Category: Stock Market

BHP Group Ltd (ASX: BHP) shares were under pressure on Thursday.

The mining giant’s shares ended the day almost 2% lower at $45.73.

This was driven by the release of a quarterly update which fell a touch short of the market’s expectations.

Should you buy BHP shares?

One leading broker that believes investors should buy the dip is Goldman Sachs.

According to a note, the broker has responded to the Big Australian’s quarterly update by retaining its buy rating with a trimmed price target of $49.40.

Based on its current share price, this implies potential upside of 8% for investors over the next 12 months.

And with Goldman forecasting a 5% dividend yield in FY 2024, the total potential return stretches to 13%.

What did the broker say?

Goldman wasn’t overly impressed with BHP’s quarterly update but has seen enough to remain positive. It said:

BHP reported a slightly weaker than expected Dec Q with copper and met coal production -6%/-9% vs. GSe but iron ore production/shipments of 72.7/70.3Mt were in-line with GSe. FY24 guidance is unchanged except for met coal, which has been cut by ~20% to 23-25Mt. Copper realised pricing for Dec H was +3% vs GSe, iron ore in-line, while coal and nickel pricing were lower than GSe reflecting product realisations and sales timing.

The broker also believes BHP’s shares deserve to trade at a premium to peers due to its superior operations. It adds:

BHP is currently trading at ~6.0x NTM EBITDA, (25-yr average EV/EBITDA of ~6-7x) vs. RIO on ~5.5x. BHP is trading at 0.95x NAV (A$48.6/sh), vs. RIO at ~0.9x NAV. That said, we believe this premium vs. peers can be partly maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore where BHP maintains superior FCF/t vs. peers), high returning copper growth, and lower iron ore replacement & decarbonisation capex.

The post Are BHP shares a buy following the miner’s Q2 update? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• BHP shares tumble after missing expectations in second quarter
• 5 things to watch on the ASX 200 on Thursday
• ‘Deteriorating demand’: Should you be worried about your BHP shares in 2024?
• Top brokers name 3 ASX shares to buy next week

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 Goldman Sachs Group. 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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Owning a few blue chip ASX 200 shares can be a good way of ensuring you have a rock-solid investment portfolio.

But deciding which blue chips to buy over others is not easy. But don’t worry, because analysts at Goldman Sachs have done the hard work for you.

Listed below are three blue chips that the broker rates very highly right now. Here’s what you need to know about them:

Endeavour Group Ltd (ASX: EDV)

The first blue chip ASX 200 share that Goldman Sachs has named as a buy is Endeavour.

It is the drinks giant behind the BWS and Dan Murphy’s brands, as well as a large network of hotels.

Goldman believes Endeavour’s shares are good value based on its leadership position and positive outlook. It explains:

Most attractive valuation amongst Staples peers: We continue to see defensiveness in the company’s Retail business with relative market share of ~35% vs COL liquor of ~13%, 5.2mn active My Dan’s members. EDV is currently trading at FY24e P/E of 18.4x with FY23-25e EPS CAGR of ~5%, which is the cheapest vs WOW, COL, WES.

Goldman has a conviction buy rating and $6.40 price target on the company’s shares.

ResMed Inc. (ASX: RMD)

Another blue chip ASX 200 share that Goldman Sachs rates as a buy is ResMed.

It is a sleep treatment company with a portfolio of leading hardware and digital solutions for disorders such as sleep apnoea.

Goldman Sachs believes the risk/reward is very attractive for investors at current prices. It said:

We view the risk/reward to be favorable and are Buy-rated. We view valuation as attractive and see a favourable risk-reward skew post the recent de-rate, noting the shares are trading meaningfully below historical averages on both a P/E and EV/EBITDA basis.

The broker has a buy rating and $32.00 price target on the company’s shares.

Woolworths Limited (ASX: WOW)

Finally, Australia’s largest supermarket operator could a blue chip ASX 200 share to buy according to Goldman.

Its analysts like Woolworths due to potential market share gains thanks to the strength of its loyalty program and its omni-channel advantage. The broker said:

We are Buy rated (on Conviction List) on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as pass through any cost inflation to protect its margins, beyond market expectations.

Goldman has a buy rating and $42.40 price target on its shares.

The post Goldman Sachs says these blue chip ASX 200 shares are top buys appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• These ASX 300 dividend shares offer major upside and good yields
• Is the ResMed share price in the buy zone ahead of next week’s update?
• Top brokers name 3 ASX shares to buy today
• Will a competition review hurt Woolworths and Coles shares?

Motley Fool contributor James Mickleboro has positions in Endeavour Group and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and 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.

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The Accent Group Ltd (ASX: AX1) share price has done very well over the last several months, as we can see on the chart below.

Accent is one of the largest shoe retailers in Australia, it acts as the distributor for a number of different global brands including Vans, Ugg, Kappa, Hoka, Skechers, Dr Martens and CAT. The business owns a number of brands in Australia including The Athlete’s Foot, Glue Store, Nude Lucy, Stylerunner and Trybe.

Strong returns by the Accent share price

The ASX retail share has seen a rise of around 33% since the low in June 2023, which is a very strong return considering the S&P/ASX 200 Index (ASX: XJO) only went up by 3.8% over the same time period. That means the business has outperformed by around 30% in about seven months.

I wouldn’t expect the next several months to show that level of outperformance again because that’s not usually how things go – past performance is not a reliable indicator of future returns, particularly in the shorter term.

With a $1,000 investment, it would have turned into $1,330. A $3,000 investment would have turned into approximately $4,000. A $5,000 investment making a 33% return would become $6,660.

On top of that, the business has paid a dividend which boosted the return. The company paid a dividend per share of 5.5 cents a few months ago. That added an extra 3.6% of a return, which is a return of over 36%.

Can the ASX retail share keep rising?

Anything can happen on the ASX in the shorter term.

In the middle of last year, the Accent share price was suffering from an investor weakness as investors didn’t know how long the high inflation and interest rates were going to stay.

To me, it’s understandable that some investor confidence has returned with inflation reducing and interest rates look to have seemingly peaked.

2024 may see some weak trading conditions with households suffering amid a higher cost of living and high interest rates. But, if interest rates start to come down, we could see household budgets improving and spending more on retail, including shoes.

The company can also grow its number of stores, expanding its reach. The company is also looking to grow digital sales, which can help grow its market share. The business can also grow its brand portfolio or expand its own brands overseas.

By doing these things, the profit could keep rising and this can help the Accent share price.

The post The Accent share price has sprinted ahead since June! Here’s how much you’ve made appeared first on The Motley Fool Australia.

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More reading

• These ASX 300 dividend shares offer major upside and good yields
• Top ASX shares for beginner investors to buy in 2024
• I could generate an extra $200 a month by buying 21,622 shares of this ASX dividend stock
• 3 ASX dividend stocks with big yields to buy now
• Why I think these 2 ASX shares are steals

Motley Fool contributor Tristan Harrison has positions in Accent Group. 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 Accent 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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AGL Energy Limited (ASX: AGL) shares are traditionally a popular option for income investors.

That’s because each year, the integrated energy giant shares a portion of its profits with shareholders in the form of dividends.

For example, over the last decade, AGL has paid out a total of $7.50 per share to loyal investors.

That’s almost as much as the current AGL share price of $8.74!

But those dividends are long gone now. What about the future? Let’s see what investors can expect from AGL’s shares in the near term.

What sort of dividends are expected from AGL shares?

The good news for investors is that the team at Macquarie believes the company will be in a position to pay some big dividends in the near term.

In FY 2024, for example, the broker is forecasting a 53 cents per share dividend. Based on the current AGL share price, this equates to a 6.1% dividend yield.

And while its analysts suspect that a slight dividend cut is coming in FY 2025, another generous yield is still expected.

It has pencilled in a dividend of 49 cents per share for that financial year. If this proves accurate, it would mean a 5.6% yield for investors.

Are its shares good value?

As well as big yields, the broker sees major upside for AGL’s shares over the next 12 months.

According to the note, the broker has an outperform rating and $10.89 price target on its shares.

This suggests that its shares could rise almost 25% from current levels. And combined with its forecast 6.1% dividend yield, a total 12-month return of approximately 31% could be on the cards for investors buying AGL shares at current levels.

The post Buying AGL shares? Here’s much you could receive in dividends in 2024 appeared first on The Motley Fool Australia.

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More reading

• ‘Oversold’: 2 beaten-up ASX 200 shares ready to be given a fair go
• The 2023 AGL share price return was double the ASX 200
• The No. 1 ASX 200 shares of each market sector in 2023

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 Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie 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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Looking for big dividend yields? If you are, then it could be worth checking out the ASX dividend shares listed below.

Here’s what analysts are forecasting for them:

Dexus Convenience Retail REIT (ASX: DXC)

The first ASX dividend share that has been tipped to provide investors with big yields is the Dexus Convenience Retail REIT. It is a convenience retail and service station property company.

Bell Potter likes the company due to its attractive valuation and strong tenant base. It explains:

DXC is a convenience retail / service station REIT with a network of over 100 assets across the country predominantly leased to institutional and strong covenant tenants including Chevron, Viva, EG, Mobil and 7-Eleven. DXC trades at a circa 34% discount to stated NTA which we think is overly punitive for a sub-sector where there is clear price discovery (double digit number of asset sales for DXC at a blended 2-3% discount to book, and 65 market transactions in FY23), and investors for commercial real estate have a clear preference for smaller cheque size assets.

As for income, the broker is forecasting dividends per share of 20.9 cents in FY 2024 and 20.5 cents in FY 2025. Based on its current share price of $2.54, this equates to yields of 8.2% and 8.1%, respectively.

Bell Potter has a buy rating and $2.85 price target on its shares.

Transurban Group (ASX: TCL)

Another ASX dividend share that could offer generous yields in the coming years is toll road giant Transurban.

Citi is a fan of the CityLink and Cross City Tunnel owner. In fact, it suspects that things could be going better than expected and sees scope for dividends ahead of guidance. It said:

We believe TCL’s FY24 DPS guidance of 62c is conservative and we forecast DPS of 63.4c given strong toll price growth, traffic growth on new road completions and a slower increase in debt costs in FY24 given a small proportion (c. 3%) of the debt book is maturing this year TCL is currently trading in-line with historic EV/EBITDA multiples at 22.5x, but we see upside given the strong EBITDA growth outlook (c.12% CAGR between Fy24-FY26). Retain Buy

Citi is forecasting dividends per share of 63 cents in FY 2024 and then 65 cents in FY 2025. Based on the current Transurban share price of $13.06, this will mean yields of 4.8% and 5%, respectively.

The broker currently has a buy rating and $15.90 price target on its shares.

The post Buy these quality ASX dividend shares with 5%+ yields appeared first on The Motley Fool Australia.

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More reading

• These ASX 300 dividend shares offer major upside and good yields
• 2 ASX dividend shares with juicy yields to buy right now
• Leading brokers name 3 ASX shares to buy today
• Forget savings accounts and buy these ASX dividend shares
• Why 29Metals, Alumina, Beach Energy, and Worley shares are falling today

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 Transurban Group. 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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At The Motley Fool, we’re all about long-term investing.

However, it’s fun to see how certain stocks rocket overnight from time to time.

It demonstrates how a massive winner can carry your portfolio, even if your other stocks are growing at a pedestrian rate.

Pocketing $5,800 in just one month

Take Boss Energy Ltd (ASX: BOE), for example.

The uranium producer has ridden a boom in the nuclear fuel sector, with the stock price soaring more than 29% over the past month.

So if you bought $20,000 of Boss Energy shares a month ago, they would now be worth $25,800.

That’s a $5,800 profit in just 31 days!

Over the past year, the Boss share price has gained an amazing 137%.

That’s more than double in just 12 months.

Sure beats a term deposit.

Plenty more upside for Boss Energy shares

Many professional investors are bullish on uranium and ASX uranium shares at the moment.

A stunning announcement recently from the world’s biggest miner of the nuclear fuel certainly helped.

Kazakhstan’s National Atomic Company Kazatomprom Joint Stock Company (FRA: 0ZQ) last weekend downgraded its 2024 production forecasts because of a shortage in the supply of sulphuric acid.

Sulphuric acid is an essential ingredient in the processing of uranium.

There ain’t no bull market like a #uranium bull market.

If cameco cuts too it could get crazy. $CCJ $KAP pic.twitter.com/BPlmABqswe

— Gigi Penna (@giginator_) January 15, 2024

https://platform.twitter.com/widgets.js

Former earth sciences researcher and current analyst John Quakes said on X that the news was a rock thrown into waters of the global nuclear sector.

“And now we watch the ripples spread across the world.

“Every other producer, trader and nuclear utility affected by the ‘potential’ for missed deliveries will now be actively seeking out spot lbs to hedge against that possible outcome, which will then translate into far higher spot U3O8 prices as a bidding war erupts.”

According to CMC Invest, five out of the six analysts that currently study Boss Energy shares rate them as a strong buy.

The post If I’d invested $20,000 in Boss Energy shares one month ago here’s what I’d have today appeared first on The Motley Fool Australia.

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More reading

• Would I be crazy to buy Boss Energy shares at $5.50?
• Here are the top 10 ASX 200 shares today
• The shocking admission catapulting ASX uranium shares to record highs today
• ASX uranium shares crack new highs AGAIN as spot price flies past US$100 per pound
• Why Boss Energy, Core Lithium, Pinnacle, and Syrah shares are rising today

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has 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 Ltd (ASX: FMG) share price has had a fascinating last six months, surging by 21%. 2024 could be the biggest year for the ASX resources share for multiple reasons.

Today, I’m going to look at how things might unfold.

Iron ore price volatility

The Fortescue share price has benefited from the strength of the iron ore price over the last few months, rising to US$140 per tonne. It’s currently sitting at around US$130 per tonne.

There are many positives and negatives facing the iron price in relation to China. The Chinese government has added a number of stimulus measures to try to boost its economy.

But, the economy is still not firing on all cylinders. According to Trading Economics, new home prices in China “sank at the sharpest pace since 2015, stretching the declining momentum to the sixth month and underscoring the slump in property demand in the country”.

Trading Economics added:

… uncertainty over demand for construction materials in the year ahead tempered iron ore demand from steel mills and countered added buying activity in their usual restocking season.

Market players noted that robust portside iron ore inventories limited new purchasing demand from steel mills as the sector struggles with decreasing margins, contributing to the downturn.”

The profit Fortescue generates from iron ore funds its green energy division and pays for the company’s generous dividends. So its fortunes with this resource in 2024 will influence the company and the Fortescue share price.

In addition, the new high-grade project Iron Bridge is ramping up in 2024, so it will need to start justifying the money spent on it this year.

Green energy decisions

Fortescue has already committed hundreds of millions of dollars to its green energy ambitions, and 2024 might be a pivotal year. It’s starting to make final investment decisions on projects it wants to work on in the US.

This is important – is it now making some tangible progress on diversifying its future operations? Or are hundreds of millions of dollars going up in smoke?

The decision to focus efforts on the US may also be misguided if Donald Trump wins the US election in 2024. He has committed to cut spending on clean energy projects and perhaps withdraw from the Paris agreement.

Financing will also be a key factor this year. Fortescue has flagged the option of bringing external investors into its green energy projects. How successful it is with this endeavour in 2024 (and subsequent years) may well dictate whether the company is able to achieve its lofty goals of delivering all green energy projects or not.

Fortescue share price snapshot

In the past year, the Fortescue share price has surged by around 20%.

The post 2024 could be the biggest year in history for the Fortescue share price. Here’s why! appeared first on The Motley Fool Australia.

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More reading

• 3 ASX shares I think are ready for dividend hikes in 2024
• Top broker Citi lifts its Fortescue share price forecast
• How do Pilbara Minerals, Fortescue and BHP shares compare on FY24 dividend forecasts?
• Which had the better year in 2023: Pilbara Minerals, BHP or Fortescue shares?
• ‘Strong commodity cycle’: 2 ASX 200 iron ore shares to buy now

Motley Fool contributor Tristan Harrison has positions in Fortescue. 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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On Thursday, the S&P/ASX 200 Index (ASX: XJO) was out of form again and dropped into the red. The benchmark index fell 0.6% to 7,346.5 points.

Will the market be able to bounce back from this on Friday and end the week on a high? Here are five things to watch:

ASX 200 expected to rebound

The Australian share market looks set to end the week on a very positive note following a good night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open 55 points or 0.75% higher this morning. In late trade on Wall Street, the Dow Jones is up 0.4%, the S&P 500 is up 0.75%, and the NASDAQ is up 1.25%.

Oil prices jump

ASX 200 energy shares Beach Energy Ltd (ASX: BPT) and Karoon Energy Ltd (ASX: KAR) could have a good finish to the week after oil prices jumped overnight. According to Bloomberg, the WTI crude oil price is up 2.2% to US$74.13 a barrel and the Brent crude oil price is up 1.6% to US$79.13 a barrel. Traders were buying oil after the International Energy Agency forecast strong growth in global oil demand.

BHP is a buy

Goldman Sachs believes that BHP Group Ltd (ASX: BHP) shares are in the buy zone despite a slightly weaker than expected quarterly update. In response to the update, the broker has retained its buy rating with a $49.40 price target. It said: “BHP reported a slightly weaker than expected Dec Q with copper and met coal production -6%/-9% vs. GSe but iron ore production/shipments of 72.7/70.3Mt were in-line with GSe.”

Gold price rises

ASX 200 gold shares Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a good day after the gold price pushed higher overnight. According to CNBC, the spot gold price is up 0.7% to US$2,021 an ounce. Middle East tensions boosted demand for the safe haven asset.

Suncorp remains a buy

Suncorp Group Ltd (ASX: SUN) shares remain a buy according to Goldman Sachs. The broker has been running the rule over the insurance giant ahead of the release of its half year results next month and likes what it sees. As a result, it has retained its buy rating with a trimmed price target of $15.00. It said: “While the bank trends have seen some pressure, the trajectory for margins in the general insurance business remain strong and should see a strong 2H24 benefit / skew from positive rate v inflation jaws and with SUN operating in its target 10-12% range.”

The post 5 things to watch on the ASX 200 on Friday appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• These ASX 200 shares just hit new 52-week highs
• Why these two headwinds are dragging down the ASX 200 today
• BHP shares tumble after missing expectations in second quarter
• ASX 200 shares: A once-a-decade opportunity to get rich?

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 Goldman Sachs Group. 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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You might be sick of hearing it, but that doesn’t make it any less true.

The best way to grow your wealth is to invest in ASX shares for the long term.

Those who chase short-term profits might receive a windfall now and then — but overall, the chances of success are slim.

That’s because no one — read no one — has the ability to deliberately time the market.

In contrast, those investors who have the patience to buy quality stocks and then let them brew for a few years are giving themselves a much better chance of making sustainable returns.

So for those readers who are genuinely in it for the long haul, here are three S&P/ASX 200 Index (ASX: XJO) stocks that the team at ECP Growth Companies Fund are backing:

ASX 200 player boasting ‘global scale and multi-destination footprint’

IDP Education Ltd (ASX: IEL) is a classic example of a stock facing short-term troubles, but could be rewarding for investors who can fight on.

The shares are now trading 11% lower than it was in early December. They have sunk 35% if you go back to last February as the starting point.

“IDP Education underperformed as the market digested changes to Australian migration rules and a change in CFO,” the ECP team said in a memo to clients.

“While both of these have been well flagged and are not unexpected, they do represent developments for IDP to address in the near term.”

However, the analysts are not concerned about the impact of these developments for the long-term outlook for the education services business.

“The Australian government has communicated that its changes to migration settings are aimed at addressing non-genuine students and improving the quality of educational institutions servicing this market.

“While these changes may affect student volumes in the short-term, the impact to IDP Education is limited given the company’s global scale and multi-destination footprint.”

The money is rolling in for this mob

GQG Partners Inc (ASX: GQG) shares have been going the opposite direction to IDP in recent weeks.

The investment management company has enjoyed an awesome 33% rise in its stock price since 9 November.

The ECP analysts attributed this to the flows of investment capital and a general bullishness in equity markets. 

“GQG’s business continues to perform to expectations, with consistent positive monthly net flows from higher fee channels and strong fund performance across all products on a rolling three-year time-frame.”

The state of the business provides much assurance for long-term investors.

“This consistent alpha generation gives us confidence GQG can continue to sustain flows as it moves toward utilising its significant fund capacity.”

A rejuvenated ASX 200 stock

Payments technology provider Block Inc CDI (ASX: SQ2) has returned with a vengeance to the winners’ club after some ordinary stock performance since its ASX listing in early 2022.

Since the start of November, Block shares have gained a phenomenal 63%.

Although it is experiencing a 13% dip so far this year, the ECP team’s faith is on show as the third largest holding in the portfolio.

The company is back in the good books with investors because of its new attitude towards expenses and cash flow.

“Block Inc outperformed in December following the release of its 3Q23 result the month prior, which exceeded investor expectations with respect to future cost discipline, and strong messaging about internal personnel productivity,” read the ECP memo.

“The result is an expectation of faster operating leverage to emerge across business units, with a plan to hit Block’s ‘rule of 40’ in 2026.”

The post ‘Consistent alpha generation’: 3 ASX 200 shares sitting pretty for the long run appeared first on The Motley Fool Australia.

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More reading

• Top brokers name 3 ASX shares to buy today
• Buy this dirt cheap ASX 200 share with huge upside potential
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• ‘Exceeding expectations’: 3 rocketing ASX shares you better buy before they rise even more

Motley Fool contributor Tony Yoo has positions in Block. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block and Idp Education. The Motley Fool Australia has positions in and has recommended Block. The Motley Fool Australia has recommended Idp Education. 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 Vanguard Australian Shares Index ETF (ASX: VAS) is an exchange-traded fund (ETF) that focuses on the S&P/ASX 300 Index (ASX: XKO), representing 300 of the biggest businesses on the ASX. Can the VAS ETF, the biggest ETF in terms of fund size, be a good option for ASX growth investors?

There are two main ways for investors to make investment returns: dividends and capital growth.

Some companies don’t pay any dividends at all, so any returns from those businesses need to come from share price increases. Names like Xero Limited (ASX: XRO), Berkshire Hathaway, Alphabet, Amazon.com come to mind.

A company can see its share price rise over time and deliver dividends, such as Sonic Healthcare Ltd (ASX: SHL), Altium Limited (ASX: ALU) and Brickworks Limited (ASX: BKW).

Can Vanguard Australian Shares Index ETF (VAS) fit the bill for ASX growth share investors?

The performance of the VAS ETF simply tracks the performance of its underlying holdings. The bigger the allocation to a holding, the more influence it has over the VAS ETF’s performance.

Looking at the biggest positions in the portfolio, these are the ones with a weighting of more than 3% as of 31 December 2023:

• BHP Group Ltd (ASX: BHP) – 11%
• Commonwealth Bank of Australia (ASX: CBA) – 8.1%
• CSL Ltd (ASX: CSL) – 6%
• National Australia Bank Ltd (ASX: NAB) – 4.1%
• Westpac Banking Corp (ASX: WBC) – 3.5%
• ANZ Group Holdings Ltd (ASX: ANZ) – 3.5%

As we can see, mining and banking are two key sectors for the ASX.

The tricky thing is that they’re such huge businesses in market capitalisation terms that it becomes very difficult to keep delivering growth. It’s much easier to double a $1 billion business to $2 billion than it is to go from $100 billion to $200 billion.

The big four ASX bank shares have a huge market share, and I’m not sure they can grow profit at a solid compounding rate from here, considering there is so much competition in the lending space willing to accept very low returns. However, they continue to pay big dividends.

BHP (and other ASX mining shares) in the VAS ETF are highly reliant on good commodity prices to make good profit. Commodity prices don’t keep increasing year after year – they usually go through cycles. Miners can increase their production, but it’s unsustainable to think the resource business can keep producing more and more. If production does keep rising, it could hurt the commodity price.

My point is that the ASX is full of the sorts of companies that aren’t likely to see strong profit growth year after year. Investors usually judge a business based on how much profit it’s making, so the share price isn’t likely to rise strongly if the profit isn’t rising.

There are some businesses within the VAS ETF that are doing better at growing profit, such as CSL, Aristocrat Leisure Limited (ASX: ALL) and WiseTech Global Ltd (ASX: WTC). But, they don’t have as much influence on the VAS ETF as BHP and the ASX bank shares.

Past performance

ASX growth share investors need to know that while the VAS ETF has delivered an average return per annum of around 10% over the past five years, its capital growth has been 5.6% per annum. In the past decade, the total return has been an average per annum of 7.8%, which included capital growth of 3.3% per annum.

I think the VAS ETF can keep increasing value, but it’s not going to shoot the lights out when it comes to capital growth. I’d rather go for an ASX ETF that’s focused on the global share market, such as Vanguard MSCI Index International Shares ETF (ASX: VGS).

The post Should ASX growth investors buy the Vanguard Australian Shares Index ETF (VAS)? appeared first on The Motley Fool Australia.

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More reading

• ASX 200 shares: A once-a-decade opportunity to get rich?
• Top ASX shares for beginner investors to buy in 2024
• Is it too late to buy Vanguard Australian Shares Index ETF (VAS) near a 52-week high?
• Own Vanguard Australian Shares Index ETF (VAS) units? It had a very good 2023
• Is this a good time to buy the Vanguard Australian Shares Index ETF (VAS) for 2024?

Motley Fool contributor Tristan Harrison has positions in Altium and Brickworks. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, Brickworks, CSL, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Brickworks, WiseTech Global, and Xero. The Motley Fool Australia has recommended CSL, Sonic Healthcare, and Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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