Category: Stock Market

The Pilbara Minerals Ltd (ASX: PLS) share price has drifted below $4. Since 25 January 2023, it has dropped by around 30%.

That’s a hefty decline for an ASX lithium share that has a market capitalisation of more than $10 billion, according to the ASX.

It has been very beneficial to be an owner of Pilbara Minerals shares over the long term, with the company’s share price rising by around 375% in the past five years. The S&P/ASX 200 Index (ASX: XJO) has only gone up by 20% over the past five years.

However, I’d say there are two key reasons why the Pilbara Minerals share price has done so well over the last few years. One is that the company has ramped up production at its Pilgangoora project and is benefiting from a significantly higher lithium price.

But, after recent volatility, can the business turn things around and make more returns for investors?

Can the Pilbara Minerals share price keep rising?

I think the shorter-term outlook for the business will be decided by the lithium price. The lithium price has reportedly sunk over the last few months. This could have a sizeable impact on the month-to-month profitability of the business, though it’s still making a good level of profit.

In the first half of FY23, Pilbara Minerals said that its average realised sales price was US$4,993 per dry metric tonne (dmt), which was 305% higher than for the prior corresponding period. This helped statutory net profit after tax (NPAT) increase by 989% to $1.24 billion while the cash on its balance sheet increased by $1.63 billion since June 2022 to $2.23 billion.

I’m not sure if the lithium price is going to recover, or even just stabilise, at this level. But it does seem as though demand is going to keep rising.

Rio Tinto Limited (ASX: RIO) notes that lithium is a vital component for technologies like electric vehicles and batteries. According to Rio Tinto, double-digit growth in lithium demand is expected over the next decade.

According to a KPMG report about the mining outlook, it said regarding lithium:

We estimate lithium production would need to grow by around 12 percent per year every year until 2050 to produce enough of that mineral to have two billion EVs on the roads. Given that, lithium production is expected to grow at nearly double that pace in the near term.

So while the demand for lithium is expected to increase, the supply is expected to increase in that time too. We’ll just have to see what the balance of supply and demand looks like in future years.

For me, I’m not expecting the lithium price to reach a new all-time high any time soon. But I do like that the company is looking to increase its exposure to more of the lithium value chain, as well as increase its production.

According to Commsec, earnings are expected to fall in FY24 and then in FY25. This would put the current Pilbara Minerals share price at 7x FY25’s estimated earnings. I think there is a bit of leeway for the ASX lithium share to rise in the double-digits and still be at a fair valuation.

However, I think Pilbara Minerals has seen a lot of share price growth. There are other, smaller businesses which could grow more and, therefore, be more likely to produce good returns.

The post Could buying Pilbara Minerals shares under $4 make me rich? appeared first on The Motley Fool Australia.

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More reading

• Analysts say 2 of these ASX lithium shares can double in value
• Here are the top 10 ASX 200 shares today
• The first-ever Pilbara Minerals dividend is being paid today. Here’s what to expect
• 5 things to watch on the ASX 200 on Friday
• Buy Pilbara Minerals and this exciting ASX growth share: analysts

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 Myer Holdings Ltd (ASX: MYR) share price has done very well in recent months. It has risen around 30% in 2023 to date and gained 60% in the last 12 months.

That compares very favourably to the performance of the S&P/ASX 200 Index (ASX: XJO). In 2023 to date, it’s only up by 0.1%. Over the past year, the ASX 200 has dropped by 6%.

The ASX retail share has managed a strong turnaround in its sales and financials. This has enabled the business to largely hold onto the gains it has achieved, though investors may have been hoping for even more.

Let’s have a look at some of the highlights from the recent FY23 half-year result.

Earnings recap

Myer reported that in the six months to 28 January 2023, it grew total sales by 24.2% to $1.88 billion. Despite the end of lockdowns, online sales still represented around 20% of total sales.

The operating gross profit grew by 17.4% to $683.2 million. This margin decreased 212 basis points to 36.3% which included the “unfavourable impact of higher shrinkage and foreign exchange movements”.

The cost of doing business (CODB) was $442.5 million, or 23.5% of total sales, representing an improvement of 126 basis points.

Myer’s net profit after tax (NPAT) was $65 million, an increase of 101.4%. Profit growth can be key for the Myer share price going higher. This was the company’s highest profit since the first half of FY14.

The business also said its balance sheet was stronger, with net cash at the end of the period up $50 million to $267 million and inventory “well-controlled at the same level as the prior corresponding period”.

Myer also declared a total interim dividend of 8 cents per share, comprising an ordinary dividend per share of 4 cents per share and a special dividend of 4 cents per share. This is “utilising significant accumulated franking credits“.

Can the Myer share price keep rising?

Myer is now focused on ensuring that it’s making profitable sales. Profit growth can certainly help drive the Myer share price upwards. And, in turn, sales growth can be a boost for profit.

Therefore, it’s very promising that Myer was able to reveal its sales after Christmas had made a good double-digit rise.

According to the ASX retail share, in the eight weeks after Christmas, department store sales were up 16.1% compared to the prior corresponding period. The Myer boss John King said:

Like all retailers we remain cautious about the macro-economic environment, however, we are pleased with the momentum we are generating through the customer first plan and have a strong pipeline of initiatives still to come, which will ensure we are well placed for the future.

According to Commsec, Myer is expected to generate earnings per share (EPS) of 10 cents. That means that Myer is valued at less than 9x FY23’s estimated earnings. I think it would be quite reasonable for Myer to trade with a price/earnings (P/E) ratio of 10, which would be a rise of around 15%. It could also keep paying a very attractive dividend yield.

However, I’m not sure if Myer is the best ASX retail share to buy – I think Myer will need to keep growing its online sales to offset the long-term uncertainty of department store sales.

The post Up 30% in 2023, can the Myer share price keep rising? appeared first on The Motley Fool Australia.

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More reading

• Why Latitude, Myer, Regis Resources, and Service Stream shares are dropping today
• Why is the Myer share price crashing 10%?
• 4 ASX All Ordinaries shares trading ex-dividend on Wednesday
• 7 ASX All Ordinaries shares smashing new 52-week highs today
• Why Arafura, Myer, Volpara, and Xero shares are zooming higher

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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Times are pretty crazy at the moment.

Consumers have hardly any spare cash to spend after ten consecutive months of steep interest rate rises. Yet you would never know it if you visited an airport, where queues are sneaking out of the terminal building.

These contradictions exist because of the stifled freedoms and pent-up savings Australians accumulated during the COVID-19 lockdowns.

Consumers just want to have some fun now.

Here are two ASX shares to buy that could benefit from this theme:

International travellers are back

Wilson Asset Management equities dealer Cooper Rogers likes the look of Experience Co Ltd (ASX: EXP).

“It’s benefiting from the recovery of the international traveller,” Rogers said on a Wilson video.

“We’re seeing increased spend on experiences, rather than goods, particularly from our Chinese and Indian travellers. We expect that to really bode well for Experience Co.”

The Experience Co share price has dropped 8.3% over the 12 months, but it has gained a handsome 14.6% since the start of 2023.

According to Cooper, there is one particular business unit that’s going gangbusters.

“The skydive division is the one you want to look at. It’s got massive operational leverage and with those increased numbers coming back, a lot of that incremental revenue is going to drop through the bottom line,” he said.

“EXP is a buy for us.”

Even back in 2021, in the midst of the COVID-19 delta lockdown, one expert predicted a boom two years later for this company.

“When international tourists return en masse, hopefully in 2023, it’s our belief that this lean, restructured business will be significantly more profitable than ever before,” said Forager Funds chief investment officer Steve Johnson.

Hungry for earnings upgrades

Another spending habit that endures even during tough economic conditions is fast food.

In fact, with consumers wanting to spend less eating out, the quick service restaurants become more appealing compared to fancy dining or even mid-price options.

This is why Wilson senior equity analyst Sam Koch considers Restaurant Brands New Zealand Ltd (ASX: RBD) a buy at the moment.

“If you’ve been to a KFC in NSW recently, you definitely would have been helping our holding.”

As well as the KFC brand, the franchisor operates Pizza Hut, Carl’s Jr and Taco Bell outlets across New Zealand, Australia and US Pacific territories.

“What we’re really attracted to is the fact that whilst input cost inflation has impacted their business…, we see that troughing and actually recovering from here,” said Koch.

“And you saw that in the last result.”

The stock fell off a cliff late last year, resulting in a current share price that’s less than half what it was six months ago.

This gives investors a buying opportunity, according to Koch.

“Earnings upgrades and deploying excess capital are the catalysts we’re looking for tos ee a re-rate back to the prior multiple that it traded on.”

The post Skydive then fried chicken: 2 ASX shares to party through an economic downturn appeared first on The Motley Fool Australia.

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More reading

• Why I think the Vanguard MSCI Index International Shares ETF (VGS) is a buy for any portfolio
• Analysts say these ASX dividend shares can boost your passive income
• Wilson reckons these 2 ASX 200 shares look ready for a massive 2023
• 5 things to watch on the ASX 200 on Monday
• Top brokers name 3 ASX shares to buy next week

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

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The Vanguard MSCI Index International Shares ETF (ASX: VGS) is an exchange-traded fund (ETF) that offers investors a number of positive reasons to own it.

There are hundreds of ETFs out there to choose from, with more being launched every year. But this particular ETF is interesting to me because I think it offers pretty much everything that investors could want.

Sure, it may not be the best-performing ETF, but here are a number of reasons why the Vanguard MSCI Index International Shares ETF could do well from here.

Low fees

One of the main advantages of an index-based ETF is that it’s very cheap to run, allowing that low cost to be passed onto individual investors. There is a lot of competition in the ETF space to offer low fees, so it’s a bonus for investors to pay as low costs as possible.

Fees reduce the net returns of an investment, so whatever the gross return is, we’d want to see as much of that convert to a net return as possible. High-fee investment options can produce stronger returns, but it makes it easier for a low-fee fund to outperform.

The Vanguard MSCI Index International Shares ETF has an annual management fee of 0.18%. That’s higher than some of its peers but lower than many other ETFs.  

Total returns

Of course, we shouldn’t use past performance as a reliable indicator of future performance. But, I think it gives a useful understanding of the investment.

Since the start of the ETF in November 2014, the Vanguard MSCI Index International Shares ETF has produced an average return per annum of around 11% up to 28 February 2023. That’s not a Warren Buffett level of returns, but it would have enabled solid compounding of wealth for an investor.

While some of that came in the form of dividends, more than 8% of that per-annum figure came in the form of capital growth.

That growth has come about by being invested in some of the world’s largest and strongest businesses like Apple, Microsoft, Alphabet, Amazon.com, and Nvidia.

Diversification

I believe this ETF offers investors ample diversification. It’s generally a good idea not to have all of one’s eggs in one basket. Certainly, this ETF has many baskets of different varieties.

In terms of the number of businesses the fund holds, it owns more than 1,470 names in its portfolio.

Those businesses come from a number of different countries including the US, Japan, the UK, France, Canada, Switzerland, Germany, the Netherlands, Sweden, Denmark, Spain, and so on. Many major developed countries are represented.

It’s also diversified across sectors. While its largest allocation (21.6%) is to the growth-focused IT sector, there are a number of other sectors with a weighting of at least 5%: financials (14.2%), healthcare (13.4%), consumer discretionary (10.9%), industrials (10.9%), consumer staples (7.6%), communication services (6.7%), and energy (5.2%).

Dividend income

I wouldn’t think of Vanguard MSCI Index International Shares ETF as a top idea for passive income. But, the yield could be considered good enough to satisfy investors looking for a combination of growth and dividends.

According to Vanguard, the ETF currently has a dividend yield of 2.1%. While that’s not a great yield these days with interest rates now a lot higher, it could be just enough to tick that income box.

The post Why I think the Vanguard MSCI Index International Shares ETF (VGS) is a buy for any portfolio appeared first on The Motley Fool Australia.

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More reading

• Invested $1,000 in the Vanguard MSCI Index International Shares ETF (VGS) in 2018? Here’s how much dividend income you’ve received
• Is right now a massive buying opportunity for the Vanguard MSCI Index International Shares ETF (VGS)?
• 3 ETFs for investors to buy and hold for a decade
• 2 excellent ETFs for ASX investors to buy now

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon.com, Apple, Microsoft, Nvidia, and Vanguard Msci Index International Shares ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet, Amazon.com, Apple, Nvidia, and Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking for dividend shares to buy to boost your passive income, then you may want to look at the two listed below.

Here’s why analysts rate these ASX dividend shares highly:

South32 Ltd (ASX: S32)

The first ASX dividend share that could give your passive income a big boost is mining giant South32.

Citi is positive on the company and believes it could provide investors with very big dividend yields in the near term. It recently said:

1H FY23 profit of US$560m was better than expected. Importantly, FY23 prodn and cost guidance was maintained. FY24 prodn guidance points to modestly higher output in FY24. […] S32 now trades at 0.94x NPV vs RIO at 1.0x and FMG 1.3x. We raise our TP to $5.05 and stay Buy rated. We believe S32 has not yet run to full valuation levels trading on FY24E EV/EBITDA of 4x vs peers at >5x

As for dividends, the broker is forecasting fully franked dividends of 28 cents per share in FY 2023 and 32 cents per share in FY 2024. Based on the current South32 share price of $4.12, this will mean yields of 6.8% and 7.8%, respectively.

Citi has a buy rating and $5.05 price target on South32’s shares.

Woolworths Limited (ASX: WOW)

Another ASX dividend share that has been named as a buy is Woolworths.

It is the retail giant behind Woolworths supermarkets and Big W, among others.

Goldman Sachs is positive on the retailer due to its strong customer loyalty and omni-channel advantage. It explained:

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

In respect to dividends, Goldman is forecasting fully franked dividends of $1.06 per share in FY 2023 and $1.14 per share in FY 2024. Based on the current Woolworths share price of $37.46, this will mean yields of 2.8% and 3%, respectively.

Goldman currently has a conviction buy rating and $41.00 price target on the company’s shares.

The post Analysts say these ASX dividend shares can boost your passive income appeared first on The Motley Fool Australia.

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More reading

• Want to boost your portfolio with ASX blue chips? Analysts say buy these shares
• Did you buy $10,000 of Woolworths shares in 2018? If so, here’s how much passive income you’ve banked
• Give yourself a passive income boost with these growing ASX 200 dividend shares: analysts
• ‘Increased confidence’: Alphinity reveals 2 ASX 200 shares it just bought
• ‘Increasing demand’: Expert picks 2 ASX 200 mining shares to buy (not BHP)

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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Everyone loves a great turnaround story.

But it’s natural to love it just that little bit more if you saw it coming and bought ASX shares in the company before everyone else woke up to it.

Wilson Asset Management analysts have a couple of examples that they rate as a buy right now:

New boss set to turn this ship around

Boral Limited (ASX: BLD) has been around for almost 80 years, so the brand is pretty well known in Australia for its construction materials.

But Wilson senior equity analyst Sam Koch pointed out it’s struggled in recent times.

“It’s been plagued with a lot of operational inefficiencies over the last couple of years,” he said in a Wilson video.

Indeed the share price performance reflects this crisis, having halved since July 2021.

Koch would buy the stock now, as Boral is ready to put that period behind it.

“Their new CEO Vik Bansal, we think, is a great fit. He has the operational capability to deliver a turnaround plan.”

He added that the revival strategy should involve “decentralising accountability, decision-making, focusing on revitalising the network, and realising the inherent value within the property [assets]”.

“If you back out over a $1 billion in property from the valuation, it’s actually trading in line with the sector average.

“We believe there’s a materially better outlook for this business versus its peers.”

The investor day in May will provide more information about Bansal’s turnaround plans, which Koch believes could prove to be a stock price catalyst.

Former cash-burning tech company could be profitable very soon

Family security software Life360 Inc (ASX: 360) saw its share price shockingly freefall 81% in just seven months to June last year.

It was a prototypical victim of the market’s move away from cash-burning growth businesses as interest rates rose.

The Californian company acknowledged that message and embarked on a cost-cutting program, which the market has rewarded with a 97% rocket in its share price since 17 June.

Wilson senior equity analyst Shaun Weick rates it as a buy, noting the communications Life360 has sent to investors.

“They’ve issued very strong calendar year 2023 guidance,” he said.

“They’ve brought forward the point of profitability to the second quarter of this year, and that’s often a key catalyst for technology stocks driving a re-rating — particularly in this environment.”

Goldman Sachs analysts agree with Weick on Life360, this week setting a share price target of $7.85. This implies a more than 58% upside to the current levels.

The post Wilson reckons these 2 ASX 200 shares look ready for a massive 2023 appeared first on The Motley Fool Australia.

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More reading

• Buy these ASX 200 shares for 50%+ returns: Goldman Sachs
• Here are the top 10 ASX 200 shares today
• Goldman Sachs names 5 of the best ASX tech shares to buy now
• Leading brokers name 3 ASX shares to buy today
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor Tony Yoo has positions in Life360. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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On Friday, the S&P/ASX 200 Index (ASX: XJO) finished a volatile week on a subdued note. The benchmark index edged 0.2% lower to 6,955.2 points.

Will the market be able to bounce back from this on Monday? Here are five things to watch:

ASX 200 expected to edge lower

The Australian share market looks set to start the week slightly in the red despite a solid finish to the week on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day a modest 3 points lower this morning. On Wall Street, the Dow Jones was up 0.4%, the S&P 500 rose 0.55%, and the NASDAQ climbed 0.3%.

Oil prices fall

Energy shares such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could have a subdued start to the week after oil prices fell on Friday. According to Bloomberg, the WTI crude oil price was down 1% to US$69.26 a barrel and the Brent crude oil price fell 1.2% to US$74.99 a barrel. Concerns over the health of the banking sector were to blame.

Aristocrat Leisure shares are a buy

Aristocrat Leisure Limited (ASX: ALL) shares could be heading higher from here according to analysts at Morgans. A note reveals that its analysts have retained their add rating and $43.00 price target on the gaming technology company’s shares. It commented: “We’re optimistic about ALL’s long-term growth potential, given its superior capitalisation and strong ability to invest in the development of its land-based and digital gaming businesses.”

Gold price pulls back

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a soft start to the week after the gold price pulled back on Friday night. According to CNBC, the spot gold price fell 0.75% to $1,981.0 per ounce. The gold price continues to hover around the US$2,000 an ounce mark amid the banking crisis.

Dividends being paid

A couple of ASX 200 shares will be paying their latest dividends on Monday. These are appliance manufacturer Breville Group Ltd (ASX: BRG) and gold miner Gold Road Resources Ltd (ASX: GOR). The former is rewarding its shareholders with a fully franked 15 cents per share interim dividend.

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

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More reading

• For $1,000 in monthly passive income, buy 18,462 shares of this ASX 200 stock
• Here are the top 10 ASX 200 shares today
• Is the AFIC share price a standout investment right now?
• Brokers name 3 ASX shares to buy now
• Passive income hack: 3 simple steps to help you get rich and retire early

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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Last week saw a number of broker notes hitting the wires once again. Three buy ratings that investors might want to be aware of are summarised below.

Here’s why brokers think investors ought to buy them next week:

CSL Limited (ASX: CSL)

According to a note out of Macquarie, its analysts have retained their outperform rating and $340.00 price target on this biotherapeutics company’s shares. Macquarie is feeling positive about CSL’s outlook thanks to improving plasma collection yields. It expects this to boost its margins in the coming years. In addition, it highlights that CSL’s research and development pipeline should also be supportive. The CSL share price ended the week at $288.49.

New Hope Corporation Limited (ASX: NHC)

Another note out of Macquarie reveals that its analysts have retained their outperform rating and $6.00 price target on this coal miner’s shares. While New Hope’s half-year results and dividend fell short of expectations, the broker remains positive. Particularly given the strength of the Bengalla operation, its organic growth opportunities, and potential M&A activities. The New Hope share price was fetching $5.49 at the end of the week.

Nextdc Ltd (ASX: NXT)

Analysts at Citi have retained their buy rating on this data centre operator’s shares with an improved price target of $12.70. This follows a post-earnings season review of the tech sector by the broker. The good news is that Citi remains positive following the review. The broker revealed that it likes NextDC due to its strong revenue growth outlook, which is being supported by a combination of strong demand and inflation-linked contracts. The NextDC share price ended the week at $10.06.

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

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More reading

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• Here are the top 10 ASX 200 shares today

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

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The Whitehaven Coal Ltd (ASX: WHC) share price has crumpled by almost 27% since ticking over into 2023. Unfortunately, the disappointing showing puts the coal producer among some of the worst-performing ASX 200 shares on a year-to-date basis.

Shares in the Australian coal miner are still up 45% from where they were a year ago. However, shareholders have been taking their money and running amid a declining coal price.

Remarkably, the skyrocketing earnings and the falling share price have resulted in a price-to-earnings (P/E) ratio of 1.9 times. For context, the industry average for energy shares hovers around 6.6 times earnings.

So, could it be time to back the dump truck up and shovel this ASX 200 share into the portfolio?

Coal is the maker or the breaker

Mining and selling a commodity is a tough business. When it’s good, it’s great, and when it rains, it pours — that’s the cyclical nature of the industry. This is because the going price of the commodity — which is driven by supply and demand — largely determines the company’s profits.

It’s a dynamic that has worked in the favour of Whitehaven shareholders over the past year. The energy-dense commodity’s price leapt from around US$150 per tonne to US$450 per tonne while costs held steady. As a result, the income margin ballooned from basically nothing to more than 45%.

But now comes the rain…

Coal prices have retreated abruptly this year, dropping back to within the pre-2022 range. Meanwhile, the ASX 200 share revealed increasing costs in its latest half-year results. Those two factors combined likely mean thinner margins are inbound.

To worsen matters, by the company’s own admission, thermal coal demand is expected to fall from 2025 onwards. Though, Whitehaven Coal’s management is banking on a shortfall in supply to heave prices higher.

It seems the market is now questioning whether prices will bounce back to drive sustained shareholder returns.

Would I buy this ASX 200 share?

I’m unconvinced that renewable energy will replace fossil fuels in this decade. In 2021, clean energy sources accounted for 32.5% of Australia’s total electricity generation, increasing from 27.7% the prior year.

However, at the current rate, we could potentially see 80% of our total electricity demand sourced from renewables in 10 years. I’d expect this will weigh on Whitehaven’s sales for thermal coal, but metallurgical coal — used for steelmaking — might be sustained.

The other issue the company could face is rising costs. As of 16 February 2023, Whitehaven is guiding for the cost of coal to be between A$95 per tonne to A$102 per tonne. If coal prices were to continue to fall, margins would obviously come under pressure.

As shown above, analysts’ estimates (depicted as dots) suggest earnings declines could be on the horizon. By FY2025, net profits after tax (NPAT) could be $1,429 million, compared to $3,393 million for the 12 months ending 31 December 2022.

For the reasons above, I personally wouldn’t be a buyer of this ASX 200 share.

The post One of the most beaten-up ASX 200 shares of 2023 so far. Is it time to buy? appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• 2 ASX 200 mining shares to buy with huge upside potential: analysts
• Expert tips 10% dividend yield and booming share price for this ASX 200 stock
• Why Atlantic Lithium, Life360, Neuren, and Whitehaven Coal shares are charging higher
• Analysts warn of future earnings downgrades for ASX 200 coal shares

Motley Fool contributor Mitchell Lawler 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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When you’re trying to build a strong portfolio, having a few blue chips in there can be a good thing.

That’s because blue chips are typically large companies that have been operating for many years. They tend to have stable cash flows, strong business models, and experienced management teams.

Combined, this can make them lower risk options and a good foundation to build a portfolio around.

But which blue chip ASX 200 shares could be in the buy zone right now? Here are three that are rated as buys:

Cochlear Limited (ASX: COH)

The first ASX 200 blue chip share that could be a buy is Cochlear. It is one of the world’s leading hearing solutions companies. It has a portfolio of world class products, which have been developed through its significant annual investment in research and development. Thanks to this and its very strong position in a market benefiting from ageing populations, Cochlear has been tipped to continue its solid growth long into the future.

Goldman Sachs is bullish on Cochlear and has a buy rating and $265.00 price target on its shares.

CSL Limited (ASX: CSL)

Another ASX 200 blue chip share that has been rated as a buy is CSL. It is one of the world’s leading biotechnology companies, comprising the CSL Behring, CSL Vifor, and Seqirus businesses. It has been tipped for solid growth over the long term thanks to its world class product portfolio, strong demand for immunoglobulins, and its lucrative research and development pipeline.

Citi is a fan of the company and has a buy rating and $350.00 price target on its shares.

South32 Ltd (ASX: S32)

A final ASX 200 blue chip share to consider is South32. It is a mining company producing a diverse range of metals. This includes alumina, aluminium, bauxite, copper, energy and metallurgical coal, manganese, nickel, silver, and zinc. Thanks largely to its exposure to commodities that are vital to the clean energy transition, it has been tipped to generate significant free cash flow in the coming years.

Morgans is bullish on the miner and has an add rating and $5.60 price target on its shares.

The post Want to boost your portfolio with ASX blue chips? Analysts say buy these shares appeared first on The Motley Fool Australia.

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More reading

• Top brokers name 3 ASX shares to buy today
• Does the CSL share price really offer 22% upside right now?
• ‘Increasing demand’: Expert picks 2 ASX 200 mining shares to buy (not BHP)
• How I’d aim to retire rich enough to live on passive income from my ASX dividend shares
• Analysts say these ultra high quality blue chip ASX 200 shares are buys

Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and Cochlear. The Motley Fool Australia has recommended Cochlear. 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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