Author: openjargon

BHP Group Ltd (ASX: BHP) shares and Wesfarmers Ltd (ASX: WES) shares are some of the most well-known and widely-held stocks on the ASX. They are two of Australia’s leading ASX blue-chip shares.

They are known for their strong market positions in the respective sectors of mining and retail.

Wesfarmers owns the retailers Bunnings, Kmart, Officeworks, Target, Priceline and Catch. It also has a chemicals, energy and fertiliser business called WesCEF, a healthcare division (including Clear Skincare Clinics and Silk Laser Australia), and an industrial division (Blackwoods, Coregas and Workwear).

BHP is a huge iron ore miner, produces copper and metallurgical coal, and owns projects related to potash and nickel.

I’m going to compare the businesses on some of the main factors that would help me decide between the two.

Dividend yield

Dividends aren’t everything but can make up a sizeable part of the return from an ASX blue-chip share.

Large businesses tend to have a more generous dividend payout ratio because there are fewer places for them to invest, so they can send more of the profit generated to shareholders.

The estimate on Commsec suggests that owners of BHP shares could get an annual dividend per share of $2.27 in FY24 and $2.13 in FY26, translating into forward grossed-up dividend yields of 7.5% and 7%, respectively.

The forecast on Commsec suggests owners of Wesfarmers shares could receive an annual dividend per share of $1.95 in FY24 and $2.35 In FY26, translating into forward grossed-up dividend yields of 4.1% and 5%, respectively.

BHP’s yield looks more appealing in the shorter term, but Wesfarmers’ dividend is growing in the right direction.

Growth prospects

Wesfarmers has several impressive businesses that have steadily grown their profits over the years. Kmart and Bunnings are well situated to succeed in the current environment because they can provide customers with a strong value offering.

The retail giant is making good moves to expand its presence in long-term growth industries such as healthcare, a sector where Wesfarmers can utilise its scale and capabilities in numerous ways.

According to Commsec, Wesfarmers is expected to generate earnings per share (EPS) of $2.23 in FY24, which could grow by 21% to $2.70 in FY26.

BHP is working on growing its iron ore production with improved efficiency and infrastructure in Australia. In recent times, the business has endeavoured to grow its exposure to copper, first with the acquisition of Oz Minerals and then the recent failed attempt at Anglo American. It’s clear the business wants to increase its exposure to future-facing commodities.

BHP’s potash project in Canada, Jansen, could also be a compelling earnings generator once operational.

The forecast for BHP EPS is $4.19 in FY24 and $3.82 in FY26, a reduction of 9%.

Is this a good time to invest?

Of the two businesses, I prefer Wesfarmers because of its track record of compounding earnings and its underlying value over time.

With miners, I think it’s better to invest when there’s a cyclical opportunity to do so. With the iron ore price above US$105 per tonne, I don’t think it’s in ‘weak’ territory yet.

I believe Wesfarmers is more likely to be able to keep growing its earnings over the rest of the decade – it does not rely on a positive commodity price change.

Wesfarmers shares are not cheap either, but I like its long-term prospects, particularly as it invests in long-term growth industries.

The post Are BHP or Wesfarmers shares a better buy? appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to buy next week
• Here’s how the ASX 200 market sectors stacked up last week
• Tax-busters: 5 fully-franked ASX dividend shares I’d buy for FY25
• Where Aussies are spending their money, and the ASX shares that could benefit
• 2 outstanding ASX 200 shares to buy and hold for a decade

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 Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Tabcorp Holdings Ltd (ASX: TAH) shares are on the slide on Monday.

In morning trade, the gambling company’s shares are down 4% to 63 cents.

Why are Tabcorp shares falling?

Investors have been selling the company’s shares on Monday after appearing to respond negatively to the announcement of its new leader.

According to the release, Tabcorp has appointed ex-AFL boss Gillon McLachlan as its new managing director and CEO.

McLachlan will join Tabcorp on 5 August and assume the role upon receipt of all necessary regulatory approvals. In the interim, he will act in an observer capacity with Bruce Akhurst continuing to act as executive chairman.

The company appears optimistic that McLachlan could repeat his AFL success with Tabcorp.

The release notes that during his decade leading the AFL, McLachlan more than doubled revenues from $502 million in 2013 to $1,063 million in 2023. This includes securing the largest sports broadcasting rights deal in Australian history.

Tabcorp also highlights that its new CEO has proven success in managing complex stakeholder environments and working productively with all levels of government. He also has extensive racing knowledge as a thoroughbred owner and breeder.

‘One of Australia’s leading CEOs’

Commenting on the appointment, Tabcorp’s executive chair said:

Gill needs no introduction – he is recognised as one of Australia’s leading CEOs and securing Gill is a great vote of confidence for Tabcorp’s future. We’ve laid strong foundations and Gill brings a growth mindset and the capability to capitalise on the opportunities ahead of us.

Gill has a deep understanding of sport, racing and wagering, combined with significant commercial acumen which was highlighted in the substantial growth of AFL revenues under his leadership.

Importantly for us, Gill brings an added dimension of having been responsible for some of the most significant media rights deals in Australian sports history and we’re excited about the potential growth opportunities for our wagering and media business under his leadership.

The company’s incoming CEO revealed that he would be focused on accelerating the growth of Tabcorp:

Tabcorp is a wagering, broadcast and integrity services business and the challenges of growing it are appealing. It’s about creating entertainment for our customers in a safe way and providing a unique customer omni-channel entertainment offering across digital, retail and the media business.

There are enormous opportunities ahead and I’m looking forward to driving the sport category among other things. Tabcorp is part way through its transformation journey and I’m looking forward to working with the leadership team to accelerate and deliver on the growth opportunities.

Tabcorp shares are down approximately 25% in 2024.

The post Tabcorp shares tumble 4% after naming ex-AFL boss as new CEO appeared first on The Motley Fool Australia.

More reading

• Here’s how the ASX 200 market sectors stacked up last week
• Here are the top 10 ASX 200 shares today
• The worst three performing ASX 200 shares in May unmasked

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.

If you’re on the hunt for a top-notch ASX healthcare stock, thinking long-term is the right strategy.

Australia is home to some wonderful health and medical companies – many with terrific prospects over decades to come.

One ASX healthcare company that analysts are bullish on long-term is ResMed Inc (ASX: RMD). Its stock has increased a hefty $10.33 per share since October 22 last year and opens the session today at $31.93. That’s a 47% gain.

Analysts believe it has even more potential. According to CommSec, 19 brokers rate it a buy, six hold, and one sell. Here’s what the experts say.

Why ResMed is a top ASX healthcare stock

ResMed has been a standout performer in the ASX healthcare sector this year. Its share price has surged 25% this year to date.

Lachlan Hughes, a portfolio manager at Swell Asset Management, reckons ResMed is a well-run business with significant growth potential.

He highlights its vast market presence with around 22.5 million customers in a market of 1 billion people. Hughes believes ResMed has “decades of growth ahead as the penetration is low and it’s the number one player in its market”, according to the Australian Financial Review.

The price is off as people said the GLP-1 (weight loss) drugs will negatively impact demand, but we take the opposite view and believe demand for these devices continues to thrive.

The sleep disorder treatment market, where ResMed operates, also presents a massive growth opportunity, according to analysts at Bell Potter. The broker recently noted that more than a billion people worldwide suffered from obstructive sleep apnoea (OSA), with many remaining undiagnosed. This could be bullish for ResMed, it says.

Bell Potter rates ResMed a buy with a price target of $36.00, also citing the ongoing recall of competitor Philips’ respiratory devices as a tailwind.

Moreover, ECP Asset Management finds ResMed’s valuation “very appealing,” despite market concerns about the impact of GLP-1 weight loss drugs.

Regarding the ASX healthcare stock’s selloff from $33.99 in July 2023 to $21.44 per share by September, the broker said that ResMed was “derated due to the frenzy” around these drugs but could still be undervalued.

ResMed’s market position

Investment firm Wilsons’ analysis further supports ResMed’s strong market position. According to my colleague James, Wilsons recently noted that, despite a “solid earnings-driven share price recovery”, ResMed trades at a significant discount to its historical price-to-earnings (P/E) multiples.

It expects the ASX healthcare stock to rise as concerns about GLP-1 weight loss drugs ease, which could allow the market to focus on ResMed’s fundamentals instead.

“We expect RMD’s valuation to re-rate higher as GLP-1 concerns progressively abate and the market shifts its focus to the strong fundamental outlook of the business”, Wilsons said.

In its Q3 FY 2024 update, the company booked a 7% growth in revenues to US $1.2 billion and a 2.6% increase in gross margins to 58%. Growth was underscored by performance in all regions, including an 8% year-over-year increase in sales for its software-as-a-service business.

Management remains “laser-focused” on continuing its innovative solutions in respiratory medicine going forward.

Foolish takeaway

According to many experts, ResMed could be a compelling investment in the ASX healthcare sector.

The ResMed share price has lifted more than 25% this year to date but is flat over the past year.

The post Buy the ASX 200 healthcare stock with ‘decades of growth ahead’ appeared first on The Motley Fool Australia.

More reading

• 3 of the best ASX 200 blue chip shares to buy now
• 3 high-quality ASX 200 shares to buy forever
• 3 ASX 300 healthcare stocks ‘well positioned to outperform’
• Bell Potter names more of the best ASX 200 stocks to buy in June
• Are these 2 ASX healthcare shares the best that money can buy?

Motley Fool contributor Zach Bristow 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 ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Australia’s rental market is in a frenzy, with skyrocketing prices and tight supply leaving many scrambling for solutions. As housing affordability issues continue to plague the housing market, the rental crisis has become a significant concern for tenants.

But for savvy investors, this crisis may present a golden opportunity.

Aspen Group Limited (ASX: APZ) is one ASX small-cap stock that might benefit from the ongoing housing crisis. Let’s explore.

Focus on affordable housing sector

Aspen Group specialises in affordable housing and accommodation solutions. The company owns more than 5,000 approved dwellings and land sites across Australia.

It offers affordable living options such as rental properties, retirement villages, and holiday parks, making housing accessible to a wide range of people. The company explains its business model:

Our core customer base is the approximate 40% of Australian households that can afford to pay no more than about $400 per week to rent or $400,000 to purchase their housing needs.

The shortage of accommodation at our end of the market has become even more acute over recent years with the proportion of rentals offered nationally at less than $400 per week collapsing from 42% in 2020 to only 16% in 2023.

Aspen Group generates revenue from two main sources: rental income and property development and sales. Its underlying net operating income (NOI) from these sources grew significantly, increasing from $5 million in FY19 to $21 million in the last 12 months to December 2023.

These NOI figures are different to the statutory net profits after tax (NPAT), which reached $50.8 million in the last 12 months. The higher NPAT is primarily due to revaluation gains on properties, estimated at around $47 million, reflecting the market value increase of these properties, which can vary each year.

According to Aspen’s 1H FY24 report, the rental market remains strong. Aspen’s total portfolio rent rose 13% year-over-year to $314 per week per dwelling. Notably, residential rent jumped 18% to $342 per week per dwelling, surpassing the market average growth of 16%.

Another important axis of growth is strategic acquisitions. The company continuously looks for acquisition opportunities to expand its portfolio and enhance its revenue potential. By acquiring properties that fit its affordable housing model, Aspen can scale its business and increase market reach.

Most recently, Aspen Group tried to acquire Eureka Group Holdings Ltd (ASX: EGH). Although its takeover offer wasn’t successful, Aspen still owns a strategic stake of 36% in Eureka Group. The value of this stake represents approximately 8% of Aspen’s total assets.

FY25 profit guidance upgrade

Aspen remains upbeat about the future.

Recently, the company increased its underlying earnings forecast for FY24 to 13.5 cents per security (cps), the upper limit of its previous guidance. Additionally, it issued profit guidance for FY25, projecting underlying earnings to be between 14.5 cps and 15 cps, representing a 9% growth from FY24 at the midpoint.

The residential market is in short supply, especially for affordable housing, which management expects to continue. The company noted:

Aspen’s residential and lifestyle portfolios are essentially full and 3-month forward bookings for our parks portfolio are 18% ahead of the same time last year.

Rents are growing strongly yet remain affordable and competitive at an average of about $365 per week for residential dwellings and $190 per week for lifestyle land sites. We enjoy a high-quality tenant base and negligible arrears.

How cheap are Aspen Group shares compared to peers?

Aspen Group shares are trading at 12 times FY25’s estimated earnings. Comparing Aspen Group to other similar companies in the real estate sector based on earnings estimates provided by S&P Capital IQ:

• Ingenia Communities Group (ASX: INA) share price is valued at 19x FY25 estimated earnings
• Lifestyle Communities Ltd (ASX: LIC) share price is valued at 16x FY25 estimated earnings
• Eureka Group share price is valued at 16x FY25 estimated earnings

Aspen Group shares offer a distribution yield of 4.7% based on trailing 12 months’ payments. The company anticipates paying out 9.5 cps as distribution in FY25, representing a 5.3% yield at the current security price.

Foolish takeaway

I think Aspen Group shares offer an interesting opportunity to benefit from rental shortages in Australia.

At $1.79, the Aspen Group share price has moved sideways, trading 0.5% lower than it was 12 months ago but up 6.5% in the year to date.

The post 1 ASX small-cap stock that could benefit from the rental crisis appeared first on The Motley Fool Australia.

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• Guess which ASX All Ords share is raising $1.1 billion to back generative AI
• This ASX All Ords stock is rocketing 20% after accepting a takeover offer
• Are BHP or Wesfarmers shares a better buy?
• Tabcorp shares tumble 4% after naming ex-AFL boss as new CEO

Motley Fool contributor Kate Lee 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 Aspen Group. The Motley Fool Australia has recommended Aspen Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

I think Warren Buffett is one of the world’s leading investors. He has identified the right times to invest via his Berkshire Hathaway business during bear markets. His advice is very useful for finding compelling ASX shares.

Good investing is usually about choosing good assets at attractive prices. We’re generally presented with the best prices when there’s a lot of uncertainty.

Warren Buffett once shared one of the most simple yet valuable pieces of advice:

Be fearful when others are greedy and greedy when others are fearful.

In other words, invest eagerly when most investors are cautious and be careful when the market looks bubbly and too excited.

With that in mind, I believe the two ASX shares below tick the boxes.

Johns Lyng Group Ltd (ASX: JLG)

The Johns Lyng share price has dropped close to 20% since 26 February 2024, as shown in the chart below.

The company specialises in building and restoring various properties and contents after damage caused by insured events such as weather, fire, and impact.

Clients include major insurance companies, commercial enterprises, local and state governments, body corporates/owners’ corporations and regular households.

Johns Lyng is effectively growing its market share in Australia and the United States. It was recently appointed to the Allstate emergency response and mitigation panel. Allstate is one of the largest insurance companies in the US.

The company’s catastrophe earnings can be pretty volatile – catastrophes are not consistent. However, the underlying core business is growing at a pleasing pace. In the FY24 first-half result, Johns Lyng reported that its normalised business-as-usual net profit after tax (NPAT) increased 15.8% to $25 million.

The estimate on Commsec suggests the business could generate earnings per share (EPS) of 20.5 cents in FY24 and reach 25 cents in FY26. This translates into a forward price/earnings (P/E) ratio for FY26 of 24, which I think is appealing for a business with a long growth runway that’s growing underlying earnings by double digits.

That’s why I believe Warren Buffett would be attracted to this growing industrial ASX share.

Collins Foods Ltd (ASX: CKF)

The chart below shows that the Collins Foods share price has dropped around 25% since January 2024, presenting an opportunity to buy into this fast-growing business.

Collins Foods operates an extensive network of KFCs in Australia and a growing KFC network in Europe. It also operates a small number of Taco Bells in Australia.

When it comes to businesses that operate through physical locations, like retailers or food places, we want to see that those existing locations are performing well. This can be measured through the same-store sales (SSS) metric.

In the FY24 first half result, Collins Foods revealed KFC Australia SSS growth of 6.6% and KFC Europe SSS growth of 8.8%. It’s also steadily adding more KFC outlets in Australia and Europe, improving its scale benefits.

That HY24 result saw the company’s revenue rise 14.3% to $696.5 million and underlying NPAT increase 28.7%.

Europe has a much bigger population than Australia, so I believe there’s scope for a significant increase in the number of stores in the region over the next decade.

According to Commsec, Collins Foods’ EPS is expected to rise by approximately 50% between FY24 and FY26, which would put the business at just 12x FY26’s estimated earnings. I believe Warren Buffett would be attracted to this sort of growth potential.

The post I’d use the Warren Buffett method and buy these 2 ASX shares appeared first on The Motley Fool Australia.

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• This ASX 200 share still looks cheap to me. But don’t just take my word for it!
• Investing like billionaire Bill Ackman: 2 ASX stocks ticking all boxes
• Now could be an opportunity to snap up overlooked ASX shares

Motley Fool contributor Tristan Harrison has positions in Collins Foods and Johns Lyng Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group. The Motley Fool Australia has recommended Collins Foods and Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Pilbara Minerals Ltd (ASX: PLS) share price has seen significant volatility in the last couple of years. Just look at the chart below — in the last month alone, it has sunk around 20%.

Can profit generated in future years translate into a recovery for the lithium miner?

ASX mining shares are heavily exposed to commodity price movement regarding profit-making and investor confidence.

Mining costs typically don’t change much from month to month or even year to year. Therefore, changes on the revenue side can significantly increase or reduce profitability.

The lithium price has sunk over the past 18 months. In the quarterly update for the three months to 31 March 2024, the ASX lithium share revealed the realised price for its commodity had sunk 28% since the quarter ending 31 December 2023.

With the lithium price sinking and staying low, what has this done to the profit estimates for the next few years? Let’s examine what one broker thinks.

FY24 projection

The 2024 financial year is nearly over, with only a couple of weeks left in June. However, until the reporting season arrives in August, we won’t see the company’s reported financials for several more weeks.

Broker UBS thinks Pilbara Minerals will generate $353 million of net profit after tax (NPAT) in FY24, which could represent a $2 billion reduction year over year.

UBS has forecast the company’s net cash balance could drop to $936 million as it invests in its P680 and P1000 projects.

UBS thinks the lithium price has stabilised at levels largely consistent with Pilbara Minerals’ BMX auction result of US$1,106 per tonne.

At the current Pilbara Minerals share price, it’s valued at 27x FY24’s estimated earnings.

How about FY25?

According to UBS, the weak conditions are expected to continue into the 2025 financial year.

The broker expects the ASX lithium share to generate $366 million of net profit in FY25, $13 million more than in FY24.

UBS expects Pilbara Minerals to allocate another A$680 million in capital expenditures in FY25 to grow P1000.

The broker forecasts the ASX share’s cash balance will be A$1.25 billion at the end of FY25, with a net cash balance of A$708 million.

Expectations for FY26

The 2026 financial year could see the ASX lithium share’s revenue increase by around A$300 million, which could also help the earnings before interest and tax (EBIT) increase by approximately A$300 million to $826 million.

Pilbara Minerals is projected to generate a net profit of $543 million in FY26, which would represent a 48% year-over-year increase or $177 million in dollar terms.

The increased profit and winding down of P1000 capital spending could see the net cash balance jump to $1.2 billion.

UBS has also pencilled in a dividend payment of 5 cents per share with earnings per share (EPS) generation of 18 cents.

Finally, here’s the FY27 forecast

According to this series of forecasts, the 2027 financial year could be the best year.

Its revenue is forecast to increase again to almost $2 billion, which could unlock $1 billion of EBIT.

UBS has predicted that Pilbara Minerals could make a net profit after tax of $690 million in FY27, which would represent an increase of 27% year over year. If that happens, the broker predicts the company could declare an annual dividend per share of 9 cents.  

The post Here’s the earnings forecast out to 2027 for Pilbara Minerals shares appeared first on The Motley Fool Australia.

More reading

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• Where could the Pilbara Minerals share price be in 12 months?
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• What happened to Pilbara Minerals 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 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.

Every investor has a different risk appetite. Some investors play it safe and buy low risk, defensive ASX stocks. Others are willing to risk a little for stronger potential returns. And a handful will seek the huge potential returns on offer from the speculative side of the market.

If you’re in the latter category, then it could be worth checking out the speculative ASX stock in this article.

That’s because the team at Bell Potter believes that it has the potential to almost double in value from current levels.

Which speculative ASX stock?

The company in question is Immutep Ltd (ASX: IMM). It is a $520 million, clinical-stage biotechnology company developing novel Lymphocyte Activation Gene-3 (LAG-3) immunotherapy for cancer and autoimmune disease.

Immutep’s eftilagimod alfa (efti) product is its proprietary soluble LAG-3 protein and MHC Class II agonist that stimulates both innate and adaptive immunity for the treatment of cancer.

Management notes that as a first-in-class antigen presenting cell (APC) activator, efti binds to MHC (major histocompatibility complex) Class II molecules on APC leading to activation and proliferation of CD8+ cytotoxic T cells, CD4+ helper T cells, dendritic cells, NK cells, and monocytes.

It also upregulates the expression of key biological molecules like IFN-Æ´ and CXCL10 that further boost the immune system’s ability to fight cancer.

What is the broker saying?

Bell Potter highlights that the speculative ASX stock is on the cusp of becoming a phase three company with a significant market opportunity. It notes:

At the end of CY24, IMM will transition into a Phase 3 company targeting one of the most lucrative oncology indications, first-line (1L) non-small cell lung cancer (NSCLC).

IMM will target all patients regardless of PD-L1 expression and test the regimen of Efti + pembrolizumab + chemo in ~750 patients. This is a positive choice in our view as it broadens the TAM to ~70k US patients diagnosed annually (or ~US$11b) and aims to improve upon the best standard of care currently available to patients, thereby speeding up Phase 3 recruitment and real-world adoption. Recruitment will start end-CY24/early-CY25.

The broker was also pleased to see that Immutep has successfully raised $100 million from investors recently. It believes this “improved balance sheet provides ~2.5 years of runway to end-CY26 (post Phase 3 futility analysis) and clears any perceived funding overhang in the near-term ahead of key readouts in HNSCC and beyond.”

Big potential returns

Bell Potter has responded to the above by reaffirming its speculative buy rating and 80 cents price target on the ASX stock.

Based on its current share price of 41%, this implies potential upside of 95% for investors over the next 12 months. It concludes:

With longer-term value being driven by the 1L NSCLC Phase 3, short-term attention now shifts to the imminent release of Phase 2b data by 30th June in head & neck cancer, where Efti + Keytruda is being evaluated head-to-head against Keytruda.

We maintain our BUY (speculative) recommendation and $0.80/share valuation. We remain positive ahead of the significant Ph2b readout due in the next ~2 weeks.

The post This speculative ASX stock could almost double in value appeared first on The Motley Fool Australia.

More reading

• Why Brainchip, Immutep, Liontown, and Xero shares are tumbling 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 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.

I think one of the leading ASX-listed exchange-traded funds (ETFs) is the iShares Global 100 ETF (ASX: IOO).

Regular readers may already know that I’m a big fan of international ETFs, which can provide diversification with strong holdings at an attractive management cost.

The Australian share market is heavily concentrated on two sectors, with around half of the S&P/ASX 200 Index (ASX: XJO) weighted to ASX bank and mining shares. I think the IOO ETF could be a particularly good move for Aussies who don’t have much international share exposure.

The iShares Global 100 ETF invests in 100 of the largest global stocks from both developed and emerging markets.

Diversification and holdings

It’s invested in all of the large US tech giants that are now part of our lives in various ways, including Microsoft, Nvidia, Apple, Amazon.com and Alphabet.  

It also owns names such as Proctor & Gamble, Mastercard, Tencent, Samsung, Walmart, LVMH, McDonald’s, Caterpillar, HSBC and many more.

These holdings are some of the world’s most effective operators in their fields. Because of their excellent economic moats, it’s very hard for smaller challengers to hurt these industry giants.

What I particularly like about the IOO ETF is its significant exposure to technology, with a 43% weighting. While banks and miners are typically exposed to the same operational risks as their peers, US tech shares are much more diverse and have global earnings bases. Thanks to the intangible nature of many of their services, tech companies can achieve strong profit margins and grow revenue quickly.

In terms of the other sectors, five industries have an allocation of more than 5% inside the IOO ETF: healthcare (10.5%), consumer discretionary (9.9%), financials (8.7%), communication (8.4%), and consumer staples (7.5%).

While more than three-quarters of the portfolio is listed in the US, the underlying earnings are more evenly spread worldwide. For example, consider all the different countries in which Apple smartphones are sold.  

Excellent returns

We shouldn’t rely upon past performance as an indicator of future returns, but I believe the underlying quality of the IOO ETF’s holdings can help long-term returns continue to be compelling.

According to fund provider Blackrock, the IOO ETF has delivered an average return per annum of 14.95% over the decade to 31 May 2024. If someone had invested $1,000 a decade ago, they would have around $4,000 now.

Many of these companies generate strong profits and a pleasing return on equity (ROE), so further profit re-investment can help them grow even more in the future.

Investors often like to value a business based on how much profit they’re making, so rising earnings should translate into higher valuations over time.

Reasonable fee

It’s not the cheapest ASX ETF out there. The IOO ETF has an annual management fee of 0.40%.

I acknowledge other ETFs are cheaper, such as the Vanguard MSCI Index International Shares ETF (ASX: VGS) and the Vanguard US Total Market Shares Index (ASX: VTS).

However, the IOO ETF allocates more to the strongest businesses than the VGS ETF and has more global diversification than the VTS ETF.

I think this ASX ETF can provide a lot of elements that some Aussie investors may be missing in their portfolios.

The post Why the iShares Global 100 ETF (IOO) is a great long-term buy appeared first on The Motley Fool Australia.

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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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 Alphabet, Amazon, Apple, Mastercard, Microsoft, Nvidia, Tencent, and Walmart. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended HSBC Holdings and has recommended the following options: long January 2025 $370 calls on Mastercard, long January 2026 $395 calls on Microsoft, short January 2025 $380 calls on Mastercard, and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Mastercard, Microsoft, Nvidia, 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.