Day: 18 September 2022

If you’re looking for an easy way to invest your hard-earned money, then exchange traded funds (ETFs) could be worth considering.

Rather than deciding on which individual shares you should put your funds into, ETFs allow you to invest in a large group of shares through just a single investment.

With that in mind, here are two ETFs that are highly rated:

BetaShares Global Energy Companies ETF (ASX: FUEL)

The first ETF that investors might want to look at is the BetaShares Global Energy Companies ETF.

As you might have guessed from its name, this ETF provides investors with an easy way to gain exposure to the booming energy sector.

And while oil prices have recently softened, they look unlikely to fall much lower. Particularly given how oil cartel OPEC has threatened to cut production to boost prices.

This would be good news for the companies held by the fund. These include BP, Chevron, ConocoPhillips, ExxonMobil, Halliburton, Kinder Morgan, Phillips 66, Royal Dutch Shell, and Total. BetaShares notes that these companies are larger, more geographically diversified, and more vertically integrated than Australian-listed energy companies.

VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)

Another ETF for investors to consider is the VanEck Vectors Video Gaming and eSports ETF.

This ETF gives investors access to a portfolio of the largest companies involved in video game development, hardware, and esports. This is an industry benefiting from an estimated 2.7 billion+ gamers globally, which is more than active Apple phones and Netflix subscriptions combined.

According to Statista, revenue in the video games segment is projected to reach US$208.60 billion in 2022 and then grow almost 8% per annum through to US$304.70 billion by 2027.

This bodes well for the companies included in the fund such as graphics processing unit developer Nvidia and gaming giants Electronic Arts, Nintendo, Roblox, Take-Two, and Tencent.

The post 2 high quality ETFs for ASX investors in September appeared first on The Motley Fool Australia.

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More reading

• 2 tech ETFs I think are smart buys in September
• 3 wonderful ETFs for ASX investors to buy today
• Why I’d buy these 2 ASX ETFs right now
• 3 fantastic ETFs for ASX investors to buy today
• 3 quality ETFs for ASX investors in September

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 BetaShares Global Energy Companies ETF – Currency Hedged. The Motley Fool Australia has recommended VanEck Vectors ETF Trust – VanEck Vectors Video Gaming and eSports ETF. 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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Investors that are wanting to diversify their portfolio with some mining sector exposure might want to check out the two ASX 200 shares listed below.

Both have been tipped as top options for investors in the sector with meaningful upside potential. Here’s what you need to know about these mining shares:

BHP Group Ltd (ASX: BHP)

The first ASX 200 mining share that has been named as a buy is BHP.

The Big Australian is of course one of the world’s largest miners with a collection of high quality operations across a range of commodities. This includes coal, copper, iron ore, and nickel.

The team at Morgans are bullish on the mining giant. This is thanks to the company’s diverse operations, which they feel make it a lower risk option for investors. The broker commented:

We view BHP as relatively low risk given its superior diversification relative to its major global mining peers. The spread of BHP’s operations also supplies some defence against direct COVID-19 impact on earnings contributors. While there are more leveraged plays sensitive to a global recovery scenario, we see BHP as holding an attractive combination of upside sensitivity, balance sheet strength and resilient dividend profile.

Morgans has a buy rating and $48.00 price target on BHP’s shares.

Iluka Resources Limited (ASX: ILU)

Another ASX 200 mining share for investors to consider is Iluka.

It is a mineral sands and rare earths company that owns a number of quality projects across South Australia and Western Australia. One of these is the exciting Eneabba project, where the company is developing a fully integrated rare earths refinery.

Goldman Sachs is very positive on Iluka. This is due to its strong production growth outlook and exposure to in-demand rare earths. The broker commented:

We are positive on ILU’s project pipeline and forecast >40% production growth in mineral sands volumes, c.18ktpa of Rare Earths (~3.5-4ktpa of high value NdPr). We think ILU’s Eneabba RE refinery is a strategic asset considering it will be only the third western world RE refinery

Goldman Sachs currently has a conviction buy rating and $13.30 price target on Iluka’s shares.

The post Analysts name 2 ASX 200 mining shares to buy appeared first on The Motley Fool Australia.

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More reading

• Could the latest news out of China bode well for ASX 200 iron ore shares?
• BHP shares: Buy, hold, or fold?
• 3 blue-chip ASX 200 shares touting the highest dividend yield in September
• What’s with ASX copper shares on Thursday?
• ASX 200 shares dump $60 billion in horror session. Here’s how Wednesday unfolded

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 Scott Phillips.

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People will often refer to ‘recession-proof’ investments. Companies that can weather tough economic environments. Consumer staples, such as your supermarket giants and agricultural commodity providers, are often put into this category.

However, the following ASX All Ords share operates in an industry that is as dependable as it gets.

No matter the state of the economy, people will continue to pass away. It is a sad, but inevitable, fact of life. However, for an investor, a funeral service provider could offer a stable and consistent holding to their portfolio.

Personally, I believe Propel Funeral Partners Ltd (ASX: PFP) has huge growth potential in a timeless industry… and here’s why.

Fragmented market ripe for consolidation

The funeral services industry is probably not discussed much due to the nature of the business. Let’s be honest, it doesn’t exactly make for the most cheerful of topics. Though, I tend to think — because of this — it is often overlooked as a worthwhile investment.

There are quite a few compelling tailwinds for the sector. Most notably, the industry is highly fractured — with the majority of funerals in Australia handled by small family-owned and operated service providers. Propel Funeral Partners estimates that around 71.3% of the market consists of these smaller businesses.

This provides a large opportunity for a fast-growing ASX All Ords share, such as Propel, to consolidate the industry. Its main competition is fellow ASX-listed funeral operator Invocare Limited (ASX: IVC), with a market share of 21.7%.

Given the sizeable domestic market opportunity, I believe Propel could continue to win market share and consolidate the industry. Already, the company has demonstrated a successful acquisition strategy. In six years, Propel has grown its revenue from $22.4 million to $145.2 million.

During FY22, the ASX All Ords constituent tallied up six acquisitions for a total of $21 million. Based on the company’s available funding capacity of $136 million, it appears positioned to continue to grow its market share.

In my eyes, it seems the market is unwilling to expect the same level of growth from Propel as it has demonstrated in the past. I’m of the opinion that the management team will continue to execute its strategy.

How has this ASX All Ords share fared?

Over the last 12 months, this ASX All Ords share has far exceeded the market average return. Propel shares are up an impressive 17.9% during this time. Meanwhile, the S&P/ASX All Ordinaries Index (ASX: XAO) has tumbled 10%.

In my opinion, that’s a pretty good example of how reliable this company can be. After all, it operates in a market where every single person uses its service — even if it’s only once.

The post They say there are only 2 guarantees in life, and this ASX All Ords share is focused on 1 of them appeared first on The Motley Fool Australia.

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More reading

• Propel Funeral Partners share price dips despite ‘another record year’

Motley Fool contributor Mitchell Lawler 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 Propel Funeral Partners Ltd. 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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Two opposing views by Wall Street gurus will only add to investors’ angst as the market ends the week deep in the red.

The S&P/ASX 200 Index (ASX: XJO) lost 1.4% to 6,747 on Friday and is down around 3% for the past week.

The weakness won’t surprise many as history has shown September and October to be among the worst times of the year for global share markets.

What is the market’s next move?

But those debating whether to buy the dip for the much anticipated Christmas rally will be torn by conflicting forecasts from Cathie Wood and Ray Dalio.

Wood is the founder of Ark Investment Management and was named top stock picker of 2020 by Bloomberg. Dalio is a billionaire investor and founder of the world’s largest hedge fund, Bridgewater Associates.

Wood is using the market weakness to snap up shares while Dalio is warning of another sharp drop for equities.

Inflation outlook will decide market direction

Their opposite views can be essentially boiled down to inflation expectations. Ark Investment bought 27 shares on Tuesday amid the sharpest sell-off on the NASDAQ-100 (NASDAQ: NDX) since March 2020, reported Bloomberg.

Wood is playing chicken with the US Federal Reserve. The Fed unleashed the market volatility by aggressively hiking interest rates to control runaway inflation.

The buying spree is likely related to Wood’s prediction that high inflation will soon turn into deflation.

As inflation is bad for share valuations, deflation will arguably have the opposite effect. This is particularly so for tech shares, which have borne the brunt of the market sell-off.

Warnings of a new bear market

But not many would share her view on deflation. If anything, Ray Dalio reckons the market is underestimating the inflation problem.

In a tweet to his 234k followers, Dalio said:

Right now, the markets are discounting inflation over the next 10 years of 2.6 percent in the US. My guesstimate is that it will be around 4.5 percent to 5 percent long term, barring shocks (e.g., worsening economic wars in Europe and Asia, or more droughts and floods) and significantly higher with shocks.

He is also predicting that rates will have to rise to around 4.5% too and that will trigger a 20% drop in share prices. A peak-to-through fall of 20% or more would officially put shares in a bear market.

Foolish takeaway

However, Dalio stressed that these are only “guesstimates”. Who can blame him when central banks have gotten their inflation forecasts so wrong?

Perhaps the more important lesson from history is not to try to pick market bottoms. Over the longer-term, persistent investors have made good returns from buying quality shares – regardless of the market cycle.

The post Chalk and cheese: 2 iconic share investors couldn’t be further apart on the market’s next move appeared first on The Motley Fool Australia.

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More reading

• Why experts say these ASX growth shares are buys
• Netflix Stock: Headed to $240?
• Goldman Sachs names 3 mid cap ASX shares to buy
• Could the latest news out of China bode well for ASX 200 iron ore shares?
• Up 50% in a month, fundie reveals ASX micro-cap share in a ‘beautiful position’

Motley Fool contributor Brendon Lau 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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Looking for growth shares to buy? Listed below are two growth shares that have recently been named as buys.

Here’s what you need to know about these ASX growth shares:

IDP Education Ltd (ASX: IEL)

The first ASX growth share that analysts are tipping as a buy is language testing and student placement company IDP Education.

In respect to language testing, IDP is the co-owner of the IELTS test, which is the English test that is trusted by more governments, universities and organisations than any other. Demand for this test softened during the worst of the pandemic, but has since rebounded very strongly. This led to the company reporting bumper sales and profit growth for FY 2022 last month.

Goldman Sachs is confident that the company’s growth can continue in the coming years thanks to strong underlying system demand. It commented:

IEL is trading c.40% below its 5-yr average P/E premium to the ASX200 Industrials with a forecast 37% FY22-25E EPS CAGR, we remain Buy-rated. We have upgraded EPS in FY23/FY24 by 1.7%/0.8% on the back of the stronger FY22 result, continued strong revenue growth and margin expansion. The balance sheet is in a resilient position with c.A$40mn of net cash to facilitate any bolt-on acquisitions or ramp up in organic investment in new offices and technology.

Goldman has a buy rating and $35.50 price target on the company’s shares.

Treasury Wine Estates Ltd (ASX: TWE)

Another ASX growth share that has been tipped as a buy is Treasury Wine.

It is the wine giant behind popular brands including 19 Crimes, Wolf Blass, and the jewel in the crown, Penfolds.

It has been a turbulent few years for Treasury Wine. After being effectively kicked out of the lucrative China market, the company has been busy reallocating its sales into other markets. The good news is that this has been successful and the company is back on track again.

The even better news is that Morgans is expecting this strong form to continue in the coming years. It commented:

TWE owns much loved iconic wine brands, the jewel in the crown being Penfolds. We rate its management team highly. The foundations are now in place for TWE to deliver strong earnings growth from the 2H22 over the next few years. Trading at a material discount to our valuation and other luxury brand owners, TWE is a key pick for us.

Morgans has an add rating and $13.93 price target on the company’s shares.

The post Why experts say these ASX growth shares are buys appeared first on The Motley Fool Australia.

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More reading

• Broker names 2 of the best ASX shares to buy now
• Up 9% this year, could Treasury Wine shares still be ripe for the picking?
• 2 ASX growth shares analysts rate as buys right now
• ‘Unparalleled’: 2 experts reckon this ASX share is a long-term buy
• 2 ASX 200 shares named as buys by a top broker

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 Idp Education Pty Ltd. The Motley Fool Australia has recommended Treasury Wine Estates Limited. 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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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.

After getting annihilated in the first half of 2022, shares of streaming-TV giant Netflix, Inc. (NASDAQ: NFLX) have seen some upward momentum recently. Indeed, since July 1, the stock has risen about 25%. Of course, this gain still leaves the stock far from where it was at the beginning of the year. Shares are down more than 60% year to date.

An analyst from JPMorgan Chase thinks the stock could continue to rise from here. There’s increased investor interest in the stock ahead of the company’s upcoming launch of its ad business, Doug Anmuth said in a note to investors on Wednesday. How far could the stock rise? The JPMorgan analyst has a $240 12-month price target for the stock, indicating he believes there’s still meaningful upside for the streaming service company’s shares ahead.

Subscriber headwinds

While it’s encouraging to hear that Anmuth is betting Netflix stock can add to its already-impressive gains since the middle of this summer, a $240 price target notably only represents 7% upside from where shares are trading at the time of this writing. The reason for Anmuth’s conservative outlook for the stock? He believes there’s uncertainty surrounding how the company’s subscriber trends will add in the second half of 2022. So even if he’s optimistic about the potential for Netflix’s long-awaited ad-supported tier, headwinds to subscriber growth are keeping many investors on the sidelines.

Second-quarter subscribers fell sequentially for the second quarter in a row, declining from 221.6 million in the first quarter of 2022 to 220.7 million. Fortunately, Netflix guided for sequential growth in Q3, though the expected uptick is anemic. Netflix guided for 1 million new members in Q3. 

Until Netflix’s subscriber growth starts to pick up some speed, some investors and analysts may worry about the company’s long-term prospects.

Betting on ads

Fortunately, however, Netflix may soon drive enough top-line growth from the launch of its ad-supported tier to help soothe any investor concerns about the company’s suppressed subscriber growth. Management said in its second-quarter update that it expects to launch its first ad-supported tier early next year.

Investors are likely hoping the addition of a new way for consumers to watch Netflix content will attract incremental revenue. Indeed, it’s one of the key pillars behind management’s plan to reaccelerate its revenue growth.

“While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues),” Netflix said in the company’s second-quarter letter to shareholders.

Given Netflix’s near-term challenges with subscriber growth, Anmuth may be right to be conservative with his 12-month price target. But with shares priced at just 19 times earnings at the time of this writing, investors may not be fully appreciating the potential impact of a new ad business next year. Shares may be more undervalued than Anmuth’s $240 price target suggests.

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

The post Netflix Stock: Headed to $240? appeared first on The Motley Fool Australia.

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More reading

• Why Netflix was a star stock today
• What makes ‘Dividend Aristocrats’ a great investment for you?
• 3 great foreign companies to invest in right now

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Daniel Sparks 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 Netflix. The Motley Fool Australia has recommended Netflix. 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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If you’re looking for some options in the mid cap space, then you might want to check out the ones listed below.

Here’s why analysts at Goldman Sachs recently named these ASX mid cap shares as buys:

Adairs Ltd (ASX: ADH)

This homewares retailer is a mid cap ASX share to buy according to Goldman Sachs. Its analysts are very positive on the company due to its loyal customer base and store expansion opportunity. The broker currently has a buy rating and $3.05 price target on its shares. It commented:

The core Adairs business has a highly loyal customer base, and ongoing store roll-out opportunity: ADH is has a strong brand presence across Australia, a highly engaged and loyal customer base (>1mn Linen Lover members), and ongoing opportunity to roll out new and upsized stores. […] Attractive valuation and high dividend yield: we view valuation as undemanding with ADH trading on 6.9x FY23E P/E

Hipages Group Holdings Ltd (ASX: HPG)

Another mid cap ASX share that Goldman Sachs rates highly is Hipages. It is a leading Australian-based online platform and software as a service (SaaS) provider. The Hipages platform connects tradies with residential and commercial consumers, and also allows them to communicate and run general admin duties. Goldman sees it as a great long term option for investors. It currently has a buy rating and $2.20 price target on its shares. It commented:

Longer term, we believe HPG presents a compelling long growth opportunity as it builds out an essential ecosystem of services for tradies

Temple & Webster Group Ltd (ASX: TPW)

This online furniture retailer is another mid cap share to buy according to the broker. Goldman likes the company due to its leadership position in a market that is in the process of shifting online. The broker recently initiated coverage on the company’s shares with a buy rating and $7.55 price target. It said:

We believe the business has a material runway for long-term growth, supported by a large and growing TAM driven by increasing e-commerce penetration which still lags other comparable markets (Aus 16% vs. UK/US 28%/25%), even after a large pull forward in online sales over the last 2-3 years. […] We believe TPW can deliver long term structural growth, despite a slowdown in the near term macro environment.

The post Goldman Sachs names 3 mid cap ASX shares to buy appeared first on The Motley Fool Australia.

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More reading

• I think this exciting ASX 300 share is a buy in the sell-off
• Top brokers name 3 ASX shares to buy today
• I think these 2 high-yield All Ords ASX dividend shares are buys in September
• 2 ASX growth shares analysts rate as buys right now
• Goldman Sachs names 2 exciting small cap ASX shares to buy

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 ADAIRS FPO, Hipages Group Holdings Ltd., and Temple & Webster Group Ltd. The Motley Fool Australia has positions in and has recommended ADAIRS FPO and Hipages Group Holdings Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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 iCollege Ltd (ASX: ICT) share price finished in the green on Friday, up 7.7% to 21 cents. Over the past month, the ASX share has ascended 50% in value.

The micro-cap ASX share is having a great 2022 so far. While the S&P/ASX All Ordinaries Index (ASX: XAO) has been falling 12%, the iCollege share price has gained 71%. Now that’s an outperformance.

iCollege is a leading vocational education provider comprised of businesses providing accredited and non-accredited training across Australia.

In an interview on Livewire, 1851 Capital’s Chris Stott says iCollege shares are a buy.

Stott said:

This company’s in the beautiful position that they’ve got extraordinary demand for their product in the form of students coming back into the country post-COVID-19.

They can travel again, they’re having to add capacity in the form of new facilities to house a lot of these students.

So again, strong balance sheet, very well run, with the merger with RedHill not so long ago, so buy.

Stott is referring to iCollege’s off-market takeover of RedHill Education Limited in October 2021. The deal was that RedHill investors would receive 9.5 iCollege shares for every RedHill share they owned.

iCollege received 94% support from RedHill shareholders, which enabled it to compulsorily acquire the remaining shares in October 2021.

What’s news at iCollege?

iCollege released its FY22 full-year results on 29 August.

Revenue was up 187% to $46.8 million on the prior corresponding period (pcp), with RedHill contributing $31.5 million.

Its earnings before interest, tax, depreciation, and amortisation (EBITDA) went up 37%. The company said growth was “driven by [the] RedHill acquisition and recovering international student revenues”.

The company said it expected revenue and profit “to materially increase in FY23”.

This is due, in part, to student numbers exceeding pre-COVID levels, growth in bachelor degree intakes, restructuring activities, and higher campus utilisation to improve earnings.

The company has a market capitalisation of $213.59 million.

The post Up 50% in a month, fundie reveals ASX micro-cap share in a ‘beautiful position’ appeared first on The Motley Fool Australia.

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More reading

• Could the latest news out of China bode well for ASX 200 iron ore shares?
• 2 ASX shares now at a buying opportunity after a shocking 2022: fundie
• Top brokers name 3 ASX shares to buy next week
• 60% of Warren Buffett’s portfolio is invested in these 3 stocks
• Experts name 2 ASX dividend shares for your retirement portfolio

Motley Fool contributor Bronwyn Allen 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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China is stepping up support for the housing industry and easing lockdowns in some areas. But how does this impact iron ore shares?

ASX 200 iron ore shares include BHP Group Ltd (ASX: BHP). Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG).

Could China’s property woes ease?

ASX 200 iron ore shares BHP, Rio Tinto and Fortescue are all major iron ore producers. Demand for iron ore from China, along with the iron ore price, can impact their overall profit and share price.

News on easing lockdowns in the city of Chengdu and measures to stimulate the property sector could boost demand for iron ore. Iron ore is used to make steel, and China is the world’s largest steel producer.

In a research note on Friday, ANZ head of Australian economics David Plank said easing curfews in Chengdu have aided the demand outlook for iron ore. He added:

The megacity has relaxed restrictions in some areas, spurring optimism that there won’t be a repeat of Shanghai’s two-month lockdown.

A report on measures to revive China’s real estate sector also helped sentiment.

China’s industrial production leapt 4.2% in August, higher than expected, a report from CNBC stated.

Meanwhile, an executive at a major global iron ore producer has also expressed optimism for the iron ore market amid tight supply.

Vale SA (NYSE: VALE) head of strategy and business transformation Luciano Siani Pires reportedly believes China’s lockdowns and real estate issues have been priced in already, with iron prices predicted to hold at US$95 to US$100 a tonne. Siani said:

The good news is that from now on it can only get better.

Share price snapshot

The BHP share price has gained nearly 4.6% in the past year, while Rio shares have lost 11%. Meanwhile, the Fortescue Metals share price has gained 2.6% in a year.

For perspective, the S&P/ASX 200 Materials Index (ASX: XMJ) has lost 3.5% in the past year.

The post Could the latest news out of China bode well for ASX 200 iron ore shares? appeared first on The Motley Fool Australia.

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More reading

• Hanging out for your Rio Tinto dividend? Here’s the latest
• BHP shares: Buy, hold, or fold?
• 3 blue-chip ASX 200 shares touting the highest dividend yield in September
• Morgan Stanley just boosted its outlook for aluminium. Here’s which ASX shares have exposure
• How big will the Fortescue dividend be in 2023?

Motley Fool contributor Monica O’Shea 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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Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Elvest Co portfolio manager Adrian Ezquerro tells what he’d do with a trio of ASX shares that have plunged in 2022.

Cut or keep?

The Motley Fool: Now let’s take a look at three ASX shares that have fallen a heap recently, to see whether you’d buy or stay away. 

The first one is Hansen Technologies Limited (ASX: HSN), which has dropped more than 20% since reporting season. What are your thoughts?

Adrian Ezquerro: Hansen’s a stock I’ve followed for a long period of time. Over 10 years now. And I agree, it’s certainly been a topical stock coming out of reporting season. 

For those who are unaware, it’s a utilities billing software company. It’s got a fantastic long-term track record with an owner-manager again at the helm. In fact, I think its compounded EPS [earnings per share] is close to 20% per annum over the past 15 years. Been [an] incredible performer. 

Specifically the FY22 result, the result itself was in line with expectations. But I think the outlook largely disappointed. So we’re looking ahead in terms of management guidance to slightly lower margins, probably more modest top-line growth than what may have been expected. 

But really, the reaction for us, to a degree, provides potential opportunity. 

History suggests Hansen excels in executing really value accretive M&A. They’ve done it for many years, have got a great playbook and they’ve added a lot of value for shareholders over the past 10 or 15 years. 

As they’re currently placed, they’ve got a strong balance sheet. We think in this market maybe vendor expectations might be becoming a little more realistic and the business is on a circa 7% free cash flow. We remain pretty optimistic on Hansen’s prospects. 

In this market, of course, it pays to be patient. Take your time. We’d say it’s probably a buy for a moderate position in a diversified portfolio, particularly for investors with a pretty long-term time horizon.

MF: The next one is online fashion retailer City Chic Collective Ltd (ASX: CCX). The share price has lost almost 70% this year.

AE: It’s always nice in hindsight that you can look back and say that prices have clearly stretched for what we think is still a pretty good quality business. I think it’s done well to get a growing position of emerging leadership within its niche, which is plus-size ladies’ fashion. 

As you say, it’s largely via the online channel. We think we’ve now got a pretty good foundation to grow its business and that’s on a global basis. Like Hansen, we think it’s not without risk, but it’s probably a buy for small to moderate weight in a diversified portfolio. 

I think the current market price of about 12 or 13 times forward earnings more than fully accounts in value for some of the concerns related to its inventory balance. 

More on that: the recent result was topical in that FY22 earnings were largely in line with previous guidance, but inventory was clearly higher than what was expected and that’s clearly spooked some investors. 

Management did flag strategic investment in inventory last year, and that was particularly around non-seasonal or evergreen clothing that will sell regardless of the time of year. And it did that from our discussions largely as it sought to diversify its supply chain. 

Once upon a time it was almost exclusively procuring product out of China, and I think in our view it’s quite sensible to seek to diversify that. Now there’s a ring around southeast Asia where they’re procuring product. And in order to secure that, they’ve had to put in initial orders from really different suppliers. 

Now management have actually guided to a running down of that inventory over the coming year, and this “we feel” will be a powerful driver that will release strong free cash flow if and when achieved. 

Certainly one to watch and we’re leaning towards a buy at this point, City Chic.

MF: The third one is Fisher & Paykel Healthcare Corp Ltd (ASX: FPH), which has painfully dropped 43% year to date.

AE: Yeah, I’d suggest it’s a hold. If you’re in there, for what it’s worth, I’d probably hold on. 

I mean, it was a very clear COVID beneficiary and they were really forthright about that. Basically said that hospitals were anxious about the potential impact and the strains that they might feel as a result of the impacts of COVID. The CEO himself actually said that they had 10 years’ worth of demand pushed into two years. They ramped up production and fulfilled that need. Clearly, there’s a bit of a glut sitting within their customer base. It was a clear COVID beneficiary and I think the recent difficulties and a subsequent share price reaction reflects the unwinding of the trends that we saw through COVID.

Earnings [are] now being rebased to perhaps a greater extent than what consensus was expecting, yet it’s still trading at a pretty significant premium in terms of earnings multiples, et cetera. 

To be fair, I think Fisher & Paykel is a high quality business, it’s really well placed with a strong brand and product set that’s been around for a long period of time. It’s got a great track record of execution. While I’d say it’s a hold on valuation grounds and while this excess inventory sort of pushes its way through, it’s certainly something I’d be very happy to have on the watch list of interest for the coming year or two.

The post 2 ASX shares now at a buying opportunity after a shocking 2022: fundie appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Here are the top 10 ASX 200 shares today
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• Here are the top 10 ASX 200 shares today
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Tony Yoo has positions in Fisher & Paykel Healthcare Corporation Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Hansen Technologies. 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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