Day: January 21, 2023

How to find undervalued ASX shares to buy now and hold in 2023

A businessman holding a butterfly net looks around hoping to snare a good ASX share investmentA businessman holding a butterfly net looks around hoping to snare a good ASX share investment

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.

TradingView Chart

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.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the ‘five best ASX stocks’ for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now…

See The 5 Stocks
*Returns as of January 5 2023

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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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3 wonderful ETFs for ASX investors to buy next week

A group of seven young people of different genders and cultural backgrounds stand in a group with serious expressions wearing casual young persons' attire.

A group of seven young people of different genders and cultural backgrounds stand in a group with serious expressions wearing casual young persons' attire.

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.

“Cornerstone” ETFs for building long term wealth…

Scott Phillips says plenty of people who hear the ‘ETFs are great’ story don’t realise one important thing. Not all ETFs are the same — or as good as you may think.

To help investors navigate this often misunderstood area of the market, he’s released research revealing the “cornerstone” ETFs he thinks everyone should be looking at right now. (Plus which ones to avoid.)

Click here to get all the details
*Returns as of January 5 2023

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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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3 all-star ASX 200 shares ECP is going all-in on

a forefinger and thumb hold a small block with a yellow star on it which is being placed next to two of the same blocks so they form a line of three blocks.a forefinger and thumb hold a small block with a yellow star on it which is being placed next to two of the same blocks so they form a line of three blocks.

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.”

​​

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.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the ‘five best ASX stocks’ for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now…

See The 5 Stocks
*Returns as of January 5 2023

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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 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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How to make a second income of $100 per week from ASX dividend shares

excited young female in business attire and wearing glasses is holding up $100 notes in both hands.

excited young female in business attire and wearing glasses is holding up $100 notes in both hands.

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.

You beat inflation buying stocks that pay the biggest dividends right? Sorry, you could be falling into a ‘dividend trap’…

Mammoth dividend yields may look good on the surface… But just because a company is writing big cheques now, doesn’t mean it’ll always be the case. Right now, ‘dividend traps’ are ready to catch unwary investors as they race to income stocks to fight inflation.

This FREE report reveals 3 stocks not only boasting sustainable dividends but that also have strong potential for massive long term returns…

Yes, Claim my FREE copy!
*Returns as of January 5 2023

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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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