Day: 16 May 2023

Yes, you should try to buy S&P/ASX 200 Index (ASX: XJO) shares at the lowest possible price.

But there is an old saying in investment: don’t catch the falling knife.

Buying a stock that’s just plunged might seem like a bargain at the time, but there could be a good reason why people are fleeing a burning building.

On the other hand, catching a rising star can make an excellent investment.

While you might have given up some early returns when buying stocks that have already soared, if the business is going places then there will be more to come.

In this spirit, the team at the ECP Growth Companies Fund is proud to keep backing two ASX 200 shares that went gangbusters last month:

Tech company does something it never did before

Megaport Ltd (ASX: MP1) investors were all smiles in April as the technology stock rocketed an unbelievable 36.7%.

The ECP analysts attributed this climb to the third quarter results reported at the end of the month.

“Monthly recurring revenue accelerated in 3Q, growing 14% QoQ,” they said in a memo to clients.

“This was driven by higher yield primarily, due to Cloud VXC repricing implemented in March.”

The virtual network provider has been a cash-burning growth business for most of its life, but has strived in recent months to be more profitable.

As such, ECP analysts noted that, in the April update, the company did something it had never done before.

“Megaport issued guidance for the first time, expecting EBITDA of $16 million to $18 million in FY23 vs consensus of $9 million, and $41 million to $46 million in FY24 vs consensus of $30 million, driven by cost-cutting initiatives.”

The majority of the wider professional community is also celebrating Megaport’s turnaround.

According to CMC Markets, eight out of 14 analysts currently rate the stock as a strong buy.

Big contract win, with more to come

Corporate Travel Management Ltd (ASX: CTD) soared 15.8% over the month of April to add 5.2% to its weighting within the ECP fund.

The analysts reckoned investors flocked to the travel stock due to “confidence in FY23 and FY24 guidance”, but a certain catalyst also helped.

“The company announced a major multi-year UK government contract that will drive large TTV [total transaction value] outcomes,” read the memo.

“This contract will deliver both near-term and longer-term revenues, which given the cost leverage story, should result in substantial profit contributions.”

Many of ECP analysts’ peers are also loving Corporate Travel Management, with ten out of 17 analysts currently surveyed on CMC Markets rating it as a strong buy.

“Corporate Travel Management has been successful in building a reputation in the government solutions market, and we would expect to see further contract wins over the next few years.”

The post 2 ASX 200 shares that had a MASSIVE April, set for more gains appeared first on The Motley Fool Australia.

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More reading

• Here are the 10 most shorted ASX shares
• Here are the top 10 ASX 200 shares today
• Morgans names the best ASX 200 growth shares to buy in May
• 2 ASX 200 travel stocks (not Qantas!) just upgraded by Citi
• Buy these top ASX growth stocks: experts

Motley Fool contributor Tony Yoo has positions in Corporate Travel Management and Megaport. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport. The Motley Fool Australia has recommended Corporate Travel Management and Megaport. 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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We already have a notable appetite for lithium merger and acquisition (M&A) activity of late. Could Core Lithium Ltd (ASX: CXO) shares be the next S&P/ASX 200 Index (ASX: XJO) morsel to make the merger plate? Let’s take a look.

At the close of trade on Monday, stock in the lithium hopeful-turned-producer was trading at $1.17 a share, up 0.43%.

M&A heats up among ASX 200 lithium shares in 2023

It’s been a big few months for fans of both M&As and lithium shares.

Of course, the Allkem Ltd (ASX: AKE) merger has been the talk of the town this week. On Thursday, the company announced its plan to join forces with Livent Corp (NYSE: LTHM), creating a $15.7 billion giant.

But before that took the market by storm, we were all talking about Liontown Resources Ltd (ASX: LTR).

The lithium up-and-comer was approached not once, not twice, but three times by giant Albemarle. It announced it had rejected all three offers in late March.

It’s unlikely the excitement of those deals had dissipated before some market watchers began to speculate which ASX 200 lithium share could be next to receive a merger offer. Could Core Lithium be the obvious answer?

Could Core Lithium be next to face merger action?

While there are plenty of reasons Core Lithium could appear to be a tasty investment, some brokers aren’t convinced a suitor will come knocking.

The ASX 200 lithium producer recently outlined multiple factors it believes makes its stock worth looking at. They included its battery-quality product, its newly established cash flows, the Finniss Project’s attractive location, and its secured offtake agreements.

Finniss recorded its first production in the March quarter. Core Lithium is now working to progress the project towards nameplate capacity.

Not to mention, it’s not strapped for cash. It had $97.8 million in the bank and no debt as of 31 March.

It also has a $25 million exploration plan underway, suggesting the company is more focused on organic growth rather than M&A expansion. Though, in a recent presentation, the company said it hopes its disciplined capital allocation will help it assess and value both organic and inorganic opportunities.

But, while there’s apparently a lot to like about Core Lithium for now, it’s unlikely to be a target for merger action, according to Morgans. Its analysts said, as quoted by my Fool colleague James last month:

A takeover bid is less likely given the smaller resource size, higher EV / resource, and likely higher cost operations.

Meanwhile, Goldman Sachs thinks Core Lithium shares are overvalued and worthy of a sell rating. It tips the stock to tumble to 80 cents per share – 31% lower than its current price.

Though, Macquarie was bullish on the lithium share last month, slapping it with a $1.20 price target and an outperform rating – a potential 3% upside.

The post Could Core Lithium shares make the merger menu next? appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Monday
• Power portfolios: Millionaire investors shun ASX 200 lithium shares
• 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 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 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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One of the big pieces of ASX 200 news last week involved ASX 200 lithium shares. Specifically,  Allkem Ltd (ASX: AKE) shares. Last Thursday, Allkem announced that it was planning a merger with the US lithium stock Livent Corp (NYSE: LTHM).

The merged company, given the tentative name of ‘NewCo’, would emerge as a US$10.6 billion global lithium giant if the union was to go ahead.

Investors have reacted euphorically to this news. Since last Thursday, the Allkem share price has risen by a hefty 15.10%, even after factoring in yesterday’s 1.85% drop at the close.

Over in the United States, Livent investors have also responded with excitement. Since the news became public, Livent stock has risen by a solid 5.3%.

If the merger does go through, it would result in Allkem investors receiving one share in ‘NewCo’ for every Allkem share owned. Livent investors would receive 2.406 NewCo shares for every Livent share owned.

After the merger is complete, Allkem investors would own 56% of the merged company, with Livent investors owning the other 44%.

NewCo would then be primarily listed on the New York Stock Exchange (NYSE). Conversely, ASX investors would own their new shares through a new CHESS Depositary Interest (CDI) arrangement. This would be similar to what happened to Afterpay investors when that company was acquired by Block Inc (ASX: SQ2). 

So is it time for Allkem investors to cash out? Or is the ‘NewCo’ evolution of Livent/Allkem worth sticking to?

What does the future hold for Allkem shares?

Well, let’s start with some numbers. According to Allkem, the combined company would have made US$1.9 billion in revenue in the 2022 calendar year. It also would have produced an estimated US$1.2 billion of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).

The companies also anticipate that merging the two businesses will result in US$125 million in annual synergies and US$200 million in one-off capital expenditure savings.

So does this make it a no-brainer for investors?

Well, one ASX expert is definitively in this camp. As we covered last week, ASX broker Goldman Sachs is cheering the merger on. It is anticipated that NewCo will be a global “top 3 lithium producer” with a strong balance sheet that it can use to support growth opportunities.

Here’s some of what Goldman’s analysts had to say:

The merger would also imply a stronger/more defensive balance sheet to fund the proposed and possible growth pipeline, where management noted the current execution pipeline will continue without taking pause as both businesses are already fully funded to execute respective projects.

So that’s how one ASX expert rates Allkem’s future as part of NewCo. But it’s worth pointing out that the merger isn’t a done deal yet, so be sure to watch this space.

The post Is a slice of Livent worth holding onto Allkem shares? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Brokers name 3 ASX shares to buy now
• Here’s what brokers are saying about the Allkem merger with Livent
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today

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 positions in and has recommended Block. The Motley Fool Australia has positions in and has recommended Block. 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 Insurance Australia Group Ltd (ASX: IAG) share price is having a mildly positive time in 2023.

Since the start of the year, the insurance giant’s shares are up approximately 3%.

This is largely in line with the performance of the ASX 200 index.

Where next for the IAG share price?

If the team at Goldman Sachs is to be believed, the IAG share price could be approaching fair value.

According to a recent note, the broker has a neutral rating and $5.18 price target on the insurer’s shares. This implies potential upside of 5.9% from where its shares are currently trading.

And with the broker also expecting a 15.5 cents per share fully franked dividend in FY 2023, which equates to a 3.1% yield, the total potential return stretches to approximately 9%.

While not amazing, it certainly is not terrible in the current environment.

What did the broker say?

Goldman does sees positives on the horizon for the company from rate increases. However, it appears to believe this is more than built into the IAG share price now. It highlights that its shares trade at a significant premium to rival Suncorp Group Ltd (ASX: SUN). Goldman explains:

We remain Neutral on IAG. 1) We think 2H guidance continues to be a stretch target noting that more appropriate rate increases were only applied late last year in Motor. 2) We think yield curve movements over 2H23 are also placing 2H guidance at risk. 3) Perils allowances at risk from NZ events with Australia are proving benign to date.

However, outside of this, we think IAG is accelerating rate increases to around 10-15% in motor and 15-20% in home suggesting that IAG’s broad intention to price for underlying claims inflation and reinsurance costs should manifest in margins over time even if not completely in 2H23. IAG will also benefit as claims inflation tapers off. We think IAG should also do well through commercial which is seeing strong rate increases helping toward its FY24 target of A$250m insurance profits. IAG trades at around 14x our FY24 forecasts about 2 P/E points more expensive than SUN.

The post Here’s what Goldman Sachs is saying about the IAG share price appeared first on The Motley Fool Australia.

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More reading

• Why Goldman Sachs is bullish on Suncorp shares
• Invested $9,000 in Suncorp shares in 2018? Here’s how much dividend income you’ve realised
• Why is everyone talking about IAG shares on Tuesday?
• Brokers say these ASX dividend shares are top buys
• Why were IAG shares such a good investment in April?

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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The ASX share market is a great place to find potential investments that can perform well. Some of them, with the ability to increase prices, can outperform the S&P/ASX 200 Index (ASX: XJO) right now.

A high inflation environment is generally not what society wants – that’s why central banks like the Reserve Bank of Australia (RBA) and the US Federal Reserve are increasing interest rates so much to bring down overheated demand in the economy.

But, while inflation isn’t a good thing for many households, there are a number of companies that are benefiting. This economic environment could enable them to achieve good shareholder returns and beat the ASX 200 index.  

What is pricing power?

An easy way to think of pricing power is the ability to increase prices for customers without much detrimental impact on demand.

Think of commodity traders like iron ore and copper shares or farmers. If they want to sell their product, they have to sell at the going rate, or customers will just go to the next seller for a better price.

ASX mining shares just have to bear the cost of higher wages and so on, regardless of what commodity prices are doing.

But price makers have much more control over the price they charge.

Think of a business like an airport – if a traveller wants to fly or park their car at the airport, they don’t have much choice but to pay the necessary cost. If the airport increases the prices, visitors would have to pay up or simply not use the airport.

Here are two ASX shares that are passing on cost increases (and perhaps more) to customers, which could enable them to continue to beat the ASX index.

ASX shares with pricing power

Coles Group Ltd (ASX: COL) is a consumer staples stock and one of the largest supermarket businesses on the ASX. Food inflation has been one of the key inputs of inflation in Australia.

Coles (and Woolworths Group Ltd (ASX: WOW)) have been passing higher prices of meat, packaged goods, fruit and vegetables onto customers. But, if we dig a little deeper, we can see that Coles’ gross profit has also increased, meaning it’s passing on more than just the cost increase of products.

In the FY23 first half result, Coles supermarkets’ gross profit margin improved by 43 basis points (0.43%) to 26.5%. For the overall continuing business, it achieved sales revenue growth of 3.9%, while net profit after tax (NPAT) grew by 11.4%.

This helped fund a 9.1% dividend increase. All of those numbers are helpful for shareholder returns. Indeed, the Coles share price has gone up by 11.3% this year to date, as we can see on the chart below, beating the ASX 200 index return over the same period of 4.6%.

Xero Limited (ASX: XRO) is another ASX share that is passing on a strong price increase which can help the company’s earnings. Last year, the tech company announced impressive increases in its Australia, New Zealand and United Kingdom markets.  

In the company’s FY23 half-year result, its average revenue per user (ARPU) increased by 13% to $35.30. The business reported a 30% increase in operating revenue, while free cash flow jumped 145%.

Xero recently revealed its plan to improve its profitability, balancing growth and profit. Xero will report its FY23 result soon, so we’ll get more insights.

Improving margins appears to have been a key driver for the Xero share price rising around 20% since 8 March 2023, as we can see on the chart below.

The post Why I’d buy companies with pricing power to comfortably beat the ASX index appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 200 dividend stocks brokers rate as top buys
• 3 things ASX investors should watch this week
• 5 ASX shares I’d buy for a US recession
• Top brokers name 3 ASX shares to buy next week
• How to invest $10,000 in ASX dividend shares in May

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 Xero. The Motley Fool Australia has positions in and has recommended Coles Group and Xero. 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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Even though they have already had a fantastic ride over the past 18 months, multiple experts are still keen on ASX mining shares for further gains.

This is especially so for companies that extract battery ingredients, such as copper and lithium. The global transition to zero carbon is irresistible.

Here are two such stocks from the S&P/ASX 200 Index (ASX: XJO) that are rated as buys:

25% boost in copper production

People in the know are predicting copper will be in great demand in the coming years for use in electronics and batteries.

However, the industry has recently consolidated with BHP Group Ltd (ASX: BHP)’s takeover of Oz Minerals.

As one of the largest independent copper producers left on the ASX, Sandfire Resources Ltd (ASX: SFR) is set to take advantage.

Medallion Financial Group private client advisor Stuart Bromley noted the business’ numbers are looking fine.

“Record first-half revenue of US$431.7 million was up 38% on the prior corresponding period,” Bromley told The Bull.

Admittedly, the market has already positively recognised Sandfire’s worth. The stock price is up 24.83% over the 12 months and is 11.9% higher since the start of the year.

But, according to Bromley, there could be a significant catalyst coming for a further surge in valuation.

“March quarter results identified an extension to the San Pedro mineralisation zone near the existing MATSA mine,” he said.

“The Motheo mine is closing in on first production, acting as a catalyst for short-term growth prospects while simultaneously substantiating long-term aspirations of about 25% growth in copper production by late 2025.”

Bromley is recommending investors buy Sandfire shares.

You can’t go wrong with ‘big mineral reserves’

Bell Potter investment advisor Christopher Watt reckons Mineral Resources Limited (ASX: MIN) could grow on the back of its new lithium business.

“This mining services company and iron ore producer has diversified into the lithium space via a joint venture with global producer Albemarle Corporation (NYSE: ALB).”

According to Watt, Mineral Resources is a “well-managed” company with “big mineral reserves”. 

Although the stock price is up a chunky 36.4% in the past year, over the most recent month, it’s sunk 6.8%.

So now is the time to strike.

“Recent share price weakness provides an attractive entry point,” said Watt.

“Growing demand for its products should drive future long-term earnings growth.”

Like Watt, QVG analysts earlier this month also expressed their bullishness on Mineral Resources.

“We believe the mining services volume dip and production ramp at Mt Marion are temporary in nature.”

The post ‘Attractive entry point’: 2 ASX 200 mining shares to buy right now appeared first on The Motley Fool Australia.

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More reading

• ASX 200 mining shares in focus: Top broker says current iron ore price is ‘unsustainable’
• Here are the top 10 ASX 200 shares today
• What’s with ASX 200 lithium stocks today?
• Keep the faith: 2 ASX shares to buy now at a temporary dip
• 2 ASX 200 lithium shares to buy for $100 monthly passive income each

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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If you’re looking for a passive income boost, then you may want to check out the ASX dividend stocks listed below.

Goldman Sachs has tipped these ASX shares to offer big dividend yields this year and next. Here’s what you need to know about them:

Super Retail Group Ltd (ASX: SUL)

The first ASX dividend share that has been tipped as a buy is Super Retail. It is the retail group behind popular brands such as Macpac, Rebel, and Super Cheap Auto.

Goldman Sachs is a big fan of the company due to its loyalty program. It explains:

We believe that the company’s positive trading update continues to display resilience that is built upon its competitive advantage of high loyalty (~10m active members accounting for >70% of sales) and this will be further bolstered in 2H23 as the company launches the Rebel loyalty program and continues to build personalisation capabilities.

The broker is expecting this to support fully franked dividends per share of 74.1 cents in FY 2023 and then 62.6 cents in FY 2024. Based on the current Super Retail share price of $12.83, this will mean yields of 5.8% and 4.9%, respectively.

Goldman Sachs has a buy rating and $14.90 price target on its shares.

Universal Store Holdings Ltd (ASX: UNI)

Goldman Sachs is also very positive on this youth fashion retailer and believes to could be an ASX dividend stock to buy.

The broker believes Universal Store is a great option due to its exposure to younger consumers and expansion opportunities. In respect to the former, the broker said:

[W]e remain constructive on the outlook for the younger consumer and believe UNI remains very well positioned in the current cycle compared to other discretionary retailers. We expect the FY23 result to be a key catalyst as it should demonstrate the resilience of top line trends.

As for dividends, the broker is forecasting fully franked dividends of 24 cents in FY 2023 and 31 cents in FY 2024. Based on the latest Universal Store share price of $4.61, this equates to yields of 5.2% and 6.7%, respectively.

Goldman Sachs currently has a buy rating and $7.45 price target on its shares.

The post Goldman Sachs says these ASX dividend stocks with big yields are buys appeared first on The Motley Fool Australia.

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More reading

• These cheap ASX shares are bargain buys: brokers
• Turning ASX shares into a $40,000 annual passive income generator
• UBS tips 4 ASX 200 retail shares to benefit from the federal budget
• Top defensive ASX shares to buy in May 2023
• Citi rates these ASX dividend shares as buys

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 Super Retail Group. The Motley Fool Australia has positions in and has recommended Super Retail 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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On Monday, the S&P/ASX 200 Index (ASX: XJO) started the week with a small gain. The benchmark index rose 0.15% to 7,267.1 points.

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

ASX 200 expected to edge higher

The Australian share market looks set to edge higher this morning following a positive start to the week on Wall Street. According to the latest SPI futures, the ASX 200 is poised to open the day 2 points higher. In the United States, the Dow Jones was up 0.15%, the S&P 500 was up 0.3%, and the NASDAQ rose 0.65%.

Oil prices higher

Energy shares Beach Energy Ltd (ASX: BPT) and Karoon Energy Ltd (ASX: KAR) could have decent session after oil prices pushed higher. According to Bloomberg, the WTI crude oil price is up 1.6% to US$71.16 a barrel and the Brent crude oil price is up 1.55% to US$75.31 a barrel. Oil prices rose amid tightening supplies.

Allkem rated as a buy

The Allkem Ltd (ASX: AKE) share price could still have plenty of room to climb from current levels. That’s the view of analysts at Bell Potter, which have retained their buy rating with a $19.20 price target. The broker said: “Combining with LTHM and the NYSE listing could see an earnings multiple uplift. AKE is trading at a slight discount to the implied deal value, which we expect will close if deal certainty improves.”

Gold price largely flat

Gold miners Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) will be on watch after the gold price traded largely flat overnight. According to CNBC, the spot gold price is up a fraction to US$2,020.5 an ounce. Traders appear undecided whether gold is heading higher or lower from here as US debt ceiling talks take place.

Telstra mobile price increases are good news

Goldman Sachs has been looking at the mobile price increases announced by Telstra Group Ltd (ASX: TLS) this week. The broker believes the price increases “reinforces our confidence in our +5.6% EBITDA growth in FY24E.” Goldman has a buy rating and $4.70 price target on the telco giant’s shares.

The post 5 things to watch on the ASX 200 on Tuesday 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 Monday
• 3 reasons I’m tipping the Telstra share price to keep rising in 2023
• Did you invest $5,000 in Evolution Mining shares in 2018? If so, here’s how much dividend income you’ve earned
• Up 17% in 2023, are Woolworths shares still worth buying?

Motley Fool contributor James Mickleboro has positions in Allkem. 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 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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