Category: Stock Market

When it comes to the mining sector, there are two ASX mining shares that stand head and shoulders above the rest.

These are of course BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO).

Collectively, these mining giants are bigger than the big four banks combined and distribute tens of billions of dollars in dividends each year.

But if you could only buy one of these ASX mining shares, which one would it be?

Well, according to analysts at Goldman Sachs, Rio Tinto shares are the ones to buy ahead of BHP right now.

Buy Rio Tinto shares ahead of BHP

According to the note, the broker has reiterated its conviction buy rating on Rio Tinto shares with a price target of $138.30.

Based on the current Rio Tinto share price of $121.66, this implies potential upside of almost 14% for investors over the next 12 months.

And with Goldman expecting a 7% fully franked dividend yield over the next 12 months, the total return stretches to approximately 21%.

As a comparison, the broker has retained its neutral rating and $50.40 price target on BHP’s shares.

Why Rio Tinto?

Goldman has a preference for Rio Tinto shares over BHP due to its valuation, free cash flow generation, and production growth outlook. It explained:

We prefer RIO over BHP on valuation & FCF and an expected operational turnaround in the Pilbara and copper (Oyu Tolgoi) driving higher Cu Eq growth over the next 2-years.

The broker is also expecting a strong quarterly update from Rio Tinto later this month, whereas it suspects that “weak results” could be coming from BHP. It adds:

Positive results from: RIO with Pilbara shipment data indicating a 13% YoY increase in Pilbara iron ore shipments to ~80Mt (see Exhibit 11) putting RIO well on track to hit the top end of the 320-335Mt guidance range for 2023 when seasonally adjusting for wet weather in 1H. […] Weak results from: BHP with lower YoY iron ore (safety, maintenance, port debottlenecking tie-in impacts) and met coal shipments (wet weather) and an expected decline in copper production from Spence in Chile due to plant tie-ins.

The post Buy Rio Tinto shares ahead of BHP: Goldman Sachs appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
• If I buy BHP shares now, what could my return be in a year’s time?
• The BHP share price is taking off today. Could this be why?
• Buy these ASX dividend shares for a big passive income boost: Goldman Sachs
• How to start building a lifelong passive income with just $5 a day: Tips and Tricks

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

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The Whitehaven Coal Ltd (ASX: WHC) share price is tumbling this morning after the ASX coal miner downgraded its full-year guidance for FY23.

The Whitehaven share price dropped to $6.44 in early trading, a fall of 7.3% on yesterday’s closing price.

Labour shortages and bad weather have caused delays in production, resulting in a downgraded forecast for production and sales and increased unit costs for the full-year FY23.

Whitehaven previously expected managed run-of-mine (ROM) coal production of 19Mt to 20.4 Mt across its three key assets at Maules Creek, Narrabri, and Gunnedah.

The company is now guiding full-year production of 18Mt to 19.2Mt instead.

The coal miner previously guided managed coal sales of 16.5Mt to 18Mt but is now guiding 15.3Mt to 16Mt. It previously guided equity coal sales of 13.1Mt to 14.4Mt but is now expecting 12.3Mt to 12.9Mt.

Whitehaven has also revised its unit cost of coal (excluding royalties) expectations upward from a range of $95 to $102 per tonne to a range of $100 to $107 per tonne.

Why has Whitehaven downgraded its FY23 guidance?

In a statement, Whitehaven said production during the March quarter came in “below plan” at 4.3Mt.

The company said:

Labour shortages are being felt across the business, but the impact of several additional operational constraints at Maules Creek meant its production increased by only 9% relative to the December quarter.

This lower than planned increase reflects labour constraints, congestion arising from limited dumping locations while keeping manned and unmanned fleets separate, and intermittent weather interruptions in the month of March.

What’s next?

The company said overall production should get better in the June quarter. However, the problems at Maules Creek have pushed its overall forecasts below the bottom end of the previous guidance.

Lower production in the second half of FY23 “will result in some sales volumes being pushed into FY2024”, the company said.

During the March quarter, Whitehaven achieved an average coal price of about $400 per tonne.

On 31 March, its net cash position was $2.7 billion. It generated about $1.2 billion in cash from operations during the quarter.

Whitehaven Coal will release its official March quarter production report next Friday 21 April.

Whitehaven Coal share price snapshot

The Whitehaven Coal share price has been smashed in 2023. It is currently down 26% in the year to date.

Whitehaven shares shot the lights out in 2022, rising by more than 260% over the 12 months to 31 December due to booming commodity prices.

The post Whitehaven share price tanks 7% on downgraded FY23 guidance appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• 7 ASX dividend shares you can buy for under $10
• BHP share price dips as coal mines catch attention
• One of the most beaten-up ASX 200 shares of 2023 so far. Is it time to buy?
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Bronwyn Allen 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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There are a lot of options out there for readers that are wanting to generate passive income.

But when it comes to generating true passive income, the kind that is both sizeable and reliable, there’s simply no substitute for the power of compounding.

With compounding, you’re not just aiming to see growth today or tomorrow, or even a few years down the road. Rather, you’re looking at the bigger picture, with an eye towards where your investments might take you over the course of several decades.

The good news is that there are plenty of ASX shares that provide investors with regular income and have bright long-term growth prospects.

By investing a relatively modest $6,000 across these types of shares, investors could be generating decent income in time.

Income from ASX shares

Firstly, when it comes to which ASX shares to buy, you might want to channel your inner-Warren Buffett.

He looks for companies with fair valuations, strong business models, and competitive advantages. And given his investment track record at Berkshire Hathaway (NYSE: BRK.B), it would be hard to argue against this approach.

Once you have built your $6,000 ASX share investment portfolio, you can sit tight and let the magic of compounding do its thing.

Over the last 30 years, the Australian share market has generated an average annual return of 9.6%. And while there’s no guarantee that it will do the same in the future, we’re going to assume that it does for this exercise.

If your portfolio generated this return, in 15 years it would have grown to be worth approximately $24,000. That’s without lifting a finger or adding any extra funds.

Once you have reached that figure, if you can rebalance your portfolio so that it has a collection of dividend shares that average 5% yields, you will be earning $1,200 of passive income each year. This is enough to give you a monthly pay check of $100.

Want more?

If you want even more passive income, you have the option of adding to your portfolio each year.

Here’s a quick summary of how different annual contributions would impact the value of your portfolio at year 15:

• $1,000 a year = $57,500 and $2,900 of passive income
• $2,000 a year = $91,200 and $4,600 of passive income
• $3,000 a year = $125,000 and $6,250 of passive income
• $5,000 a year = $192,000 and $9,600 of passive income

As you can see, making annual contributions brings compounding to life and can give your portfolio (and passive income) a huge boost. Food for thought!

The post Need passive income? Turn $6,000 into $100 every month appeared first on The Motley Fool Australia.

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More reading

• Warren Buffett is doubling down on these Japanese stocks. How can ASX investors do the same?
• How to invest $300 a month using the Warren Buffett method
• How to start building a lifelong passive income with just $5 a day: Tips and Tricks
• How ASX investors can build a $1 million portfolio in 12 years
• I’d listen to Warren Buffett to grow my wealth with ASX shares

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 Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. 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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Although lithium has been a hot S&P/ASX 200 Index (ASX: XJO) investment theme the last few years, just over the past six months, the commodity price has cooled off considerably.

That’s perfectly demonstrated in the Pilbara Minerals Ltd (ASX: PLS) share price, which has sunk more than 28.6% over that period.

So is it time to buy the dip, or have lithium producers passed their bull run?

Professional investors aren’t worried about dipping lithium prices

Lucky for The Motley Fool readers, a pair of experts this week had some opinions about the future of Pilabara shares.

They both rated it a buy.

Baker Young managed portfolio analyst Toby Grimm wasn’t too worried about the short-term crash in lithium prices, as the demand for the battery ingredient would not wane in the long run.

He cited Liontown Resources Ltd (ASX: LTR)’s rejection of Albemarle Corporation (NYSE: ALB)’s takeover bid as evidence that the industry itself is confident about the future of lithium.

“We believe Pilbara is worth adding to portfolios.”

eToro market analyst Josh Gilbert noted that Pilbara is increasing its output, which would cancel out the short-term dip in the commodity price. 

“Pilbara plans to increase production by 17% this year, with a target of doubling production by 2026.”

He urged investors to buy in with a long-term view.

“Electric vehicle adoption has really only just begun and has a long runway, with lithium demand only set to increase in the years ahead,” said Gilbert.

“According to Bloomberg, lithium-ion battery demand is expected to more than double in 2023 from 2020 levels, whilst EV sales look set to increase by more than 30% in 2023.”

Plenty of Gilbert and Grimm’s peers agree with their bullishness on Pilbara.

According to CMC Markets, 10 out of 17 analysts currently rate the stock as a buy. Nine of those even recommend Pilbara as a strong buy.

The post <strong>Pilbara Minerals is one of the cheapest shares in the ASX 200. Am I buying?</strong> appeared first on The Motley Fool Australia.

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More reading

• ‘Attractive value’: 2 ASX 200 mining shares ‘worth adding’ right now
• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• Why are ASX lithium shares leaping ahead today?
• EverGreen Lithium share price rockets after IPO: everything you need to know
• 50% fall: Are ASX 200 lithium shares a bargain buy right now?

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

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If you have a higher than average risk appetite, then investing at the small end of town could be worth considering. Especially given the potentially strong returns that are on offer with small cap ASX shares.

But which small caps could be buys? Two that brokers rate as buys are listed below. Here’s what they are saying about them:

Maas Group Holdings Ltd (ASX: MGH)

The first small cap ASX share to look at is construction material, equipment and service provider, Maas.

Goldman Sachs is a fan of the company and believes it could be a small cap share to buy. This is due to its ongoing transition, which the broker believes will underpin higher quality earnings in the future. It explained:

We believe MGH is in a transition phase and will see higher quality real estate income become the largest source of earnings in the next 3-5 years. We believe the market is mispricing how MGH’s civil and construction capabilities support the property development business to deliver best-in-class margins and asset turnover. In our view the value created through the development of quality annuity revenue from Build-to-Rent (BTR), Land Lease (potentially generating a 4.5x ROIC annuity income stream) and commercial real estate projects could re-rate the stock.

Goldman has a buy rating and $4.00 price target on its shares. This compares to the latest Maas share price of $2.70.

Volpara Health Technologies Ltd (ASX: VHT)

Another small cap ASX share that has been tipped as a buy is Volpara. It provides software that uses artificial intelligence imaging algorithms to assist with the early detection of breast and lung cancer.

Morgans is very positive on the company’s outlook, particularly given recent regulatory changes in the massive US market. It said:

After a long wait, the FDA finalised federal legislation for mammography centers to report breast density to patients. This is positive for VHT’s FDA cleared AI volumetric density software. VHT also announced a further contract win with Sutter Health for their Risk Pathways product, with an additional TCV of US$900k over 3 years. This expands their existing relationship with Sutter. […] We view both of these announcements as incrementally positive for the company. We see VHT at a critical turning point in the company’s trajectory to profitability with improving investor sentiment.

Morgans has an add rating and $1.21 price target on its shares. This compares favourably to the latest Volpara share price of 77 cents.

The post Brokers say these small cap ASX shares are buys with huge upside potential appeared first on The Motley Fool Australia.

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More reading

• Brokers say these small cap ASX shares are buys
• How to make passive income for life with just $5 a day
• Brokers name 2 small cap ASX shares to buy now
• 3 ASX All Ordinaries shares I’m watching like a hawk in March

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 Volpara Health Technologies. The Motley Fool Australia has positions in and has recommended Volpara Health Technologies. 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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Warren Buffett is reportedly doubling down on Japanese stocks, bolstering his company’s holding in the nation’s five largest trading houses.

The man behind US$692 billion conglomerate Berkshire Hathaway (and arguably the face of value investing) told Nikkei that he’s “very proud” of the company’s stakes in Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui & Co, and Sumitomo Corp.

Berkshire Hathaway first snapped up shares in the trading houses – otherwise known as sogo shosha – in 2020, walking away with slightly more than 5% of the businesses, and has returned for more in the years since.

Buffett has now bolstered Berkshire’s stake in each of the Japanese shares to 7.4%, CNBC reports. And that might not be the last of the investing great’s buying action.

The trading houses operate businesses in a multitude of industries, ranging from finance and banking to chemicals and textiles. Commenting on their appeal, Buffett told Nikkei:

We feel that these five companies are a cross section of not only Japan but of the world.

They are really so much similar to Berkshire. They own a lot of different things.

So, how might ASX investors follow in Buffett’s footsteps? Here are two avenues one might take.

How can ASX investors follow in Buffett’s footsteps?

Unfortunately, none of the Japanese shares snapped up by Buffett is also listed on the ASX.

However, there are two ways in which I think one could take inspiration from the billionaire’s latest move without leaving the Aussie bourse.

Invest in Japan-focused ETFs

The first is to invest in exchange-traded funds (ETFs) tracking the Tokyo Stock Exchange.

One listed on the ASX is the iShares MSCI Japan ETF (ASX: IJP). Each of the five Japanese stocks recently bought by Buffett make up between 1.35% and 0.59% of the ETF.

Look to ASX-listed investment houses

Another way to take inspiration from Buffett’s latest buy may be to look to the investment houses’ Aussie counterparts.

One such ASX-listed investment house is Washington H Soul Pattinson and Co Ltd (ASX: SOL). It boasts a diversified portfolio of assets across a range of industries, with some of its major holdings operating in the energy and building sectors.

The post Warren Buffett is doubling down on these Japanese stocks. How can ASX investors do the same? appeared first on The Motley Fool Australia.

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More reading

• How to invest $300 a month using the Warren Buffett method
• Blue chip beat-down: 5 huge ASX 200 shares cementing new 52-week highs today
• How to start building a lifelong passive income with just $5 a day: Tips and Tricks
• How I’d invest $5,000 today for long-term passive income
• How I’m building more passive income to retire early

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Berkshire Hathaway. 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 world – and the ASX – was a different place in April 2020. Most of us were likely locked down that month as the COVID-19 pandemic took hold around the world. Meanwhile, units in the Vanguard Australian Shares Index ETF (ASX: VAS) were trading for just $68.16 in the midst of the uncertainty.

If you were quick thinking enough to sink $10,000 into the exchange-traded fund (ETF) tracking the S&P/ASX 300 Index (ASX: XKO) at that point in time, you likely would have walked away with 146 units.

Today, that parcel would be worth $13,268.48. The Vanguard Australian Shares Index ETF last traded at $90.88 – 33% higher than it was this time three years ago.

For comparison, the S&P/ASX 200 Index (ASX: XJO) has gained 36% in that time.

But what about the dividends on offer from the ETF? Let’s factor them into the fund’s returns.

All dividends paid to those invested in the VAS ETF since 2020

Here are all the quarterly offerings paid by the Vanguard Australian Shares Index ETF in the last three years, rounded to the nearest cent:

VAS dividends’ pay date	Dividend value
January 2023	75 cents
October 2022	$1.45
July 2022	$2.16
April 2022	$2
January 2022	70 cents
October 2021	$1.41
July 2021	56 cents
April 2021	77 cents
January 2021	43 cents
October 2020	57 cents
July 2020	21 cents
April 2020	67 cents
Total:	$11.68

As readers can see, each of the ETF’s units has yielded $11.68 since April 2020.

That means our figurative $10,000 investment has provided $1,705.28 in passive income over its lifetime – bringing its total return on investment (ROI) to 50%.

And that’s before considering the franking credits also provided by the ETF. They may have provided tax benefits for some investors.

The Vanguard Australian Shares Index ETF’s next dividend is worth approximately 58 cents and will be paid later this month.

Taking that payout into account, the ETF currently boasts a 5.4% dividend yield.

The post Sunk $10,000 in the Vanguard Australian Shares ETF 3 years ago? Here’s how much passive income you’ve earned appeared first on The Motley Fool Australia.

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More reading

• 3 reasons to start buying ASX shares this week
• How I’m building more passive income to retire early
• Why is the Vanguard Australian Shares Index ETF (VAS) tumbling on Monday?
• Here are the ASX shares I was buying and selling in March
• Hoping to bag the next Vanguard Australian Shares Index ETF dividend? You’d better hurry

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

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With yesterday’s strong start to the short trading week, it’s clear that the S&P/ASX 200 Index (ASX: XJO) is on something of a recovery streak. Last month was a shocker for the ASX 200 and ASX shares, with the index losing more than 6% of its value between 7 and 20 March, hitting a two-month low on the latter date.

But more recently, it has been a far more pleasant tale. The ASX 200 has climbed by around 6% since 20 March and has added 1.8% so far during April.

When the markets are in recovery mode after a rough period, it is usually a tie of heightened buying activity. Investors tend to gain confidence when they see others buying shares. This creates a feedback loop of sorts and can help keep markets on a positive trajectory.

But saying that, the ASX 200 still has a long way to go. The index hit its most recent all-time high way back in August 2021. Back then, the ASX 200 climbed above 7,600 points. But it wasn’t to last, and before long, the markets were back under 7,500 points.

As it stands today, the ASX 200 index still remains around 4% below its all-time high watermark.

I’m looking for once-in-a-decade buys right now

So right now, I’m scouring the ASX 200 for once-in-a-decade ASX share opportunities. History tells us that markets tend to go up more than they go down over time. That’s why the ASX 200 has never failed to exceed a previous all-time high. And the best companies don’t tend to stay at bargain-basement prices for long in a stock market recovery.

Case in point, yesterday saw Telstra Group Ltd (ASX: TLS), Washington H. Soul Pattinson and Co Ltd (ASX: SOL) and Wesfarmers Ltd (ASX: WES) all hit new 52-week highs.

In fact, some companies never get back to the levels they were at previously.

Take Woolworths Group Ltd (ASX: WOW). Woolworths is unquestionably one of the strongest businesses on the ASX. It has entrenched market domination, wide brand recognition and decades of success under its belt. Back in late 2018, the ASX 200 went through a bit of a slump. This saw the Woolworths share price dragged below $24 a share. Yesterday, it was closing in on $40.

I would be surprised if Woolies ever gets back to below $25 a share – it didn’t even get near $25 in the COVID crash of 2020.

Thus, that was clearly a once-in-a-decade buying opportunity.

Where are the next ASX 200 winners?

So I’m looking for another opportunity right now, with the markets still away from their all-time high.

It’s ASX 200 retail shares that I think present some of the most compelling candidates at present. Harvey Norman Holdings Limited (ASX: HVN) is a great example. Right now, Harvey Norman shares are close to 40% off their 2021 high of over $6 a share. Yet this is still a popular ASX name in Australia and one with a massive dividend yield today.

Adairs Ltd (ASX: ADH), Dusk Group Ltd (ASX: DSK) and JB Hi-Fi Ltd (ASX: JBH) are in a similar boat. I would say the same for Super Retail Group Ltd (ASX: SUL). But investors seemed to have cottoned on that the $8-9 a share levels that this company was trading at last year were a steal. Yesterday, Super Retail closed at $13.20 a share.

I think many of the companies listed above could have similar trajectories going forward. So when you see a once-in-a-decade opportunity on the markets, don’t let it slip through your fingers.

The post I’m looking for once-in-a-decade opportunities in the stock market recovery appeared first on The Motley Fool Australia.

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More reading

• ‘Attractive valuations’: 2 ASX shares to buy now before they explode
• 5 things to watch on the ASX 200 on Wednesday
• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• 3 things I wish I knew before I started investing in ASX 200 shares
• 2 ASX 200 shares that could be top buys for growth

Motley Fool contributor Sebastian Bowen has positions in Adairs, Dusk Group, Telstra 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 Adairs, Harvey Norman, Super Retail Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Adairs, Harvey Norman, Super Retail Group, Telstra Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Dusk Group and Jb Hi-Fi. 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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ANZ Group Holdings Ltd (ASX: ANZ) shares are not on my watchlist because of a few key factors.

ASX bank shares are going through a very interesting period of time.

I’ll acknowledge that a couple of the metrics of ANZ do look compelling. Commsec numbers suggest that ANZ shares are valued at just 10 times FY23’s estimated earnings with a potential grossed-up dividend yield of 9.6%.

Those numbers do seem attractive, but a cheap, high-yielding ASX share isn’t necessarily going to perform strongly.

ANZ may well produce good returns from here, but there are a few reasons why I’m not looking to buy shares.

Acquisition distraction

ANZ is currently on a distracting mission to try to buy the banking division of Suncorp Group Ltd (ASX: SUN).

It’s not a done deal yet. Not in the slightest. Even if the deal were to go ahead, I think the integration process would be very distracting for management. I think the next year or two is when management needs to be laser-focused on the banking settings after all of the interest rate rises.

In the ACCC’s statement of preliminary views, it noted that despite the various developments and trends in Australian banking in recent years, there remain “significant regulatory and structural barriers for new entrants and smaller providers.”

Despite all the effort and attention that has been put into this potential deal, there’s no guarantee it’s even going to go ahead.

Weakening economic picture

The last 12 months have really shaken things up.

Initially, the higher interest rates were seen to be a really good boost for the ANZ lending margins. But, there’s now so much competition that this may now be harming all of the banks’ profit margins.

The situation now seems to be that the lending profitability is falling and there’s the prospect of higher bad debts as the effects of higher interest rates start to kick in.

If ANZ can’t grow its profit any time soon, then I’m not sure what’s going to drive the ANZ share price much higher from where it is today.

Let’s also keep in mind that the economic picture for credit growth is fairly weak at the moment.

Low growth likely

Not only is the wider picture difficult for ANZ, but the business itself may not be able to deliver a lot of growth. Yes, there may not be much system growth.

But, for some time ANZ has been trying to catch up with its technology and systems so that it is able to offer the same approval times for loans as other lenders. If ANZ can’t compete properly then it’s going to miss out on the best borrowers.

ANZ has been doing a lot of work on improving its digital capabilities, but I fear that its focus on trying to buy growth with the Suncorp deal means that ANZ isn’t keeping its eye on the prize.

I’m looking for businesses that can deliver more growth over the longer term, which I don’t think describes ANZ.

The post 3 good reasons I’m avoiding ANZ shares at all costs! appeared first on The Motley Fool Australia.

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• It’s official, the ASX 200 big four banks are the world’s most capitalised. Should you buy?
• Could right now be a great time to buy ASX 200 bank stocks for passive income?
• How I would build a Warren Buffett-style portfolio with ASX 200 shares
• Could ANZ shares cash in on the recent international bank collapses?
• ANZ share price higher amid Suncorp Bank takeover news

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.

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The Zip Co Ltd (ASX: ZIP) share price has seen enormous falls over the past few years. It could be a mistake for beginners to invest in the buy now, pay later business.

Looking at the chart, Zip has dropped by around 95% since February 2021.

Beginners may be looking at that as a big opportunity. But, there are a number of reasons why I’d suggest caution when looking at this former market darling.

It’s true that Zip is a very different business from where it was five years ago. It has expanded significantly in both the US and Australia.

But, here are some reasons why Zip shares may not rapidly rebound from here.

Forget the past Zip share price

Plenty of people have the habit of anchoring to past prices.

Just because the Zip share price was above $10 in the past doesn’t mean it’s going to go back to that price. The market doesn’t care what price we paid for our shares, or where it was trading two years ago.

The BNPL business has seen its growth rate slow considerably. Indeed, in the first six months of FY23, the total transaction volume (TTV) only increased by 10% to $4.9 billion.

When we’re thinking about what ASX shares to invest in, I think we need to think about the future, not the past.

It’s a good idea for investors to stick to their ‘circle of competence’. That means only investing in what we know so that the investment is easy to understand and we can understand the progress that business is making (or isn’t making).

Higher interest rates

One of the key expense categories for Zip is the interest expense.

Interest rates have shot higher in Australia and the US, so it seems like the BNPL business is going to be paying quite a bit more for its borrowing going forwards.

I think this really changes the economic picture for Zip because it’s borrowing money to then fund customers’ spending until they repay it.

Higher interest rates could also mean that customers may be more likely to get into arrears.

I think Zip shares could get a one-off boost if interest rates were to drop, but I don’t think the RBA interest rate will go back to below 2% once inflation has normalised.

Retreating from global markets

One of the things that can justify a higher share price is the potential growth that the business can achieve.

Zip was targeting many regions for growth, but it has stepped back from a number of those markets. While this move is accelerating its journey towards breakeven, it has reduced the growth runway of the business.

Last month, the business announced its plans to divest its Central and Eastern European business called Twisto and the South African business Payflex. It’s also in the process of winding down its business in the Middle East.

However, thanks to this, it’s expecting to deliver positive group cash earnings before tax, depreciation and amortisation (EBTDA) during the first half of FY24.

Foolish takeaway

Zip may still be able to produce profit from here, but I think it would be a mistake for beginner investors to think that it’s going to recover back to $10, or even $5, any time soon. Regulation is also a potential worry, but that’s still a developing situation.

The post Could buying Zip shares be a classic ASX beginner’s error? appeared first on The Motley Fool Australia.

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More reading

• These are the 10 most shorted ASX shares this week
• Why did the Zip share price zoom higher in March?
• These are the 10 most shorted ASX shares this week
• Why Appen, Regis Resources, Syrah, and Zip shares are charging higher today
• Zip share price leaps 14% on $20 million windfall

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 Zip Co. 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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