Category: Stock Market

By all accounts, ASX shares have had a pretty good year in 2024 so far. As it currently stands, the S&P/ASX 200 Index (ASX: XJO) has added around a healthy 4.35% this year to date, which doesn’t even include the extra boost that dividend returns would be providing. What’s more, the ASX 200 has, as of yesterday, just reached a new all-time record. And that is good news for our superannuation funds.

If your super is invested in the popular ‘balanced’ option, it’s likely that between 40-60% of your super wealth is invested in stocks. So recent record highs for both the US and ASX share markets bode well for our retirement savings.

But balanced funds are so named because they invest in a wide variety of different assets. These include shares, as we’ve just established. But they also include more defensive assets like cash term deposits and government bonds. This is done in order to mitigate the stock market volatility that many Australians hate to see in their super funds.

However, if you select what’s known as a growth fund, rather than a balanced fund, chances are your returns over 2024 have been even higher.

That’s because a growth fund doesn’t attempt to mitigate portfolio volatility like a balanced fund does. Instead, it goes all in on ‘growth‘ assets like ASX and international shares. These investments make up almost all of a growth super fund.

Balancing growth in your superannuation fund

Earlier this month, we looked at the average return for the typical balanced superannuation fund. These funds returned an average of 7.2% over the 12 months to 31 May. Over three years, the average return was 4.1% per annum. This went up to 5.1% per annum over five years and 5.3% over ten years.

But what about growth funds?

Well, using the same analysis from super research firm Chant West, we get the answer.

According to this firm, the average growth superannuation fund (containing 61%-80% growth assets) in Australia returned 9.4% over the 12 months to 31 May.

Over the prior three years, these funds averaged 5.3% per annum, rising to 6.7% per annum over five years and 6.8% over ten years.

For a high-growth fund (81-95% growth assets), the returns were higher still. These funds managed to hit 11.5% over the 12 months to 31 May. Their three-year returns averaged 6.2% per annum, and the five-year returns, 8.1%. That rose to 8.3% per annum over ten years.

Chris Brycki, CEO of Stockspot, said that the average returns from super in FY2024 should be prompting all of us to check up on our own funds:

If your balanced or growth fund returned less than 10% this year [FY2024], it’s important to question your super fund about it. Are the fees too high? Are they paying fund managers for unsuccessful stock picks? Are they invested in illiquid unlisted assets that are facing devaluations?

The trend of indexed super funds outperforming active ones is likely to persist as scrutiny increases over the valuation processes of unlisted assets by regulators like APRA, and as trustees adopt more realistic valuations of these assets

So just by comparing the returns from growth and balanced funds, you can see the advantage of opting for a high-growth fund. That’s provided it fits your individual financial circumstances, of course.

The post What are the average returns for growth superannuation funds? appeared first on The Motley Fool Australia.

More reading

• These top ASX global shares ETFs delivered stunning returns of 50% to 70% last year
• Could investing $10,000 in ASX shares make you a millionaire?
• Top 5 investment themes exciting ASX shares investors in FY25
• Looking to boost your retirement with extra passive income? Try this!
• 3 ASX dividend shares to buy next week

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

Many readers are likely to aspire to being a millionaire one day.

While there are many ways to achieving this goal, one method that has created countless millionaires is investing in ASX shares.

But could you really get there by investing $10,000? Well, the answer is yet, depending on your investment time horizon.

Turning $10,000 into $1 million with ASX shares

The power of compounding and time are your two best friends when it comes to investing. When these two combine, good things happen.

Historically, the share market has generated an average annual return of 10% including dividends.

Were it to do the same again in the future, a single investment in $10,000 could grow into something significant in time if you’re patient enough.

For example, thanks to time and compounding, $10,000 would turn into over $40,000 in 15 years if you averaged a return of 10% per annum and reinvested your dividends.

But clearly, $40,000 is still a long way from that millionaire status we are aspiring to.

Well, unfortunately, without making any further contributions, you would have to sit very patiently to reach this level.

In fact, it would take just over 48 years in total to grow $10,000 into $1 million with ASX shares and a 10% per annum return.

If you’re 21, then this means that you could have a million-dollar portfolio around the time you reach retirement age. That certainly would be a nice nest egg to combine with your superannuation.

But what if you wanted to get there sooner? Let’s look at making extra contributions.

Making a million quicker

Getting to $1 million quicker will depend upon your available income.

If you are able to start with a $10,000 investment and then make $500 contributions each month, it would take approximately 28 years to get there.

Think you could manage $1,000 investments each month? Great, because that would knock off about six years and take just over 22 years to get to $1 million.

Finally, if you’re lucky enough to have $2,000 available to invest monthly, then you need a touch of 16 years to grow your portfolio to millionaire status.

Which ASX shares should you buy?

History has shown that a focus on high-quality companies with strong business models has delivered great results.

Companies like CSL Ltd (ASX: CSL), Goodman Group (ASX: GMG), and Xero Limited (ASX: XRO) could tick these boxes and may be worth further investigation.

But the main key to success is to find the plan that suits you (and your budget) and stick with it through the long term. You will no doubt be thanking yourself for doing so in the future as your wealth builds.

The post Could investing $10,000 in ASX shares make you a millionaire? appeared first on The Motley Fool Australia.

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• How a $10,000 investment in this ASX 200 stock ballooned to $17,460 in FY24!
• CBA and 7 other ASX 200 shares smashing new highs on Thursday

Motley Fool contributor James Mickleboro has positions in CSL and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended CSL and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Gold and electric vehicles (EV) top the list of investment themes inspiring ASX shares investors in FY25, according to a survey of 2,000 Aussie investors conducted by online trading platform, Stake.

Let’s find out what other themes are exciting investors as we head into the new financial year.

Top 5 positive investment themes for FY25

Gold

Gold was the most popular investment theme for FY25, with 49% of survey respondents feeling positive about the commodity.

And no wonder, really. The gold price skyrocketed in the first half of 2024, ascending from US$2,034 per ounce on 28 February to an all-time high of US$2,449.89 on 21 May.

Examples of ASX gold shares include Newmont Corporation CDI (ASX: NEM), Northern Star Resources Ltd (ASX: NST), Bellevue Gold Ltd (ASX: BGL), and ASX gold ETF Global X Physical Gold ETF (ASX: GOLD).

EVs

The survey found 46% of Australian investors are still positive on EVs, despite reports of softening global demand. In terms of stocks, Tesla Inc (NASDAQ: TSLA) is the most obvious direct way to invest in EVs. However, among ASX shares, investors can gain exposure to the theme by purchasing ASX lithium shares.

Examples of lithium stocks include Pilbara Minerals Ltd (ASX: PLS), IGO Ltd (ASX: IGO), Core Lithium Ltd (ASX: CXO), Arcadium Lithium CDI (ASX: LTM), and Liontown Resources Ltd (ASX: LTR).

Artificial intelligence (AI)

The survey found 44% of investors are optimistic about the artificial intelligence (AI) investment theme.

There are other ways to gain exposure to AI besides buying big-tech US stocks like Nvidia Corp (NASDAQ: NVDA).

For example, AI was a significant driver of the 73.1% rise in Goodman Group (ASX: GMG) shares last year. Australia’s largest real estate investment trust (REIT) is busy building data centres all over the world.

You can check out The Fool news team’s recommendations for AI stocks here.

Lithium

Lithium commodity values have plunged over the past two years, so it’s interesting to see lithium remaining top of mind for ASX shares investors, with 42% of respondents still positive on the theme.

Copper

The red metal is set to play a significant role in the world’s decarbonisation. This is because it’s a cheap and effective electricity conductor used in EVs, wind turbines, solar energy systems, and data centres.

According to the survey, 41% of ASX shares investors like the copper theme. The commodity price has risen by more than 15% in 2024 so far.

Examples of ASX copper shares include Sandfire Resources Ltd (ASX: SFR), Aeris Resources Ltd (ASX: AIS), WA1 Resources Ltd (ASX: WA1), and FireFly Metals Ltd (ASX: FFM).

The post Top 5 investment themes exciting ASX shares investors in FY25 appeared first on The Motley Fool Australia.

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• Here 3 ASX lithium shares to watch for FY25
• Here are the top 10 ASX 200 shares today
• Are Liontown Resources shares a buy after surging 9% this week?
• Why did Goldman Sachs just upgrade Core Lithium shares?
• Is it time to dive back into ASX lithium shares?

Motley Fool contributor Bronwyn Allen has positions in Core Lithium and Goodman Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group, Nvidia, and Tesla. The Motley Fool Australia has recommended Goodman Group and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Just an extra $100 of additional passive income a week could make a big difference during your retirement years.

Of course, $200 or $300 a week would be even more welcome.

That could open the door to extra travels in your golden years. Or you may choose to spend some on gifts for your partner, or your kids or grandkids. Or perhaps just spoil yourself.

However you may choose to put the extra funds to use, here’s how I’d go about securing that passive income stream today.

Building passive income for retirement

I think ASX dividend shares offer one of the best means for Aussies to secure potentially life-changing passive income in their retirement.

One of the advantages offered by many leading ASX dividend shares is that they come with franking credits. That’s something you won’t get on most international exchanges, including in the United States.

With 100% franking, you’ll get the full credit for the 30% corporate tax the company has already paid, which could reduce your own tax burden. That can be an extra big bonus for self-funded retirees with a low annual income, who can receive franking credits as cash refunds.

Another thing to keep in mind when building your retirement-enhancing passive income stream is that the sooner you get started, the larger that extra income pool is likely to be.

For example, let’s say you invest $5,000 a year and achieve 5% capital gains and 5% dividend yields for a 10% average annual gain.

After 10 years, you’ll have invested $50,000, and your ASX portfolio will be worth $92,656.

But if you keep at it for 30 years, you’ll have invested $150,000, and your ASX portfolio will have grown to $909,717.

At that point, you could stop investing and begin drawing out your weekly passive income.

From the 5% dividend yield alone, that would equate to $45,856 a year or some $875 a week.

Finally, when looking for retirement-boosting ASX passive income stocks, you’ll want to invest in a diverse range of companies operating in various sectors and, ideally, across different geographic locations.

That will help reduce the risk of your overall portfolio taking a big hit if any one company or sector hits some turbulence.

One ASX dividend share with instant diversity

I think it’s worth finding a range of top ASX dividend gems to buy and hold in your passive income portfolio.

But one simpler way to get rolling is to invest in the BetaShares Australian Dividend Harvester Fund (ASX: HVST).

The ASX exchange traded fund (ETF) holds anywhere from 40 to 60 blue-chip ASX dividend shares at any given time, offering instant diversity.

The ASX ETF’s top four holdings at the time of writing are Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), CSL Ltd (ASX: CSL) and Rio Tinto Ltd (ASX: RIO).

On the passive income front, the ETF makes convenient monthly payments.

As at 28 June, HVST had a 12-month gross dividend yield of 8.4%. The gross yield incorporates the 78.5% in franking credits.

As of the same date, the BetaShares Australian Dividend Harvester Fund had delivered 14.0% in gross returns after fees over 12 months.

The post Looking to boost your retirement with extra passive income? Try this! appeared first on The Motley Fool Australia.

More reading

• 3 ASX dividend shares to buy next week
• How I’d aim to build a $75,000 income from ASX shares and never work again!
• These ASX 200 stocks turned $20,000 into $100,000+ in 10 years
• Why mum and dad investors aren’t buying ASX bank shares like they used to
• Xero shares doubled the ASX 200 return in FY24. What’s next in FY25?

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

Are you looking for some income options for when the market reopens next week?

If you are, then check out these ASX dividend shares listed below. They have recently been tipped as buys by analysts. Here’s what they are saying about them:

Challenger Ltd (ASX: CGF)

Goldman Sachs is tipping this annuities company as be an ASX dividend share to buy.

It likes the company due to its exposure to the massive superannuation market and the favourable outlook for annuities demand. It explains:

CGF is Australia’s largest retail and institutional annuity provider across Term and Lifetime annuities with a funds management business. We are Buy rated on the stock. We like CGF because: 1) it has exposure to the growing superannuation market across Life and Funds Management; 2) higher yields should drive a favorable sales environment for retail annuities as well as an improvement in margins; 3) its annuity book growth looks well supported through a diversified distribution strategy.

In respect to dividends, the broker is forecasting fully franked dividends of 26 cents per share in FY 2024 and 27 cents per share in FY 2025. Based on the current Challenger share price of $6.89, this will mean dividend yields of 3.8% and 3.9%, respectively.

The broker currently has a buy rating and $7.50 price target on its shares.

Dexus Industria REIT (ASX: DXI)

Analysts at Morgans see Dexus Industria as an ASX dividend share to buy when the market reopens. It is a real estate investment trust with a focus on industrial warehouses.

Morgans believes the company is positioned to benefit from solid demand for industrial property, its development pipeline, and the positive rental growth outlook. It said:

The portfolio is valued at $1.6bn across +90 properties with 89% of the portfolio weighted towards industrial assets (WACR 5.38%). The portfolio’s WALE is around 6 years and occupancy 97.5%. Across the portfolio 50% of leases are linked to CPI with the balance on fixed increases between 3-3.5%. While we expect cap rates to expand further in the near term, DXI’s industrial portfolio remains robust with the outlook positive for rental growth. The development pipeline also provides near and medium-term upside potential and post asset sales there is balance sheet capacity to execute.

As for income, Morgans is forecasting dividends per share of 16.4 cents in FY 2024 and then 16.6 cents in FY 2025. Based on the current Dexus Industria share price of $2.89, this will mean dividend yields of 5.7% and 5.75%, respectively.

The broker has an add rating and $3.20 price target on its shares.

Worley Ltd (ASX: WOR)

The team at Goldman Sachs is also positive on this engineering company.

It believes the company is well-positioned to benefit from the decarbonisation megatrend and sees a lot of value in its shares at current levels. It said:

WOR is well positioned to play a role in enabling the transition from fossil fuels to a more sustainable energy mix in the LT, leveraging its experience in providing engineering and maintenance services for complex energy/chemicals works, existing client relationships, and management’s stated focus on expanding the company’s transition footprint. We expect the energy transition segment to gain increased investor attention as Covid-19 related impacts fade and the company continues to highlight the strong growth potential of the business via increased disclosure. We expect WOR’s ST/MT margins to improve with an incrementally positive operating environment. Vs the S&P/ASX 200, WOR is trading broadly in line with market vs a premium in the last 3yr/5yr.

Goldman is forecasting dividends per share of 52 cents in FY 2024 and then 58 cents in FY 2025. Based on its current share price of $14.73, this equates to dividend yields of 3.5% and 3.9%, respectively.

The post 3 ASX dividend shares to buy next week appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has recommended Challenger. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Passive income from ASX shares can be a great way to build up a second income and eventually achieve financial independence from relying on the work paycheque.

According to the Australian Bureau of Statistics (ABS), the average weekly total earnings for an Australian employee translates into annualised earnings of around $75,000. To receive that level of annual dividends, we’re talking about building up a large portfolio value.

To get a satisfactory wealth level, I’d want to build up investments that can achieve good underlying growth themselves.

How I’d build towards $75,000 of annual passive income

Unless someone wins the lottery or inherits significant wealth, it will take time, patience and a lot of compounding to grow to $75,000 of investment income.

Therefore, I’d suggest focusing on businesses that are investing in their operations to ensure they are supporting their own dividend and earnings growth.

If a business is paying out all of its profit each year (with a 100% dividend payout ratio), it’s unlikely the profit will grow much if it’s not reinvesting for more growth. For example, an 8% dividend yield could remain at that level forever, whereas other businesses deliver impressive long-term growth.

I’d want to invest in those growing investments, even if the upfront dividend yield isn’t that high. The yield-on-cost in the future could grow substantially.

For example, the investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is a century-old company that is steadily adding to its growing portfolio of business holdings. The ASX share has grown its annual ordinary dividend every year since 2000. In FY13, it paid an annual dividend of 46 cents per share, and in FY23, it paid an annual dividend of 87 cents – an increase of 89% over a decade. That’s the type of investment, in my opinion, that can result in significant organic growth of my portfolio’s value and dividends.

Globally focused exchange-traded funds (ETFs) could also be excellent long-term investments to help build a portfolio value up towards the required wealth to make $75,000 of annual passive income. I’d be thinking about quality global ETFs like Betashares Global Quality Leaders ETF (ASX: QLTY), VanEck MSCI International Quality ETF (ASX: QUAL), or Vanguard MSCI Index International Shares ETF (ASX: VGS). Reinvesting dividends can help with compounding.

If someone were able to invest an average of $1,500 per month and the portfolio generated an average return of 10% per year over 25 years, it would reach $1.77 million at the end of that 25-year period. Someone who is 25 could reach that figure by 50.

Choose the right dividend yield from ASX shares

Someone with a portfolio value of $1.77 million would need a dividend yield of approximately 4.25% to make $75,000 of annual dividends.

In my opinion, it’s important to choose investments that can continue to deliver growth over our lifetimes. Our portfolios may need to last many decades, and inflation means the required amount of dividends is probably going to keep rising to keep up with rising costs.

Once I reach a portfolio value that could generate a yearly income of $75,000, my strategy would be to choose investments that provide a decent yield but still deliver underlying growth.

Washington H. Soul Pattinson, Wesfarmers Ltd (ASX: WES) and Brickworks Limited (ASX: BKW) are ASX shares that may offer that mix of yield and long-term compounding.

I don’t know what the ASX will look like in 25 years, but at the moment, real estate investment trusts (REITs) like Rural Funds Group (ASX: RFF), Charter Hall Long WALE REIT (ASX: CLW) and Centuria Industrial REIT (ASX: CIP) all have appealing starting distribution yields and are seeing underlying rental income growth.

Or, another strategy to generate passive income could be to stick with the sort of global ETFs I mentioned before, like the QUAL ETF, and just sell 4.25% of the ETF’s value each year and unlock cash flow that way. Hopefully, the ETF’s long-term capital growth could outperform 4.25% per year, and investors could see both wealth growth and good cash flow.

The post How I’d aim to build a $75,000 income from ASX shares and never work again! appeared first on The Motley Fool Australia.

More reading

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Motley Fool contributor Tristan Harrison has positions in Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Brickworks, Rural Funds Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

I think that buy and hold investing is one of the best ways to grow your wealth.

This is because it allows investors to take advantage of the power of compounding. This is what happens when you generate returns on top of returns.

To demonstrate just how successful this investment strategy can be with ASX 200 stocks, I like to look at how much a single $20,000 investment in certain shares 10 years ago would be worth today.

Let’s now see how investments in these three shares have fared during this time:

Aristocrat Leisure Limited (ASX: ALL)

The first ASX 200 stock that we are going to look at is Aristocrat Leisure. It is one of the world’s leading gaming technology companies.

Over the last decade, its shares have smashed the market with some very strong gains. This has been underpinned by its leadership position in the poker machine market, its expansion into digital gaming, and several acquisitions.

This has led to Aristocrat Leisure’s shares delivering its shareholders an average total return of 26.4% per annum since 2014. This would have turned a $20,000 investment in its shares 10 years ago into ~$208,000 today.

Cochlear Limited (ASX: COH)

Another ASX 200 stock that has delivered market-beating returns for its shareholders is Cochlear. It is a leading designer, manufacturer, and distributor of cochlear implantable devices for the hearing-impaired.

Thanks to its industry-leading position, significant (and ongoing) investment in research and development, its global distribution network, and the ageing population tailwind, Cochlear has been able to report solid earnings and sales growth over the last decade.

This has unsurprisingly caught the eye of investors and helped drive its shares higher and higher since 2014. This has led to Cochlear’s shares providing investors with an average total return of 18.9% per annum over the period. This would have turned a $20,000 investment into almost ~$113,000 today.

Goodman Group (ASX: GMG)

A third ASX 200 stock that has turned $20,000 into more than $100,000 in 10 years is Goodman Group.

It is a global integrated industrial property company focused on building sustainable properties that are close to consumers and provide essential infrastructure for the digital economy.

This strategy has been incredibly successful and underpinned consistently strong earnings growth over the last decade. This has put a rocket under its shares and led to Goodman shares recording an average total return of 22.3% per annum since 2014. This would have seen a $20,000 investment turn into almost $150,000 over the period.

Overall, I believe this demonstrates that buying quality companies with a long term view could make you wealthy.

The post These ASX 200 stocks turned $20,000 into $100,000+ in 10 years appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Cochlear and Goodman Group. The Motley Fool Australia has recommended Cochlear and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

A change of focus for retail investors may be at hand, as Australian household ownership of ASX bank shares appears to be reducing.

As reported in the Australian Financial Review, analysis by investment outfit Jarden found that retail (household) investors sold down three major ASX bank shares in the three months to 30 June 2024.

The Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and ANZ Group Holdings Ltd (ASX: ANZ) reportedly saw retail ownership levels reach a record low.

However, Jarden noted that Westpac Banking Corp (ASX: WBC) was an exception due to its “higher franked dividend yield and the appeal of its recent special dividend“.

Who is buying the ASX bank shares?

Jarden said in a note that overseas ownership of banks continued to rise quarter over quarter. ANZ’s offshore ownership increased to 30%, which is the highest among the big banks. CBA’s offshore ownership has reached 23.8%.

Jarden analyst Jeff Cai told the AFR:

Anecdotal industry feedback suggests the recent increase in offshore buying in CBA is more driven by index funds rather than active asset allocation away from Asia, but this is difficult to conclusively validate.

According to the AFR, market participants have reported that some Asian investors are exiting China and “seeking shelter” with ASX bank shares.

Tribeca Investment Partners portfolio manager Jun Bei Liu pointed out that Australia’s economy was performing quite strongly compared to other Asian markets:

Australia stacks up pretty well compared to its peers within the region. Our economy is not slowing down as fast and it’s holding up OK. And as a foreign investor, you’ll look at Australia and realise it’s a safe place to be and hence why you’re seeing this transition into a lot of foreign ownership.

Are the financial stocks actually opportunities?

Tribecca’s Liu thinks the banks continue to perform relatively well, so she is “neutral” on the ASX bank shares:

The next six months still look pretty OK for the banks, unless our economy is heading for a recession and a tail-risk event takes place.

They only continue to do better than expected, and I think they will continue to have capital return opportunities, whether it’s buybacks or special dividends. So combine all of that and you’re looking at reasonable returns.

However, the ASX bank share valuations are increasing in price/earnings (P/E) ratio terms, with their share prices rising faster than earnings in the last 12 months.

According to Commsec forecasts, the CBA share price is valued at 23x FY25’s estimated earnings; NAB is valued at 16x; Westpac is 15x, and ANZ is valued at 13x FY25’s estimated earnings.

When the P/E ratio keeps climbing, short-term returns could become more unlikely because the valuation becomes more unsustainable. In my opinion, the shorter-term earnings updates will need to be relatively positive to uphold these forward P/E ratios.

The post Why mum and dad investors aren’t buying ASX bank shares like they used to appeared first on The Motley Fool Australia.

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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.

The Xero Limited (ASX: XRO) share price materially outperformed the S&P/ASX 200 Index (ASX: XJO) during the 12 months to 30 June 2024, rising by 14.7% compared to 7.8% for the index.

Of course, a 12-month period isn’t everything. What happens in the coming years is more important than the past because of how investors factor future profit and revenue generation into their valuation models.

Xero is a fast-growing technology business that provides accounting software for business owners and accountants around the world.

The May update from Xero was promising and is the latest evidence to justify a higher Xero share price.

Earnings recap

Xero’s financial calendar runs differently from the typical financial year (1 July to 30 June) that individuals and many businesses follow.

The ASX tech share reported its 2024 financial year earnings in May this year for the 12 months to 31 March 2024.

It revealed that total subscribers rose by 11% to 4.16 million, and average revenue per user (ARPU) grew by 14% to $39.29. This helped operating revenue grow by 22% to $1.7 billion, the annualised monthly recurring revenue (AMRR) increased 26% to $1.96 billion, and the total lifetime value of subscribers grew by 16% to $15.5 billion.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 75% to $526.5 million, operating profit rose $198.4 million to $255.7 million. Net profit after tax (NPAT) grew $288.2 million to $174.6 million and free cash flow improved $239.8 million to $342.1 million.

Xero said it had an opportunity to double the size of its business and deliver high profit margins. In FY25, it expects its total operating expenses as a percentage of revenue to be around 73%.

Outlook for Xero shares in FY25

The broker UBS currently rates Xero shares as a buy with a price target of $156, suggesting a possible rise of around 10% in the next year.

UBS thinks Xero can continue to grow its ARPU over the medium term while waiting for subscriber momentum to reaccelerate. Subscribers in the United Kingdom are expected to accelerate in FY27.

One reason UBS thinks Xero’s ARPU will increase is that UK prices will rise between 7% and 10% in September 2024. In May, it was also announced that Australian prices were increasing by 9%.

UBS suggested the ASX tech share could increase prices much more than inflation because of the “stickiness of the Xero product”.

UBS has predicted that Xero will generate $2.02 billion in revenue and $240 million in net profit in FY25.

The post Xero shares doubled the ASX 200 return in FY24. What’s next in FY25? appeared first on The Motley Fool Australia.

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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 Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The BHP Group Ltd (ASX: BHP) share price has dropped more than 14% in 2024 to date, while the S&P/ASX 200 Index (ASX: XJO) has managed a gain of more than 4%. As the chart below shows, it has been a disappointing period for the ASX mining share.

It’s certainly possible that the BHP valuation could keep falling. The question is – how likely is that?

Commodity prices can be difficult to predict, but we’ve certainly seen the iron ore price worsen during 2024.

Commodity pain

BHP’s biggest profit generator is normally the iron ore segment. However, according to Trading Economics, the iron ore price has gone from above US$140 per tonne at the start of the year to under US$110 per tonne now. I think that explains why BHP shares have fallen in the last several months.

We’ve seen the iron ore price drop below US$100 per tonne a handful of times in the last few years, so it’s not impossible for it to drop another 10%.

Trading Economics reported that recent data showed iron ore inventories in Chinese ports have reached a near two-year high, which implies weaker demand from Chinese steel mills for metal production. There was also weaker-than-expected inflation in China during June.

Optimistic analysts are hopeful that China will introduce new stimulus at the Third Plenum next week as the country aims to achieve 5% economic growth this year.

Trading Economics’ forecast for the iron ore price, based on global models and analyst expectations, suggests it will fall to US$99 per tonne in 12 months. If it does fall below US$100 per tonne, then I’d suggest BHP shares would face headwinds.

The copper price is lower than its 2024 highs earlier in the year, falling to US$4.55 per pound because of the weak demand in China. Trading Economics predicts the copper price could rise to US$4.73 per tonne. Copper is becoming increasingly important in the BHP portfolio as it looks to build exposure to the electrification commodity and take advantage of forecasted growing demand.

Where to next for the BHP share price?

On the whole, analysts are more positive than negative on the business. According to a Commsec collation of analyst recommendations, there are no sell ratings, 16 hold ratings and nine buy ratings.

The broker UBS currently has a neutral rating on BHP shares, with a price target of $44, which implies only a slight increase over the next year.

UBS forecasts BHP could generate $55.5 billion in revenue, $23.6 billion in earnings before interest and tax (EBIT), $13 billion in net profit after tax (NPAT), and pay a dividend per share of $1.54.

The post Will the BHP share price keep falling? appeared first on The Motley Fool Australia.

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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.