Stock Pick

Month: October 2022

  • Why did the Wesfarmers share price get hammered so hard in September?

    A man holds his head in his hands, despairing at the bad result he's reading on his computer.

    A man holds his head in his hands, despairing at the bad result he's reading on his computer.

    The Wesfarmers Ltd (ASX: WES) share price was hurt in September. How much? It went down 9%. For a business as big as Wesfarmers, losing almost a tenth of its market capitalisation is a big decline.

    It did even worse than the S&P/ASX 200 Index (ASX: XJO), which ‘only’ fell by 7.3% over the month.

    So, why did Wesfarmers fall so much?

    Increased market volatility

    Wesfarmers is connected to the Australian economy, so it’s not immune to changing investor sentiment about different parts of the market. It operates a number of businesses like Bunnings, Kmart and Officeworks.

    Inflation has picked up in Australia (and around the world). This is having and could have, a number of impacts on Wesfarmers.

    The ASX share may be dealing with higher costs in a number of different areas like wages, the supply chain, raw materials and so on.

    Wesfarmers has said that it wants to keep providing good value for customers, so this tactic could hurt margins if it doesn’t pass on the increased costs of inflation.

    A tricky thing for investors is that central banks are increasing interest rates to bring down inflation.

    If interest rates go up then it hurts the Wesfarmers share price and underlying value, in theory. That could explain why it has fallen 26% in 2022 and why it dropped 9% last month.

    How are sales in FY23 going?

    Investors often like to look at the outlook and the trading update to inform their viewpoints on a business.

    Wesfarmers said that in the first seven weeks of FY23, sales growth had been “particularly strong” in Kmart Group, with sales “significantly higher” on both a one-year and two-year basis.

    Bunnings is also continuing to see positive sales growth on a one-year and two-year basis. Sales in Officeworks were in line with the prior year.

    WesCEF (the chemicals, energy and fertiliser business) is expected to “continue to benefit from elevated commodity prices” and “will continue to evaluate capacity expansion opportunities for its existing operations” as well as working on the Mt Holland lithium project.

    But, FY23 isn’t the company’s only focus. It’s also looking at the long-term. Wesfarmers said with its FY22 result:

    The group will continue to develop and enhance its portfolio, building on its unique capabilities and platforms to take advantage of growth opportunities within existing businesses and to pursue investments that create value for shareholders over the long term.

    Broker rating on the Wesfarmers share price

    One of the brokers that released updated thoughts on the business in September was Ord Minnett. The broker has a lighten rating on the Wesfarmers share price, with a price target of $43.20.

    The broker thinks that some retailers could see pressure on their margins in the next year or two.

    Ord Minnett’s projections put the Wesfarmers share price at 21 times FY23’s estimated earnings with a projected grossed-up dividend yield of 5.7%.

    The post Why did the Wesfarmers share price get hammered so hard 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 positions in and has recommended Wesfarmers 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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  • These were the best-performing ASX 200 shares in the first quarter of FY23

    A person sitting at a desk smiling and looking at a computer.A person sitting at a desk smiling and looking at a computer.

    It may feel like the end of the year is fast approaching, but the financial year is only just getting started.

    Unlike the calendar year, the financial year ends on 30 June.

    So, as we turn a new leaf in October, we’ve just closed the chapter on the first quarter of FY23.

    Across these three months, the S&P/ASX 200 Index (ASX: XJO) staged a comeback before being bogged down again by concerns about rising interest rates.

    The benchmark index started the new financial year on a strong footing, climbing by as much as 8.5% by mid-August. 

    However, investors’ fortunes turned in September, leading to the ASX 200 registering a 1.4% fall in the first quarter of FY23.

    While some ASX 200 shares struggled, others shrugged off the market weakness to punch higher. 

    With that in mind, let’s take a look at the five best-performing ASX 200 shares in the first quarter of the new financial year.

    Pilbara Minerals Ltd (ASX: PLS)

    Topping the ASX 200 tables in 1Q23 was none other than ASX lithium share Pilbara. Its share price nearly doubled across the quarter, rocketing by 99% to finish at $4.56.

    ASX lithium shares have been on a tear this year, reaching levels of hype we perhaps haven’t seen since the days of ASX buy now, pay later shares.

    Key events from the quarter include Pilbara’s appointment of a new managing director, its full-year FY22 report, and results from its regular battery minerals exchange (BMX) auctions.

    Notably, Pilbara delivered a maiden $560 million profit in FY22 as revenue skyrocketed by 577% to $1.2 billion.

    Whitehaven Coal Ltd (ASX: WHC)

    ASX coal miner Whitehaven took out second place, surging by 86.2% across the quarter to finish at $9.01.

    The global energy crisis has led to a renaissance in coal prices this year.

    According to Business Insider, coal prices were sitting at around US$120 per tonne at the beginning of the year. Fast forward 10 months and these prices are above US$300/tonne as Russia’s invasion of Ukraine has thrown energy markets into turmoil.

    There hasn’t been much news from Whitehaven recently aside from its FY22 report. The company delivered a bumper set of results as revenue soared 216% to $4.9 billion while its net loss from the prior year turned into a profit of nearly $2 billion.

    New Hope Corporation Limited (ASX: NHC)

    Fellow ASX coal miner New Hope rounded out the podium finishes, producing an 81.8% gain across the quarter to finish at $6.29.

    New Hope operates on a slightly different financial calendar than the rest of the ASX, releasing its FY22 results a couple of weeks ago.

    These results were headlined by a 143% upswing in revenue, which hit $2.6 billion, and a more than 12-fold increase in profit, which landed at $983 million. A monster dividend also set investors’ tongues wagging.

    The company produced 7.9 million tonnes of saleable coal in FY22, a reduction of around 18% compared to the prior year. But sky-high coal prices more than made up for this reduced supply.

    New Hope’s average realised prices surged from $101.36/tonne in FY21 to $281.84/tonne in FY22. Its average realised price in the fourth quarter came in at a stunning $493.52/tonne. 

    Sayona Mining Ltd (ASX: SYA)

    The next cab off the rank is Sayona Mining, which saw its shares fly 60% across the three months to 24 cents.

    This impressive performance was enough to bed down a place in the ASX 200 index, with Sayona joining the ranks in the recent September rebalance.

    Across the quarter, Sayona released updates on its planned restart of lithium production at the North American Lithium (NAL) operation in Quebec. In September, the company confirmed plans were on track with 94% of procurement completed, 95% of required permits received, and construction ramping up.

    On the last day of September, Sayona also released its full-year results, turning a $4.4 million loss in FY21 to an $83.7 million profit in FY22.

    The company ended the financial year with total lithium reserves of 41.3 million tonnes at a grade of 1.05%, up from 12.1 million tonnes at 1.00% in the prior year.

    Lovisa Holdings Ltd (ASX: LOV)

    Last but not least, jewellery retailer Lovisa continued its lofty ascent, climbing 54% across the quarter to finish at $21.27. 

    Lovisa’s FY22 report in August was a highlight, sending shares racing higher as results came in ahead of the market’s expectations.

    The ASX retail share achieved revenue of $459 million, up 56% from the prior year, while net profit more than doubled to $60 million.

    Operating a vertically-integrated business model, Lovisa boasts extremely high gross margins for a retailer, which sat at 78.9% in FY22.

    Lovisa’s global rollout continued at pace, opening a further net 85 stores during FY22 to take its total store network to 629 stores across 24 countries.

    The post These were the best-performing ASX 200 shares in the first quarter of FY23 appeared first on The Motley Fool Australia.

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    Motley Fool contributor Cathryn Goh 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 Lovisa Holdings 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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  • Buy these ASX 200 shares with big fully franked yields: experts

    Kid holding banks notes alongside a whit piggybank, symbolising dividends.

    Kid holding banks notes alongside a whit piggybank, symbolising dividends.

    If you’re looking for ASX 200 dividend shares to buy, then you might want to check out the two listed below.

    Both have recently been named as buys by experts. Here’s why they rate them highly:

    Medibank Private Ltd (ASX: MPL)

    The first ASX 200 dividend share that could be a top option for income investors this month is Medibank.

    It is of course the health insurance giant that has been delivering services to Australians for 45 years and now has 2 million policyholders across its AHM and Medibank brands.

    The team at Citi is positive on the company. Particularly given its expectation for another strong performance from its private health insurance business in FY 2023 and its positive exposure to higher interest rates.

    Citi is expecting this to lead to Medibank paying fully franked dividends of 15.9 cents per share in FY 2023 and 16.3 cents per share in FY 2024. Based on the current Medibank share price of $3.52, this will mean yields of 4.5% and 4.6%, respectively.

    Citi also sees value in its shares. It currently has a buy rating and $4.00 price target on them.

    Telstra Corporation Ltd (ASX: TLS)

    Another ASX 200 dividend share to consider is Telstra. This telco giant has come back in favour with income investors this year after the company returned to growth at long last.

    For example, in FY 2022, although Telstra posted a 4.7% decline in revenue, it was still able to deliver an 8.4% increase in underlying EBITDA to $7.3 billion. This was driven by its key mobile business, which reported EBITDA growth of 21.2% over the prior corresponding period.

    Much to the delight of shareholders, this allowed the Telstra board to increase its dividend for the first time in years.

    And with Telstra now embarking on its T25 strategy, which is targeting high-teens underlying earnings per share (EPS) compound annual growth rates from FY 2021 to FY 2025, further increases could be on the horizon.

    The team at Morgan Stanley expect this to be the case. They are forecasting fully franked dividends per share of 17 cents in FY 2023 and 18 cents in FY 2024. Based on the latest Telstra share price of $3.85, this will mean yields of 4.4% and 4.7%, respectively.

    Morgan Stanley has an overweight and $4.60 price target on the company’s shares.

    The post Buy these ASX 200 shares with big fully franked yields: experts appeared first on The Motley Fool Australia.

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    Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Corporation 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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  • Could investors call on Telstra shares to be defensive in September?

    A cute little kid in a suit pulls a shocked face as he talks on his smartphone.

    A cute little kid in a suit pulls a shocked face as he talks on his smartphone.

    The ASX share market has been acting like a rollercoaster in 2022 – but largely like the downward, hair-raising section. The Telstra Corporation Ltd (ASX: TLS) share price has seen a decline too this year, though it’s only down by 9%.

    September was a rough month for investors. The S&P/ASX 200 Index (ASX: XJO) as a whole declined by 7.3%. But, that’s just the combined movement from all the different names like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA) and Woodside Energy Group Ltd (ASX: WDS).

    Telstra share price resilience

    Telstra did see a bit of a decline in September, but not as much as the market.

    Last month, the Telstra share price only declined by 3%.

    This means that the telco outperformed the ASX share market by more than 4%.

    Ideally, a defensive ASX share wouldn’t even fall when markets go backwards. However, volatility is just part of the fun of investing.

    I think that delivering outperformance when the market goes down is solid from Telstra.

    What happened during the month?

    September was another interesting month for markets as central banks increased interest rates again to try to bring inflation down. The Reserve Bank of Australia (RBA) increased the interest rate by 50 basis points (0.50%) while the US Federal Reserve went for a 75 basis point (0.75%) rise.

    Higher interest rates are theoretically meant to have the effect of pushing down asset valuations. That has certainly happened this year, with the Telstra share price also seemingly experiencing a decline.

    But there were a couple of interesting announcements regarding Telstra.

    Shareholders were given a presentation at its 2022 retail shareholder meeting.

    Telstra went through its T22 strategy’s achievements, such as the $2.7 billion of cost reductions since FY16 and the $2 billion of asset monetisation, or almost $5 billion including Amplitel. It also highlighted that there has been a 71% reduction in annual contact centre calls since FY18.

    The telco also highlighted its T25 strategy which includes further cost reductions, growing profit and achieving a strong position with its 5G network. Telstra also reminded shareholders that in FY22 it grew underlying earnings per share (EPS) by 48.5% and the total dividend was grown by 3.1% to 16.5 cents per share.

    The other announcement related to Telstra’s desire to work with TPG Telecom Ltd (ASX: TPG) on a regional network share agreement. The ACCC said it’s calling for further submissions from stakeholders. Under the deal, Telstra would get access to much of TPG’s mobile spectrum in a range of outer-urban and regional areas. TPG would shut down 556 mobile sites in those areas and receive mobile network services from Telstra for mobile coverage.

    Optus hack

    One of the biggest pieces of recent news in the telco space was that some Optus customers had their important information (such as phone numbers and addresses) accessed/hacked.

    The broker Morgan Stanley has an overweight rating on the telco with a Telstra share price target of $4.60 – that’s a possible rise of around 20% over the next year. The broker thinks the Optus hack will benefit Telstra if it leads to customers switching over.

    However, Telstra has its own data breach to deal with. The telco has confirmed that as many as 30,000 current and former workers had their names and email addresses exposed, according to reporting by the Australian Financial Review.   

    The post Could investors call on Telstra shares to be defensive 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 positions in and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended TPG Telecom 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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  • The CSL dividend is being dished out today. Here’s the lowdown

    A man smiles as he holds bank notes in front of a laptop.A man smiles as he holds bank notes in front of a laptop.

    Regardless of what the market has in store, it’s set to be a good day for CSL Limited (ASX: CSL) shareholders today. 

    The time has come for the company to pay its latest final dividend. Here’s what you need to know.

    It’s payday for CSL shareholders

    In August, CSL lifted the lid on its FY22 results. In the process, the ASX 200 biotech giant declared a final dividend of US$1.18, partially franked at 10%. 

    For this dividend, CSL has used an AUD/USD exchange rate of 67.11 US cents, so it’s equivalent to around $1.76 in Aussie dollars.

    CSL shares went ex-dividend for this payment back on 6 September. Therefore, any CSL shares bought on or after this date won’t be eligible for today’s payout.

    CSL hasn’t run a dividend reinvestment plan (DRP) since 2004, so shareholders will be receiving this dividend in cash.

    Today’s US$1.18 payment is in lockstep with the final dividend CSL declared in FY21. Total dividends were also in line with the prior year, coming in at US$2.22 per share.

    In Aussie dollars, CSL has paid out roughly $3.18 in dividends this year. At current levels, this puts CSL shares on a trailing dividend yield of around 1.1%.

    Looking ahead, broker Goldman Sachs is forecasting CSL to raise its annual dividends by 14% in FY23 to US$2.52. This represents a prospective forward dividend yield of 1.3%.

    How did CSL fare in FY22?

    CSL maintained its annual dividend payouts in FY22 despite its net profit after tax (NPAT) sliding by 6% to US$2.3 billion.

    COVID lockdowns put a clamp on CSL’s plasma collections, which are a crucial component for manufacturing its treatments.

    As a result, the company’s Behring business delivered muted revenue growth of 4% in FY22. What’s more, collections came at a higher cost, which pushed down gross margins.

    CSL’s vaccine business, Seqirus, helped to offset some of this weakness. Seqirus achieved full-year revenue growth of 13%, driven by growth in seasonal influenza vaccines.

    Where to next for the CSL share price?

    CSL shares have held up fairly well so far in 2022, falling by just 1% to currently sit at $287.40.

    They’ve comfortably outperformed the S&P/ASX 200 Index (ASX: XJO), which has tumbled 10% since the beginning of the year.

    Taking a look around the grounds, brokers are mostly bullish on the CSL share price.

    Citi currently has a buy rating on CSL shares with a 12-month price target of $340, implying potential upside of 18.3%.

    Analysts at Morgan Stanley have an overweight rating on CSL shares and a 12-month price target of $323, which implies potential upside of 12.4%.

    JP Morgan also has an overweight rating on CSL shares, with a price target of $330. This represents potential upside of 14.8% over the next 12 months.

    Meanwhile, analysts at Goldman Sachs aren’t quite ready to press the buy button yet. The broker has a neutral rating on CSL shares and a 12-month price target of $291, roughly in line with where the CSL share price is sitting today.

    The post The CSL dividend is being dished out today. Here’s the lowdown appeared first on The Motley Fool Australia.

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    JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Cathryn Goh 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 CSL Ltd., Goldman Sachs, and JPMorgan Chase. 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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  • Why Twitter stock skyrocketed today

    A woman is very excited about something she's just seen on her computer, clenching her fists and smiling broadly.A woman is very excited about something she's just seen on her computer, clenching her fists and smiling broadly.

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

    What happened

    Shares of Twitter (TWTR 22.24%) soared today after Elon Musk finally agreed to buy the social media company for $44 billion, the original price he offered several months ago. The Tesla CEO’s decision appears to conclude several months of legal wrangling as Musk had sought to get out of the deal by claiming, among other things, that bots were inflating Twitter’s user base.

    The stock popped shortly after noon when Bloomberg broke news of the deal. Twitter finished the day up 22.2% at $52 a share, 4% below the originally negotiated buyout price of $54.20.

    So what

    Seemingly to avoid an upcoming deposition and a court battle, Musk sent a letter to Twitter Monday night saying he intended to close the transaction as the two parties had initially agreed to back in April.

    Twitter said in response that the company intends to close the deal with Musk at a price of $54.20 a share. The news seems to bring a monthslong saga to a close, though the fact that Twitter is still trading at a discount to the buyout offer indicates some skepticism among investors that the deal will close.

    A deal could be completed as soon as this Friday.

    Now what

    A buyout seems to be the best option for Twitter shareholders because the social media platform never really fulfilled its potential as a business. User growth has stalled, and its advertising never developed the kind of targeting and value to small business that Facebook’s did.

    It’s unclear where the company will go in Musk’s hands, but he’s likely to take risks with it that the current management otherwise wouldn’t. 

    The deal hasn’t officially closed. Given that Musk seems to have been backed into a corner, it makes sense for him to finally go through with the purchase.

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

    The post Why Twitter stock skyrocketed today appeared first on The Motley Fool Australia.

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    Jeremy Bowman 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 and Twitter. 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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  • 2 ASX healthcare shares to buy that you’ve not heard of: expert

    a biomedical researcher sits at his desk with his hand on his chin, thinking and giving a small smile with a microscope next to him and an array of test tubes and beackers behind him on shelves in a well-lit bright office.a biomedical researcher sits at his desk with his hand on his chin, thinking and giving a small smile with a microscope next to him and an array of test tubes and beackers behind him on shelves in a well-lit bright office.

    Healthcare is one of those industries that enjoys relatively stable demand through tougher economic times.

    With consecutive interest rises forcing Australians to close their wallets, this might be a consideration for the coming period.

    But of course, the well-known ASX shares in the sector are already well bought.

    So one Wilson Asset Management analyst has dug deeper into his research to come up with a couple of buys that are not yet household names:

    ‘This company can re-rate over the next few years’

    Probiotec Limited (ASX: PBP) only has a market capitalisation of $180 million. 

    But for such a small cap it has managed to hold its stock price pretty well in 2022, only down 1.76% so far.

    Wilson senior equity analyst Sam Koch is buying the pharmaceutical manufacturer and distributor.

    “We believe the stock offers investors valuation and earnings upside,” he said in a Wilson video.

    “What the market’s missing here is their ability to compound earnings growth at a very high rate, relative to its current valuation.”

    The business’ “strong organic growth” is accompanied by bolt-on acquisitions, he added.

    “Trading at 10 times P/E with over 15% [earnings per share] growth projected, we believe that this company can re-rate over the next few years.”

    While coverage is sparse on Probiotec, at least Shaw and Partners currently agrees with Koch, rating the stock as a strong buy.

    Probiotec hands out a 2.5% dividend yield.

    Share price now below PE ratio of ONE

    CogState Limited (ASX: CGS) is arguably a technology business in addition to its involvement in the health sector.

    That’s because it’s a cognitive science company that provides tech and services to biotechnology and pharmaceutical clients conducting clinical trials.

    Koch said that big pharma relies on CogState’s technology for their studies into Alzheimer’s Disease.

    “What we’re really attracted to in CogState is that they were one of the first companies to provide the software-first technology, which has accelerated the industry’s push towards decentralised clinical trials.”

    The value of CogState’s services was recognised in one of its largest clients actually taking a 7% shareholding, according to Koch.

    “The company’s trading at below one times earnings-to-price growth multiple with over 15% of the market cap caught up in cash,” he said.

    “We believe that acquisitions and earnings upgrades will drive the stock from here.”

    According to CMC Markets, three of four analysts currently rate the stock as a strong buy.

    The CogState share price has dropped more than 19% so far this year.

    The post 2 ASX healthcare shares to buy that you’ve not heard of: expert appeared first on The Motley Fool Australia.

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    Motley Fool contributor Tony Yoo 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 CogState Limited and Probiotec Limited. The Motley Fool Australia has positions in and has recommended CogState 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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  • ‘Strong buy’: Wilson analyst picks 2 ASX shares to grab right now

    a serious man holds up two fingers and leans forward as if to deliver information.a serious man holds up two fingers and leans forward as if to deliver information.

    Amid the current uncertainty about the economy in the face of rising interest rates, many experts are admitting that even they’re in a holding pattern.

    So high conviction buy recommendations for ASX shares are becoming harder to find as Australians see their mortgage repayments increasing yet again in October.

    But lucky for you, The Motley Fool has dug up a pair of stocks a Wilson Asset Management analyst is currently very much classifying as strong buys:

    Booming US business could see this company grow in multiples

    According to Wilson senior equity analyst Sam Koch, plumbing supplier Reece Ltd (ASX: REH) is a “high quality business” that has been very popular for a long time among fund managers.

    But shockingly its share price has halved since the start of this year.

    Koch said in a Wilson video that presents the perfect buying opportunity for a stock that everyone wants to own.

    “The concerns around the housing market [have] really seen the valuation of this company drop to levels that are quite attractive.”

    In 2018, well before anyone had heard of COVID-19, Reece acquired the US business Morsco.

    This is a long-term growth driver, reckons Koch.

    “If you look at their strong execution in Australia, we’re really backing management to be able to replicate that success into the US,” he said.

    “In our view, their current 200-store network size could be multiples of where it is at the moment. Reece is a strong buy for us.”

    Auscap Asset Management portfolio manager Tim Carleton agreed with Koch, this week naming Reece as a stock he’d happily hold for the next four years.

    “We should see a very, very strong growth profile out of the US business… and really have the potential to become one of the dominant players in that space in the US in what is still a very, very fragmented market,” he told The Motley Fool.

    “It’s a classic bottom-drawer stock [with] high-quality management, a massive opportunity, a very, very profitable business model.”

    Australia’s east coast is its oyster

    Koch also named Tasmanian bank MyState Limited (ASX: MYS) as a buy.

    He likes that it has a large addressable market for future growth.

    “The fact that they’re based in Tasmania is actually their competitive advantage,” Koch said.

    “They’ve got the ability to grow strongly across the east coast of Australia.”

    To anchor the business, MyState has a very “sticky” and “loyal” deposit customer base on the Apple Isle.

    “We see their ability to grow their loan book [and] expand their interest margins across a fixed cost base will drive earnings growth over the next few years.”

    While MyState shares are down 23% so far this year, it is paying out a handy 6.2% dividend yield.

    The post ‘Strong buy’: Wilson analyst picks 2 ASX shares to grab right now appeared first on The Motley Fool Australia.

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    Motley Fool contributor Tony Yoo 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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  • The one question to ask before you buy an ASX share: fund manager

    A boy with question mark on his forehead looking up as if watching an ASX share priceA boy with question mark on his forehead looking up as if watching an ASX share price

    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, Auscap Asset Management portfolio manager Tim Carleton explains why investors should always ask ‘Do I want to own this business forever?’ before buying an ASX share.

    Looking back

    The Motley Fool: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.

    Tim Carleton: Well, there’s plenty of regrets. At the end of the day, hopefully, you are always learning and refining your investment approach as an investment manager. 

    If I just limit it to the last 10 years of managing Auscap, I think probably the biggest regrets come from making investments in what you’d classify as traditional value traps. 

    So as a value manager, you can’t help but look at stocks that have declined a long way and they might be reasonably good businesses and you are very confident that the cash flows will continue to come through over time. And you just think that the business is far too cheap for its earnings profile. The problem is often that you have a business that doesn’t necessarily have significant earnings growth. Their existing earnings might be resilient, but maybe they don’t have significant opportunities to grow those earnings, or maybe they’re a cyclical business.

    So what you’re really doing is betting that the market will recognise that the stock is undervalued, compared to what it should be and re-rate the company. The problem with that is that you might be right, but you are very dependent on how quickly the market recognises that in terms of how successful that investment will be. So if I give you an example, if you buy something for 80 cents that you think’s worth a dollar, [if] the market recognises that in a year, that’s a very, very handsome 25% return. But if it takes three years to recognise that then suddenly the annualised return is sub-8% and it’s average at best. 

    Of course, the longer it takes to recognise that, the more you’re at risk that something within the business deteriorates or some negative macroeconomic development occurs and causes the earnings to decline — and suddenly the margin of safety that you thought was there isn’t there at all.

    Again, that’s a problem that’s accentuated in businesses that aren’t growing earnings. Because if you buy into a business that’s growing earnings well, time is your friend because it’s likely that even if the stock stays at the same price, it is becoming a more attractive proposition as time passes. Whereas that’s not the case with the traditional value trap. 

    So if I was going to highlight a mistake it’s, like many value managers, getting involved in value traps. 

    The focus there is more on the value and less on the quality of the business. I always come back to a quote from [Warren] Buffett in what I think was his 1989 letter to his investors, that it’s always far better to buy a wonderful company at a fair price than a fair company at a wonderful price. I have learned that painfully through experience.

    MF: It’s easier said than done though, isn’t it? 

    TC: Much easier said than done. At the end of the day, you can’t help you see something that’s fallen 50%, 60%, 70%. You think that business is definitely worth more than that and you can’t help but want to get involved. 

    But you have to resist that temptation and try to limit yourself to businesses where you really do want to own that business for, preferably, forever. And if you start out with that mindset, then you make, I think, fewer regrettable decisions.

    The post The one question to ask before you buy an ASX share: fund manager appeared first on The Motley Fool Australia.

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    Motley Fool contributor Tony Yoo 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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  • 5 things to watch on the ASX 200 on Wednesday

    Smiling man with phone in wheelchair watching stocks and trends on computer

    Smiling man with phone in wheelchair watching stocks and trends on computer

    On Tuesday, the S&P/ASX 200 Index (ASX: XJO) had its best day in a long time when it raced significantly higher. The benchmark index rose a staggering 3.75% to 6,699.3 points.

    Will the market be able to build on this on Wednesday? Here are five things to watch:

    ASX 200 expected to storm higher again

    The Australian share market looks set to continue its recovery on Wednesday after another strong night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 96 points or 1.4% higher this morning. In late trade on Wall Street, the Dow Jones is up 2.4%, the S&P 500 is up 2.7%, and the Nasdaq is up 3%.

    Oil prices jump again

    Energy producers Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a strong day after oil prices continued to rise overnight. According to Bloomberg, the WTI crude oil price is up 3.1% to US$86.25 a barrel and the Brent crude oil price has risen 3.1% to US$91.60 a barrel. Traders were buying oil ahead of OPEC’s big meeting. The cartel is expected to cut production materially to boost prices.

    Block shares on watch

    It could be an incredible day for the Block Inc (ASX: SQ2) share price on Wednesday. The payments company’s NYSE-listed shares are up a whopping 11% in late trade on Wall Street, which bodes well for its ASX-listed shares today. This follows a strong session for beaten down tech stocks in the United States.

    Gold price rises again

    Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a good day after the gold price pushed higher overnight. According to CNBC, the spot gold price is up 1.9% to US$1,734.8 an ounce. Gold hit a three-week high after the US dollar and bond yields softened.

    Dividends being paid

    Today is payday for shareholders of a number of ASX 200 shares. This includes building materials company Adbri Ltd (ASX: ABC), corporate travel specialist Corporate Travel Management Ltd (ASX: CTD), biotherapeutics giant CSL Limited (ASX: CSL), and travel and transport company Kelsian Group Ltd (ASX: SLK).

    The post 5 things to watch on the ASX 200 on Wednesday appeared first on The Motley Fool Australia.

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    Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. and CSL Ltd. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Corporate Travel Management 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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