Day: 4 May 2023

If the market volatility is getting you down, it might be a good idea to add some defensive ASX shares to your portfolio to shore things up.

But which shares fit the bill? Two defensive ASX shares that Goldman Sachs has just named as buys are listed below. Here’s what the broker is saying about them:

Endeavour Group Ltd (ASX: EDV)

The first defensive ASX shares that Goldman is recommending is drinks company, Endeavour. The broker is a fan of the company due to its industry-leading position, attractive valuation, and positive growth outlook.

In respect to the latter, earlier this week the broker said:

We tweak FY23-25e group sales by 0.6-0.7% respectively and EBIT by +1.2%-1.3% largely due to higher than expected Hotels sales despite slightly lower 2H23 margins. Our updated forecasts imply 4.4% sales CAGR and 8.3% EPS CAGR FY22-25e.

Goldman Sachs currently has a buy rating and $7.50 price target on Endeavour’s shares.

Woolworths Limited (ASX: WOW)

Another defensive ASX share that Goldman Sachs has named as a buy this week is Woolworths Group. It is of course the retail giant behind Woolworths supermarkets and Big W, among others.

Much like Endeavour, the broker is forecasting solid earnings growth from the company despite the tough economic environment. Earlier this week, in response to the company’s quarterly update, the broker commented:

We tweak our FY23-25e group sales by ~+1% and NPAT by 0.4%-1.1% respectively. This is due to slightly higher sales across all key business segments while our margin views remain intact. Our updated forecasts imply FY22-25e ~3.4% sales CAGR and ~9.6% CAGR for EBIT/NPAT respectively.

Goldman currently has a conviction buy rating and $42.80 price target on Woolworths shares.

The post Goldman Sachs names the high-quality defensive ASX shares to buy now appeared first on The Motley Fool Australia.

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More reading

• Here’s what brokers are saying about the Woolworths share price post-Q3 update
• Top brokers name 3 ASX shares to buy today
• Volatility got you down? 3 steps to building a robust income from ASX 200 dividend shares
• Why Beach, Computershare, Endeavour, and Qantas shares are dropping today
• Woolworths or Coles shares: Which ASX grocery giant would I buy right now?

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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While the market has been a little volatile recently, the All Ordinaries index (ASX: XAO) is still trading a world away from its 52-week low.

The same cannot be said for the ASX shares listed below which have just dropped to 52-week lows. Here’s why investors are selling off these shares:

Amcor (ASX: AMC)

The Amcor share price was hit hard on Wednesday and dropped to a 52-week low of $14.68. This has left the ASX share nursing a 12-month decline of 11%.

Investors have been selling this packaging company’s shares after its performance took a turn for the worse. This led to Amcor reporting a disappointing 34% decline in quarterly net income to US$177 million during the third-quarter.

In light of this poor form, management has downgraded its earnings guidance for the full year. It now expects to deliver earnings per share of between 72 to 74 US cents, which is down from its previous guidance of 77 to 81 US cents. Investors don’t appear to believe Amcor’s performance will improve quickly given the challenging economic environment.

Incitec Pivot Ltd (ASX: IPL)

The Incitec Pivot share price hit a 52-week low of $3.10 on Wednesday. This means the industrial chemicals company’s shares are now down over 21% since this time last year, as you can see below.

Its shares have come under pressure recently after announcing the sale of its American ammonia manufacturing plant in a $2.5 billion deal. Investors don’t appear overly convinced with the decision to offload the asset.

Outside this, concerns over market conditions in the agricultural sector could also be weighing on sentiment.

Syrah Resources Ltd (ASX: SYR)

The Syrah Resources share price sank to a 52-week low of 99 cents on Wednesday. This means this ASX graphite share is now down a whopping 46% over the last 12 months.

A good portion of this decline has come in recent sessions following the release of a bleak quarterly update. Syrah revealed that its unit costs were higher than the price it was receiving for its graphite. In light of this, the company has decided to reduce its production plans until prices recover.

Adding insult to injury for shareholders is news that it has raised $150 million through the issue of new convertible notes to AustralianSuper. This is to support it through this challenging period.

The post Why are these ASX shares at 52-week lows? appeared first on The Motley Fool Australia.

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More reading

• Why Amcor, oOh!Media, Ramsay, and Woodside shares are falling today
• 3 ASX 200 stocks getting hammered following trading updates
• Why Best & Less, Deep Yellow, Mirvac, and Syrah shares are falling today
• Why Aeris, Brainchip, Pointsbet, and Syrah shares are falling today
• Why is ASX 200 mining stock Syrah Resources tumbling 11% today?

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 Amcor Plc. 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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A social media influencer has been sentenced to two-and-a-half years imprisonment for manipulation of the stock market.

The Melbourne County Court on Wednesday handed down the punishment to Gabriel Govinda, who is known online as Fibonarchery, for 23 charges of manipulation of ASX shares and 19 counts of illegal dissemination of information.

He had earlier pleaded guilty to those charges.

Govinda was found to have manipulated the prices of 20 different ASX shares through posts on the investor forum HotCopper — an activity colloquially known as “pump and dump”.

He thus becomes the first person to be sentenced for breaching s1041D of the Corporations Act.

“Mr Govinda used a social media forum as an integral part of his market manipulation,” said ASIC deputy chair Sarah Court.

“He promoted certain shares that he had an undisclosed interest in, and which he had manipulated, with a view to selling out at a higher price.”

ASIC officers found note detailing the crimes

The court heard that Govinda used 13 different share trading accounts under the names of relatives and friends to manipulate the stocks.

He was found to have acted illegally by trading between the accounts he controlled, which is a practice called “wash trading”, and putting in dummy bids to “falsely increase the perceived demand” for a stock.

Govinda then publicised this fake demand on HotCopper in order to inflate the share price so that he could then sell them for a profit.

During a search of his premises in 2015, Australian Securities and Investments Commission officers found a notepad that described his strategy.

“Buy big parcels of small cap cash backed resource shares at reasonable price, alert HC Daytraders to the action[,] sell to them at higher price at end of day,” read the note.

The document also said “sell to self to create illusion of volume” and “sell stock down to yourself then buy stock up to yourself”. 

“Buy cheap, make it expensive again, sell to others,” wrote Govinda.

Govinda’s infringements occurred before a March 2019 reform that saw the maximum jail time for market manipulation increased to 15 years.

The court, on the basis of a five-year recognisance, released Govinda immediately.

The post Finfluencer sentenced 2.5 years for ‘pump and dump’ of ASX shares appeared first on The Motley Fool Australia.

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More reading

• NAB share price on watch after half-year earnings fall short of expectations
• Guess who has just downgraded Mineral Resources shares to a sell rating
• Goldman Sachs names the high-quality defensive ASX shares to buy now
• Why are these ASX shares at 52-week lows?
• Guess which ASX medical share has exploded 275% in a month?

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 S&P/ASX 200 Health Care Index (ASX: XHJ) has climbed 3% in the last month, but this ASX medical share has soared far higher.

The 4DMedical Ltd (ASX: 4DX) share price has rocketed 278% since market close on 3 April from 30 cents to $1.14.

So why has this ASX medical share had such a stellar run lately?

What’s happening?

4DMedical shares have been lifting amid a raft of positive announcements from the company.

In early April, 4DMedical advised it had signed its “first US hospital Software as a Service (SaaS) contract”.

Under a five-year contract with the University of Miami, 4DMedical will provide XV technology to enable the processing of patient data. XV technology enables physicians to detect the level of airflow in the lungs. 

4DMedical described the deal as a “significant milestone” for the company’s commercialisation strategy in the US.

Then on 13 April, 4DMedical provided further details on this sales contract. Under its terms, a minimum of $1 million to $1.5 million in fees is guaranteed to be paid to the company over a five-year term.

Meanwhile, on 26 April, 4DMedical updated the market with a quarterly report. Receipts from customers grew 67% to $1.2 million in the third quarter. The company reported a cash balance at 31 March of $36.8 million.

The company advised it is continuing to meet with US congress members on Capitol Hill to outline the company’s XV Technology and its potential to deliver on PACT Act healthcare for veterans. The former US Secretary for Veterans Affairs, Dr David Shulkin, has recently joined 4DMedical in an advisory role.

Finally, on 1 May, 4DMedical advised it had conducted its first commercial scanning within Veterans Health Administration. This took place at the Harry S. Truman Memorial Veterans Hospital.

Commenting on the news, 4DMedical CEO and founder Andreas Fouras said:

A vision to enable better care for Veterans is core to 4DMedical’s mission and culture. I am delighted to share the success of the first commercial scan at Harry S. Truman Memorial Veterans Hospital, completed by our team working alongside VA [Veterans Affairs] medical professionals.

Share price snapshot

The 4DMedical share price has soared 68% in the last year and 170% in the year to date.

This ASX medical share has a market capitalisation of about $334.7 million based on the latest share price.

The post Guess which ASX medical share has exploded 275% in a month? appeared first on The Motley Fool Australia.

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More reading

• 5 top ASX shares that would have more than doubled your money in 2023
• Guess which ASX healthcare share is rocketing 67% on a US hospital deal

Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Fortescue Metals Group Ltd (ASX: FMG) share price was under pressure again on Wednesday.

The mining giant’s shares sank 4% to $19.99.

This means the Fortescue share price is now down over 14% from the 52-week high of $23.33 it reached in February.

Is the Fortescue share price cheap enough yet?

Unfortunately, the broker community continues to believe that the Fortescue share price is overvalued even after recent weakness.

In fact, I’m not aware of a single broker that has a buy rating on its shares right now.

The most positive broker is arguably Morgans, which has the equivalent of a sell rating and $18.20 price target on its shares. This implies potential downside of 9% from current levels.

Whereas analysts at Bell Potter, Goldman Sachs, and Morgan Stanley all see scope for the iron ore giant’s shares to crash over 20% from here. They each have sell ratings on its shares with price targets of $14.45, $15.80, and $14.10, respectively.

What is being said about the miner?

Last week, Goldman Sachs revealed why it is so bearish on the Fortescue share price. One reason is its valuation, the other is its dire free cash flow outlook.

In respect to its valuation, the broker highlights that its shares trade at a significant (undeserved) premium to peers. It explained:

[T]he stock is trading at a premium to RIO & BHP on our estimates; 1.4x NAV vs. BHP at c. 0.95x NAV and RIO at 0.9x NAV, c. 5.5x NTM EV/EBITDA (vs. BHP/RIO on c. 5x/3.5x), and FY24 FCF of c. 4% vs. BHP/RIO on c. 7/10%.

As for its free cash flow, the broker believes its material capital expenditure will mean its dividends come under pressure. It adds:

Uncertainties around Fortescue Future Industries (FFI) diversification and Pilbara decarbonisation and impact on dividend and balance sheet. The 2022 FMG site trip to the Pilbara highlighted ongoing elevated spend to maintain hematite group shipments at ~190Mtpa going forward. Combined with the ~US$7-8bn decarb program, we forecast FMG’s capex to increase from ~US$3.3bn in FY23 to US$3.8bn by FY25.

We continue to think FMG is at an inflection point on capital allocation, and to fund the ambitious strategy, we assume the company raises ~US$5.5bn of new debt, reduces the dividend payout ratio from the current ~65% in 1H FY23 to ~50% from FY24 onwards (bottom end of the 50-80% guidance range), and increases gross gearing to ~30% by FY26 (in-line with the company’s target of 30-40%).

The post Here’s what brokers are saying about the Fortescue share price in May appeared first on The Motley Fool Australia.

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More reading

• Own Fortescue shares? You may have missed this week’s ‘game changer’ moment
• Why did the Fortescue share price tumble 7% in April?
• Dalio says US and China ‘on brink of war’. Which ASX shares could be impacted?
• How I’d generate $400 in monthly passive income from 2 ASX 200 iron ore shares
• Looking to buy ASX 200 iron ore shares? Here are 5 reasons not to

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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When a company’s senior management offloads a large chunk of shares, it almost always sparks some consternation amongst shareholders. And that’s exactly what has happened with ASX 200 lithium stock Sayona Mining Ltd (ASX: SYA) shares this week.

According to an ASX notice put out yesterday, Brett Lynch offloaded 4.578 million Sayona shares on 26 April in an on-market trade. This transaction was worth $892,509.

Not only is Lynch the managing director of Sayona Mining, but he is also the company’s CEO. So is this sale of shares by the CEO a red flag for Sayona investors today?

At first glance, it might appear that way. After all, the Sayona share price has had a rough few months. The company has fallen from the 30 cents per share levels that we saw back in January to the 20 cents a share the company is commanding today:

Many investors have the view that a CEO should be as closely aligned with the financial interest of shareholders as possible. So a CEO share sale is rarely greeted with enthusiasm by investors. Especially when the company’s valuation has been sliding recently.

Is the CEO’s sale a red flag for Sayona shares?

But remember, CEOs are bound by the same rules of prudent wealth management as the rest of us. Thus, it’s arguably difficult to fault a CEO for wanting to diversify their wealth and not hold all of their eggs in one basket.

A deeper look into the ASX notice gives us some valuable context as well.

Yes, it’s true that Lynch sold a large tranche of shares late last month. But the ASX notice also reveals that while Lynch offloaded more than 4.5 million shares on 26 April, he also acquired a far higher 30.62 million shares two days later on 28 April. Lynch didn’t purchase these shares. They were issued after he exercised 30.62 million listed options.

But the fact remains that Lynch sold 4.578 million Sayona shares, and then acquired 30.62 million. Hardly an absence of ‘skin in the game’.

After both of these transactions, Lynch still holds 164.28 million Sayona shares. Those would have a value of approximately $32.86 million, going off of today’s pricing.

So we can’t exactly fault Lynch for selling a small portion of his overall Sayona position. Maybe he had a tax bill to pay, maybe he wanted to buy a new house, or go on a holiday. All in all, this transaction doesn’t seem to indicate anything out of the ordinary – and certainly wouldn’t be construed as a red flag by too many investors.

 

The post The CEO has sold 4.5 million Sayona Mining shares in the past week. Is this a red flag? appeared first on The Motley Fool Australia.

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More reading

• Why did the Sayona Mining share price sink 5% in April?
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Here are the 10 most shorted ASX shares
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Friday

Motley Fool contributor Sebastian Bowen 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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Two ASX mining shares have delivered investors more than 10-bagger gains over the past year.

And that’s during a 12-month period that’s seen the All Ordinaries Index (ASX: XAO) fall by 3%.

The mining stocks in question are the aptly named Meteoric Resources NL (ASX: MEI) and Lindian Resources Ltd (ASX: LIN),

We’ll look at what drove Meteoric Resources’ smashing outperformance first.

Strategic acquisition spurs investor interest

One year ago today, Meteoric Resources was trading for 1.5 cents per share. As of market close yesterday, those same shares were changing hands for 15.5 cents apiece.

That’s a whopping 12-month gain of 933% for this ASX mining share. Or enough to turn a $1,000 investment into $10,330.

Meteoric Resources share price really went, erm, meteoric in December. That’s when the company emerged from a trading halt to announce its acquisition of a potential world-class ionic clay rare earth project.

The Tier 1 Ionic Clay Rare Earth Element (REE) project is located in the Minas Gerais state of Brazil.

The ASX mining share said it would leverage the advanced nature of the Caldeira Project and “the excellent technical work already completed” to “move rapidly towards becoming a significant participant in the global rare earth industry”.

Indeed, just a few weeks later, the company released a promising early progress report.

“The initial testwork of the metallurgy at the Caldeira Project is very encouraging,” Meteoric Resources director, Andrew Tunks said at the time.

Shares have continued to gain in 2023 with more promising results out of Caldeira along with some of the miner’s other projects.

Which brings us to…

This ASX mining share is up 1,279% in a year

You won’t hear anyone complaining about the 933% 12-month gains delivered by Meteoric Resources.

But ASX mining share Lindian Resources managed to outpace those gains.

One year ago, the stock was trading for 2.9 cents per share. At market close yesterday, the Lindian Resources share price stood at 40 cents.

That’s a gain of 1,279% in a year. Or enough to turn that $1,000 investment into $13,791.

And as with Meteoric, much of the past year’s success looks to be linked to the strategic acquisition of a “globally significant” rare earths project.

On 1 August, the company reported that it was acquiring 100% of the shares in Rift Valley Resource Developments Limited. Rift Valley is the owner of the Kangankunde Rare Earths Project, located in Malawi.

Commenting on the acquisition on the day, Lindian chairman Asimwe Kabunga said:

This is without doubt an outstanding development for Lindian that delivers a huge value opportunity for shareholders…

This binding transaction gives Lindian control of one of the world’s premier undeveloped rare earths deposits, at a time when global demand is universally forecast to accelerate materially in the years ahead.

At the time, the ASX mining share closed the day up 33%.

The post Explosive growth! 2 ASX mining shares rocketing around 1,000% in a year appeared first on The Motley Fool Australia.

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More reading

• 2 of the best ASX ETFs for global investing
• Why did the Qantas share price struggle in April?
• 4 reasons to buy ASX 200 banks stocks right now
• Brokers say buy these ASX dividend stocks for their big fully franked yields
• 3 ASX 200 bank shares to go ‘long and bullish’ on right now

Motley Fool contributor Bernd Struben 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’d like to make some global investments but aren’t sure which shares to buy, you could look at exchange traded funds (ETFs).

But which ETFs could be good options for investors wanting to invest globally?

Two high quality options that could help you achieve this investment goal are listed below. Here’s what you need to know about them:

Vanguard All-World ex-U.S. Shares Index ETF (ASX: VEU)

The first ASX ETF to look at is the Vanguard All-World ex-U.S. Shares Index ETF.

This ETF gives you access to approximately 3,500 companies listed in developed and emerging markets across the globe, excluding the United States.

The fund manager, Vanguard, also highlights that it gives investors access to many sectors that are not well represented in Australia. In fact, the Australian share market only accounts for approximately 5% of the portfolio. The largest country allocations are Japan, China, United Kingdom, France, and Canada.

Among this ASX ETF’s holdings you’ll find shares such as Royal Bank of Canada, AIA Group, HSBC Holdings, Samsung, LVMH Moet Hennessy Louis Vuitton, and Taiwan Semiconductor.

Vanguard MSCI Index International Shares ETF (ASX: VGS)

Another ASX ETF for investors to look at for global investing is the Vanguard MSCI Index International Shares ETF.

This ETF provides investors with exposure to approximately 1,500 of the world’s largest listed companies from major developed countries. And unlike the previous ETF, this includes the United States stock market.

Vanguard highlights that the ETF provides investors with low-cost access to a broadly diversified range of stocks that allows them to participate in the long-term growth potential of international economies.

Among the ETF’s largest holdings are household names such as Apple, Johnson & Johnson, Nestle, Procter & Gamble, and Visa.

The post 2 of the best ASX ETFs for global investing appeared first on The Motley Fool Australia.

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More reading

• 3 top ASX ETFs hitting new 52-week highs on Friday
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• I think this underrated reason is key to why ETFs can be great investments
• 3 reasons why the Vanguard MSCI Index International Shares ETF (VGS) could be an excellent investment for beginners
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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 Vanguard Msci Index International Shares ETF. The Motley Fool Australia has recommended 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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The Qantas Airways Limited (ASX: QAN) share price hit turbulence in April, surging to a new 52-week high before slumping to close the month lower than it started it.

Stock in the national carrier closed March trading at $6.62 before leaping to its highest point since the onset of the pandemic – reaching $6.94 on 5 April.

Then it plunged to a low of $6.25 a little over a week later and ended the month trading at $6.60. That marked a 0.3% fall over the 30-day period.

For comparison, the S&P/ASX 200 Index (ASX: XJO) rose 1.83% last month to recover all its March losses.

So, why did the Qantas share price experience headwinds in April? Let’s take a look.

Qantas stock struggles in April

Last month was a relatively quiet one for Qantas. Though, there was one announcement with the potential to shift its share price – and it was likely a disappointing one for the airline’s fans.

Qantas’ long-standing plan to acquire charter airline Alliance Aviation Services Ltd (ASX: AQZ) was knocked back by regulators, citing competition concerns.

The Australian Competition and Consumer Commission (ACCC) said the takeover – which valued Alliance at $919.2 million on an enterprise basis – would likely reduce competition in the supply of air transport services to the resource industry.

ACCC Chair Gina Cass-Gottlieb said the role the airlines play for fly-in-fly-out (FIFO) workers is “an essential service” for an “important part of the Australian economy”, continuing:

It is critical that competition in this market is protected.

Qantas quickly queried the regulator’s findings, announcing its intent to seek more information on the decision, saying:

Qantas remains confident the acquisition would not substantially lessen competition in any market.

Though, the ACCC did provide the airline with a win last month.

It re-authorised Qantas and Jetstar to coordinate with two Jetstar Asian-based joint ventures and, conditionally, for Jetstar Japan to coordinate with Japan Airlines until 2028.

Qantas share price snapshot

Fortunately, its lacklustre April wasn’t enough to send the Qantas share price into the longer-term red.

The stock is 9% higher than it was at the start of 2023. It has also gained 12% since this time last year.

Meanwhile, the ASX 200 is currently 3% higher year to date but has fallen 2% over the last 12 months.

The post Why did the Qantas share price struggle in April? appeared first on The Motley Fool Australia.

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More reading

• Here’s what this broker is saying about the Qantas share price
• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• How might Qantas shares perform under Vanessa Hudson?
• Brokers name 3 ASX 200 blue chip shares to buy
• Why Beach, Computershare, Endeavour, and Qantas shares are dropping today

Motley Fool contributor Brooke Cooper 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 Alliance Aviation Services. 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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S&P/ASX 200 Index (ASX: XJO) bank stocks have been through significant volatility since the beginning of COVID-19. Yes, there are some worrying factors to consider. But sometimes it pays to be positive.

In the past few months, I’ve written about strong competition in the banking sector and the rising funding costs because of higher interest rates on customer deposits (and sources of funding).

It’s not surprising that a number of the ASX bank stocks, such as Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB), have dropped more than 10% since early February considering the increasingly competitive environment for banks.

However, there are also a number of reasons to be positive, in my opinion.

Big dividends coming

The higher interest environment has led to banks earning higher profits, for now at least.

Higher earnings per share (EPS) means that banks like Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC), Commonwealth Bank, and NAB are all expected to grow their dividends in FY23.

This could result in very attractive grossed-up dividend yields from the major ASX 200 bank stocks.

Commsec numbers suggest the ANZ grossed-up dividend yield for FY23 could be 9.4%, the Westpac grossed-up dividend yield could be 9.1%, the NAB grossed-up dividend yield could be 8.6%, and the CBA grossed-up dividend yield could be 6.4%.

Competition is lessening?

While competition may be hurting margins, there are signs that the worst of the competition could be over.

NAB has said it’s not going to join in with the strong competition, according to the Australian Financial Review. In fact, we saw some banks increase rates outside of the normal RBA cycle, suggesting that ASX 200 bank stocks may not be competing as hard to win borrowers.  

Better valuation

As I’ve mentioned, we’ve seen ASX 200 bank stock share prices drop by more than 10% since February. While that’s not exactly a crash, it does mean that investors are now able to buy a slice of those businesses at a better price.

The lower the price we can buy bank shares, the higher the dividend yield and the more likely it is that we can achieve capital growth.

Let’s look at the current forward price/earnings (P/E) ratio. But remember, these are just forecasts.

The ANZ share price is valued at 10x FY23’s estimated earnings.

The Westpac share price is valued at just over 10x FY23’s estimated earnings.

The NAB share price is priced at 11x FY23’s estimated earnings.

The CBA share price is valued at more than 16x FY23’s estimated earnings.

Strong loan books

The big ASX bank stocks collectively saw a very low level of arrears over 2022. It’s possible that things will noticeably worsen for them over 2023. But we haven’t seen that yet.

If bank loan books perform better than feared, then this could mean better-than-expected profits for banks.

House prices may also perform better than feared, which could mean fewer bad debts than expected, even if loan arrears grow.

On top of all that, the banks do have well-capitalised balance sheets, as measured by the common equity tier 1 (CET) ratios.

Foolish takeaway

When you put all of that together, I think it’s possible the banks produce solid total returns from here, even if that’s only the dividend return in the short term.

The post 4 reasons to buy ASX 200 banks stocks right now appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 bank shares to go ‘long and bullish’ on right now
• Top ASX passive income shares to buy in May 2023
• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Wednesday

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 recommended Westpac Banking Corporation. 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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