Category: Stock Market

The S&P/ASX 200 Index (ASX: XJO) shares I’m about to talk about could be two of the leading ideas for share price growth over the next two years.

The current investment environment is clouded by uncertainty over interest rates and stubbornly strong inflation.

I think ASX travel shares have the potential to keep delivering good performance as strong demand continues to play out. I’m always willing to consider names that have fallen hard — the decline could be temporary and/or overdone.

That’s why I like the look of these two ASX 200 shares.

Corporate Travel Management Ltd (ASX: CTD)

Business travel is rebounding just like leisure travel. Certainly, Corporate Travel’s latest result showed a good recovery.

The business said that in the FY23 first half, its revenue rose 79% and the underlying earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 182% to $51.3 million. Statutory net profit after tax (NPAT) was $15.7 million, up from a loss of $10 million in the prior corresponding period.

In mid-February, the business said that travel demand “remains strong with no signs of macroeconomic factors impacting the recovery”.

Across the ASX 200 share, it’s seeing benefits from open borders, operational improvements made during COVID-19, and strengthening profit margins.

In the second half of FY23, it’s expecting to make underlying EBITDA of between $109 million to $129 million, which would “provide strong momentum into FY24″. It’s continuing to win clients, retain clients, and benefit from “significant known large account wins”.

According to Commsec, the Corporate Travel Management share price is valued at just 16x FY25’s estimated earnings. I think that’s a very reasonable price considering how much profit could rise in the coming years as travel normalises.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

It has been a really difficult period for Domino’s as it loses demand after the end of COVID-19 lockdowns while also having to deal with the effects of higher inflation, which is hurting its margins.

Over the past year, Domino’s shares have fallen 36%.

But I think this makes it a very good time to look at the ASX 200 share, considering its long-term growth plans for its pizza operations in Europe and Asia.

Growth over the next five years may be slower than the last five years. But I think the ongoing scale growth of the business will help its underlying margins.

I also think Domino’s can grow its same-store sales in FY24 and beyond, which can then hopefully help the business deliver long-term profit growth — and also grow its dividend.

A slowdown of inflation could also be helpful for the business, as it doesn’t want to scare off customers by charging too much for its products.

According to Commsec, the ASX 200 share is valued at 22x FY25’s estimated earnings. FY23 may be tricky, but I think the longer term is promising because of how large the international market is.

The post 2 ASX 200 shares that could be top buys for growth appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Will the ASX 200 hit 7,500 again in 2023?
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• 5 things to watch on the ASX 200 on Thursday

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 Domino’s Pizza Enterprises. The Motley Fool Australia has recommended Corporate Travel Management and Domino’s Pizza Enterprises. 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 ASX bank share National Australia Bank Ltd (ASX: NAB) is facing huge amounts of competition in the mortgage space. Could this be a good time to invest in NAB shares?

NAB is one of the biggest banks and one of the biggest companies in Australia. But, the trouble is that it’s competing for the same borrowers as Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), Macquarie Group Ltd (ASX: MQG), Bendigo and Adelaide Bank Ltd (ASX: BEN) and Bank of Queensland Ltd (ASX: BOQ).

With all of these banks and the smaller non-lenders too, there’s a lot of competition in the mortgage market to win new borrowers and capture refinancing borrowers.

How strong is the competition?

The last 12 months have been an opportunity for banks to achieve much higher lending margins. This can be measured with the net interest margin (NIM). The NIM measures the lending rate compared to the cost of the funding of that money (such as savings accounts).

Bank NIMs have risen as interest rates increased – they passed on interest rates to borrowers quickly but took their time to pass on the higher interest rate to savers.

According to reporting by the Australian Financial Review, NAB’s boss Ross McEwan is letting CBA, ANZ, Westpac and Macquarie fight over household loans, while NAB can focus on the business banking side of things. He has “taken his foot off the accelerator” with the mortgages. Commenting on the business bank, McEwan said:

We can assess a risk as good or better than anybody else, which means we know what we’re going to get into and how we will deal with it if it gets into difficulty. It’s a real skill of this bank.

In our heart, we’re a business bank, and the investment continues in that business. You’ve seen our market share continue to grow and given we’re the largest player, I think that’s a pretty good measure of excellence.

According to the AFR, the CBA CEO Matt Comyn commented in February:

We believe home loan pricing across the industry is below the cost of capital.

There is a lot of refinancing going on for borrowers at the moment, so banks are competing hard on the loan rate so they don’t lose market position.

Is the NAB share price a buy?

I think NAB is doing the right thing by avoiding getting into this intense price war. We’ll have to see what this means for NAB’s market share in the medium term, but the idea for businesses is to make profit, not necessarily provide a loan as cheaply as possible.

NAB has a number of levers it can pull to make a good profit. I think the bank can outperform many of the other ASX bank shares as it navigates this tricky period.

I do think that ASX banks aren’t going to see as good conditions over the next 20 years as the last 20 years.

Any lender can provide a loan, it’s not just the major banks capable of doing that. I think margins are going to be permanently lower than they used to be last decade because of the competition. In my opinion, bad debts are going to rise – interest rates have shot higher and this is likely to cause some difficulties for some borrowers.

I think NAB can provide stronger returns than other Australia-focused banks thanks to McEwan’s leadership and the bank’s lending settings.

According to Commsec, NAB shares are valued at just 11 times FY23’s estimated earnings with a potential grossed-up dividend yield of 8.8%. I think these are very appealing metrics.

The post Mortgage competition has never been hotter, so are NAB shares worth buying right now? appeared first on The Motley Fool Australia.

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More reading

• Could right now be a great time to buy ASX 200 bank stocks for passive income?
• Buy NAB and this excellent ASX 200 dividend share for passive income: brokers
• Passive income: How much to invest to get $800 per month
• 3 Warren Buffett tips on how to invest in ASX 200 banks
• Why did the NAB share price tank more than 7% in March?

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 positions in and has recommended Bendigo And Adelaide Bank and Macquarie Group. The Motley Fool Australia has recommended Westpac Banking. 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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Goldman Sachs has just hosted 19 companies and 200 investors at its 14th Annual Emerging Leaders Conference.

Three ASX small and mid-cap shares that were at the event and impressed Goldman are listed below.

Here’s why the broker rates them as buys:

Data#3 Limited (ASX: DTL)

Goldman is a fan of this value-added reseller and managed services provider to the government and enterprise end-market. It has a buy rating and $9.20 price target on its shares.

The broker highlights that “DTL is not seeing any slowdown in software expenditure, both across IaaS (Azure) and SaaS (365), and is positioned to help customers rationalise costs via its optimisation offering in software licence management.”

Another positive is its financial performance. Goldman notes that “DTL expects to be FCF positive for FY23, and is considering options for its excess cash as working capital unwinds (such as a special dividend).”

Objective Corporation Limited (ASX: OCL)

Another ASX share that impressed Goldman Sachs is Objective Corp, which provides specialised software solutions and implementation services that enable the digitisation of government and public sector processes. In response to its appearance, the broker has retained its buy rating and $14.80 price target on its shares.

Goldman highlights that “OCL noted that activity has been strong since January, notwithstanding some softness in federal government procurement.”

And while the company’s shift away from perpetual licences is having a short term impact on margins, the broker was pleased to see that other factors are expected to support a margin recovery next year. It highlights that “OCL is also pulling the pricing lever, while being careful not to gouge customers. Putting these competing forces together, OCL expects that profit margins can resume growth in FY24 vs FY23.”

Temple & Webster Group Ltd (ASX: TPW)

Finally, this online furniture retailer remains in favour with analysts at Goldman Sachs. It has a buy rating and $6.50 price target on its shares.

Goldman was pleased to see that the company has responded to current economic conditions. It highlights that to “support a more value conscious shopper, the business has also invested in additional entry-level inventory which will land in 4Q23. TPW highlighted this puts it at an advantage vs. peers with a number of smaller retailers in the market unable to invest given weaker market conditions and an inability to pivot product in line with demand.”

Overall, the broker believes this means that “a weaker competitive landscape provides an opportunity for TPW to pick up incremental market share of online.”

The post Buy these small and mid-cap ASX shares: Goldman Sachs appeared first on The Motley Fool Australia.

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More reading

• These are the 10 most shorted ASX shares this week
• Why Goldman Sachs is raving about these ASX growth shares
• Top ASX growth shares to buy in April 2023
• These are the 10 most shorted ASX shares this week
• I think these 2 ASX growth shares have been heavily oversold. I’d buy them in April

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 Objective and Temple & Webster Group. 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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Exchange-traded funds (ETFs) don’t typically offer a combination of good dividends and solid capital growth. But the VanEck Morningstar Australian Moat Income ETF (ASX: DVDY) could provide a perfect mix, with a clear focus on passive income.

I believe there are plenty of ASX ETFs based on international shares that have the potential to provide good capital growth. But Australian companies have the added benefit of paying franking credits to investors, which can boost the after-tax dividend yield for Australian tax residents.

I love individual ASX dividend shares, but I also think there’s space in the portfolio for an ASX ETF that owns a group of appealing dividend-paying businesses.

What it does

Provided by VanEck, it has a diversified portfolio of ASX-listed companies selected by Morningstar to provide access to the 25 highest dividend-paying ASX-listed securities [excluding Australian real estate investment trusts (REITs)] that “meet Morningstar’s required criteria which combines its ‘economic moat’ and ‘distance to default’ measures”.

VanEck describes an economic moat as a company’s ability to maintain its competitive advantages and defend its long-term profitability. For Morningstar, there are five sources of competitive advantage – switching costs for customers, intangible assets (such as brand power and patents), network effects, cost advantages, and efficient scale.

With the distance to default measure, it’s a prediction about how likely a bankruptcy is, which has also been an effective predictor of dividend cuts. It looks at the balance sheet and share price volatility.

This ETF comes with an annual management cost of 0.35%, which is fairly cheap for the amount of analysis work done to create this portfolio.

What is the VanEck Morningstar Australian Moat Income ETF dividend yield?

An ASX ETF essentially just passes on the dividends it receives from its investments to the owners of the ETF units.

So, an ETF’s yield isn’t necessarily going to be the same over the next 12 months as the last 12 months, even if it owns the exact same businesses because those payments can change.

Since the ETF’s inception on 7 September 2020, its passive income return has been an average yield of around 5%. Franking credits are a bonus.

According to VanEck, the 12-month distribution yield as at 31 March 2023 was 6.1%.

What ASX shares does it own?

As mentioned, this ASX ETF owns 25 holdings.

Investors may have heard of some of the largest positions in the portfolio.

On 6 April 2023, these were some of the biggest holdings: Sonic Healthcare Ltd (ASX: SHL), AUB Group Ltd (ASX: AUB), Orora Ltd (ASX: ORA), Steadfast Group Ltd (ASX: SDF), Lovisa Holdings Ltd (ASX: LOV), McMillan Shakespeare Ltd (ASX: MMS), Telstra Group Ltd (ASX: TLS), and Wesfarmers Ltd (ASX: WES).

Each of those positions have a weighting of at least 4.2%.

Foolish takeaway

I think this ETF can enable investors to buy a group of quality of ASX dividend shares for income and, hopefully, capital growth. But, I think there are certain ASX dividend shares worth a spot in a portfolio that doesn’t already include them in its holdings.

The post I think this little-known ASX ETF could be a buy for passive income investors appeared first on The Motley Fool Australia.

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More reading

• If I buy BHP shares now, what could my return be in a year’s time?
• Need passive income? Turn $5,000 into $140 every month
• Why this ASX 200 ‘stable stock’ is poised to outperform: Goldman Sachs
• Down 60% in 12 months, I’d buy these 2 ASX All Ords shares for the turnaround
• Is Woolworths ‘the granddaddy of recession-proof stocks’?

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 Lovisa and Steadfast Group. The Motley Fool Australia has positions in and has recommended Steadfast Group, Telstra Group, and Wesfarmers. The Motley Fool Australia has recommended Aub Group, Lovisa, McMillan Shakespeare, Orora, and 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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BHP Group Ltd (ASX: BHP) shares are starting the week positively.

In morning trade, the mining giant’s shares are up almost 2% to $45.85.

This means the BHP share price is now up almost 15% over the last six months.

What if you bought BHP shares now?

While anyone buying BHP shares six months ago will be no doubt patting themselves on the back, would you be doing the same if you bought shares today?

Well, the good news is that one leading broker believes there’s plenty of returns ahead for anyone buying at current levels.

According to a recent note out of Macquarie, its analysts have an outperform rating and $53.00 price target on the Big Australian’s shares.

Based on the current BHP share price, this implies potential upside of almost 16% for investors between now and this time next year.

Don’t forget the dividends

But the returns won’t stop there! Far from it! As you will be aware, BHP is one of the biggest dividend payers in the world.

Pleasingly for shareholders (or prospective shareholders), Macquarie is expecting a generous fully franked dividend yield from its shares this year and next.

The broker has pencilled in a fully franked $3.40 per share dividend in FY 2023. It is also expecting another dividend broadly in line with this in FY 2024.

Based on where BHP shares are currently trading, this will mean a fully franked 7.4% dividend yield.

If we add this to the potential capital returns, this suggests a total return of approximately 23% for investors over the next 12 months.

To put this into context, a $10,000 investment in BHP shares could turn into $12,300 in a year’s time if Macquarie is on the money with its recommendation.

The post If I buy BHP shares now, what could my return be in a year’s time? appeared first on The Motley Fool Australia.

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More reading

• The BHP share price is taking off today. Could this be why?
• What’s going on with BHP shares and lithium?
• Which is the best ASX 200 iron ore stock now: BHP, Fortescue, or Mineral Resources?
• Investing in ASX 200 dividend shares? Here’s how I’d aim for $200 per month in passive income
• ASX 200 rebounds after RBA hits pause on its rate hikes

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 ASX share market could be the most bountiful place to generate a good yield from passive investment income.

Term deposits are now offering a better interest rate. But, while they do offer protection, I think a downside is that they can’t organically generate a higher return. Term deposits don’t generate profit that can grow.

But, with businesses, they can grow profit. Companies can decide to pay out some of the annual profit each year as a dividend and use the rest to generate more growth.

Different businesses have different yields. Some yields are so large that they can generate a lot of passive income from a relatively small investment.

Generate $140 every month

There are very few investments that pay dividends every single month. A lot of ASX dividend shares pay dividends every six months or every three months.

But, we can think of $140 per month in annual terms – it’s $1,680 each year.

I’m not about to say that earning $1,680 from a $5,000 investment is a good idea, or even possible. That would represent a 33.6% dividend yield.

There’s a more realistic and sustainable way.

Let’s imagine we invest in a diversified portfolio of ASX dividend shares with an average dividend yield of 5%. That would be an annual passive income of $250. Re-investing those dividends into more ASX dividend shares with a 5% dividend yield would make an extra $12.50 of dividends, meaning $262.50.

Continuing re-investing those dividends every year means the power of compounding can really boost the annual income. If the dividends from the businesses themselves don’t grow, then after five years it could be just over $300 of annual dividends, in 10 years it’s $388 of dividends, after 20 years it’s $632 of annual dividends and after 40 years it would be around $1,680.

But, let’s keep in mind that many businesses ­do grow their dividends. It’s impossible to say what the coming decades have in store. If a business pays a dividend yield of 5%, we re-invest those dividends and it grows the dividend by 5% each year, which means the annual dividends would increase by around 10% per annum.

So, if we assume a portfolio of ASX dividend shares grows their dividend by 5% per annum, we re-invest the dividends (and also acknowledge that the cost of buying more shares rises over time in this calculation), we could receive over $11,000 of annual dividends each year after 40 years, just from that initial $5,000 investment.

Foolish takeaway

I think that ASX dividend shares like Wesfarmers Ltd (ASX: WES) are a great source of passive income. There are loads of resources on The Motley Fool website about which ASX dividend shares could be good investments to own.

The post Need passive income? Turn $5,000 into $140 every month appeared first on The Motley Fool Australia.

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More reading

• Why this ASX 200 ‘stable stock’ is poised to outperform: Goldman Sachs
• Down 60% in 12 months, I’d buy these 2 ASX All Ords shares for the turnaround
• Is Woolworths ‘the granddaddy of recession-proof stocks’?
• The BHP share price is taking off today. Could this be why?
• Here’s how much I would need to invest in Fortescue shares to generate a $150 monthly income

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 positions in and has recommended Wesfarmers. 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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S&P/ASX 200 Index (ASX: XJO) healthcare share ResMed Inc (ASX: RMD) counts among a select basket of stable stocks that Goldman Sachs believes is set to widely outperform the benchmark.

The company is listed on multiple international exchanges. It focuses on treating a range of sleeping disorders and has seen some sizeable swings its share price over the past year, leaving it right about where it was 12 months ago.

But the ASX 200 medical stock could enjoy a far stronger year ahead.

14% potential share price upside for ResMed

According to analysts at Goldman Sachs, stocks with stable earnings growth and share prices have historically tended to outperform when the economy is slowing. But we’ve yet to see that with Goldman’s basket of stable stocks, which includes ResMed.

“Our economists see greater downside risks than upside risks, suggesting ample opportunities for stable stocks to outperform,” the analysts said (courtesy of The Australian Financial Review.)

The broker said that despite the economic slowdown hitting developed nations, stables stocks — like ASX 200 listed ResMed — are trading at “undemanding valuations”.

There are no guarantees in the world of investing. But Goldman sees a positive risk-reward trade-off with ResMed shares.

The main risk to owning stable stocks is if economic growth proves to be more resilient than we expect,” the broker said. “But low valuations, poor recent performance, and elevated recession risk mean the risk/reward is asymmetric.”

In its recent report profiling a range of ASX 200 healthcare stocks, Goldman noted:

We continue to express a general preference for the device/drug names over the service providers in the current environment, on the basis of: i) stronger pricing power; ii) more assured volume profiles; iii) more resilient/expanding market shares; and iv) stronger balance sheets.

As for ResMed specifically, the analysts said, “As operational pressures continue to ease we see margin/cost dynamics improving, both near and long-term.”

Goldman is expecting “a sequentially stronger 2H23” for the ASX 200 medical device stock. The analysts forecast an earnings per share compound annual growth rate of 11% over the next three years “with potential upside depending on how competitive dynamics develop”.

Sharper-than-expected competitor recovery and potentially new disruptive therapies are the key risks to this outlook.

Goldman has a buy rating on ResMed shares with a target price of $38.00. That’s 13.8% above the current share price.

How has this ASX 200 stable stock been tracking?

As you can see in the chart below, the ResMed share price is just about flat over the past 12 months. So far in 2023, the ASX 200 stable stock has gained 7.8%.

The post <strong>Why this ASX 200 ‘stable stock’ is poised to outperform: Goldman Sachs</strong> appeared first on The Motley Fool Australia.

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More reading

• Build your portfolio around these ASX 200 blue chip shares: brokers
• My top 5 ASX shares to buy and hold forever in anticipation of the bull market
• The broker community’s 3 best ASX 200 shares to buy for 2023
• The ASX sector set to boom no matter what happens this year
• Buy these 2 ASX health-tech shares that are ready to rocket: Wilson

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 ResMed. The Motley Fool Australia has positions in and has recommended ResMed. 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 ASX share market has been through a lot of ups and downs over the past year. I think some of the beaten-up S&P/ASX All Ordinaries Index (ASX: XAO) shares, could be excellent opportunities for a turnaround.

I think that trying to be contrarian can be a dangerous play if investors go for the wrong businesses.

However, I believe that some ASX All Ords shares are primed to rediscover their lost form as better times return, hopefully.

It’s worth noting that just because something has fallen doesn’t necessarily mean that it’s going to quickly recover to the former price. Anchoring past prices can be an ill-advised thought.

With these two names, I believe we’re being presented with appealing, temporarily-lower valuations.

Australian Ethical Investment Ltd (ASX: AEF)

Over the past year, the Australian Ethical share price has declined by around 60%.

The ethically-focused fund manager has seen its valuation sink since November 2021 – it’s actually down by around 80% from that high point.

There are some factors that explain the difficulties. Volatility hurt share market returns, which consequently impacted the growth potential of Australian Ethical’s organic funds under management (FUM).

In the first half of FY23, it only saw $0.19 billion of positive net inflows, excluding the impact of the Christian Super FUM. But, it’s the Christian Super FUM that could help drive earnings higher after a 21% increase in FUM to $8.37 billion.

But, there were costs to taking on the Christian Super members, which hurt profitability in the short term.

However, I think the ASX All Ords share can recover as investment markets start showing signs of a rebound, and the fund manager attracts more members and benefits from regular superannuation contributions.

The company is expecting operating leverage to emerge towards the end of FY24, which I think could assist in a pleasing recovery for the Australian Ethical share price.

Baby Bunting Group Ltd (ASX: BBN)

The Baby Bunting share price has also fallen by around 60% in the past year. The ASX retail share has been going through a tricky period as competitors have been discounting prices and Baby Bunting has been obliged to compete with that.

This led to a 60% decline in underlying net profit after tax (NPAT) to $5.1 million for the All Ords ASX share and a 67% fall in statutory net profit to $2.7 million.

However, the company reported that its gross profit margin was recovering and that it was expecting to make underlying NPAT of between $21.5 million to $24 million.

I believe that a combination of more stores, the Baby Bunting marketplace, the expansion in New Zealand and an improvement in profit margins will enable a recovery of the Baby Bunting share price.

According to Commsec, the Baby Bunting share price is valued at under 9 times FY25’s estimated earnings, with a possible grossed-up dividend yield of 11%.

The post Down 60% in 12 months, I’d buy these 2 ASX All Ords shares for the turnaround appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Australian Ethical Investment and Baby Bunting Group. The Motley Fool Australia has recommended Australian Ethical Investment and Baby Bunting 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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Woolworths Group Ltd (ASX: WOW) shares saw plenty of volatility during the COVID-19 period. But now the economy is facing uncertain times amid inflation and higher interest rates. Could Woolworths be one of the most recession-proof stocks around?

As a supermarket business, it’s understandable why investors may be looking at Woolworths shares as a defensive option because it sells food – one of the most essential products that a household needs.

We all need to eat, so even if there is a decline in economic demand for other ASX shares, I don’t think it’s likely that Woolworths will suffer the same fate.

Is Woolworths the most recession-proof ASX stock?

During the worrying times of March 2020, there was huge demand for Woolworths products. In fact, Christmas-time levels of demand.

The last year has shown that even though food prices have been going up, households have kept buying – what choice did they have?

If a recession were to occur, I think people are going to choose to buy food from Woolworths over buying a new TV, going on a holiday, buying new clothes, or other non-essential spending.

Certainly, I’d suggest that Woolworths’ earnings are less likely to fall in a recession than those of JB Hi-Fi Limited (ASX: JBH), Super Retail Group Ltd (ASX: SUL), or Nick Scali Limited (ASX: NCK).

Let’s not forget that Woolworths also owns the majority of the PETstock business – I’d guess that households will continue to spend on their furry (or non-furry) friends.

However, I’m not sure that Big W’s earnings are that defensive, even though it’s only a relatively small part of Woolworths’ overall earnings.

We could say that Coles Group Ltd (ASX: COL) has a very similar set-up to Woolworths because of its large chain of supermarkets. But, Coles has a liquor division rather than PETstock and Big W.

I think Woolworths is right up there as one of the most recession-proof ASX stocks when it comes to its earnings.

There are a few other categories and ASX shares that I might expect to continue performing, such as funeral provider Propel Funeral Partners Ltd (ASX: PFP) because of the inevitable annual demand for its services. Telco Telstra Group Ltd (ASX: TLS) and energy infrastructure business APA Group (ASX: APA) could also see strong resilience.

Recent performance

The latest we’ve heard from Woolworths has been very promising. Woolworths reported that in the first six months of FY23, sales rose 4% to $33.2 billion and underlying earnings per share (EPS) grew 11.7% to 71.9 cents.

Its financials have done well and the Woolworths share price has jumped 18% in 2023 to date. But, valuation can be a risk if the share price goes too high.

According to Commsec, Woolworths shares are valued at 28x FY23’s estimated earnings. I think the business is a good candidate for a recession-proof stock, but it doesn’t look cheap at this price considering how high interest rates are these days.

The post Is Woolworths ‘the granddaddy of recession-proof stocks’? appeared first on The Motley Fool Australia.

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• Investing in ASX 200 dividend shares? Here’s how I’d aim for $200 per month in passive income
• Top ASX shares to buy in April 2023
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Super Retail Group. The Motley Fool Australia has positions in and has recommended APA Group, Coles Group, Super Retail Group, and Telstra Group. The Motley Fool Australia has recommended JB Hi-Fi and Propel Funeral Partners. 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 is starting the week off on the right foot, leaping 1.8% to trade at $45.86 in early trading.

The S&P/ASX 200 Index (ASX: XJO) iron ore miner’s stock is taking off amid news of its planned acquisition of copper producer OZ Minerals Ltd (ASX: OZL).

For comparison, the ASX 200 is up 1.21% right now while BHP’s home sector – the S&P/ASX 200 Materials Index – is gaining 2.11%.

The takeover is one step closer to being realised after it was granted approvals from Vietnam’s competition regulator.

Let’s take a closer look at the latest from the ASX’s biggest company.

BHP copper acquisition receives regulatory approval

The BHP share price is climbing amid good news of its proposed $9.8 billion acquisition of OZ Minerals.

The pair today announced that Vietnam’s Competition and Consumer Authority has approved the takeover – leaving one less condition to be satisfied prior to its implementation.

And just in time. The acquisition will face a shareholder vote on Thursday.

If approved by investors, the court will be given the final say, with implementation then scheduled for early May.

BHP put forward a $28.25 per share bid for the copper miner in November 2022.

That offer will likely be less a $1.75 fully franked dividend OZ Minerals intends to declare, as revealed in February.

Interestingly, the OZ Minerals share price is flat this morning at $28.14 a share, the same as Thursday’s closing price.

BHP share price underperforms ASX 200 in 2023

Both stocks have underperformed the broader ASX 200 so far this year.

The index has risen 4% in 2023 so far. At the same time, BHP shares have dumped 0.6% and OZ Minerals’ have lifted 0.6%.  

Looking further back, the BHP share price is down 12.8% over the last 12 months while OZ Minerals’ stock has gained 9.3%. Meanwhile, the ASX 200 has slumped 3.2%.

The post The BHP share price is taking off today. Could this be why? appeared first on The Motley Fool Australia.

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More reading

• What’s going on with BHP shares and lithium?
• Which is the best ASX 200 iron ore stock now: BHP, Fortescue, or Mineral Resources?
• Investing in ASX 200 dividend shares? Here’s how I’d aim for $200 per month in passive income
• ASX 200 rebounds after RBA hits pause on its rate hikes
• Passive income: How much to invest to get $800 per 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 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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