Month: October 2022

Brokers say these ASX 200 dividend shares are buys
If you are looking for income options, you might want to check out the two ASX 200 dividend shares listed below.

That’s because brokers have just tipped these shares as buys with attractive forecast dividend yields. Here’s what brokers are saying about them:

Charter Hall Social Infrastructure REIT (ASX: CQE)

The first ASX 200 share to look at is Charter Hall Social Infrastructure REIT.

It is a real estate investment trust that invests in social infrastructure properties such as bus depots, police and justice services facilities, and childcare centres.

Goldman Sachs currently has a conviction buy rating and $4.35 price target on this dividend share.

The broker believes Charter Hall Social Infrastructure REIT is well-placed for growth in the coming years. This is thanks to the sector’s positive fundamentals and its strong balance sheet. Goldman commented:

[W]e continue to believe the REIT is relatively well positioned given the sector’s positive fundamentals and CQE’s strong balance sheet, with headroom and liquidity to pursue investment opportunities, although rising interest costs will be a near term headwind in FY23. Furthermore, we remain attracted to its relatively resilient cash flows, underpinned by triple net leases to strong tenant covenants.

In respect to dividends, Goldman is forecasting dividends per share of 17.3 cents in FY 2023 and 18 cents in FY 2024. Based on the current Charter Hall Social Infrastructure REIT unit price of $3.07, this will mean yields of 5.6% and 5.9%, respectively.

QBE Insurance Group Ltd (ASX: QBE)

Another ASX 200 dividend share that has been tipped as a buy is insurance giant QBE.

Morgans is very positive on the company and recently retained its add rating with a $14.93 price target on its shares. The broker believes that rising premiums and its cost cutting plans bode well for its performance in the near term. It commented:

With strong rate increases still flowing through QBE’s insurance book, and further cost-out benefits to come, we expect QBE’s earnings profile to improve strongly over the next few years. The stock also has a robust balance sheet and remains relatively inexpensive overall trading on ~9.1x FY23F PE.

As for dividends, Morgans is forecasting a 41.7 cents per share dividend in FY 2022 and then a 76.8 cents per share dividend in FY 2023. Based on the latest QBE share price of $11.30, this equates to yields of 3.7% and 6.8%, respectively

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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 Scott Phillips.

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4 October 2022
5 things to watch on the ASX 200 on Tuesday
On Monday, the S&P/ASX 200 Index (ASX: XJO) started the week with a decline. The benchmark index fell 0.3% to 6,456.9 points.

Will the market be able to bounce back from this on Tuesday? Here are five things to watch:

ASX 200 expected to rebound strongly

The Australian share market could have an excellent day after a stunning start to the week on Wall Street. According to the latest SPI futures, the ASX 200 is poised to open the day 128 points or 1.9% higher. In late trade in the United States, the Dow Jones is up 3%, the S&P 500 is up 2.9%, and the NASDAQ is storming 2.6% higher.

Oil prices jump

It could also be a great day for energy shares including Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) after oil prices jumped overnight. According to Bloomberg, the WTI crude oil price is up 4.8% to US$83.29 a barrel and the Brent crude oil price has risen 4.2% to US$88.73 a barrel. News that OPEC is planning its biggest output cut since 2020 has got traders excited.

Dividends being paid

Today is payday for the shareholders of a couple of popular ASX 200 shares. Rewarding their shareholders with dividends later today are private health insurance provider NIB Holdings Limited (ASX: NHF) and job listings giant SEEK Limited (ASX: SEK).

Miners to rise

Mining giants BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) will be on watch today after their US listed shares stormed higher on Wall Street overnight. Both are up 4% in late trade, which bodes well for their performance on the ASX 200 today. Improving investor sentiment and a softening US dollar have given them a boost.

Gold price storms higher

Gold miners such as Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) could have a great day after the gold price rebounded strongly overnight. According to CNBC, the spot gold price is up 1.95% to US$1,704.8 an ounce. The gold price lifted after the US dollar and bond yields retreated.

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Motley Fool contributor James Mickleboro has positions in SEEK Limited. 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 NIB Holdings Limited and SEEK 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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4 October 2022
Want to invest like Cathie Wood? Use these 3 principles
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.

Cathie Wood’s ARK Innovation ETF (NYSE: ARKK) is known for its aggressive bets on the cutting-edge companies of tomorrow. Between its holdings in lesser-known businesses with big potential, like Ginkgo Bioworks (NYSE: DNA), and its investments in more familiar names like Tesla (NASDAQ: TSLA), there’s a lot to appreciate about Wood’s approach to buying stocks.

While her flagship ETF is underperforming the market over the last three years, her investing style is worth learning about because it’s a great contrast to other famous investors like Warren Buffett. In particular, there are three principles Wood uses to select stocks that you’ll benefit from understanding, so let’s dive in.

1. Look for companies developing disruptive innovations

The pillar of Cathie Wood’s approach to investing with her company ARK Invest is to find businesses that are creating disruptive innovations. Disruptive innovations, in her conception, can take several forms, including technologies that significantly slash costs, technologies that change more than one industry or geographical region, and breakthroughs that enable other follow-on innovations in a handful of different product segments.

In practice, that means she invests these days in a lot of companies that are competing in artificial intelligence, robotics, autonomous vehicles, DNA sequencing, energy storage, 3D printing, and blockchain technology. Focusing on potentially disruptive innovators explicitly means not paying much attention to entrenched competitors. It means investing in players that are pioneering new business models or pioneering new fields entirely.

Take Ginkgo Bioworks, for instance. Its idea is to use robotics and other forms of automation to streamline the process of designing and manufacturing custom-built microorganisms for use in the biotechnology, agriculture, and food industries, among others. Management claims that with its expertise in automation, it’ll be able to benefit from economies of scale that drive down costs compared to other ways of accomplishing the same bioengineering and biomanufacturing tasks.

For the moment, Ginko Bioworks is unprofitable but rapidly growing. But if it succeeds, it’ll be a favorite collaborator in multiple industries, and its stock will soar over the course of years. And that’s why it’s a Cathie Wood favorite.

2. Seek outsized medium-term returns

Cathie Wood likes to invest in businesses that have the potential to become huge over the next three to five years or so as a result of their mastery of their markets, and enabled by disruptive innovations. In short, she doesn’t much care for businesses that can make consistent and incremental progress on their earnings year after year as they’re more likely to be less innovative competitors.

And exactly how big are the returns Wood is looking for? There’s no single answer, but here’s an example. In late August of this year, before Tesla’s latest stock split, its price was near $891. A month before, in late July, Wood had set an ambitious price target: Tesla shares would be worth $4,600 by 2026. That means within three and a half years, she anticipated that shares would grow by around 416%.

Therefore, if you want to follow Cathie Wood’s approach, look for businesses that could boom if their disruptive innovations are realized to their fullest potential.

3. Don’t focus on valuations

It’s officially part of ARK Invest’s screening process to evaluate stock valuations. But evidence indicates that pricey valuations are seldom a deal breaker for Cathie Wood, and that other factors, like a company’s potential to grow, are far more important when it comes to what makes the cut.

For example, in the first quarter of 2022, she bought shares of Tesla on numerous occasions. At the time, Tesla’s trailing 12-month price-to-earnings (P/E) ratio was between 343 and 219. For reference, the market’s average P/E since 1990 is a little over 23, so Tesla’s valuation was (and still is) on the very high side in comparison. That doesn’t deter Wood, though — with the run-up she anticipates, it makes complete sense to keep buying shares of an “overpriced” stock.

So, if you want to invest like Cathie Wood, don’t get fixated on valuations today. Tomorrow’s valuations are far more important to whether your investment is profitable.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
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Alex Carchidi 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 Tesla. 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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3 October 2022
The Novonix share price sunk to another 52-week low today. What’s gone so wrong?
The Novonix Ltd (ASX: NVX) share price fell dramatically this morning before recovering some of its losses.

The Novonix share price fell 5% by midday before recovering. The company’s share price finished the day 1.42% in the red. The company’s closing share price of $1.735 is its lowest point in a year. For perspective, the S&P/ASX 200 Index (ASX: XJO) slid 0.27% today.

So why did the Novonix share price have a rough day?

Novonix share price falls

The Novonix share price fell today, but it was not alone among ASX technology and battery metal shares. The S&P/ASX All Technology Index (ASX: XTX) dropped 1.33% today. Megaport Ltd (ASX: MP1) fell 2.44%, while Appen Ltd (ASX: APX) lost 1.92%. This followed the Nasdaq Composite (NASDAQ: .IXIC) in the United States descending 1.51% on Friday.

Novonix is a technology company supplying battery materials and equipment for the lithium-ion battery industry. ASX lithium shares also struggled today. For example, Sayona Mining Ltd (ASX: SYA) dropped 4.26%, while Core Lithium Ltd (ASX: CXO) fell 4.07%.

A couple of media reports on the electric vehicle (EV) industry have surfaced in the past day. For example, in a report on CNBC on Sunday US time, Toyota CEO Akio Toyoda predicted EV adoption could be slower than people think. He said:

Just like the fully autonomous cars that we are all supposed to be driving by now, EVs are just going to take longer to become mainstream than media would like us to believe.

Further, one analyst predicted a “rough patch” for electric vehicles in a media report today. OANDA senior market analyst Ed Moya, in quotes cited by the ABC, said:

I think that [electric vehicles] are in for probably a little bit of a rough patch, just because people are probably going to be a little bit hesitant and less urgent to buy something new.

The Reserve Bank of Australia (RBA) is tipped to raise interest rates by 0.5% on Tuesday.

Share price snapshot

The Novonix share price has dropped by 73.5% in the past year, while it has fallen 81% in the year to date.

For perspective, the benchmark ASX 200 has fallen 10% in the past year.

Novonix has a market capitalisation of around $856 million based on the current share price.

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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 positions in and has recommended Appen Ltd and MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT 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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3 October 2022
2.2 billion reasons to buy Netflix stock
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.

There are two prevailing opinions of the upcoming, ad-supported version of Netflix‘s (NASDAQ: NFLX) streaming service. Some investors are cheering the possibility of reigniting subscriber growth, while others are concerned that an ad-supported option tarnishes the brand. Very few observers, however, have a clear idea of what to expect once this tier launches later this year.

Relevant information is hardly out of reach, though. One only has to look at the results that Netflix’s competitors are producing as well as Netflix’s own outlook regarding its ad-supported platform. Spoiler alert: There’s more to like than dislike.

Here come the ads

On the off chance you’re reading this and aren’t aware, Netflix intends to launch a lower-cost, ad-supported version of its streaming service in select markets sometime later this year, according to industry reports. While the pricing specifics have yet to be confirmed, Bloomberg suggests it could cost somewhere on the order of $7 to $9 per month.

Both price tags are a fairly far cry from Netflix’s current cost of $15.49 per month for HD-quality video and simultaneous viewing on more than one screen. If too many of the company’s current customers make the switch (more on this in a moment) or nonsubscribers aren’t stoked about signing up, the debut of an ad-supported alternative could seemingly hurt more than it helps.

Except that’s not likely to be the case. It’s even possible that an ad-supported offering could fare better than an ad-free service in terms of per-user revenue.

A proven, consistent business model

A handful of rival ad-supported streaming services that are already in action provide a glimpse of what to expect.

Take Walt Disney‘s (NYSE: DIS) Hulu as an example. Its average revenue per user (or ARPU) for the three-month stretch ended in June came in at $12.92 per month, which includes advertising revenue. That figure is close to the ad-free version’s monthly cost of $12.99, but because roughly two-thirds of Hulu’s customers are believed to use the ad-supported version that goes for $6.99 per month, the bulk of the $5.93 difference reflects Netflix’s per-user advertising revenue potential.

Warner Bros. Discovery (NASDAQ: WBD) is seeing similar metrics from its HBO Max and Discovery+ services, reporting domestic ARPU of $10.54 for its second quarter of the year. That’s in line with the ad-supported version of HBO Max that sells for $9.99 per month versus $14.99 per month for the ad-free option. The reported ARPU figure is stronger than it seems on the surface, though.

Consumers responded well to prior promotions offering access to the ad-free version at a price of only $9.99 per month. The company is also seeing strong sign-ups at a deeply discounted rate of $104.99 per year, which is the equivalent of about $8.75 per month. Further bear in mind that the company’s reported ARPU includes the ad-supported and ad-free versions of Discovery+, which go for $4.99 and $6.99 per month, respectively.

In this vein, Warner’s CEO, David Zaslav, stated very plainly last year that the ad-supported tier of Discovery+ ultimately generates more than $10 worth of revenue per user per month. That’s at least an extra $3.00 more than the ad-free option generates, jibing with the sort of advertising numbers being reported for Disney’s Hulu.

Reading between the lines: A monthly ARPU of $10.54 reflects a good amount of advertising revenue.

Given Netflix’s best-of-breed status, it’s not unreasonable to presume its per-user advertising results will be at least as strong if not stronger. Morgan Stanley puts the per-user monthly advertising revenue figure closer to $7, in fact, which would put Netflix’s ad-supported per-user revenue on par with its ad-free per-user revenue…and then some.

What’s at stake for Netflix?

Still, what sort of growth is at stake? The Wall Street Journal recently reported that the company believes 40 million people could be signed up for the ad-supported option by the third quarter of the coming year.

Netflix has neither confirmed nor denied the figure, but given that the company already boasts 220 million subscribers, assuming one-fifth of its current customer base is interested in a lower-cost option isn’t a stretch. Indeed, that figure might be low in light of a recent poll performed by Samba TV survey and HarrisX. The survey of 2,500 U.S. adults indicates 46% of existing Netflix subscribers would consider switching if doing so cut their monthly price by about half. Certainly, nonsubscribers are interested for the same reason.

To this end, industry analytics outfit Digital TV Research estimates the streaming industry will grow by 475 million subscriptions by 2027. Netflix is projected to capture more than its fair share of that growth — possibly more than 30 million net new subscribers — to remain the planet’s biggest streaming name. Its lower-cost, ad-supported option features prominently in that outlook.

As for its fiscal potential, Ampere Analysis believes the company could be generating around $2.2 billion in annual advertising revenue by 2027, making up around one-fourth of this tier’s potential $8.5 billion in annual sales by that time. For perspective, Netflix did nearly $30 billion worth of business last year.

Not all of that $8.5 billion will translate into incremental top-line growth, mind you, since plenty of current ad-free subscribers intend to switch to the ad-supported option when it launches. Think bigger picture, however. The market is more than ready for this option, as evidenced by ad-supported streaming success from Disney and Warner Bros. Discovery. It’s a game changer for Netflix even if the service’s biggest benefit is simply improving customer retention.

Misguided fear is your opportunity

Connect the dots here. Netflix stock is down more than 60% from its November 2021 high on fears that the company wasn’t willing to adapt or wouldn’t be able to find success in a new kind of streaming marketplace. There’s your opportunity, since neither worry is merited.

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

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James Brumley has positions in Warner Bros. Discovery, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Warner Bros. Discovery, Inc. and has recommended the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool Australia has recommended Walt Disney. 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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3 October 2022
Down 27% in 2 months, this ASX 200 bank share is a ‘buying opportunity’: expert
There aren’t too many S&P/ASX 200 Index (ASX: XJO) shares that have sunk at least 25% over the past two months, despite the huge amount of volatility that investors are seeing right now. But, the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price is one of those unlucky few.

At the time of writing, Bendigo Bank shares are down around 26% in just two months.

Losing a quarter of the value in quite a short amount of time shows a sizeable loss of confidence. It now has a market capitalisation of $4.4 billion according to the ASX.

This heavy sell-off is an attractive opportunity, says one leading analyst.

Citi rates Bendigo Bank share price as a buy

The regional bank could benefit from rising interest rates, more so than other ASX 200 bank shares according to Citi, as reported by The Australian.

The broker said:

Bendigo Bank has significantly underperformed the banks index since its fiscal 2022 result.

We view this largely reflects Bendigo Bank’s management’s net interest margin (NIM) guidance where it guided to replicating portfolio returns and increased share to Community Bank partners, but not overall NIM leverage from unhedged deposits.

We think Bendigo Bank has rates leverage in spades, and see the sell-off from management’s poor outlook statement as a buying opportunity.

Bendigo Bank outlined in its FY22 result that it’s expecting a benefit of 46 basis points over the next three years from the impact of higher interest rates on replicating portfolio yields. A 27 basis point benefit is expected in FY23. However, the ASX 200 bank share cautioned that actual outcomes will be determined by a range of factors including, but not limited to: competition, future interest rates, capital and low rate sensitivity deposit volumes, AIEA volumes and investment strategy.

Citi noted that this would represent a stronger improvement than what other banks are expecting and what Citi thought Bendigo Bank would be able to achieve.

Another bullish point for the Bendigo Bank share price and profitability is that $50 billion of customer deposits are unhedged. The NIM leverage on the $50 billion of customer deposits is “very real, and playing out larger than what we expected” according to reporting by The Australian on Citi’s comments.

Citi wrote:

Bendigo Bank is leading the pack in growing margin on deposits, pricing well below all peers on savings and term deposit rates.

Price target

Citi has a price target of $9.75 on the Bendigo Bank share price. That suggests that Bendigo Bank shares could rise by around 25% over the next year.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 positions in and has recommended Bendigo and Adelaide Bank 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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3 October 2022
Why did the Galan Lithium share price drop 7% on Monday?
The Galan Lithium Ltd (ASX: GLN) share price lost 7.11% of its value today amid a volatile and bumpy ride for the market on Monday. Shares in the mining development company closed for $1.11.

Many of Galan Lithium’s peers also lost ground today. Here’s a snapshot of how some of its fellow ASX lithium shares performed:
- Genesis Minerals Ltd (ASX: GMD) lost 4.5%
- GR Engineering Services Ltd (ASX: GNG) lost 0.48%
- Global Lithium Resources Ltd (ASX: GL1) lost 6.82%
There have been no developments to report on this afternoon to make sense of why these ASX lithium shares were sold off.

However, we can gather some clues on what happened from the broader market. Let’s investigate.

ASX 200 and the materials sector swing wildly

The S&P/ASX 200 Materials Index (ASX: XMJ), of which Galan Lithium is a part, finished down 0.24% for the day.

The index jumped to a high of 15,408 within the first 10 minutes of the market opening. It then made a low of 15,122 shortly after midday, which is a 1.8% price change in around two hours.

This closely mirrored the behaviour of the S&P/ASX 200 Index (ASX: XJO), which also ended up almost laying flat after a day of volatile movements with a similar loss of 0.27%.

We could expect this kind of volatility to persist throughout October and beyond as the next United States Federal Reserve meetings will be held in early next month. At least temporarily, the stock market’s fate is hinged on whether the Fed will increase rates further. The consensus is that this is a likely scenario, as the Fed is expected to raise interest rates by 1.25% before the year’s end, as reported by Bankrate.

Galan Lithium share price snapshot

The Galan Lithium share price is down 43% year to date. That’s significantly greater than the ASX 200 over the same period, which has lost 13%.

The company’s market capitalisation is around $364 million.

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Motley Fool contributor Matthew Farley 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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3 October 2022
Did ASX travel shares do well in September?
The S&P/ASX 200 Index (ASX: XJO) fell in September, but how did ASX travel shares perform in comparison?

Travel shares on the ASX include Qantas Airways Limited (ASX: QAN), Webjet Limited (ASX: WEB) and Flight Centre Travel Group Ltd (ASX: FLT). More ASX travel shares with a market cap over $100 million include Regional Express Holdings Ltd (ASX: REX), Corporate Travel Management Ltd (ASX: CTD) and Helloworld Travel Ltd (ASX: HLO)

Let’s take a look at how these travel companies performed in September.

Travel shares fall

ASX travel shares struggled in September. Flight Centre shares slumped 20.56% between market close on 31 August and 30 September. The Qantas share price lost 5.64% in the same timeframe, while Webjet shares fell 13.77%. Meanwhile, the Regional Express share price shed 5.71%, Corporate Travel Management lost 13.71% and Helloworld Travel dropped 8.25%.

For perspective, the benchmark ASX 200 index shed 7% in September.

Travel shares appeared to struggle amid interest rate hikes, recession fears, industry weakness, and travel chaos.

United States travel shares also fell in September. For example, Delta Air Lines Inc (NYSE: DAL) shares lost nearly 10%, while American Airlines Group Inc (NASDAQ: AAL) and United Airlines Holdings Inc (NASDAQ: UAL) shares both descended 7%.

However, Qantas did release some positive news on its performance in September. The company’s on-time performance improved in the first two weeks of the month. Flight delays, cancellations and mishandled bag rates all dropped.

Qantas’ annual report also shed light on the salary of CEO Alan Joyce. Joyce received a $2.3 million base salary and other benefits in the 2022 financial year, 15% more than FY21.

Flight Centre shares continued to be the most shorted share on the ASX in September. This was despite Goldman Sachs tipping upside for the Flight Centre share price. Goldman Sachs placed a neutral rating and $19.60 price target on the company’s shares.

Webjet shares fell despite a broker upgrade. Webjet also provided a strategy update to the market in September. The company noted international flight bookings had improved in 2023. Webjet is planning to increase use of social media and video platforms, reduce paid search advertising and retain marketing spend at 1.5% of time to value (TTV).

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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 positions in and has recommended Goldman Sachs and Helloworld Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Delta Air Lines. The Motley Fool Australia has positions in and has recommended Helloworld Limited. The Motley Fool Australia has recommended Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet 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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3 October 2022
Will Amazon stock be worth more than Apple by 2025?
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.

Back in April 2020, Amazon‘s (NASDAQ: AMZN) market cap briefly eclipsed Apple‘s (NASDAQ: AAPL). At the time, both tech giants were worth about $1.2 trillion. But today Amazon is still worth $1.2 trillion, while Apple’s market cap has roughly doubled to $2.4 trillion. Let’s see why Apple pulled so far ahead of Amazon — and if Amazon can catch up again by 2025.

Why did Amazon pull ahead of Apple?

In early 2020, Amazon seemed like a more appealing investment than Apple. Amazon’s e-commerce and cloud businesses were both well-poised to grow throughout the pandemic as brick-and-mortar stores shut down, consumers stayed at home, and people accessed more cloud-based services and apps.

In 2020, Amazon’s revenue rose 38% to $386.1 billion, its net income increased 84% to $21.3 billion (even as it racked up billions of dollars in COVID-related expenses), and its earnings per share (EPS) grew 82%. The bullish thesis was simple: Amazon’s e-commerce business would continue to expand as it locked in more shoppers with Prime, while the growth of its higher-margin Amazon Web Services (AWS) cloud platform would subsidize the growth of its lower-margin retail businesses.

At the time, Apple was still selling 4G iPhones as new 5G Android devices hit the market. It was also losing ground in China to popular domestic smartphone brands like Xiaomi, Oppo, and Vivo. Its own first family of 5G devices, the iPhone 12, wouldn’t arrive until late 2020. The trade war also threatened to disrupt its production capabilities in China.

As a result, Apple’s revenue only grew 6% to $274.5 billion in fiscal 2020 (which ended in September of that calendar year). Its net income rose 4% to $57.4 billion, while its EPS — boosted by buybacks — grew 10%. Those uninspiring numbers suggested that Apple’s high-growth days were over, so many investors seemed to favor Amazon over Apple.

Why did Apple pull ahead of Amazon again?

But as the pandemic-related tailwinds faded away, Amazon’s growth cooled off against some tough year-over-year comparisons. Yet its revenue still rose 22% to $469.8 billion in 2021, while its net income increased 57% to $33.4 billion and its EPS grew 55%.

Unfortunately, several macro challenges this year will exacerbate Amazon’s post-pandemic slowdown. Inflation will curb the spending power of its retail consumers while boosting its marketplace expenses, and macro headwinds will gradually reduce the enterprise market’s appetite for its cloud-based services. The resignation of founder and CEO Jeff Bezos last July also strongly indicated that Amazon’s growth and valuations had reached a near-term peak.

For 2022, analysts expect Amazon’s revenue to rise just 11% as higher investments reduce its net income by a staggering 98%. That jarring slowdown spooked investors, and its stock tumbled 33% this year.

As Amazon’s growth cooled, Apple’s growth accelerated as it launched the iPhone 12 and expanded its subscription-based services. In fiscal 2021, its revenue jumped 33% to $365.8 billion, its net income grew 65% to $94.7 billion, and its EPS increased 71%. As a result, Apple became an attractive growth stock again as pandemic-era plays burned out.

Analysts expect Apple’s revenue and net income to grow 7% and 5%, respectively, in fiscal 2021 as it laps the launch of the iPhone 12. Those stable growth rates — and the inflation-resistant nature of its affluent customers — have arguably made it a more appealing stock than Amazon. That’s why its stock only dipped 15% this year.

Will the tables turn again by 2025?

Amazon’s growth should stabilize after the inflationary and supply chain headwinds dissipate, but investors shouldn’t expect it to grow as fast as it did during the pandemic. Between 2021 and 2024, analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 14% as its EPS increases at a CAGR of 6%.

Meanwhile, Apple is widely expected to launch new AR devices over the next few years to diversify its top line away from the iPhone, iPad, and Mac. It’s also expected to launch an electric vehicle sometime in the future. It already ended its latest quarter with over 860 million paid subscriptions across its services ecosystem, and that massive walled garden should drive the launches of its future products and services. That roadmap is still murky, but analysts expect Apple’s revenue to grow at CAGR of 6% between fiscal 2021 and 2024, while its EPS increases at a CAGR of 8%.

Amazon might generate stronger revenue growth than Apple, but its earnings growth should remain weaker because it operates at much lower margins and spends less cash on buybacks. And at around $120 per share, Amazon actually trades at more than 30 times its projected earnings for 2024. At around $150, Apple trades at just 22 times its 2024 estimate.

Therefore, Amazon’s higher multiple could cool off as investors brace for several more years of single-digit earnings growth. Apple’s multiple could hold steady — or even rise — as it launches new products and services.

I’m not sure exactly where Apple and Amazon will end up by 2025. But based on these facts, it seems highly unlikely that Amazon’s market cap will eclipse Apple’s within the next three years.

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

The post Will Amazon stock be worth more than Apple by 2025? appeared first on The Motley Fool Australia.

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Leo Sun has positions in Amazon and Apple. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Amazon and Apple. 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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3 October 2022
Why were so many CBA shareholders cashing out in September?
The Commonwealth Bank of Australia (ASX: CBA) share price went downhill in September. It fell by 7%. That compares to the S&P/ASX 200 Index (ASX: XJO) falling by 7.3%.

This means that the ASX 200 bank share slightly outperformed the ASX share market last month.

While 0.3% outperformance isn’t that much in the grand scheme of things, every little bit helps. Particularly when we’re talking about such a large business on the ASX. At the time of writing, CBA has a market capitalisation of $154 billion.

What happened to the CBA share price last month?

There is plenty of volatility going on in the ASX share market and the global share market.

Investors are having to deal with factors like elevated inflation and higher interest rates.

At the end of the month, CBA announced it had met its enforceable undertaking obligations, which released the remaining operational risk capital overlay of $500 million. This represents an increase in the common equity tier 1 (CET1) capital of 15 basis points.

In early September, the Reserve Bank of Australia (RBA) decided to increase the cash rate target by 50 basis points (0.50%) to 2.35%.

Interest rate intervention

The RBA said that it’s committed to returning inflation to a range of between 2% to 3% over time. It pointed out that the outlook for global economic growth has deteriorated due to “pressures on real incomes from high inflation, the tightening of monetary policy in most countries, Russia’s invasion of Ukraine, and the COVID containment measures and other policy challenges in China.”

Inflation is expected to be above 4% in 2023 and then around 3% in 2024. In other words, it could take more than 12 months for inflation to get close to its target range. How long it takes to get inflation under control could be a key factor for the CBA share price.

The labour market is one of the main things that the RBA said it’s keeping an eye on. The labour market is “very tight and many firms are having difficulty hiring workers. Wage growth has also picked up from the low rates of recent years.”

Households are in a mixed position – mortgage interest rates are rising, but many households have also “built up large financial buffers and the saving rate remains higher than it was before the pandemic”.

Is the RBA done increasing? It seems highly unlikely. The RBA’s latest monthly statement included this section:

Price stability is a prerequisite for a strong economy and a sustained period of full employment. The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path… The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.

Why does this matter?

Most of CBA’s business is about lending, so what is happening with interest rates could be key for the business and the CBA share price.

While plenty of analysts recognise that a higher RBA interest rate is likely to be helpful for ASX 200 bank share profitability, some of them are also cautious about what higher interest rates could mean for the resilience of their loan books.

CBA lends many billions to households, so an increase in loan arrears could be painful for the big bank.

Australian households are among the most indebted in the world. Higher interest rates – with no sign yet of central banks stopping – could have a knock-on effect on CBA.

Time will tell whether the pessimism around the CBA share price is justified.

The post Why were so many CBA shareholders cashing out in September? 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 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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3 October 2022