highlighted Australian average index coal prices jumped by 32% in the first quarter of 2022. Spot prices hit a peak of US$670 per tonne in March.

Chairman William Koeck said he expects coal prices to moderate in 2022 but remain higher than historical averages. He attributed this to trade restraints from Russia and China and elevated thermal coal pricing “providing a floor” for metallurgical coal prices.

Coal miner Yancoal entered a trading halt today pending an announcement. As my Foolish colleague Aaron reported, the company share price is frozen pending a potential market transaction. Media speculates parent company Yankuang could be considering a bid for Yancoal.

Share price snapshot

The S&P/ASX 200 Energy Index (ASX: XEJ) has surged 27% in the past year, while it is rising 25% year to date.

Among ASX coal shares, the Whitehaven Coal share price has surged 236% in a year, while New Hope has soared 186%. Yancoal has soared 191% in a year, while Coronado has rocketed 249% and Allegiance is holding steady.

Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has climbed 0.38% in the past year.

The post Why are ASX coal shares sliding today? appeared first on The Motley Fool Australia.

More reading

• Coronado share price slips despite record coal prices
• Why is the Yancoal share price on ice today?
• ASX 200 midday update: Appen rockets, Westpac super update
• Here’s why the New Hope share price is tumbling 8% on Thursday
• Australia’s renewable energy output could triple by 2030 under Labor. Will that impact these ASX 200 shares?

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 Scott Phillips.

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The Lake Resources N.L. (ASX: LKE) share price has reversed most of its gains in the past month, down 30%.

This comes despite the company not releasing any price-sensitive news since its quarterly activities and cash flow report in April.

However, at the time of writing, the clean lithium developer’s shares are clawing back some lost ground, currently up 4.23% to $1.48.

Let’s take a look at what could have been driving the recent fall in the company’s share price.

What’s happening with Lake Resources?

The Lake Resources share price quickly rose from 96 cents at the beginning of March to reach an all-time high of $2.65 in early April.

However, investors are now offloading Lake Resources shares after heavy falls across the broader market this month.

This follows a series of market shocks such as China’s COVID-19 lockdown — which dented demand for lithium — the Russian war in Ukraine, and inflationary movements.

Another possible factor is the price of lithium, with lithium carbonate now trading below the highs it achieved in late March.

Fellow ASX lithium shares Liontown Resources Limited (ASX: LTR) and Sayona Mining Ltd (ASX: SYA) are also well in the red over the past month, down 19% and 43% respectively.

For context, the S&P/ASX 200 Index (ASX: XJO) has tumbled 4.7% in the past 30 days.

Furthermore, the S&P/ASX 300 Metals and Mining Industry (ASX: XMM) is down 5% over the same timeframe. The index contains companies in the top 300 ASX companies that are involved with gold, steel, and precious metals.

Lake Resources share price summary

Despite the recent fall, Lake Resources has been one of the best places to invest in the past year.

The Lake Resources share price has travelled 467% higher since this time last year and is up 46% in 2022.

Based on valuation grounds, Lake Resources commands a market capitalisation of roughly $1.99 billion.

The post The Lake Resources share price has plummeted 30% in a month. What’s going on? appeared first on The Motley Fool Australia.

More reading

• Lake Resources share price tumbles again: Broker now sees almost 100% upside
• Lake Resources share price drops 9%: Is this a buying opportunity?
• Low charge: Is the party over for ASX lithium stocks?
• Which ASX 200 mining shares were the worst-performing on Friday?
• Why is the Lake Resources sliding 7% into the red on Friday?

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 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 Scott Phillips.

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a decline due largely to weakness in the resources sector. At the time of writing, the benchmark index is down 0.5% to 7,120.8 points.

Four ASX shares that are not letting that hold them back are listed below. Here’s why they are pushing higher:

ALS Ltd (ASX: ALQ)

The ALS share price is up 4% to $12.49. This appears to have been driven by a broker note out of Morgans this morning. According to the note, the broker has upgraded this testing services company’s shares to an add rating with a price target of $14.38. This follows the release of a solid FY 2022 result yesterday.

Appen Ltd (ASX: APX)

The Appen share price is up a massive 30% to $8.31. This has been driven by news that the artificial intelligence services company has received a takeover approach. Appen has received an unsolicited, conditional, and non-binding indicative proposal from Canada’s TELUS International to acquire it for $9.50 per share. This values Appen at approximately $1.2 billion. While management has engaged with TELUS, it appears to be looking for a higher offer.

Objective Corporation Limited (ASX: OCL)

The Objective Corp share price is up 3% to $15.53. This morning this software company revealed that it has been awarded a five-year NZ$13 million contract from the New Zealand Police for the implementation of the Arms Information System. Objective’s RegWorks will be used by New Zealand Police to manage the end-to-end regulation of registration and licensing for firearms.

WiseTech Global Ltd (ASX: WTC)

The WiseTech share price is up 3% to $41.03. Investors have been buying this logistics solutions company’s shares following a strong night on the tech-focused Nasdaq index. It isn’t just WiseTech that is rising today. The S&P/ASX All Technology Index is up 1.1% this afternoon despite the ASX 200 tumbling into the red.

The post Why ALS, Appen, Objective Corp, and WiseTech shares are pushing higher appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: Appen rockets, Westpac super update
• Appen share price rockets 35% on Telus takeover approach
• Appen share price on watch amid $1.2 billion takeover bid
• Why ALS, Costa, Superloop, and Worley shares are charging higher
• What’s happening with ASX 200 tech shares today?

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 positions in and has recommended Appen Ltd, Objective Corporation Limited, and WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Shares in iron ore magnate Fortescue Metals Group Limited (ASX: FMG) have stumbled from the open today and now trade 4% down at $19.82 apiece.

Meanwhile, the price of iron ore continues its downward run today, with prices softening by more than 5% over the previous month of trade.

In wider market moves, the S&P/ASX 300 Metals & Mining Index (ASX: XMM) is also down by around 2% today.

What’s up with the Fortescue share price?

Fortescue joins a list of mining giants incurring losses today as investors sell off mining stocks in favour of tech and software names.

Whilst the mining index has dipped by around 2% today, the S&P/ASX All Technology Index (ASX: XTX) has gained by a similar amount.

Certainly not helping Fortescue’s prospects today is the price of iron ore, which has slipped from a high of US$159 per tonne in early March to now trade at US$130/tonne.

“Prices for iron ore cargoes with a 63.5% iron content for delivery into Tianjin rallied to an almost three-week peak of around $135-per-tonne on worries over supply shortages and better demand prospects in the metals market due to pledges for more stimulus in top consumer China,” Trading Economics reports

“On the flip side [is] persistent worries that slowing global growth will hit metals demand and limit the metal’s upside momentum,” it added.

Given Fortescue is a price taker on iron ore, its share price can and does fluctuate with volatility in both the metal itself and the wider commodity sector.

With the price of iron ore taking a backward step in recent weeks, the story starts to form as to why investors might be selling off Fortescue shares in the near term.

That, and the uncertainty around the outlook for the global metals market may also be weighing in, particularly seeing the widespread selloff in ASX miners today.

In the last 12 months, the Fortescue share price has slipped almost 7% into the red, despite holding onto a 3% gain this year to date.

The post Why is the Fortescue share price tumbling 4% today? appeared first on The Motley Fool Australia.

More reading

• Are ASX 200 mining shares good options for dividends?
• Australia’s renewable energy output could triple by 2030 under Labor. Will that impact these ASX 200 shares?
• Why has the Fortescue share price gained 10% in a week?
• Can Rio Tinto shares deliver 20% growth AND a juicy dividend yield in the coming year?
• ASX shares paid out a record $98b in dividends in the 12 months to March. Which are the star performers?

Motley Fool contributor Zach Bristow 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 Scott Phillips.

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It doesn’t happen all that often, but this week the ASX and the S&P/ASX 200 Index (ASX: XJO) welcomed a new company to their ranks.

On Tuesday, The Lottery Corporation (ASX: TLC) was listed on the Australian share market. Lottery Corp used to be part of the gaming giant Tabcorp Holdings Ltd (ASX: TAH). But on Tuesday, all Tabcorp shareholders received one Lottery Corp share for every Tabcorp share owned.

This resulted in a huge drop in value for Tabcorp shares. The Tabcorp share price is currently 82% down since the announcement of the demerger. But there is a bevy of Lottery Corp shares to make up for it.

It’s been a bumpy ride for Lottery Corp shares in their first few days of ASX trading. The company reached a high of $4.78 during yesterday’s session. But the shares have tanked 1.8% so far today and are now priced at $4.57 each.

So now that this rather dramatic demerger has been completed, are Lottery Corp shares a buy today?

Are Lottery Corp shares worth buying?

Well, Lottery Corp has only been on the ASX for a few days. But even so, experts and brokers are starting to weigh in.

My Fool colleague James covered how analysts at Macquarie feel about the demerger earlier this week.

Macquarie reckons the best parts of Tabcorp have now left the business. It rates Tabcorp neutral with a share price target of $1 a share. That’s where Tabcorp shares are trading today. After a 2.94% slump since the opening bell, the Tabcorp share price is now 99 cents.

But Macquarie is more optimistic about the new Lottery Corp. The broker rates Lottery Corp outperform, and gives the new company a 12-month share price target of $5. If that came to pass, it would mean an upside of about 9% for investors.

Fellow broker Morgan Stanley is also bullish on Lottery Corp. As we covered just yesterday, Morgan Stanley has rated Lottery Corp shares overweight, citing its “monopoly positioning” across its markets.

This broker reckons the company could be worth $5.15 a share in a year’s time. It says Lottery Corp “provides a rare mix of defensiveness, growth, and yield”.

So that’s how two prominent ASX brokers are rating the new Lottery Corp share price. It will be interesting to see what course this new ASX 200 share charts over the next year.

The post Are newly-listed Lottery Corp shares worth buying? ASX brokers weigh in appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: Appen rockets, Westpac super update
• Guess which ASX 200 shares UBS just added to its ‘best ideas’ list
• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX shares today
• This is the top ASX 200 share I wish I’d bought when starting out

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 Scott Phillips.

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