Category: Stock Market

After a terrible first half of 2022, the S&P/ASX 200 Index (ASX: XJO) has rebounded strongly and climbed an impressive 14.7% from its lowest point in June.

Key drivers of this rebound have been the banking and resources sectors, with BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA) leading the charge.

The good news for investors is that outside these sectors, there are still plenty of ASX shares that could be considered cheap.

But they aren’t likely to stay cheap for long if inflation continues to soften and investor sentiment improves.

In light of this, I would suggest that investors look to take advantage of 2022’s weakness by making investments in high-quality shares that are trading at cheap prices.

But which ASX shares are cheap?

Firstly, it is worth remembering that cheap shares are often cheap for a reason. So, I wouldn’t go rushing in and buying everything trading at a discount. Instead, I would look for companies with strong business models, positive long-term growth potential, and attractive valuations.

If not, you could potentially fall into a value trap.

Two potentially cheap ASX shares that immediately spring to my mind are from the quick service restaurant industry — Collins Foods Ltd (ASX: CKF) and Domino’s Pizza Enterprises Ltd (ASX: DMP). Collins Foods is a major operator of KFC restaurants in Australia and Europe, whereas Domino’s, of course, is a pizza chain operator with restaurants across Australia and New Zealand, and the Asian and European markets.

Both are trading sharply lower this year because inflationary pressures are weighing on their margins. However, this headwind should be transitory and we are already seeing signs that rising rates are having a positive impact on inflation.

Once inflation is under control and margins recover, I expect the good times to return and their global expansion to underpin strong long-term sales and earnings growth.

It is for this reason that I recently bought Domino’s shares.

More options

Another side of the market that has been hammered this year is the retail sector. This has been driven by concerns that retail spending could be negatively impacted by the cost of living crisis.

And while I agree that these are tough times for discretionary retailers, I think some will fare better than others. Particularly those with exposure to younger consumers that aren’t being impacted by higher mortgage payments but are benefiting from an increase in the minimum wage.

Goldman Sachs recently commented on this group of consumers, saying:

We believe the young Australian consumer, aged ~15-24 is uniquely well positioned. […] We estimate that the combined impact of a minimum wage uplift and limited inflationary/housing cost pressures has resulted in an additional ~A$570 to A$935 per person annual disposable income for those that work and live at home; at the midpoint this is an aggregated ~A$1bn in incremental spending power.

In light of this, I think youth-orientated retailers Accent Group Ltd (ASX: AX1) and Universal Store Holdings Ltd (ASX: UNI) would be great options for investors. Especially with their shares down 29% and 22%, respectively, this year.

This leaves them trading at a very reasonable 12.6x and 14x FY 2023 earnings based on Goldman’s estimates.

There’s a world of opportunity out there for investors, you just need to do a bit of digging.

The post Rebound: I’m finding cheap ASX shares to buy before it’s too late! appeared first on The Motley Fool Australia.

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More reading

• Here are 3 ASX 200 shares going ex-dividend next week
• Growth is back: 3 ASX shares to buy now for a 2023 re-rate
• The Collins Foods share price has been decimated this week, and 4 directors are buying the dip
• These were the worst performing ASX 200 shares in November
• Domino’s share price halted amid $165 million cap raise

Motley Fool contributor James Mickleboro has positions in Collins Foods and Domino’s Pizza Enterprises. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Collins Foods. The Motley Fool Australia has recommended Accent Group, Collins Foods, 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 Bigtincan Holdings Ltd (ASX: BTH) share price is ending the week in style.

In morning trade, the sales enablement automation platform provider’s shares are up 15% to 78 cents.

Why is this tech share flying high?

Investors have been scrambling to buy Bigtincan shares today after the company received a takeover approach.

According to the release, the company has received an unsolicited, indicative, conditional and non-binding proposal from SQN Investors to acquire all of the shares in Bigtincan for $0.80 cash per share by way of scheme of arrangement.

This represents a 17.6% premium to the tech share ended yesterday’s session.

SQN is already a substantial holder of Bigtincan and has a relevant interest in 74,940,121 shares or approximately 13.6% of its issued share capital. Farouk Hussein, a partner of SQN, has been a director of Bigtincan since October 2021.

The investment company revealed that it aims to fund the proposal by a combination of equity and possibly debt financing. However, it does not currently have binding commitments in that regard.

Will it be accepted?

As things stand, SQN has not been provided due diligence access.

However, the Bigtincan board has established an Independent Board Committee (IBC), comprising its current independent non-executive directors and its CEO and executive director, David Keane, to evaluate and respond to the proposal.

It is also worth noting that the SQN bid may not be the only one to consider. Bigtincan also explained that it has had preliminary discussions with other interested parties who have approached the company with indications of interest in respect of a potential control transaction.

The IBC will consider the proposals in an orderly manner with its advisers and in the best interests of all Bigtincan shareholders.

The post Guess which ASX All Ords tech share is soaring 12% on takeover news appeared first on The Motley Fool Australia.

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More reading

• Buy this cheap ASX 200 share with ‘the best property balance sheet on the market’: fundie
• Rebound: I’m finding cheap ASX shares to buy before it’s too late!
• Why is the Arafura Rare Earths share price on hold today?
• Fortescue’s green hydrogen ambitions: Prosperous or preposterous?
• Here are 10 years of ASX 200 historical returns

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 Bigtincan. The Motley Fool Australia has positions in and has recommended Bigtincan. 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 Arafura Rare Earths Ltd (ASX: ARU) share price isn’t going anywhere this morning.

The stock has been placed in the freezer as the company prepares to release news of a capital raise.

The Arafura Rare Earths share price closed Thursday’s session at 44 cents, where it will stay for the near future.

Let’s take a closer look at what’s going on – or, not going on – with the rare earths stock on Friday.

Why is the Arafura Rare Earths share price frozen today?

Arafura Rare Earths shares have been put in the freezer this morning. They’re not expected to be removed until the company reveals more details of a “material” capital raise or the market opens on Tuesday, whichever comes first.

Interestingly, it’s only been four months since the market last learned of a capital raise by the company. It underwent a $41.5 million placement in August, with the funds earmarked for the development of the Nolans Project in the Northern Territory.

Construction on the project is expected to begin in 2023. A recent update found the project’s pre-production capital costs are expected to be around $1.4 billion, with an additional $196 million contingency.

The project is expected to bring in as much as $912 million of earnings before interest, tax, depreciation, and amortisation (EBITDA) on average over a 38-year life of mine.

Arafura Rare Earths ended the September quarter with a $49 million cash position.

The last time the stock exited a trading halt with news of a capital raise, its share price dumped 12.5%. Since then, it has gained 57%.

The last capital raise undergone by the company saw new shares on offer for 26.5 cents apiece ­– representing a 17.2% discount to its then-previous close.

Today, a 17.2% discount on the Arafura Rare Earths share price would come to around 36.4 cents.

The post Why is the Arafura Rare Earths share price on hold today? appeared first on The Motley Fool Australia.

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More reading

• Why is the Arafura share price crashing 9% today?
• 3 ASX All Ords shares that had a cracking run on Friday
• Why Arafura, Nanosonics, NextDC, and OZ Minerals shares are rising today
• Why is the Arafura Rare Earths share price rocketing 16% on Wednesday?
• Why Arafura, Nufarm, Pilbara Minerals, and Whitehaven Coal are charging higher

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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Fortescue Metals Group Limited (ASX: FMG) shares are under the spotlight as one of its main resource rivals questioned the future of green hydrogen.

As some readers may know, Fortescue has a division called Fortescue Future Industries (FFI) which is planning to create a portfolio of green energy-producing locations around the world.

Fortescue thinks that green hydrogen and green ammonia is the answer of how to decarbonise a number of sectors that are hard to lower emissions, including aircraft, ships and heavy machinery.

Questions raised

According to reporting by The Australian, Rio Tinto Limited (ASX: RIO) chief scientist Nigel Steward doesn’t think that hydrogen can be used as an “energy carrier” in the near future because of its production costs and problems with shipping. Steward said:

Hydrogen is much hyped, particularly as an energy carrier. We don’t see hydrogen as being used as an energy carrier.

If we want to use hydrogen as an energy carrier, and we’re going to transport it around the world as liquid hydrogen, that’s problematic because 1% of the hydrogen per day is lost to the atmosphere.

He also noted that green hydrogen production requires a lot more energy to produce than aluminium smelting. But he does think green hydrogen can be used in certain areas and is “best consumed where it was produced.”

Fortescue and other potential hydrogen producers are expecting to tackle energy loss in transporting liquid hydrogen by producing ammonia. Though that would reportedly require more chemical processes, and therefore use more energy.

He also claimed that it’s better to burn natural gas than it is to transport hydrogen around the world and then consume it later.

Green hydrogen has its supporters

On CBNC, Goldman Sachs’ commodity equity business unit leader for the EMEA (Europe, Middle East and Africa) region, Michele DellaVigna, spoke positively about the outlook for green hydrogen, which could be positive for the Fortescue share price over time.

DellaVigna pointed to the Inflation Reduction Act in the US as a turning point. It’s investing hundreds of billions of dollars into the “modernisation of the American energy system”. The policy included a hydrogen production tax credit. DellaVigna said:

All of the progress in clean-tech technology, economics, that we’ve seen for the last two, three years, had been driven by higher oil, gas and coal prices. That is what makes, comparatively, renewables and hydrogen more profitable.

It finally makes technologies like green hydrogen, local green battery production [and] carbon capture, profitable in large scale.

Fortescue is hoping that Australia can become a major exporter of green hydrogen and help the energy transition.

It’s getting the attention of world leaders, with the likes of the German leader Olaf Scholz commenting at the COP27 climate summit (according to CNBC) that it’s “one of the most important technologies for a climate-neutral world”:

Green hydrogen is the key to decarbonizing our economies, especially for hard-to-electrify sectors such as steel production, the chemical industry, heavy shipping and aviation.

Of course, green hydrogen is still an infant industry, its production is currently too cost-intensive compared to fossil fuels.

There’s also a ‘chicken and egg’ dilemma of supply and demand where market actors block each other, waiting for the other to move.

Fortescue share price snapshot

Over the last month, Fortescue shares have risen by around 27%.

The post Fortescue’s green hydrogen ambitions: Prosperous or preposterous? appeared first on The Motley Fool Australia.

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More reading

• How the Fortescue share price defied the bears and jumped 32% in November
• What’s boosting the Fortescue share price on Wednesday?
• The 10 ASX 200 shares responsible for 60% of all Aussie dividends last quarter
• Here’s what’s boosting these ASX 200 mining giants today
• Did Fortescue just lose out on this multi-billion dollar green hydrogen project?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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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In a year like 2022, it can be easy to lose track of the fact that, in most years, ASX shares go up and not down. This year has been a rough one for the S&P/ASX 200 Index (ASX: XJO).

Even after this week’s rather spectacular gains, the index remains down by 3.4% year to date on today’s numbers at present.

We are in December now, so it is still possible the ASX 200 ekes out a gain for the year. But it’s probably going to be a squeaker.

Here at the Fool, it’s turning into something of an annual tradition to take a look at the historical returns of the ASX 200 Index over the past decade.

Looking back on the kind of returns ASX shares have given investors over a long period of time can only be a good thing – and it shows just how little the year-to-year fluctuations of the markets can have on the long-term wealth of a prudent investor.

ASX 200 historical returns: 2012-2021

So without further ado, here are the returns of the ASX 200 over the past decade by calendar year. The data comes from S&P Global, the index provider responsible for running the ASX 200 Index. The returns include dividends paid as well:

Year	Return of ASX 200
2012	19.88%
2013	19.88%
2014	5.31%
2015	2.25%
2016	11.45%
2017	11.46%
2018	(3.13%)
2019	23.02%
2020	1.18%
2021	16.97%

For those readers who love a good graph, fear not. Here is that same data in graph mode:

So this just goes to show exactly how lucrative owning shares can be on a long-term basis. Out of 10 years, just one year of negative returns. That could be two by the end of 2022, but we’ll have to wait and see on that one.

Regardless, it is clear that buyers win far more often than sellers, and the ASX 200’s trajectory over time is in an upward, if inconsistent, direction.

Time to address the elephant in the room, though. There are no typos in the above data. In a wild and mathematically unlikely coincidence, the returns in 2012 and 2013 are indeed both 19.88%. Ditto with the returns of 2016 and 2017, which are almost identical as well.

The post Here are 10 years of ASX 200 historical returns appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• So, has inflation peaked or not?
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Investing in ASX shares? Here’s what the experts expect for RBA rate hikes in 2023
• Thank you Mr Powell! 7 ASX 200 shares cracking new 52-week highs on Thursday

Motley Fool contributor Sebastian Bowen 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 S&P/ASX All Ordinaries Index (ASX: XAO) delightfully dished up another positive month in November.

Share markets have been buoyed by signs that inflation may have peaked and the pace of interest rate hikes could slow.

So, as optimism abounded, the ASX All Ords index continued its recovery, gaining 6.0% across the month to close out spring at 7,480 points.

As always, some ASX All Ords shares were soaring to loftier heights than the rest.

Without further ado, here are the three best-performing ASX All Ords shares in November in terms of share price gains.

Aeris Resources Ltd (ASX: AIS)

Topping the ASX All Ords tables in November was mid-tier base and precious metals producer Aeris Resources.

The Aeris Resources share price shot up 64% across the month to finish at 53 cents as its market capitalisation ballooned to $366 million.

On the last day of October, Aeris released its first-quarter results, which were met with an 18% share price slide.

But it appears this was a knee-jerk overreaction. As the market digested the results, the Aeris share price stormed higher, which set the tone for the rest of the month.

The biggest announcement from Aeris in November came in the form of a mineral resource update.

The ASX miner revealed an updated mineral resource estimate (MRE) for the Turbo lens at the Bentley deposit, located at Aeris’ 100%-owned Jaguar Operations in Western Australia. 

The updated mineral resource materially increased the ore tonnes and metal content at the Turbo lens. The MRE now stands at 1.26 million tonnes at 1.82% copper, 8.5% zinc, 0.72 grams per tonne (g/t) gold, and 47g/t silver.

What’s more, the drilling campaign resulted in the majority of the resource classification being upgraded to indicated status.

Renascor Resources Ltd (ASX: RNU)

The next cab off the rank is another ASX miner, with Renascor Resources taking out the title of the second best-performing ASX All Ords share in November.

The Renascor share price had a spring in its step, flying 59% across the month to finish at 35 cents. The company’s market cap currently stands at around $750 million. 

Renascor is an exploration and development company with a portfolio of projects in South Australia. Its flagship project is the Siviour battery anode material project, the world’s second-largest proven graphite reserve.

The Renascor share price steadily climbed throughout the month. Similarly to Aeris, Renascor released its quarterly results on the last day of October.

Following this, the company kicked off November by presenting at the International Mining and Resources Conference in Sydney. 

It was then radio silence for the rest of the month until Rensacor revealed it had received a key approval for its Saviour Project.

Specifically, the South Australian Department of Energy and Mining has granted Renascor approval for the Program for Environment Protection and Rehabilitation (PEPR) for its proposed Siviour mine and concentrator.

The PEPR approval permits Renascor to process up to 1.65 million tonnes per annum. This would allow the ASX All Ords share to produce up to 150,000 tonnes of graphite concentrates per year.

With this approval under its belt, Renascor can now develop the upstream graphite mine and concentrator portion of the Siviour project.

Ainsworth Game Technology Limited (ASX: AGI)

Last but not least, Ainsworth Game Technology rounds out the podium finishes with a whopping share price gain of 58% in November.

Ainsworth designs and manufactures a range of slot machines and a catalogue of standalone and linked games. The ASX gaming share currently boasts a market cap of $420 million.

It was a rather quiet affair at Ainsworth for most of the month, with its share price marching upward despite no news coming from the company.

But the Ainsworth share price received an added boost when the ASX All Ords share held its 2022 annual general meeting (AGM) at the end of November.

Notably, the company instated guidance at its AGM. Based on its current forecasts, Ainsworth expects to achieve around $18 million in normalised profit before tax in the first half of FY23.

The company is building on strong momentum, which saw it deliver normalised profit before tax of $17.3 million in 2H22, up considerably from $10.0 million in 1H22.

Looking ahead, Ainsworth expects to have continued growth in North America, further improvements in Latin America, and steady performance in Australia.

The post These were the 3 best-performing ASX All Ords shares in November appeared first on The Motley Fool Australia.

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More reading

• Top ASX shares to buy in December 2022
• Why Ainsworth, Life360, Temple & Webster, and Whitehaven Coal are charging higher
• Almost ready to retire? I’d buy ASX dividend shares now to capitalise on a stock market recovery
• Ainsworth Game Tech, BHP, Fisher & Paykel, and Leo Lithium shares are charging higher
• How to make $56,000 in passive income by investing $500 a month in ASX shares

Motley Fool contributor Cathryn Goh 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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November was a great month for the S&P/ASX 200 Index (ASX: XJO), with the benchmark index finishing up 6.1%. But three small-cap ASX mining shares left those gains in the dust.

In fact, two of the ASX miners more than doubled their share prices over the month. And the other came within a whisker of that same milestone.

Which ASX mining shares are we talking about?

Read on.

This ASX mining share gained 96% in November

The GreenX Metals Ltd (ASX: GRX) share price leapt 96.3% from the closing bell on 31 October through to the finish of trade of 30 November.

The junior ASX mining share is primarily focused on copper. Its biggest project is the Arctic Rift Copper Project, located in Greenland.

Promising early news from this project likely led to a spike in investor interest in the stock.

On 9 November, GreenX Metals reported “highly encouraging results” from its initial Arc site visit. High-grade copper and silver samples were both announced.

Project leader Jonathan Bell said, “The ease with which the historically reported mineralisation was identified in the field bodes well in terms of forward work programs to locate and map stratabound mineralisation that may have bulk tonnage potential.”

Also boosting the ASX mining share on the last day of November was the announcement that it had completed the arbitration hearing over its claims against Poland.

As my Foolish colleague Bronwyn reported on the day:

GreenX Metals is seeking damages of up to $1.3 billion in lost profits and damages arising from government actions that prevented the company from developing its Jan Karski and Debiensko projects… It’s now a matter of waiting for the Arbitral Tribunal to render a decision in the case.

The second-best share price performer in November

The second-best ASX mining share to have held in your portfolio in November was Southern Cross Gold Ltd (ASX: SXG), which leapt 132.4% over the month.

The Southern Cross Gold share price trended higher throughout the month. And the ASX mining share got another big lift on 21 November when the company reported “another spectacularly wide intersection of gold-antimony mineralisation” at its 100%-owned Sunday Creek Project, located in Victoria.

Commenting on the results that included multiple visible gold intersections, Southern Cross Gold’s managing director Michael Hudson said:

With only 67% of the hole assayed so far, yet with more than 300 metres of mineralisation already identified, and 270 metres of core left to process, understandably we are extremely impressed how Sunday Creek continues to deliver.

Which brings us to…

The best-performing ASX mining share in November

The winner by a nose is Winsome Resources Ltd (ASX: WR1), with the share price closing up 134.0% in November.

The lithium explorer listed on the ASX just over a year ago, on 30 November 2021, with November 2022 marking its strongest month to date.

Winsome Resources has been a clear beneficiary of the lithium fever that’s gripped markets amid an increasing global push towards electrification.

Investor interest in the ASX mining share surged on 28 October. That came on news that Winsome had identified “significant pegmatite intercepts” at its Adina and Cancet lithium projects, located in Canada.

The company continued to release more promising results from its exploratory drilling campaign in the early days of November.

And the ASX mining share got yet another big boost after announcing a $6.8 million capital raise at $1.67 per share. That was 54% higher than the Winsome Resources share price on the day of the announcement.

The post The ASX 200 gained 6% in November. Here’s how these 3 ASX mining shares smashed those returns appeared first on The Motley Fool Australia.

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More reading

• Guess which ASX copper share is rocketing 49% on Wednesday?
• 3 ASX mining shares leaping over 20% on Wednesday
• 3 ASX mining shares that soared more than 20% today
• Why has ASX lithium share Winsome Resources rocketed 220% in a month?
• Up 140% in a month, why has ASX lithium share Winsome Resources just been halted?

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

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The ASX is arguably just a drop in the ocean compared to some of the world’s largest exchanges – looking at you, Wall Street. But ASX shares pack a major dividend punch.

Companies listed in Australia paid out U$28.6 billion in dividends last quarter, according to the latest Janus Henderson Global Dividend Index.

The likes of BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) were among the world’s top 10 dividend payers in the September quarter, while Commonwealth Bank of Australia (ASX: CBA) and Fortescue Metals Group Limited (ASX: FMG) made the top 20.

But there are plenty of ASX dividend shares likely flying under the radar. Here are five Aussie stocks you may not have known pay investors dividends.

5 under-the-radar ASX dividend shares

The first ASX share one may not have noticed pays dividends is oOh!Media Ltd (ASX: OML).

The out-of-home advertising company has been handing shareholders a portion of its profits since 2015, with a short break during the pandemic.

It has paid out 2.5 cents per share over the last 12 months, leaving it with a 1.8% trailing dividend yield.

Perhaps surprisingly, ASX newbie Best & Less Group Holdings Ltd (ASX: BST) also pays dividends.

The clothing retailer listed in July 2021 and has since offered shareholders two dividends, worth 11 cents and 12 cents, respectively. That leaves the stock with a notable 9.9% yield.

Interestingly, Lynch Group Holdings Ltd (ASX: LGL) is in a similar boat to Best & Less.

The floral grower and wholesaler floated on the ASX in April 2021 and has since offered two 6-cent dividends per share. Right now, it trades with a 7% dividend yield.

Another under-the-radar ASX dividend payer might be trucking share Lindsay Australia Ltd (ASX: LAU).

It’s consistently paid dividends for decades, handing out 3.2 cents per share over the last 12 months. That leaves Lindsay’s stock with a 4.8% dividend yield.

Finally, newly crowned S&P/ASX 200 Index (ASX: XJO) stock Lovisa Holdings Ltd (ASX: LOV) also offers investors a portion of its profits. Indeed, it nearly doubled its offerings over the last 12 months.

The fashion jewellery retailer has handed shareholders 74 cents per share over that time, leaving it boasting a 3.2% yield.

The post 5 ASX shares you probably didn’t know pay dividends appeared first on The Motley Fool Australia.

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• 5 ASX 200 shares with juicy gross profit margins
• Top ASX shares to buy in December 2022
• 3 high-yield ASX dividend shares you’ve probably never heard of
• The world is shifting into the sweet spot for these 2 ASX shares: analyst
• Analysts name 2 excellent ASX growth shares to buy in December

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 Lindsay Australia and Lovisa. The Motley Fool Australia has recommended Lindsay Australia, Lovisa, and oOh!media. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors responded with great enthusiasm on Wednesday when Federal Reserve Chair Jerome Powell offered his latest comments on the current status of U.S. monetary policy. In particular, Powell’s assertion that the Fed could choose as soon as its December meeting to slow down the pace at which it has increased interest rates so far in 2022 came as welcome news for those who had feared that the central bank was determined to tighten too far. 

Even though stock markets soared in the hours following Powell’s comments, the true impact of a slower pace of tightening is far less certain. Determining the optimal course of monetary policy to balance price stability and economic growth is nearly impossible to accomplish. It’s entirely possible that slowing the pace of rate increases in the near future could achieve the best long-term results, but investors shouldn’t rule out the possibility that prematurely backing off of its aggressive stance toward policy tightening could make inflation more persistent.

For long-term investors, preventing entrenched inflation is arguably the most important goal for the central bank. Therefore, that’s the perspective from which market participants should evaluate any policy move from the Fed.

The impact on bond investors

Fed policy has a direct impact on borrowing costs, which in turn moves bond prices. However, the Fed’s influence affects one portion of the bond market much more than the other, and the results of successful Fed policy can look very different, particularly in the short term.

The Federal Reserve sets monetary policy primarily by establishing a target range for the federal funds rate, which is an overnight interest rate between financial institutions. Short-term fixed-income investments like Treasury bills typically move in line with the fed funds rate. The rates that consumers pay on credit card finance charges also often rise and fall along with the Fed’s actions.

A slowing pace of Fed rate hikes will keep any further increases in borrowing costs for these borrowers somewhat in check, but it won’t stop those increases entirely. Moreover, short-term bond investors could see rates continue to rise, boosting their potential investment income.

Yet longer-term bonds are already seeing steep declines in light of the Fed’s apparent plans to slow the pace of short-term rate increases, with 10-year Treasury note yields having fallen from 4.25% in early November to below 3.6%. That indicates investor confidence that the Fed’s moves could control inflation while allowing for a faster return to less restrictive monetary policy.

However, the drop in longer-term rates will have immediate impacts, including boosting total returns for bondholders and reducing borrowing costs in areas like mortgage lending, where loan rates are typically tied to longer-term bond benchmarks.

The impact on stock markets

Monetary policy’s impact on stocks is even less direct than on bond markets. Investors often consider short-term impacts while neglecting longer-term effects. The bear market in 2022 has largely centered on the idea that rising rates will create recessionary conditions, which will be detrimental for consumers and cause financial stress for the businesses that serve consumers. Conversely, if the Fed doesn’t raise rates as much, it arguably preserves a stronger economy.

Just about every argument favoring higher stock prices, however, has an also-compelling counterargument for lower stock prices. Signs that the Fed will defeat inflationary pressures could drive valuation levels higher once again, particularly for growth stocks, where prospects for profits lie well in the future. Yet the Fed also sees excessive speculation as potentially dangerous to financial markets, so its commitment to keep policy restrictive for an extended period could keep stocks from rebounding as quickly as they otherwise might.

If the Fed gets inflation moving lower again, stock investors can expect rate increases to slow and eventually stop. Yet some are hoping for a quick return to much lower rates, and that seems less likely to happen.

Be ready for anything

Of course, the best predictions of what the Fed will do are always subject to surprise events. An end to the Russian invasion of Ukraine or COVID-19-related lockdowns in China could have dramatic positive impacts on world markets, while new unforeseen threats could hurt investor sentiment.

Absent those outlier events, however, investors should keep their eyes on the Fed and the state of the global economy to see if central bank policy is working the way everyone wants. Success or failure on that front will be the primary mover for financial markets in 2023. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post What investors can expect as fed rate hikes slow appeared first on The Motley Fool Australia.

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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.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Telstra Group Ltd (ASX: TLS) share price has seen plenty of volatility in 2022. But, for the year, it’s now only down by less than 6%. Can it finish the year with a good performance?

So far in the month, it hasn’t done much. On the first day of December, the share price finished unchanged at $3.98.

The company is in an interesting time at the moment. The world is going through elevated inflation and higher interest rates, which has hurt valuations in a number of sectors on the ASX share market.

But Telstra is in a defensive industry – I think people and businesses are very likely to keep paying for telecommunications.

Let’s have a look at what might influence the Telstra share price in December and beyond.

Santa rally for December?

While the Telstra share price’s performance is largely down to its operations in the longer term, what’s happening elsewhere can influence things in the short term.

The S&P/ASX 200 Index (ASX: XJO) and other share markets have seen a strong run in the last few months. Since the end of September 2022, the ASX 200 has risen by around 13%.

There is a lot of talk that inflation may have peaked, or is about to. This is leading to central banks deciding to increase the interest rate by a smaller percentage. The Reserve Bank of Australia (RBA) has already started doing 0.25% increases and the US Federal Reserve may decide to do smaller increases from December onwards.

The reasoning for the slower rises is that it can take time for the effects of previous increases to flow through. It could be prudent to see the effects of the increases.

Investors may think that if the interest rate rises are slower, then the peak could be closer, and perhaps interest-rate reductions are nearer. This could be a positive for the ASX share market and the Telstra share price in December.

However, that line of thinking certainly comes with a lot of assumptions. The US Federal Reserve boss Jerome Powell has also commented that the interest rate is likely to stay high for some time to control inflation.

Thoughts on the Telstra share price

Despite the improving situation for the telecommunications giant, Telstra has not seen a bump in its share price. It is virtually the same level where it was 12 months ago – perhaps that’s a positive considering the higher interest rate.

I think the outlook is much more positive for the company. Its core mobile earnings can grow as it’s increasing prices in line with inflation. Telstra’s sources of revenue are diversifying as it expands with Telstra Health and the recent acquisition of Digicel Pacific – a telco provider for Pacific island countries such as Fiji.

However, it’s interesting to note that Telstra has delayed the launch of its retail energy business until at least the middle of 2023, according to the Australian Financial Review.

An expectation of continued cost cuts could help underlying earnings per share (EPS) grow by more than 10% per annum in the next few years.

A bonus is that it’s starting to grow its dividend. If it pays an annual dividend of 17 cents per share in FY23, as Commsec estimates suggest, then that would be a grossed-up dividend yield of 6.1%.

The post Can the Telstra share price finish 2022 with a bang in December? appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Why did Telstra have a mediocre performance in November?
• Guess which ‘boring’ ASX 200 share became one of the top dividend boosters of 2022
• 5 ASX 200 dividend shares to build your portfolio around
• 3 ASX 200 shares to weather the inflation storm: fundie

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 Telstra 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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