Category: Stock Market

The Woodside Energy Group Ltd (ASX: WDS) share price is marching higher again today.

If the S&P/ASX 200 Index (ASX: XJO) energy stock holds these gains by close, it will mark four days of gains out of the last five trading sessions.

Shares closed up 2.3% yesterday and are up 1.2% as we head into the lunch hour today, trading for $30.62 apiece.

That sees the Woodside share price up 6.0% since last Wednesday’s close.

For some context, the ASX 200 is down 0.2% over this same time.

Here’s what’s been piquing investor interest.

Why is the Woodside share price running hot?

Investors tend to buy Woodside stock when energy prices are on the rise. And sell when energy prices are falling.

Over the past week, as you can likely guess by the strong performance of the Woodside share price, the oil price has reached levels not seen since late October.

Brent crude oil is trading for US$87.10 per barrel today, up from US$81.92 per barrel last Wednesday.

At US$ 83.12 per barrel, West Texas Intermediate (WTI) crude is also at its highest levels since October.

The big spike in oil prices follows a series of Ukrainian drone attacks on Russian oil refineries.

According to JPMorgan Chase & Co (courtesy of Bloomberg), the drone attacks have knocked 900,000 barrels per day of Russia’s refinery capacity out of action.

Adding to the potential supply-side crunch, Iraq has announced it intends to cut oil exports over the next months. This is to make up for producing more than it had agreed to in January and February under production limits with OPEC+.

And according to Jeff Currie, chief strategy officer of energy pathways at Carlyle Group, the oil price – and by connection the Woodside share price – could run significantly higher from here.

That’s based on the assumption that the US Federal Reserve will begin reducing interest rates in 2024.

Should that eventuate, Currie believes the oil price will run significantly higher than consensus expectations of US$70 to US$90 per barrel this year.

“I want to be long oil and the rest of the commodity complex in this environment,” he said.

Pointing to Europe’s replenishing its oil stockpiles and China’s efforts to boost its manufacturing sector, Currie said, “The upside here is significant.”

The post Up 6% in a week, why is the Woodside share price running hot? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
• Buy Woodside shares and these ASX 200 dividend giants now
• 5 things to watch on the ASX 200 on Monday
• Buying 350 Woodside shares in an empty investment portfolio would give me a $760 income in year one
• 5 oversold ASX shares to buy in March 2024

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 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 emergence of exchange traded funds (ETFs) has been a great thing for investors.

With a single click of the button, investors can gain easy exposure to many of the highest quality stocks from all corners of the world with ASX ETFs. This was unthinkable a decade ago.

But which ETFs could be top options today? Three excellent options to consider right now are named below:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The first ASX ETF that could be worth considering is the BetaShares Asia Technology Tigers ETF.

This fund gives investors access to the biggest and best tech stocks from the Asian region (excluding Japan). This includes high-quality companies such as Alibaba, Samsung, WeChat owner Tencent, and Temu owner PDD Holdings (Pinduoduo).

If you’re confident on the outlook of the Asian economy and the global expansion of the names above, then this ASX ETF could be the one for you.

Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO)

Another ASX ETF to look at is the Vanguard MSCI Australian Small Companies Index ETF.

It could be worth considering if you’re looking for exposure to the small side of the market, which has been tipped to boom this year if interest rates fall.

This fund gives investors access to almost 200 mid and small-caps and, importantly, not just the tail end of the stock market.

At present, among its holdings are companies such as property developer Charter Hall Group (ASX: CHC), online travel agent Webjet Limited (ASX: WEB), health imaging technology company Pro Medicus Limited (ASX: PME), and gold miner Evolution Mining Ltd (ASX: EVN).

Vanguard MSCI Index International Shares ETF (ASX: VGS)

A third high-quality ASX ETF that could be a great option for investors is the Vanguard MSCI Index International Shares ETF.

This popular fund provides investors with access to a whopping ~1,500 of the world’s largest listed companies. This makes it a great way to add diversification to a portfolio and give it international exposure.

Among its holdings are global giants such as Apple, Eli Lilly, Nestle, Nvidia, Tesla, and Visa.

The post Give your portfolio a big boost with these high-quality ASX ETFs appeared first on The Motley Fool Australia.

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More reading

• With a spare $500, here’s how I’d start buying ASX shares this March
• 4 ASX ETFs for smart investors
• 2 fantastic ASX ETFs to buy for global investing in March
• Are these record-breaking ASX ETFs now too expensive to buy?
• Why Vanguard MSCI Index International Shares ETF (VGS) is a great buy for almost anyone

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 Apple, Nvidia, Pro Medicus, Tencent, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alibaba Group and Nestlé. The Motley Fool Australia has recommended Apple, Betashares Capital – Asia Technology Tigers Etf, Nvidia, Pro Medicus, 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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The market may be rising today, but that gain is nothing compared to what has been recorded by some ASX penny stocks.

For example, the three stocks listed below have all jumped over 30% in morning trade. But why are investors buying their shares? Let’s find out.

Lion Energy Ltd (ASX: LIO)

The Lion Energy share price is up 80% to 4.5 cents. This follows news that it has obtained development approval from the State Assessment and Referral Agency (SARA), the relevant planning agency of the Queensland State Government, for its hydrogen generation and refuelling hub project in the Port of Brisbane.

Lion Energy’s hub is geared towards heavy mobility fleets. It has an early focus on supplying hydrogen to domestic public bus fleets, truck fleets, and fuel cell gensets for the construction and mining industry. The facility will be one of the first of its scale in Queensland.

Peak Rare Earths Ltd (ASX: PEK)

The Peak Rare Earths share price is up 67% to 31 cents. This has been driven by the release of the final set of assay results from its critical minerals exploration program. This program is targeting the multi-commodity potential of the Ngualla carbonatite system.

According to the release, the ASX penny stock’s assays from the Breccia Zone confirm outstanding high-grade thick intercepts of fluorspar. Management believes this supports the potential of a globally significant fluorspar deposit.

It also highlights that the prospectivity of the Breccia Zone is further enhanced by significant high-grade rare earth mineralisation, as well as elevated levels of niobium.

Sierra Rutile Holdings Ltd (ASX: SRX)

The Sierra Rutile share price is up 35% to 10.5 cents. This morning, the Africa focused mineral sands company announced the receipt of an on-market takeover offer.

According to the release, PRM Services has offered to acquire all of the ASX penny stock’s shares that it does not own at a price of 9.5 cents cash per share.

The company has urged its shareholders to take no action and made the following statement:

Sierra Rutile shareholders who sell their shares to PRM Services on-market will be unable to participate in any increase in the offer price or any competing proposal should there be such an increase or any competing proposal is forthcoming.

PRM Services currently has an 11.46% stake in Sierra Rutile.

The post 3 ASX penny stocks exploding over 30% on big news appeared first on The Motley Fool Australia.

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More reading

• 2 ‘very high-quality’ ASX retail shares with significant inside ownership
• Up 71% in 3 weeks, have Zip shares topped out?
• Here’s when AMP says ASX investors can expect an interest rate cut
• Guess which ASX blue-chip share is throwing $202 million at another acquisition
• Rio Tinto shares higher on $535 million lithium news

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 fund manager Blackwattle has revealed two ASX retail shares that are exciting and have good long-term growth potential.

The Blackwattle Large Cap Quality Fund aims to outperform the S&P/ASX 200 Accumulation Index (ASX: XJOA) over the long-term. It’s looking for quality companies at low or reasonable valuations.

Two core positions

Two of the ASX shares that the fund manager highlighted in a recent update were ARB Corporation Ltd (ASX: ARB) and Premier Investments Limited (ASX: PMV).

ARB is a business that sells “well-engineered, durable equipment that would meet the vigorous demands of 4WD owners”. It’s Australia’s largest manufacturer and distributor of 4×4 accessories, with a presence in over 100 countries.

Premier Investments owns several retail brands, including Just Jeans, Jay Jays, Jacqui E, Portmans, Dotti, Peter Alexander, and Smiggle. It also has stakes in Breville Group Ltd (ASX: BRG) and Myer Holdings Ltd (ASX: MYR).

Blackwattle said both of these ASX shares are “very high-quality retailers” that are led by “excellent stewards aligned with high levels of ownership.”

Why own these ASX retail shares?

Blackwattle said its thesis for owning them is underpinned by both ARB and Premier Investments’ “differentiated offerings and strong global presence” which have taken many years to build.

The fund manager pointed out that Premier Investments has “hidden growth brands”, namely Smiggle and Peter Alexander. Blackwattle suggested Premier Investments is undervalued because the market is applying a ‘conglomerate discount’ to the ASX share, placing the Premier Investments share price at a “low” price/earnings (P/E) ratio of 13 times.

The investment team suggested the ongoing strategic review might “unveil these brands’ growth prospects,” potentially leading to a higher valuation, as we see with Lovisa Holdings Ltd (ASX: LOV) and Breville Group.

What’s the outlook for the ASX share market?

Blackwattle said that looking ahead, increasing takeover activity bodes well for investors focusing on the intrinsic quality of a business and prevailing valuations.

The investment team then said the heightened market volatility observed during the ASX reporting season “underscores the influence of fast money in the markets”.

The fund manager suggested that for investors with a longer-term view of fundamental value, the volatility “presents an opportunity to acquire outstanding companies at discounted values.”

However, fast-moving share prices of ASX shares that lack a sustainable competitive edge are, in Blackwattle’s opinion, prone to result in capital losses “when the market aligns with reality.”

The post 2 ‘very high-quality’ ASX retail shares with significant inside ownership appeared first on The Motley Fool Australia.

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More reading

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Motley Fool contributor Tristan Harrison has positions in Lovisa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ARB Corporation and Lovisa. The Motley Fool Australia has recommended ARB Corporation, Lovisa, and Premier Investments. 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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Zip Co Ltd (ASX: ZIP) shares have handed investors some serious gains since mid-October.

Following a painful multi-year sell-down, shares in the All Ordinaries Index (ASX: XAO) buy now, pay later (BNPL) stock reversed course in October. And the remarkable rebound has shown few signs of slowing down.

As you can see on the chart above (if you look closely), the ASX BNPL stock is up 427% since the closing bell on 6 October. That will have turned a $5,000 investment on 6 October into $26,350 today.

And in the past three weeks alone, since market close on 27 February, Zip shares have leapt 71%, currently trading for $1.37 apiece.

With those kinds of eye-popping gains already in the bag, has the company’s charge higher topped out?

Where to now for Zip shares?

Well, there are two ways to look at this.

First, a stock can’t continue to gain 400% every five months indefinitely.

Second, despite the stellar recent run, Zip shares are still trading at a fraction of their February 2021 highs, when the stock reached $12.38.

Now, no one (as far as I’m aware) is expecting Zip to reset those highs anytime soon.

But Citi believes there are more potential gains on the table for the company. Albeit much more modest than the past weeks’ surge.

Last week, when the ASX BNPL stock was trading for $1.30 a share, the broker lifted its target for Zip by 79% to $1.40. At current levels, that still represents a potential 2% upside.

On the other hand, Toby Grimm, managed portfolio analyst at Baker Young, believes the big run higher has likely peaked and has a ‘sell’ rating on Zip shares.

According to Grimm (courtesy of The Bull), “This consumer finance firm delivered better than forecast half year results in fiscal year 2024. Measures to improve profitability drove a rebound in underlying earnings.”

Indeed, revenue was up by 28.9% year on year to $430 million. That was driven by a 9.6% increase in total transaction volume (TTV), which reached $5 billion. And Zip’s cash gross profit leapt 45.9% to $176 million.

But Grimm believes those strong metrics have now been fully priced into Zip shares.

“The stock is trading at a significant premium to our fair valuation. Investors may want to consider taking profits at these levels,” he said.

As always, whether you’re looking at buying or selling Zip – or any other ASX stocks – be sure to do your own research first.

If you’re not comfortable with that, or just don’t have the time, then simply reach out for some expert advice.

The post Up 71% in 3 weeks, have Zip shares topped out? appeared first on The Motley Fool Australia.

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More reading

• Why is the Zip share price the best-performing ASX 300 stock so far this year?
• Why Bannerman Energy, Cettire, TechnologyOne, and Zip shares are charging higher
• If I’d put $5,000 into Zip shares on 9 October, here’s what I’d have now!
• Up 288% in 6 months, Zip share price tipped for more outsized gains
• Why Accent, Liontown, PSC Insurance, and Zip shares are charging higher today

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 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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Much to the disappointment of homeowners, on Tuesday, the Reserve Bank of Australia (RBA) decided to keep interest rates on hold at 4.35%.

RBA Governor Michele Bullock highlighted that inflation remains high and appears to believe that cutting interest rates now could stop it from hitting target. She said:

While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.

So, when might interest rates fall? Let’s take a look at what the economics team at AMP Ltd (ASX: AMP) is saying.

When will interest rates fall?

As I mentioned here at the weekend, Westpac Banking Corp (ASX: WBC) is currently expecting the first rate cut to take place in September.

The good news for borrowers is that AMP sees scope for a cut to happen sooner than that.

In his weekly report, AMP’s chief economist, Dr Shane Oliver, said:

Given the generally slowing but somewhat mixed readings the RBA is likely to sit on its hands still waiting for more confidence “that inflation is moving sustainably towards the target range”. We continue to see the RBA gaining that confidence by June and being able implement the first cut then but concede there is a high risk it could be delayed till August.

Significant fiscal stimulus in the May Budget could risk delaying the start of easing but the RBA will probably want to see whether this eventuates or not before starting to cut – which likely rules out a May cut.

So, all being well, homeowners may get some relief from their mortgage repayments later this year if everything goes to plan.

The post Here’s when AMP says ASX investors can expect an interest rate cut appeared first on The Motley Fool Australia.

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More reading

• Are you investing or gambling?
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Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. 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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Standing at a colossal $13.07 billion market capitalisation, this blue-chip share is eager to become an even bigger business, firing its cash at another company.

Today, shares in Sonic Healthcare Ltd (ASX: SHL) are up slightly, lifting by 0.4% to $27.46 apiece after announcing an acquisition this morning. Despite the move, the pathology and laboratory services company is still valued 19% lower than it was worth a year ago.

Let’s inspect the details of today’s deal more closely.

Switzerland expansion for ASX blue-chip share

One of the world’s largest diagnostic companies is set to grow even larger after entering a binding agreement to acquire Switzerland-based Dr Risch Laboratory Group.

The second-generation family business operates a ‘full-service’ medical laboratory across 13 centres in Switzerland and another in Liechtenstein. According to the Dr Risch Group website, the company encompasses laboratory medicine, human genetics, microbiology, clinical studies, and more.

In 2023, the Swiss group raked in A$175.9 million in total revenue. Sonic will pay A$201.7 million to acquire the company, equating to a price-to-sales (P/S) ratio of approximately 1.1 times 2023 sales.

The payment will comprise A$51.7 million worth of Sonic Healthcare shares issued to the sellers. Meanwhile, the remaining A$150 million will be funded through the ASX blue-chip shares’ existing cash and debt facilities.

CEO of Sonic Healthcare, Dr Colin Goldschmidt, remarked on the transaction, saying:

The partnership with Dr Risch is an exciting development for Sonic Healthcare and further strengthens our existing position in the Swiss market.

Switzerland made up 10% (A$405 million) of Sonic’s total revenue in the first half of 2024.

So what is the rationale behind this acquisition?

Sonic management anticipates the deal to be earnings per share (EPS) accretive from 2025. Furthermore, the return on invested capital is slated to “significantly exceed Sonic’s cost of capital once synergies are achieved.”

The synergies expected relate to ‘multiple areas of infrastructure and operations (including procurement)’.

Sonic expects the deal to be done by 31 March 2024.

Acquisition appetite

In the last few years, Sonic Healthcare has made numerous acquisitions. Five acquisitions and one strategic stake have been carried out since June 2021.

The flurry of deals follows a period of outsized earnings for Sonic during the COVID-19 pandemic. This stretch of above-normal profits bolstered the company’s balance sheet, reducing its debt-to-equity ratio from more than 50%.

This ASX blue chip share is putting the additional financial headroom to work. Still, at the end of 2023, Sonic posted a debt-to-equity of 32%, suggesting ample firepower for additional acquisitions.

The post Guess which ASX blue-chip share is throwing $202 million at another acquisition appeared first on The Motley Fool Australia.

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More reading

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Motley Fool contributor Mitchell Lawler has positions in Sonic Healthcare. 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 Sonic Healthcare. 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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Woolworths Group Ltd (ASX: WOW) shares have come under pressure this year.

So much so, the supermarket giant’s shares are down 14% year to date and trading within a couple of cents of a 52-week low at $32.07.

A portion of this decline can be attributed to concerns over the launch of a number of industry body inquiries into price gouging and anti-competitive behaviour claims. This includes the ACCC Supermarket Inquiry and the Senate Select Committee on Supermarket Prices.

The good news is that analysts at Goldman Sachs are not concerned about the inquiries and see the recent weakness as a buying opportunity.

Woolworths shares are great value

The broker has been looking at the potential impact from the aforementioned inquiries. It notes that similar inquiries over a decade ago had no real impacts on its earnings. It commented:

The 2008 ACCC inquiry concluded that the supermarkets industry was “workably competitive” and hence the recommended industry changes did not result in a material impact to WOW earnings. Notably, WOW Factset consensus forecasts for NTM EPS increased 12% T+0 to T+260 days.

In addition, it highlights that the previous inquiry put pressure on Woolworths shares, but not to the same extent as this time around. As a result, it appears to feel that the market has overreacted this time around. It adds:

WOW’s 2008 inquiry saw its share price underperform ASX200 by ~15-20% in T+80 to T+120 days largely due to PER compression. 2 weeks post the conclusion of the ACCC inquiry findings, WOW’s share price recovered -2% vs ASX 200. Currently, WOW’s underperformance vs ASX 200 since the Dec 6 Senate Inquiry announcement is 21%, PER premium vs ASX200 is at ~29%.

‘Sufficiently priced in’

In light of the above, the team at Goldman Sachs believes that “WOW’s earnings and valuation risks from the Inquiries are sufficiently priced in and reiterate Buy (on CL).”

As well as its conviction buy rating, Goldman has retained its $40.40 price target on the company’s shares. Based on its current share price, this implies potential upside of 26% for investors over the next 12 months.

The broker is also forecasting a $1.09 per share fully franked dividend in FY 2024. This represents a 3.3% dividend yield, which boosts the total potential return beyond 29%.

The post Why you should buy cheap Woolworths shares before it’s too late appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
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• 3 Australian shares to buy and hold forever in your ASX portfolio
• Better buy: Coles or Woolworths stock?
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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 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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Investors that are looking for the perfect combination of big gains and generous dividend yields might want to consider Inghams Group Ltd (ASX: ING) shares.

That’s the view of analysts at Bell Potter, which believe the ASX 200 share could deliver very strong returns for investors.

What is the broker saying about this ASX 200 share?

Bell Potter notes that the poultry producer’s share price has remained depressed since its half-year results. This is despite the continued downdraft in both domestic wheat and imported soybean pricing.

The broker appears to believe that the market isn’t fully appreciating what this could mean for its costs and profits. Commenting on feed costs, the broker said:

Since reporting Australian ASW benchmark wheat and soybean meal prices have fallen ~5%. Given ING’s forward purchasing arrangements, we see CY24TD feed cost indicators (drives FY25e COGS) down -13% relative implied FY24e levels, with our spot feed index -19% below the implied FY24e average. While our forecasts already assume a downdraft in FY25e feed COGS, the current implication if sustained is a more material downdraft than allowed for in our forecasts.

In addition, Bell Potter believes that poultry prices have remain reasonable. It adds:

CPI indicators for Feb’24 in NZ demonstrated MOM gains of +1% and while down -1% YOY looks reasonable. CPI indicators for Australia in Jan’24 continued to demonstrate upward inflation, up +1% MOM and +3% YOY. Inflation data has so far supported outlook comments from ING at the 1H24 result.

Big gains and yields expected

In light of the above, the broker has reiterated its buy rating and $4.35 price target on its shares.

Based on where the ASX 200 share currently trades, this implies potential upside of approximately 24% for investors over the next 12 months.

But it gets better. Bell Potter is forecasting a 23 cents per share fully franked dividend in FY 2024 and then a fully franked 24 cents per share dividend in FY 2025. This equates to yields of 6.5% and 6.8%, respectively.

All in all, if Bell Potter is on the money with its recommendation, investors could generate a total return of approximately 30% over the next 12 months.

To put this into context, a $10,000 investment would generate a return of $3,000 for investors.

The broker concludes:

Trading at the lower bound of its historical EV/EBITDAL trading range and well below its historical average (of 8.3x EV/EBITDAL) we retain our Buy rating.

The post Buy this ASX 200 share for a 24% gain and 6% dividend yield 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 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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I think the ASX healthcare stock Sonic Healthcare Ltd (ASX: SHL) looks very undervalued. It’s so cheap that I’m thinking about buying some Sonic Healthcare shares myself.

The Sonic Healthcare share price has fallen more than 15% in the past year and it’s down around 25% since April 2023.

This global pathology business is one to look into, in my opinion.

I love investing in growing businesses where the share price has dropped because this means the price/earnings (P/E) ratio has reduced and is usually more attractive.

Multiple growth avenues

COVID-19 testing revenue has almost entirely gone, which has reduced the company’s operating leverage.

But, the FY24 first-half result demonstrated a number of the positives that I like about the business.

For starters, it reported base business revenue growth (which excludes COVID-19 testing) of 15%. Its organic revenue growth was 6.2% (which excludes things like acquisitions), which is a solid core business growth rate.

The base business is benefiting from different tailwinds, like a growing population, which means there are more potential patients, while an older population could increase the frequency that services are required.   

Sonic Healthcare is regularly investing in making new acquisitions, which can boost its scale – this can increase the profit margins. Around A$500 million of new annual revenue has been secured from acquisitions and contract wins, including $175 million from Synlab Suisse and $265 million from German acquisitions.

The ASX healthcare stock also said its cost reduction programs are “well advanced”, which could be beneficial for margins in future reporting periods.

Sonic Healthcare can benefit from several new technology sources, including PathologyWatch, AI, and its involvement with Microba Life Sciences Ltd (ASX: MAP), to help its future earnings.

Growing dividend

I don’t know for sure what the Sonic Healthcare share price is going to do. But, the ASX healthcare stock’s ongoing dividend growth can provide ‘real’ returns while we wait for a recovery. It said it has a progressive dividend policy.

According to the estimate on Commsec, the company could pay an annual dividend per share of $1.08, which would translate into a forward dividend yield of 4%, excluding franking credits.

Appealing valuation

After the recent decline of the Sonic Healthcare share price, it’s now valued at under 19 times FY25’s estimated earnings, which I think is very reasonable for a business in a defensive industry like healthcare.

Due to its fairly large market capitalisation size, I’m not expecting huge gains, but I believe it can be a steady compounder and outperform the S&P/ASX 200 Index (ASX: XJO) over the long term, at the current Sonic Healthcare share price. I’m thinking about buying some Sonic Healthcare shares for my own portfolio at the current level when Motley Fool’s trading rules allow me to.

The post 1 ASX healthcare stock that looks severely undervalued appeared first on The Motley Fool Australia.

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More reading

• Why I think these 2 ASX shares are steals
• Seeking retirement income from ASX bank shares at 52-week highs? What I’d buy instead
• If I were 60 I’d buy these ASX shares for dividends
• 25 ASX 200 shares with ex-dividend dates next week
• Morgans names 3 ASX stocks to buy following results

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 recommended Sonic Healthcare. 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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