Day: 21 January 2023

Identifying the cream of the crop trading at bargain basement prices is the goal when searching for undervalued ASX shares. Locating those overlooked and underappreciated high-quality businesses is how many wealthy investors have made their millions.

While the greats — such as Warren Buffett — make this process look easy, it can be challenging. Fortunately, the erratic gyrations of Mr Market (or Ms!) can momentarily make this task much easier than usual.

The recession panic has increased the amount of indiscriminate selling. That means some absolute long-term gems could be found among beaten-down ASX shares.

Secret sauce to finding great ASX shares

There are tens of thousands of publicly listed companies around the world. It can be an incredibly arduous task to sort through opportunities without some form of system. That’s why focusing on a limited number of traits can be helpful to bring only top-tier companies to the table.

At a very high level, there are two interconnected factors that can put a company out of business — competition and funding. These two aspects grow all the more critical during cloudy economic times. The fight to survive becomes more fierce, and the funding tap runs dry.

For example, if consumers begin to drastically cut down on discretionary spending, every ASX consumer discretionary share will be competing for a share of a more limited pool of dispensable income. Unsurprisingly, much of this market area has fallen over the past year as the economy tightens.

That’s why the gross profit margin can be worth checking. A company with a high gross margin — that is its revenue minus the cost of goods sold converted to a per cent — can be suggestive of a business with pricing power.

An ASX share with a thicker gross margin than its peers has more wiggle room during pressing times.

The other area of the company to investigate is its balance sheet. As Peter Lynch once said, “Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets.”

If an ASX share has considerable cash behind it, it can fund itself even through unprofitable periods. The cost of capital plays a major role in long-term shareholder returns. For those high-quality businesses loaded with cash, their capital costs are minimal.

It will still be bumpy

The S&P/ASX 200 Index (ASX: XJO) is already up 7.1% so far in 2023. Amazingly, that means the losses of last year have already been erased for Aussie index investors. However, the year is far from over, and we have yet to discover whether the world’s central banks can coordinate a ‘soft landing’.

There is a chance that interest rates end up going higher than expected. Spending could deteriorate more than expected. Even though the economy appears to be on a solid footing, there are always risks that could cause it to falter… but don’t confuse volatility with risk.

If you can identify undervalued ASX shares, volatility should be embraced. The impulsive nature of markets could present an opportunity to build these positions at abnormally low prices.

The post How to find undervalued ASX shares to buy now and hold in 2023 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 3 most heavily traded ASX 200 shares on Friday
• 3 ASX 200 shares leaping more than 5% on strong earnings updates
• Dividends, dividends, dividends! 3 ASX 200 bank shares forecasting yields over 8%
• 5 things to watch on the ASX 200 on Friday

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

But which ETFs could be top options when the market reopens?

Listed below are three wonderful ETFs that could be worth considering. Here’s what you need to know about them:

BetaShares Global Cybersecurity ETF (ASX: HACK)

The BetaShares Global Cybersecurity ETF could be a top option for investors. This ETF provides investors with an easy way to invest in the growing cybersecurity industry. This means you’ll be buying companies at the forefront of the industry such as Accenture, Cisco, Cloudflare, Crowdstrike, and Palo Alto. Due to the growing threat of cyberattacks globally and the financial and reputational damage that these attacks can do (just ask Medibank and Optus), these companies look well-placed to benefit from increasing demand for cybersecurity services.

BetaShares Global Energy Companies ETF (ASX: FUEL)

With many analysts tipping oil demand to increase strongly this year because of China’s reopening, the BetaShares Global Energy Companies ETF could be worth considering. This ETF allows you to invest in many of the largest energy producers in the world through a single investment. Through the ETF you’ll be owning shares in the likes of BP, Chevron, ExxonMobil, and Royal Dutch Shell.

BetaShares NASDAQ 100 ETF (ASX: NDQ)

A final ETF for investors to look at is the BetaShares NASDAQ 100 ETF. This ETF allows investors to buy many of the highest quality companies in the world in one fell swoop. That’s because the BetaShares NASDAQ 100 ETF is home to the 100 largest non-financial shares on Wall Street’s NASDAQ stock exchange. Among the companies you’ll be owning a slice of are Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, and Tesla. And with the NASDAQ 100 ETF falling materially last year, now could be a great time to start a long term investment.

The post 3 wonderful ETFs for ASX investors to buy next week appeared first on The Motley Fool Australia.

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More reading

• The Netflix share price just popped. Here’s one way to buy in on the ASX
• 3 undervalued ASX shares that should be on your radar
• How I’d invest $40k in ASX shares and aim for $1 million
• Waiting for ASX shares to bottom? Why you could miss out on a stock market rally
• Tech rebound! Here are 2 ASX ETFs to buy before it’s too late

Motley Fool contributor James Mickleboro has positions in BetaShares Nasdaq 100 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Global Cybersecurity ETF and BetaShares Nasdaq 100 ETF. The Motley Fool Australia has positions in and has recommended BetaShares Global Cybersecurity ETF and BetaShares Nasdaq 100 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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At this time of the year, there are many predictions and forecasts from experts to wade through.

However, you can’t invest directly in macroeconomic trends. And those predictions might be incorrect, or the expert’s timing might be off.

So it’s much more helpful if the pundits actually mention specific S&P/ASX 200 Index (ASX: XJO) stocks that they’re backing.

That way, the fund managers are putting their money where their mouth is, and you can consider buying stocks on the basis of the company’s potential rather than ethereal economic drivers.

The ECP Growth Companies Fund did exactly this recently, naming three ASX shares that had mixed fortunes last month but are worth holding for the long term:

‘A high-quality business’

The share price for building materials provider James Hardie Industries plc (ASX: JHX) tanked almost 10% in December.

In fact, with interest rates rising steeply, the past year has been pretty unpleasant for investors, with the stock plunging more than 40%.

“The slowdown in housing continues to weigh on investment appetite, particularly the rate of deterioration in volume outlook and lack of visibility,” read ECP analysts’ memo to clients.

“Growing their economic footprint may be challenging in the near term.”

​​

Despite these short-term pressures, the fund is sticking with James Hardie because of its excellent prospects in the longer run.

“James Hardie remains a high-quality business demonstrating its commitment to managing supply and demand, with a clear focus on product mix,” the memo read.

“Colourplus growth remains strong, with 31% volume growth in 2Q23, which should support average selling price and margins.”

‘Strongly positioned’ to grow in ‘structurally attractive’ market

Financial services software maker Netwealth Group Ltd (ASX: NWL) had a pretty ordinary Christmas too, with the share price plummeting 12% last month.

According to ECP analysts, there was no news from the company to justify the de-rating.

“Short-term investor sentiment has remained focused [on] the cadence of in-flows to wealth platforms with advisors regaining client consolidation momentum as markets have stabilised.”

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Despite the short-term hiccups, the ECP team is keeping the faith in Netwealth. 

“Notwithstanding variable quarterly flow results, we continue to believe Netwealth is strongly positioned to continue gaining market share in the structurally attractive wealth platform market.”

Netwealth shares have dipped 21% over the past 12 months.

China could be ramping up

December was a different story for the stock price of mining giant Rio Tinto Ltd (ASX: RIO), as it soared more than 6%.

The ECP team attributed this to China’s COVID-19 reopening triggering a rocket under iron ore prices.

“The Chinese government has also been making positive noises in relation to economic growth and have signalled that they plan to address issues related to residential property prices,” read the memo.

“Infrastructure spending is also likely to be a focus.”

The Rio Tinto share price has been on a wild rollercoaster over the past year, dipping as low as $87.60 and flying as high as $128.55.

​​

The post 3 all-star ASX 200 shares ECP is going all-in on appeared first on The Motley Fool Australia.

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More reading

• Should I buy Rio Tinto shares in 2023?
• My top predictions for ASX 200 mining shares in 2023
• Here are the top 10 ASX 200 shares today
• Why Alumina, Netwealth, Nickel Industries, and Paladin Energy shares are falling today
• Why Allkem, DGL, Nanosonics, and Rio Tinto shares are pushing higher today

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 Netwealth Group. The Motley Fool Australia has positions in and has recommended Netwealth Group. 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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Building up a meaningful source of secondary income from the share market is one of the best ways of gaining passive income. ASX shares pay dividends, often with franking credits, and dividends are one of the best ways to receive passive income.

However, doing this isn’t easy. It requires a lot of time, capital and discipline. So let’s walk through how an investor might get to a secondary income of $100 per week using ASX shares.

So let’s get the maths out of the way. $100 a week works out to be roughly $5,200 per year.

Let’s take a simple ASX index fund, such as the Vanguard Australian Shares Index ETF (ASX: VAS). This exchange-traded fund (ETF) holds the 300 largest shares on our share market in its underlying portfolio.

This means an investment in this ETF basically exposes you to the profits of all 300 of those companies. In varying degrees, of course.

So because most of those 300 companies pay out consistent dividends, the Vanguard ETF passes through this income as dividend distributions.

So how much do ASX shares pay out in income?

Over the past 12 months, investors have enjoyed distributions totalling $6.36 per unit. That works out to be a yield of approximately 7% on current pricing.

So if an investor wished to receive $100 per week (or $5,200 per year) for this ETF, they would have needed to have around $74,300 invested last year.

If an investor invested $100 a week and received the historical rate of return of 8.8% that the Vanguard Australian Shares ETF has delivered since its inception, it would take around a decade to amass $74,300 in invested capital, spitting out $100 a week in dividend returns.

That assumes the Vanguard Australian Shares ETF keeps its dividend payouts at 2022’s levels going forward, which is not guaranteed, of course.

But this exercise shows exactly how ASX shares can be used to build up a stream of secondary income. What are you waiting for?

The post How to make a second income of $100 per week from ASX dividend shares appeared first on The Motley Fool Australia.

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More reading

• How I’d invest $40k in ASX shares and aim for $1 million
• Don’t ‘save’ for retirement! I’d invest in dirt-cheap ASX shares instead
• 5 reasons I’d consider buying the Vanguard Australian Shares Index ETF (VAS)
• How I’d invest $5,000 in high-yield ASX shares to earn a second income
• 3 ASX 200 shares I own for big dividends in 2023

Motley Fool contributor Sebastian Bowen has positions in Vanguard Australian Shares Index ETF. 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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Warren Buffett is recognised as one of the world’s leading investors. He has built enormous wealth through the power of investing in businesses. I’m using some of his key lessons to help me become rich over time.

Buffett has built his company Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) into a world leader with investments including insurance, railroads, banking and Apple Inc (NASDAQ: AAPL).

While his choice of investments has been part of his success, there are a couple of important factors that I think have enabled Buffett’s wealth growth.

Investing when the share market is down

It’s obvious to say, but I think hefty market declines can have the biggest impact on people’s wealth, depending on how investors behave.

If people decide to sell when share prices have dropped, it means they’re locking in the negative returns their portfolio has experienced. We could call that buying high and selling low.

Just look at what’s happened to the global share market over the past year with the Vanguard MSCI Index International Shares ETF (ASX: VGS):

I believe that investors need to be patient during volatility – crashes regularly happen, so we should expect them. So, just holding onto good ASX shares during downturns seems like a smart move to me.

But, buying shares during a market decline could be a very good move. The lower the purchase price, the bigger the gains over time, if that particular investment does go up.

Warren Buffett advice about market volatility

Buffett once said: “Be fearful when others are greedy, and greedy when others are fearful.”

He also gave an excellent analogy about why it’s good to remain optimistic about investing when share prices drop:

To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.

A third example of his advice regarding price falls comes from his 1997 annual letter to shareholders:

If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.

Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

Foolish takeaway

Choosing good investments is important. But it’s no good if investors sell when the market goes through volatility. Missing out on good prices could be a mistake as well. It takes patience to enable investments to compound and grow over time.

I used the COVID-19 crash as a big opportunity to invest and I’m using the current lower prices to buy a number of attractive ASX shares at cheaper prices than we saw in 2021. By using — and living by — Warren Buffett’s advice, I think it makes it more likely that I can become wealthy.

The post Forget gold, I’m using the Warren Buffett method to try and get rich! appeared first on The Motley Fool Australia.

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More reading

• 3 fantastic ETFs for ASX investors to buy this month
• With almost no investments at 30, can ASX shares still make me rich?
• 3 of the best ASX ETFs for investors to buy in January
• 2022 wasn’t kind to the Vanguard MSCI Index International Shares ETF (VGS). What now?
• How I’d invest $300 a month in ASX dividend shares to target a $30,000 annual second income

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 positions in and has recommended Apple, Berkshire Hathaway, and Vanguard Msci Index International Shares ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple, Berkshire Hathaway, and Vanguard Msci Index International Shares 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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Are you looking for retirement portfolio options? If you are, then you may want to look at the low risk, high quality ASX shares listed below.

Here’s why these shares could be top options for retirees:

Rural Funds Group (ASX: RFF)

The first ASX share that could be worth considering for a retirement portfolio is Rural Funds. It owns a collection of high quality agricultural properties such as such as orchards, vineyards, water entitlements, cropping, and cattle farms.

With the world’s population continuing to increase, Australia has become the food bowl of Asia in recent years. In light of this, demand for its properties looks set to remain strong long into the future. And with the company building annual increases into its rental contracts, this means Rural Funds is well-placed to grow its dividend by its target rate of 4% each year.

Management has guided to an 11.73 cents per share distribution in FY 2023 and Bell Potter is expecting an increase to 12.7 cents per share in FY 2024. Based on the latest Rural Funds share price of $2.43, this represents yields of 4.8% and 5.2%, respectively.

Bell Potter also sees value in the company’s shares after a spot of weakness. It commented:

The current discount to adjusted NAV reflects what historically would be considered an attractive entry point and we upgrade our rating.

The broker has a buy rating and $2.75 price target on its shares.

Transurban Group (ASX: TCL)

Another ASX share that could be a good option for a retirement portfolio is this leading toll road operator. Transurban owns a portfolio of roads in Australia and North America, as well as a significant project pipeline that could support its growth in the coming years.

It could be a top pick in the current environment due to its positive exposure to inflation. In fact, it is for this reason that Citi recently upgraded the company’s shares. It commented:

With concerns around inflation being more sticky and higher for longer, we believe investors are likely to remain attracted to companies providing protection to rising inflation. We see TCL as being particularly attractive given ~70% of toll revenue is linked to inflation, downside protection to traffic even if we enter a recessionary period (given exposure to urban roads), and inorganic upside from the current and future development pipeline.

Citi has a buy rating and $15.70 price target on its shares.

In addition, the broker is forecasting dividends per share of 53 cents in FY 2023 and then 56 cents in FY 2024. Based on the current Transurban share price of $13.79, this will mean yields of 3.8% and 4.1%, respectively.

The post 2 low risk, high quality ASX shares to buy for a retirement portfolio: analysts appeared first on The Motley Fool Australia.

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More reading

• How to invest $10,000 this year to create ‘safe’ passive income
• Buy South32 and this ASX dividend share: experts
• My ASX shares fell 15% last year. Here’s what I’m doing now
• Why I think these 3 ASX 200 dividend shares are top buys for retirement
• Boost your passive income with these ASX dividend shares: brokers

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 Rural Funds Group. 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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