Category: Stock Market

The S&P/ASX 200 Index (ASX: XJO) is off to a smashing start today.

Again.

In early trade, the benchmark index is up 0.58%.

That puts the ASX 200 up a remarkable 7.2% so far in 2023.

The latest push higher comes with a hearty thanks to the United States Federal Reserve.

ASX 200 charges higher on Fed rate call

Yesterday, overnight Aussie time, the Fed opted to raise the official US interest rate by 0.25%. That brings the Fed target rate to 4.75%.

Like the ASX 200 today, US markets celebrated the announcement. The S&P 500 rallied on the news, closing up 1.1% overnight. Tech stocks fared even better, with the NASDAQ Composite Index closing up 2%.

While markets are generally averse to rate hikes, the 0.25% increase comes after a 0.5% hike in December and four earlier 0.75% increases.

The more subdued hike this week comes as Fed chair Jerome Powell indicated inflation pressures are showing signs of easing. Though he warned a few more rate increases were on the horizon.

“We think we’ve covered a lot of ground. Even so, we have more work to do,” Powell said following the announcement.

“Restoring price stability will likely require maintaining a restrictive stance for some time,” he added.

The ASX 200 is following the bullish lead of US markets despite the prospect of more rate increases and higher rates “for some time” yet.

According to a statement released by the Fed, “The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

What the experts are saying

Commenting on the Fed’s decision that’s helping push the ASX 200 higher today, co-founder of EQM Indexes Jane Edmondson said (courtesy of Bloomberg):

Markets seemed to be shrugging off the Fed’s tough talk and celebrating that the rate hikes are smaller, and the end is in sight given that inflationary pressures seem to be abating. Still room for a soft landing that avoids a recession. I think the fact that the job market and corporate earnings have survived all these rate hikes is a testimony to underlying strength of the economy.

Chief global strategist for LPL Financial Quincy Krosby added:

Powell’s comments, so far, have been more reassuring to the market in that he’s acknowledged that they can possibly reach price stability without harming the labour market to get there. Moreover, he’s laid out a clear roadmap for what the Fed is increasingly focused on, that is, disinflation to reach services.

Head of US economic research at Renaissance Macro Research LLC Neil Dutta cautioned that the lower increase today could lead to a larger correction down the road.

“Powell has said that financial conditions have tightened considerably despite the fact that they have eased considerably,” he said. “The odds are increasing that the Fed is declaring victory too soon. The Fed’s flirtation with the soft landing today increases the risk of a harder landing later.”

As to how investors in US stocks should respond, partner at Advisors Capital Management JoAnne Feeney said (quoted by Bloomberg), “It remains time to be highly selective because some areas of the economy will contract further, while others continue to grow.”

I reckon the same advice would serve ASX 200 investors well as we move ahead into 2023.

The post ASX 200 leaps ahead on subdued Federal Reserve interest rate hike appeared first on The Motley Fool Australia.

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More reading

• Can these next-gen dividend heroes provide a passive income for life?
• Dividend forecasts: 3 ASX 200 shares with 6%+ yields
• How I’d invest $20k in ASX 200 shares in 2023 to aim for a million
• Why is the DroneShield share price halted on Thursday?
• Why I’m preparing now for a 2023 stock market correction

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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Yesterday I wrote about building a portfolio with the ultimate aim of growing its value to one million dollars. You can read about that here.

Part of this involves investing $20,000 into a handful of the very best ASX 200 shares each year.

If you do this and can achieve a return greater than the long-term market average, you could theoretically grow your portfolio to the $1 million mark in 15 years.

One thing I didn’t include in that article was the ASX 200 shares that I would buy with this first $20,000 investment. So, let’s do that now.

Here are two ASX 200 shares I would buy now:

CSL Limited (ASX: CSL)

I continue to believe that CSL is one of the highest-quality companies on the Australian share market. So, with the biotherapeutics giant’s shares still trading at a decent discount to their pre-COVID high, I think it could be an opportune time to invest.

Particularly given CSL’s increasingly positive outlook. The significant headwinds the company was facing with plasma collections during the pandemic have now eased, which is expected to be a big boost to its margins. Especially with the rollout of its new plasma collection technology, which has been designed to deliver greater plasma yields.

In addition, strong demand for immunoglobulins, the company’s ongoing US$1 billion+ annual investment in research and development, and its blockbuster acquisition of Vifor Pharma appear supportive of solid growth over the coming years.

Xero Limited (ASX: XRO)

Another ASX 200 share that I would invest $20,000 into is Xero. It is a leading cloud-based accounting platform provider with 3.5 million subscribers globally.

While this is undoubtedly a large number of subscribers, it is still barely even scratching at the surface of its huge market opportunity. For example, Goldman Sachs estimates that Xero has a total addressable market of 100 million small to medium sized businesses globally.

And with the shift to the cloud still relatively early on and its platform highly regarded in the industry, Xero looks well-placed to capture a growing slice of its TAM over the next decade and beyond. I believe that this, combined with the growing revenue it earns from its app store, the stickiness of its platform, and periodic price increases, positions Xero to grow its earnings at a rapid rate over the remainder of the 2020s.

The post How I’d invest $20k in ASX 200 shares in 2023 to aim for a million appeared first on The Motley Fool Australia.

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More reading

• The Nasdaq just had its best January in over 20 years. Are ASX tech shares back?
• ‘Incredible value’: 3 ASX 200 shares expert would buy now for long-term growth
• Should I buy CSL shares before this month’s earnings update?
• The ASX 200 is still full of cheap shares despite this year’s surge and I’m ready to buy more
• Top ASX shares to buy in February 2023

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

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The DroneShield Ltd (ASX: DRO) share price isn’t going anywhere on Thursday as the company prepares to announce a capital raise.

The stock was put in the freezer at the request of the company this morning, where it could remain until Monday.

The DroneShield share price last traded at 37 cents.

Let’s take a closer look at the artificial intelligence-based drone detection software provider’s trading halt.

DroneShield share price on ice amid capital raise

 It might be a long day for fans of ASX defence stock DroneShield, as the company’s share price remains frozen ahead of potentially big news.

It’s expecting to make an announcement regarding a proposed capital raise. That’s all we know for sure.

However, reports claiming DroneShield is aiming to raise between $9 million and $11 million to fund its inventory build and grow its engineering and sales teams have emerged.  

The company is offering new shares for 30 cents apiece under a placement and share purchase plan, the Australian Financial Review reports.

The stock will remain on ice until the announcement’s release or Monday’s open, whichever is sooner.

Interestingly, the company described its “strong bank balance” earlier this week. It held $10.3 million in cash at the end of the December quarter. That figure had grown to $14.1 million by Tuesday.

It also brought in a record $15.6 million of cash receipts in 2022 and boasts a record order backlog of $19 million and a sales pipeline of more than $200 million.

And that might just be the start. DroneShield CEO Oleg Vornik said the company anticipates “another record year”, continuing:

2023 is expected to be a transformative year for DroneShield, following our maiden $11 million sale order in December followed by another $11 million order from a different government, as the counterdrone industry continues to rapidly grow, with DroneShield as a pioneer and global leader in this sector.

The DroneShield share price has more than doubled in the last 12 months, lifting 118%. Most of that gain has come over the last seven weeks, wherein the stock has surged 95%.

The post Why is the DroneShield share price halted on Thursday? appeared first on The Motley Fool Australia.

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More reading

• Why have 2 DroneShield directors sold off 10 million of their shares in the past fortnight?
• Why has the DroneShield share price rocketed 69% in a month?

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 DroneShield. The Motley Fool Australia has recommended DroneShield. 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 Australian stock market has kicked off 2023 on the right foot. The S&P/ASX 200 Index (ASX: XJO) has already recuperated all of last year’s losses, soaring to hit its highest point in nine months yesterday.

But the market typically ebbs and flows. While it has historically always moved higher, it’s done so over time, with its ups outweighing its downs.

Experts were taken aback when inflation unexpectedly increased last quarter, leading many to predict the Reserve Bank of Australia will hike rates again next week. Meanwhile, major economies around the world are expected to fall into recession this year.

All that (and potentially more) is likely to impact the stock market in 2023. Indeed, experts at ANZ Group Holdings Ltd (ASX: ANZ) recently tipped the ASX to “test a new bottom” this year.

That’s why I’m preparing for a stock market correction now so I can build wealth during any potential downturn. Here’s how.

Share price versus value

Correctly valuing a company is a tricky thing, and the market doesn’t always get it right.

An ASX company’s market capitalisation is simply its share price multiplied by the number of outstanding shares it has. Meanwhile, its true value considers its underlying business and assets.

The two measures don’t always move in line, however. For example, if many investors all like the look of a single stock and decide to buy in, demand will generally see the price increase despite no change to a company’s business.

Thus, when sentiment abates amid a stock market correction, it can lessen demand for quality companies, thereby lowering prices.

Getting ready for an ASX stock market correction

My method for preparing for a stock market correction in 2023 is simple. I’m building a list of ASX shares I wish to own now, if only the price was right.

That way, if their price suddenly dives amid a market downturn, I’ll be ready to pounce on businesses I’ve previously deemed to be worth owning for a price I believe to be good value.

That’s a philosophy famously employed by investing great Warren Buffett. And it’s a strategy I’m preparing to engage in 2023.

Embracing downturns

Of course, there’s no guarantee the stock market will see a correction in 2023. However, I believe one will occur at some point in the future. And when it does, things will likely move fast.

Corrections can last anywhere from days, to weeks, to months, and I might not have time to decipher which shares I believe to be buys amid the chaos.

A little proactivity now could see me ready to snap up quality stocks in the bargain bin amid a downturn. And by doing so, I could be positioned to make the most of what I believe would be an inevitable recovery.

The post Why I’m preparing now for a 2023 stock market correction appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Bears beware! ASX 200 recoups all of 2022’s losses plus more in January
• Investing in ASX 200 gold shares? Here’s what to expect from the yellow metal in 2023
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• ASX shares investors rejoice! RBA says inflation has now peaked

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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While reporting season has technically begun with the release of the Credit Corp Group Limited (ASX: CCP) half year result on Wednesday, it won’t really ramp up until Monday.

So, that gives us a bit of time to look at some of the ASX shares that Goldman Sachs is tipping to outperform or underperform expectations this month.

Potential to outperform

Goldman believes that the following ASX shares have the potential to outperform the market’s expectations in February. Here’s what it is saying:

Breville Group Ltd (ASX: BRG)

The broker has warned short sellers that this appliance manufacturer could surprise to the upside with its full year guidance this month when it releases its half year results. It said:

On Discretionary our top pick remains Breville – De’Longhi 4Q came in better than expected and the stock is likely to short squeeze on stronger than expected full year EBIT guidance at 1H23 results.

Temple & Webster Group Ltd (ASX: TPW)

Its analysts are also very bullish on this online furniture and homewares retailer. In fact, the broker not only expects a stronger than consensus half year result, it is expecting Temple & Webster to outperform over the medium term. The broker commented:

Our FY23/FY24/FY25 revenue forecasts are +2.6%/+5.2%/+3.9% ahead of the market (Visible Alpha Consensus Data). We are more constructive around the medium term revenue outlook despite category level headwinds.

Woolworths Group Ltd (ASX: WOW)

Goldman is expecting this retail giant to deliver a strong result this month. In light of this, it appears to believe the market is being too negative and that it deserves to trade on higher multiples than its arch rival. It said:

We expect an outperformance trend for WOW vs. COL in comp sales see margins beginning to come through from 2Q23 on stronger omni-channel Xmas trading as well as more targeted promotions. On GSe, WOW is trading at a similar FY23E P/E vs. COL.

At risk of underperforming

Unfortunately, Goldman isn’t very positive about the prospects of these ASX shares this month. Here’s why it is tipping them to underperform expectations:

Altium Limited (ASX: ALU)

This electronic design software platform provider has been tipped to fall short of the market’s expectations during the first half. Goldman is expecting Altium to deliver first half EBITDA of US$43 million, which is 3.6% short of consensus estimates. Its analysts are then expecting the same for its full year earnings.

Coles Group Ltd (ASX: COL)

Another ASX share that could underperform expectations according to Goldman Sachs is Coles. It believes that margin compression is weighing on the supermarket giant’s performance. As a result, although it expects Coles’ sales to be a fraction ahead of the market’s estimates in FY 2023, its net profit assumption is 5.2% lower than the consensus. For the first half, Goldman said:

In 1H23, we expect group sales growth of 3.7% and EBIT growth of 0.4% as we expect ~10bps margin compression to 4.6% EBIT margin.

Wesfarmers Ltd (ASX: WES)

Finally, Goldman isn’t feeling very positive on this conglomerate’s prospects this month due largely to its Bunnings business. It warned:

We remain Sell-rated on WES as weaker home improvement trend and negative comps in 2H23 with Bunnings, at highest risk of volume deleverage impacting EBIT margins.

The post Goldman reveals the ASX shares that could surprise to the upside (and downside) this reporting season appeared first on The Motley Fool Australia.

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More reading

• The Nasdaq just had its best January in over 20 years. Are ASX tech shares back?
• Goldman Sachs names 2 exciting small cap ASX tech shares to buy right now
• ASX shares investors rejoice! RBA says inflation has now peaked
• Why Argosy Minerals, Credit Corp, Flight Centre, and Mesoblast shares are racing higher
• Guess which ASX 200 share dropped then popped on a 30% profit dive

Motley Fool contributor James Mickleboro has positions in Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium and Temple & Webster Group. The Motley Fool Australia has positions in and has recommended Coles Group and Wesfarmers. The Motley Fool Australia has recommended Temple & Webster Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The NASDAQ-100 Index (NASDAQ: NDX) and ASX tech shares had a really good performance in January 2023, after what was a really difficult 2022.

Over the last month, the NASDAQ-100 went up by 10.6%.

In January 2023, we saw the Xero Limited (ASX: XRO) share price climb by more than 9%.

The REA Group Limited (ASX: REA) share price went up by over 13%.

The Seek Ltd (ASX: SEK) share price rose by more than 15%.

The Carsales.com Ltd (ASX: CAR) share price climbed over 9%.

The WiseTech Global Ltd (ASX: WTC) share price rose 19%.

The Altium Limited (ASX: ALU) share price went up 10%.

Looking at the BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC), an exchange-traded fund (ETF) that’s invested in 46 ASX tech shares, saw a rise of over 9% in the month.

Why are ASX tech shares doing so well?

Technology businesses were one of the hardest hit in 2022 as interest rates zoomed higher.

But, there are signs that inflation may have peaked and could now be reducing.

For example, in the US in the three months to December 2021, the Employment Cost Index rose by 15%, which was less than the 1.1% expected number and a slowdown from the 1.2% in the prior three months, according to reporting by the Australian Financial Review.

The AFR quoted National Australia Bank Ltd (ASX: NAB) head of fixed income research, Skye Masters, who said:

The clear point from this data is it’s showing that wages growth in the US is easing.

So, it does alleviate that concern that some Fed members might have had that maybe we’re entering into a wage price spiral, so it’s supportive of the view that the Fed can dial back its pace of tightening and possibly pause.

The AFR also reported on comments from Matt Wacher, chief investment officer at Morningstar for the Asia Pacific, who said that while the Reserve Bank of Australia (RBA) could increase the cash rate one or two more times, there could then be a cut later this year. Wacher commented:

I am sure the RBA would like to keep rates higher for longer, but this can put significant pressure on the economy here, more so than other regions given personal debt levels.

On the ASX tech share space, he said that the shares are “not cheap, even though they had fallen sharply, and are priced to perfection”, according to the newspaper.

My take

I don’t think the US Federal Reserve is going to make things easy for the share market.

Jerome Powell has promised to fight inflation “until the job is done”. I think that means that interest rates are going to stay high for longer than some investors are expecting. This is what he said a few months ago:

But, with many valuations still a long way below their 2021 levels, I think a number of ASX tech shares, like Xero, seem very promising for the long term even if they have risen a bit higher than a month ago.

Keep this in mind: it may not really matter what happens in February 2023 if the investment horizon is five years or more ahead with an ASX (tech) share.

The post The Nasdaq just had its best January in over 20 years. Are ASX tech shares back? appeared first on The Motley Fool Australia.

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More reading

• Goldman reveals the ASX shares that could surprise to the upside (and downside) this reporting season
• ‘Incredible value’: 3 ASX 200 shares expert would buy now for long-term growth
• Should you buy Seek, Magellan, or Virgin shares?
• The ASX 200 is still full of cheap shares despite this year’s surge and I’m ready to buy more
• Could this ASX 200 share be an investment for explosive growth?

Motley Fool contributor Tristan Harrison has positions in Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended WiseTech Global and Xero. The Motley Fool Australia has recommended Carsales.com, REA Group, and Seek. 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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Regardless of whether they think ASX shares will head up or down in 2023, one thing experts agree on is that volatility will continue this year.

The steep interest rate rises of the past nine months are finally starting to have an impact on real world consumers and businesses. And that means an economic slowdown is imminent, with some countries even plunging into recession.

However, there is one way investors can beat volatility.

That’s by buying quality ASX shares while adopting a long-term investment horizon.

The idea is that if the company can grow over a long period of time, the short-term ups and downs in the share price will not matter. The chances are that the stock will be worth more in five years than it is now.

Taking this mindset, Tribeca portfolio manager Jun Bei Liu this week named three S&P/ASX 200 Index (ASX: XJO) shares that she would buy now for the long run, despite short-term pressures bearing down on them:

Buy this company for the next 5 years’ earnings

Even for the technology sector, the Xero Limited (ASX: XRO) share price has taken a beating.

Over the past 15 months, the stock has halved in value.

What’s more, the company is now transitioning to a new chief executive and there has been some criticism that it is putting capital back towards expansion rather than fattening its bottom line.

“This company’s gone through a pretty tough time,” Liu told Switzer TV Investing.

“Xero has been sold off on the back of potential… recession worries for the UK.”

However, in the long term, Liu feels like Xero shares show an “incredible amount of value”.

“It may be volatile because it’s an expensive company, but our view is that you do not buy this company for the next six months’ earnings,” she said.

“You really buy it for the next five years. This company’s well on track to achieve the growth targets it’s put in place over the long term.”

Watch this stock take off later this year

Interest rate rises naturally mean a depressed real estate sector. So Liu reckons urging investors to buy REA Group Limited (ASX: REA) might be seen as “contrarian”.

“This is a high quality company you need to put your money in,” she said.

“Our view is that this is a business that delivers long-term growth.”

REA Group’s earnings are not driven just by the absolute volume of listings, according to Liu, but the “depth of penetration”.

“It’s getting more dollar for every listing it’s generating on its website,” she said.

“And it has created that phenomenal momentum across its business.”

The real estate classifieds provider is also a market leader, and has a “flexible” cost base that it has historically shown to dial down in tougher economic times.

“In the near term, there maybe a bit of weakness across listings,” said Liu.

“In six months’ time they will be cycling some of those weak numbers and we should expect that to improve.”

The REA share price has lost 16.8% over the past 12 months, but has picked up 12.2% so far this year.

Client contracts coming and maybe a takeover?

For a technology stock, NextDC Ltd (ASX: NXT) hasn’t been a complete disaster in recent times — but it has still lost 23% since the start of last year.

Liu doesn’t see the company as a typical tech firm.

“It’s an infrastructure stock. It needs to keep spending to grow its footprint.”

As well as the general tech malaise, the past year has seen investors disappointed with the lack of big-name client signings. 

“Our view is that, the next 12 months, the company will start announcing some smaller contracts. We heard there’s a lot more activity in that commercial space.”

Its dominant place in the Australian market might even make it a takeover target.

“M&A [mergers and acquisitions] globally is picking up in that whole space,” said Liu.

“We do see potential for a lot of suitors coming to Australia.”

The post ‘Incredible value’: 3 ASX 200 shares expert would buy now for long-term growth appeared first on The Motley Fool Australia.

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More reading

• The ASX 200 is still full of cheap shares despite this year’s surge and I’m ready to buy more
• Top ASX shares to buy in February 2023
• Should I buy ASX 200 tech shares in early 2023 or wait?
• How I’d invest $20,000 in ASX shares in 2023
• ‘Incredibly cheap’: 2 ‘strong’ ASX shares expert would pounce on right now

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

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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part one of this edition, we’re joined by Don Hamson, managing director at Plato Investment Management.

The Motley Fool: What sets the Plato Australian Shares Income Fund apart from the competition?

Don Hamson: The Plato Australian Shares Income Fund, which can also be accessed on the ASX via Plato Income Maximiser Ltd (ASX: PL8), is one of the only managed funds that has a strategy designed to meet the needs and taxation circumstances of retirees and other tax-exempt investors.

For example, we fully value franking credits when making investment decisions, because tax-exempt investors, like pension phase superannuation, receive the full value of franking credits.

MF: Now, you’re fairly active in the market, correct?

DH: Yes, I would also say we have quite a unique strategy for maximising income.

Most income managers take a set-and-forget style approach, whereas we’re very nimble and not afraid to trade our portfolio to capture strong dividends from a stock or sector going through a good period. This, in turn, also allows us to capture the share price run-up prior to the ex-dividend date that often occurs.

MF: Which ASX dividend shares performed best for you in 2022, delivering both share price gains and solid yields?

DH: It’s not surprising that many of our best performers in 2022 were in the commodity complex.

We generated both strong returns and dividends from BHP Group Ltd (ASX: BHP), Woodside Energy Group Ltd (ASX: WDS), and Whitehaven Coal Ltd (ASX: WHC) who each benefited from strong commodity prices in 2022.

MF: Will investors face any big changes when hunting for top ASX dividend shares in 2023 compared to 2022? 

DH: Markets are always changing; today’s hero can very well be tomorrow’s villain. This is why Plato has a nimble income generation strategy. Investors should never be fooled into thinking the good times for any dividend-paying stock will last forever. You must always be thinking about future dividend payouts and the ongoing strength of companies and sectors.

Future dividends, not the last payout, help keep the lights on, so active portfolio management is critical when it comes to income investing.

Clearly, the biggest change for investors to adapt to right now is a new investing landscape. There are investors and even fund managers who’ve only ever experienced a low or declining interest rate environment, but the economic cycle has returned, and we have rates coming off their lowest levels in history. So, this has implications on all sorts of things – liquidity and stock market preferences to name a few.

MF: What’s been your experience with markets and dividends under times of rising interest rates?

DH: Interestingly, I think this period could be quite similar to 1994 when I was working at Westpac. Then, interest rates went up for the first time in quite a while, inflation spiked, there was negative returns on bonds, negative returns on equity – but dividends kept rising.

MF: Which ASX dividend shares you’re most bullish on for 2023? 

DH: We think dividends from ASX shares will once again be a great way to generate income this year, especially for retirees. But diversification and active and tax-effective portfolio management is critical.

If I had to name just two companies we’re quite positive on for dividends across the year, I would say Macquarie Group Ltd (ASX: MQG) and Woodside Energy are among some of the top prospects.

MF: Why Woodside?

DH: From Woodside, we saw standout results through 2022 and think the set-up for energy over the coming 12 months will see prices of raw materials remain somewhat elevated.

The company also completed a merger with BHP’s petroleum business, which should generate some $400 million worth of synergies by early 2024.

MF: And Macquarie?

DH: When it comes to Macquarie, you have a very well-managed diversified financial services group. One of the most attractive aspects of the business is its diverse revenues, which is important for sustainable dividends moving forward.

Macquarie should benefit from increasing margins in its lending business. And, as we’ve seen in recent results, it is a beneficiary of volatility in commodity markets through its commodities trading desk.

**

Tune in tomorrow for part two of our interview, when Don Hamson looks at some promising ASX dividend plays for 2023 outside of the resources sector.

(You can find out more about the Plato Australian Shares Income Fund here.)

The post Two ‘top prospect’ ASX 200 dividend shares for 2023 revealed: fund manager appeared first on The Motley Fool Australia.

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

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The BHP Group Ltd (ASX: BHP) share price has been making strong gains over the last few months. It’s up more than 30% since the end of October.

Considering the huge size of BHP, this is a big gain in a short amount of time. BHP now has a market capitalisation of $249 billion according to the ASX.

The key cause of the improvement appears to be the strengthening outlook for commodities with China exiting COVID-19 lockdowns and returning to normal economic activity in the country.

The Asian superpower buys enormous amounts of resources like iron and copper, so a normalisation of activity in the country is helpful for BHP.

Is the BHP share price an opportunity?

The key question is whether iron ore prices will drop back down, or whether they will stabilise at this level (or even rise).

Commodity prices are notoriously difficult to predict. I’d suggest that’s why the BHP share price movements have been so significant over the last year.

The investment group Liberum Capital has indicated that the iron ore price rally may not be as strong as it appears, according to reporting by the Australian Financial Review:

The sharp market bounce in January would suggest that a strong fundamental lift is coming. [The] problem is, China’s steel mills haven’t seen it yet.

Domestic demand has slightly improved, typical for this time of year, but inventories are rising at their fastest rate since February 2020. Possible timing issue for the restocking indicator, given the earlier Chinese New Year, but the signals move from hold to sell anyway. So, we tell investors to be cautious chasing this rally.

Iron ore port stockpiles at 133 million tonnes are very close to the five-year historical average, and we do not expect any significant build or draw this year. There was some market speculation that the port draw following Chinese New Year was a bullish indicator, but we do not read it as such, in that mills maintain stockpiles to meet future needs and, if anything, the mild draw is a negative.

Rating on the business

Liberum Capital is currently bearish on BHP and Rio Tinto Ltd (ASX: RIO).

Looking at the analyst calls that Commsec covers, there are five sell ratings, 13 holds and nine buys. The experts are split at the moment.

I think the 2023 calendar year could be a good period of earnings for BHP, with an improving situation in China. However, I believe it’s better to buy commodity businesses when the commodity outlook is weak, not strengthening.

If I were already a shareholder, I’d be happy to keep holding shares and benefit from likely good dividends. But, I’d wait for a noticeably lower BHP share price before buying, even if that took at least six months.

The post As the BHP share price flirts with $50, do I buy more? appeared first on The Motley Fool Australia.

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

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Share markets rose remarkably in January, with the S&P/ASX 200 Index (ASX: XJO) rocketing 6.22% during the month.

Whether the surge is sustainable or if it’s yet another bear market rally is up for debate. But the gains have caused many punters to wake up and pay attention to ASX shares once again.

With a looming economic downturn, it’s fair to say investors are looking at big brand names to seek quality businesses to buy.

Three such names are Seek Ltd (ASX: SEK), Magellan Financial Group Ltd (ASX: MFG), and Virgin Australia.

The first two have, in the past, made many investors wealthy but have crashed during the past 13 months for both external and internal reasons.

Virgin, meanwhile, was delisted and went into administration in 2020 after COVID-19 brought aviation to a standstill. But its private equity owner is expected to float it once again this year, taking advantage of a post-pandemic boom in travel.

So should you buy this trio? Shaw and Partners portfolio manager James Gerrish examined their prospects:

Aeroplanes, jobs and investments

Gerrish, in a Market Matters Q&A, warned that private equity initial public offers (IPOs) “generally have a history of underperformance”.

“It is also a fair assumption that Bain, the private equity firm… will unload some shares sooner or later given its 95% stake in the airliner.”

As a counterbalance to that, Gerrish does like Virgin’s recovery out of the coronavirus pandemic and its new fleet of fuel-efficient Boeing 737 Max-8 planes.

“However, this [will] not suffice and we like other opportunities in the market with much more depth and key macro themes to support it.”

Of course, the issue price per share at the IPO will also be a consideration. But Gerrish is not expecting a bargain.

“My best guess is it will be priced fairly richly following the strong advance by Qantas Airways Limited (ASX: QAN) post-COVID.”

Gerrish’s team has ridden Seek’s 20% rise over the past quarter but thinks the jobs classified site’s had its run now.

“If Seek was a standalone holding we would indeed have looked to sell into its recent pop to fresh 5-month highs,” he said.

“From a stock sector perspective, as we’ve alluded to over recent weeks, we are looking for tech names to continue their bounce in line with the Nasdaq Composite (NASDAQ: .IXIC), but we do intend to reduce our exposure into such a move.”

Magellan has horrifyingly lost 80% of its value over the past 18 months, as a series of highly publicised governance and performance issues dogged the fund manager.

Its funds were US tech-orientated, so the NASDAQ’s decline over that time hasn’t helped either.

According to Gerrish, Magellan has diversified a bit more in recent times.

“In December 2022, the High Conviction Trust’s top 5 holdings were Alphabet Inc (NASDAQ: GOOGL), Intercontinental Exchange Inc (NYSE: ICE), Microsoft Corp (NASDAQ: MSFT), Visa Inc (NYSE: V) and Yum! Brands Inc (NYSE: YUM).”

Therefore the performance of its funds will not necessarily strictly follow the NASDAQ anymore.

But Gerrish is not upbeat about the business. 

“Performance is what this stock needs to get back on track. However, if outflows continue at similar rates and possible management fees are lowered in an attempt to maintain FUM [funds under management], we think the stock will simply continue to slide lower.”

The post Should you buy Seek, Magellan, or Virgin shares? appeared first on The Motley Fool Australia.

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More reading

• The ASX 200 is still full of cheap shares despite this year’s surge and I’m ready to buy more
• Here are the top 10 ASX 200 shares today
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• Here are the top 10 ASX 200 shares today

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tony Yoo has positions in Alphabet, Microsoft, and Seek. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Microsoft, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Intercontinental Exchange. The Motley Fool Australia has recommended Alphabet and Seek. 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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