Category: Stock Market

Are you searching for dividend shares to buy? If you are, then the two named below could be worth a closer look.

Both have been named as buys by brokers and tipped to provide investors with big yields. Here’s what you need to know about them:

South32 Ltd (ASX: S32)

The first ASX dividend share for income investors to consider is South32.

It could be a buy according to analysts at Morgans, which believe the mining giant is a great option due to its “clear exposure to a recovery scenario for China growth.” The broker also likes the miner thanks to its portfolio transformation and strong balance sheet. The latter is seen as “supporting potential for further M&A.”

Morgans has an add rating and $5.30 price target on South32’s shares.

As for dividends, the broker is expecting South32 to pay fully franked dividends per share of 23 cents in FY 2023 and 21.6 cents in FY 2024. Based on the current South32 share price of $4.64, this will mean yields of 5% and 4.7%, respectively.

Universal Store Holdings Ltd (ASX: UNI)

Another ASX dividend share for income investors to consider is Universal Store.

This retailer, known for the Universal Store and Thrills brands, has been named as a buy by analysts at Goldman Sachs. The broker believes the company is well-placed to benefit from “a strong outlook for Gen-Z spending” and its ongoing store roll-out.

Goldman Sachs has a buy rating and $7.55 price target on its shares.

In respect to dividends, the broker is expecting fully franked dividends of 27.2 cents in FY 2023 and 29.9 cents in FY 2024. Based on the latest Universal Store share price of $5.64, this equates to yields of 4.8% and 5.3%, respectively.

The post These ASX dividend shares have big yields and bigger upside potential: experts appeared first on The Motley Fool Australia.

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More reading

• Why Challenger, SG Fleet, Sims, and Universal Store shares are rising
• Big yields are coming for these ASX dividend share: experts
• If I had a spare $1,000, here’s where I’d invest in the stock market now
• 2 ASX growth shares that also offer incredible dividends
• Beat the RBA hikes with these ASX dividend shares in February: experts

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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If your risk profile allows it, having a little exposure to the small end of town could be a good thing for a portfolio.

That’s because of the potentially strong returns that are on offer with small cap ASX shares.

But which ones could be buys? Two that Goldman Sachs rates as buys are listed below. Here’s what it is saying about them:

FINEOS Corporation Holdings PLC (ASX: FCL)

The first small cap ASX share to look at is Fineos, which is a provider of core systems for life, accident, and health insurance carriers globally. It has 7 of the 10 largest group life and health carriers in the US, as well as a 70% market share of group insurance in Australia.

Goldman is very positive on the company and has a buy rating and $2.40 price target on its shares. It commented:

Recent industry data points and commentary suggest that demand conditions are normalizing into 2023, with easing wage pressures increasing confidence in FCL’s cash break-even trajectory (we now see upside to consensus earnings across FY23-25E). Separately, FCL’s closest US comp Duck Creek was taken out for ~2-3x FCL’s trading multiple, providing valuation support for the sector.

Maas Group Holdings Ltd (ASX: MGH)

Another small cap ASX share to consider buying is Maas. It is a construction material, equipment and service provider.

Goldman believes that it could be a small cap to buy and has a buy rating and $4.20 price target on its shares. The broker is positive thanks to Maas’ ongoing transition, which it believes this will underpin higher quality earnings. It explained:

We believe MGH is in a transition phase and will see higher quality real estate income become the largest source of earnings in the next 3-5 years. We believe the market is mispricing how MGH’s civil and construction capabilities support the property development business to deliver best-in-class margins and asset turnover. In our view the value created through the development of quality annuity revenue from Build-to-Rent (BTR), Land Lease (potentially generating a 4.5x ROIC annuity income stream) and commercial real estate projects could re-rate the stock.

The post Goldman Sachs says these ASX small cap shares are buy with major upside potential appeared first on The Motley Fool Australia.

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More reading

• Why De Grey, Elders, Maas, and Nuix shares are charging higher today
• Guess which ASX 300 share is soaring 13% on a major earnings boost
• 2 of the most compelling ASX 300 shares to buy this month: fund manager

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 recommended FINEOS Corporation. 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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With so many shares to choose from on the ASX, it can be hard to decide which ones to buy. The good news is that brokers across the country are doing a lot of the hard work for you.

Three top ASX shares that leading brokers have named as buys this week are listed below. Here’s why they are bullish on them:

Endeavour Group Ltd (ASX: EDV)

According to a note out of Morgans, its analysts have upgraded this drinks giant’s shares to an add rating with an improved price target to $7.80. Morgans notes that Endeavour’s half year result was comfortably ahead of expectations with its retail margin performance the key standout. And while the regulatory environment remains uncertain, on balance, it thinks the risks lie to the upside with the underlying business performing well. The Endeavour share price is trading at $7.00 on Tuesday.

JB Hi-Fi Limited (ASX: JBH)

A note out of Citi reveals that its analysts have retained their buy rating and $55.00 price target on this retailer’s shares. This follows the release of a result and trading update in line with its expectations. Overall, the broker continues to see upside risk to consensus expectations and plenty of value in its shares. The JB Hi-Fi share price is fetching $45.15 this afternoon.

REA Group Limited (ASX: REA)

Analysts at Goldman Sachs have retained their conviction buy rating and $158.00 price target on this property listings company’s shares. Goldman was pleased with the realestate.com.au operator’s half year results and believes both the quality of the company and its positive thesis were reinforced by it. The REA share price is trading at $121.66 on Tuesday.

The post Leading brokers name 3 ASX shares to buy today appeared first on The Motley Fool Australia.

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More reading

• Are JB Hi-Fi shares now at a bargain price?
• Credit and drinks: Experts name 2 ASX shares to buy for a 2023 economic slowdown
• Here are the top 10 ASX 200 shares today
• Deadline coming: 3 ASX 200 shares to buy now before dividend payouts
• Why Audinate, Endeavour, IAG, and Vitura Health shares are charging higher

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 recommended Jb Hi-Fi and 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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Core Lithium Ltd (ASX: CXO) shares have the unsolicited honour of counting amongst the top shorted shares on the ASX.

And short interest in the S&P/ASX 200 Index (ASX: XJO) lithium stock has been growing.

Last Monday, 6 February, short interest in the company stood at 9%.

Yesterday, 13 February, short interest in Core Lithium shares had increased to 9.6%. That makes it the fifth most shorted stock on the ASX at the start of the week.

So, why are ASX investors betting the share price will come down?

Why is short interest growing?

Core Lithium shares look to be attracting short interest for a number of reasons.

First, investors appear to be concerned about the medium-term outlook for lithium prices. Following some big share price gains, that’s seen a number of other ASX lithium stocks make the top-10 most shorted list in recent weeks.

Indeed, with supply forecasts up and demand forecasts down for 2023, the price of the battery critical metal has fallen more than 20% since hitting all-time highs on 14 November.

Lithium carbonate prices in China (courtesy of Trading Economics) reached AU$126,000 per tonne in mid-November. Prices currently stand at AU$99,225 per tonne.

Valuation concerns are another reason Core Lithium shares are finding themselves in the crosshairs of short sellers.

On 30 January, Goldman Sachs reiterated its sell rating on Core Lithium, with a 95-cent share price target. That’s roughly 6% below the current share price of $1.01.

“CXO continues to look expensive relative to peers trading at 1.5x NAV (peer average ~1.2x NAV),” the broker stated.

Goldman also cited production risks at the miner’s Finniss project, located in the Northern Territory, where the first spodumene concentrate production is expected during the first half of this year.

According to Goldman Sachs:

We see production risk as the Finniss project moves through ramp up on project complexity (moving between different open pits and underground configurations), and the required exploration/resource upside to support capacity expansion/life extension currently priced into the stock looks significant.

How have Core Lithium shares been tracking?

Core Lithium shares are trading right about where they kicked off 2023.

As you can see in the chart below, the ASX lithium stock remains up 28% over the past 12 months, defying short sellers. At least for now.

Go back a bit further, and you’ll find shares are up 310% over two years.

The post Why is short interest in Core Lithium shares growing? appeared first on The Motley Fool Australia.

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More reading

• Here are the 10 most shorted ASX shares
• Why has the Core Lithium share price tumbled 15% in under 2 weeks?
• Better buy: Core Lithium vs Pilbara Minerals shares
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Why Brainchip, Core Lithium, IAG, and Nick Scali shares are dropping today

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has 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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Imagine being handed $500 each month for doing nothing at all. That’s the beauty of passive income, a major benefit of investing in ASX dividend shares.

Fortunately, I truly believe anyone with a few hundred dollars a month of spare cash can build up a passive income portfolio now and reap the rewards later without breaking the bank.

However, investing in any and all ASX dividend stocks could prove detrimental. Here’re five steps I’d take if I were aiming for $500 of monthly passive income, starting from scratch in 2023.

#1 commit to regularly investing

Investing involves just that, investing. To become an investor, one must have cash to begin with.

And while sinking a few hundred into the stock market here and there can build wealth, reaching a set goal is likely better done by employing a consistent investing strategy.

I believe committing to investing a set amount, say $500 a month, into ASX dividend shares is the first step to building a reliable dividend stream.

#2 know the ins and outs of ASX dividends

As alluded to above, running blindly into the stock market is rarely the best way to set yourself up to benefit from your investments.

So, I’d argue the second step to building passive income with ASX shares is to understand how dividends work.

If a company is generating more cash than it has a use for, it can hand the excess to its shareholders. The portion of such free cash flow that an investor receives is a dividend.

Thus, the best ASX dividend shares are generally those with strong, consistent, and defensive cash flows.

#3 hunt down ASX passive income opportunities

On that note, the next step is finding ASX shares worth buying.

There’s no single rule that makes one stock a better buy than another. That often comes down to an investor’s preference, existing knowledge, and risk tolerance.

However, if I were investing for passive income, I’d likely stick to S&P/ASX 200 Index (ASX: XJO) shares that I understand and that boast a history of turning consistent cash flows into decent dividends.

On top of that, I would ensure they’re trading at a good price before buying them. Of course, that means I’d be in for a decent amount of homework. But there is a shortcut.

An investor can always turn to an exchange-traded fund (ETF) like the Vanguard Australian Shares High Yield ETF (ASX: VHY) to get a hold of a diverse range of dividend paying stocks.

#4 invest in a passive income portfolio

After considering the best path forward for themselves, I’d advise an up-and-coming passive income investor to stick to their guns. The market tends to ebb and flow but has historically always gone up.

While it might be tempting to halt an investing strategy when the market is falling, doing so can be detrimental to an investor’s long-term goals.  

Speaking of the long-term, if I were to be investing $500 a month, it would take me a while to reach $500 of monthly passive income ($6,000 of annual passive income).

My portfolio of ASX shares would need to be worth $120,000 before I could realise $6,000 of passive income each year, assuming a 5% dividend yield. That’s why I would reinvest my dividends until I reach my goal.

By investing $500 a month and using my dividend income to buy more shares, I could compound my returns, thereby growing my portfolio to $120,000 in a little over 14 years.

#5 regularly review and adjust

Finally, building an ASX passive income portfolio is rarely a ‘set and forget’ endeavour. Nearly everything changes over time, and companies listed on the ASX are no exception.

If I were relying on ASX shares for passive income, I’d keep an eye on their businesses and the environment they operate in to make sure they make good investment sense now and into the future.

The post 5 steps to making $500 in monthly passive income in 2023 appeared first on The Motley Fool Australia.

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More reading

• Why Ansell, Breville, Star, and Temple & Webster shares are falling
• I’d drip-feed $400 a month into ASX shares to try for a million
• Why Challenger, SG Fleet, Sims, and Universal Store shares are rising
• Vanguard Australian Shares Index ETF: Short-term pain for long-term gains
• Dash for trash fades as earnings cliff looms for ASX shares, with the market shooting first and asking questions later

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 recommended Vanguard Australian Shares High Yield ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) is back on form on Tuesday. In afternoon trade, the benchmark index is up 0.15% to 7,428.7 points.

Four ASX shares that have failed to follow the market higher today are listed below. Here’s why they are dropping:

Ansell Limited (ASX: ANN)

The Ansell share price is down 8.5% to $25.71. Investors have been selling this health and safety products company’s shares following the release of its half year results. Ansell reported a 17.2% decline in sales to $835.3 million and a 16.5% reduction in net profit after tax to $64.8 million. This was driven by weakness in the company’s healthcare segment, which offset growth in the industrial segment.

Breville Group Ltd (ASX: BRG)

The Breville share price is down 6% to $20.38. This follows the release of the appliance manufacturer’s half year results. Breville reported a 1.1% increase in revenue to $888 million and a 1.3% lift in net profit after tax to $78.7 million. The latter was ahead of consensus estimate of $74.2 million, but that hasn’t stopped its shares from falling.

Star Entertainment Group Ltd (ASX: SGR)

The Star share price is down a further 12% to $1.30. Investors have been selling this casino operator’s shares since the release of a disappointing earnings update on Monday. Star revealed that competition in Sydney and regulatory issues have been weighing heavily on its performance.

Temple & Webster Group Ltd (ASX: TPW)

The Temple & Webster share price is down 22% to $3.84. This morning, Temple & Webster released its half year results and reported a 12% decline in revenue and a 46.7% reduction in net profit after tax. This was due to the company cycling strong lockdown-boosted sales in the prior corresponding period. It is also worth noting that the company’s result was in line with Goldman Sachs’ estimates, despite what its share price may indicate.

The post Why Ansell, Breville, Star, and Temple & Webster shares are falling appeared first on The Motley Fool Australia.

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More reading

• Dash for trash fades as earnings cliff looms for ASX shares, with the market shooting first and asking questions later
• Breville share price tumbles 4% as revenue growth slows
• Ansell share price slumps 8% as healthcare sales fail to cough up
• Temple & Webster share price sinks 13% on half year results
• 5 things to watch on the ASX 200 on Tuesday

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 Temple & Webster Group. The Motley Fool Australia has recommended Ansell and 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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When it comes to investing in ASX shares, the dollar-cost averaging strategy is one that works well for many investors.

The point of this strategy is to take the anxiety of trying to time the market out of the equation. We know that markets tend to rise over time, as illustrated below:

Thus, if you consistently put your extra cash into an index fund at set intervals, you will be able to harness this compounding phenomenon without too much worry.

Sure, you won’t be ‘buying low and selling high’ like we’re all told to do. But behavioural economics tells us that we’re usually pretty bad at doing this anyway, so why bother with all of that stress?

So if you steadily drip-feed a $400-a-month investment into the markets using a dollar-cost averaging strategy, how long will it take to get to a million-dollar portfolio?

Well, $400 a month is roughly $100 a week, or $4,800 a year.

How far will investing $400 a month into ASX shares get you?

Let’s say we start with a $4,800 lump sum after a year of hard saving and go from there. So if you just put the cash under the mattress, you’d have $48,000 after a further nine years.

But say we invested that money into an ASX index fund instead. The SPDR AS&P/ASX 200 Fund (ASX: STW) is one of the oldest index funds on the ASX.

It has been around since 2001 and, over this period, has returned an average of 8.01% per annum. That assumes any dividends received are reinvested, of course.

At that rate of return, our $4,800 per year investment would have turned into $82,459 after a decade. That’s close to double what we would have had if we left the cash under the mattress.

But how long would it take to get to the magic mil?

Well, if an investor consistently got that 8.01% return every year, and kept investing $400 per month, said investor would be a millionaire after 34 years.

Now that’s a long time, to be sure. But it does mean that someone who got started investing when they were 18 with just $400 a month could reach million-dollar portfolio status by the time they hit 52.

If a lucky couple shacks up at 18 and both manage to execute this strategy, that could be a very early retirement on the cards.

Like all good investment strategies, this is not a get-rich-quick kind of plan. But it does show how investing in shares can make a meaningful difference to one’s wealth (and, potentially, retirement) if applied consistently.

 

The post I’d drip-feed $400 a month into ASX shares to try for a million appeared first on The Motley Fool Australia.

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More reading

• Want to invest successfully? You need to do this with your dividends
• Does the Vanguard Australian Shares ETF’s unique structure deliver better returns than the ASX 200?

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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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a decent gain. At the time of writing, the benchmark index is up 0.25% to 7,437 points.

Four ASX shares that are climbing more than most today are listed below. Here’s why they are rising:

Challenger Ltd (ASX: CGF)

The Challenger share price is up 5% to $7.65. Investors have been buying this annuities company’s shares following the release of its half year results. Challenger reported a 5% increase in normalised profit before tax to $250 million. This allowed the company to increase its interim dividend by 4% to 12 cents per share.

SG Fleet Group Ltd (ASX: SGF)

The SG Fleet share price is up 10% to $2.29. This morning, this fleet management company reported a 16% lift in revenue to $178.4 million and a 41% jump in half year profit to $41.9 million. Management commented: “We have demonstrated the strength of our competitive position and our ability to turn the steady stream of new business opportunities into further customers wins and vehicle orders.”

Sims Ltd (ASX: SGM)

The Sims share price is up 8% to $15.91. The catalyst for this has been the release of the scrap metal company’s half year results. Sims reported a 10% decline in revenue and a whopping 80% decline in underlying net profit after tax. However, investors appear to have been expecting even worse.

Universal Store Holdings Ltd (ASX: UNI)

The Universal Store share price is up 5% to $5.69. This appears to have been driven by a bullish broker note out of Citi. According to the note, the broker has upgraded this retailer’s shares to a buy rating with a $6.00 price target. Citi believes consensus estimates are too low.

The post Why Challenger, SG Fleet, Sims, and Universal Store shares are rising appeared first on The Motley Fool Australia.

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More reading

• 3 ASX All Ordinaries shares rocketing over 5% on strong earnings updates
• Challenger share price screams 7% higher on half-year results
• 3 ASX 200 shares just upgraded by brokers, one with 50% upside
• If I had a spare $1,000, here’s where I’d invest in the stock market now
• 2 ASX growth shares that also offer incredible dividends

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 recommended Challenger. 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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It’s been a rough couple of weeks for the Vanguard Australian Shares Index ETF (ASX: VAS). The ASX’s most popular exchange-traded fund (ETF) was asking more than $93.40 for a unit back at the start of February. 

But today, this index fund is going for $91.92 at the time of writing, down around 1.6% since 3 February. That tempers the strong start to the year that this Vanguard ETF had. Between 3 January and 3 February, Vanguard Australian Shares ETF units rose by an impressive 8.9%.

But this short-term pain could be worth it for the long-term returns that this ETF could offer.

Long-term gains for the Vanguard Australian Shares ETF?

An index fund like the Vanguard Australian Shares Index ETF is essentially a bet on the Australian economy. That’s because an index fund holds a broad collection of the largest shares in a share market.

That’s the only thing that determines which shares make the cut and which don’t. In this ETF’s case, the portfolio consists of the 300 largest publically-listed companies in Australia.

If an ASX share underperforms over time and loses value, it will eventually get kicked out of the index during a periodic rebalancing, and thus, the ETF, only to be replaced by a better-performing company. This way, the index fund ‘picks winners’ over time.

As such, buying into an index fund can be a great way to expose your wealth to the prosperity of the Australian economy, all while requiring very little effort on the investors’ own behalf.

The Australian economy has always risen over time. We produce more goods and services today than at any other time in history. Concurrently, our share market has never failed to exceed a previous all-time high, given enough time.

The S&P/ASX 200 Index (ASX: XJO) last all-time high was back in August 2021 – 7,632.5 points. As it stands today, we are still ‘only’ 2.5% away from this high watermark.

We see a similar pattern in the Vanguard Australian Shares ETF:

So the short-term pain we are seeing in both the Australian share market and the Vanguard Australian shares ETF over the past couple of weeks might actually be a good opportunity to lock in some long-term gains.

If markets keep to their historical tendencies and rise over time, then logic dictates that the lower one can buy into an index fund, the better off one will be.

The post Vanguard Australian Shares Index ETF: Short-term pain for long-term gains appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in Vanguard Australian Shares Index ETF. 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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1) The bear market in US stocks is over, according to Wells Fargo.

That’s the good news. The not-as-good news is that doesn’t mean we’re headed straight into a bull market, according to an article on MarketWatch. 

“The bear market is over, but it is not the great reflation,” said Wells Fargo equity analysts, led by Christopher Harvey, in a research note Monday. “We see neither a bull nor a bear market, just a market.”

Wells Fargo “envision a malaise, not a hard landing” for the economy. “However, this does not necessarily mean it is risk-on from here on out,” they cautioned. “A sustained re-pricing of risk is not supported by valuations or anemic economic growth expectations.”

The same could be said about the Australian stock market, especially after the ASX 200 rally to start the new year, the benchmark index up close to 6% so far in 2023.

Some of the big winners this year have been more speculative stocks, like Nuix Limited (ASX: NXL) and Appen Limited (ASX: APX). 

But yesterday they both came crashing back to earth.

The Nuix share price slumped 26% after the AFR reported corporate regulator ASIC is expected to dump Nuix when it chooses its software partner late next month, as concerns rise over the troubled tech stock’s cash burn and a wave of client defections.

The Appen share price plunged 15% after it said it expects to recognise a $204 million impairment charge relating to poor performance in its new markets division, excluding China.

Call it momentum trading, bottom fishing, fear of missing out (FOMO), or just plain gambling, but speculating on turnarounds for under-performing businesses often comes with a sting in the tail. 

2) Leading global fund manager Ophir characterised January’s stock market rally as a “dash for trash”, where low-quality stocks rallied hard.

Writing in its January letter to investors, Ophir said some stocks rallied despite no earnings news, and simply because of sentiment that inflation may be tamed, with the US market being led higher “by some of the lowest-quality, unprofitable and highly geared businesses”.

“We expect to underperform during a low-quality rally in shares. It is not something that we want to chase. Sticking to your knitting is crucial as an investor as there are constant temptations to stray into the latest flavour of the month market segment through fear of missing out (FOMO).”

Ophir remains cautious for the middle and latter parts of this year, saying…

• “Interest rate hikes in major economies will continue to eat into demand, and corporate earnings may have further to fall. The size of any drop in demand and earnings, though, is highly uncertain.”
• “Both a soft and hard landing are plausible outcomes.”
• “In our view, the probability of more significant earnings falls is still higher than usual.”

As for Ophir’s edge, in the medium to long term, earnings growth drives share prices.

“With enough time and patience, and with no key changes in our investment team and process, we remain confident we can keep picking a higher proportion of earnings ‘beats’ than the market, which we believe will help drive long-term outperformance of our funds.”

3) It can be a long and lonely time waiting for earnings growth to be recognised by the market, especially in the smaller and less liquid ASX stocks. 

In mid-2021, I bought shares in Duratec Limited (ASX: DUR), a leading Australian contractor providing assessment, protection, remediation, and refurbishment services to a broad range of assets and infrastructure. 

Whilst the company did endure some challenges imposed by COVID-19, it steadily and methodically grew revenue and its order book, the latter giving solid visibility into future earnings growth.

Yet the Duratec share price stagnated for 15 months. Doubts crept in. Boredom set in, and the temptation to sell and recycle the funds into something else. Was I missing something?

Then, somewhat suddenly, Duratec shares sprung to life.

A strategic acquisition, forecast FY23 revenue growth of 40%, and EBITDA growth of 73%, plus a string of contract wins has seen the Duratec share price jump to 77 cents, up 100% in the past six months. 

It’s a win for the maxim that earnings growth drives share prices, in the medium to long term. Trading at around 0.4 times sales and around 5.6 times EBITDA, I remain a happy holder.

4) It doesn’t always work out that well for my small and micro-cap portfolio.

I’m underwater on my Good Drinks Australia (ASX: GDA) holding, with the share price of one of the country’s largest independent brewers trading at close to a 52-week low.

This comes despite the company having posted first-half revenue growth of 80%, albeit EBITDA coming in flat at $6.1 million as the company continued to invest in marketing for growth. 

Giving hope for long-suffering shareholders like me is the Good Drinks Australia target of growing its earnings to $25 to $30 million by FY25. By comparison, the market capitalisation today is just $85 million. The upside potential looks attractive.

Before it gets there, however, the company itself recognises it will have to carefully navigate an environment of reduced discretionary spend across the liquor category over the next 18 months. 

In September last year, the Good Drinks Australia Board and senior management team spent $3.2 million buying shares in their own company, paying 75 cents per share. 

“This significant level of financial commitment by the Board and management team reflects a shared belief in the attractiveness of the Company’s valuation at these prices,” said Chairman Ian Olson. 

Today, the Good Drinks Australia share price languishes at just 66 cents. Should the company hit its FY25 EBITDA target, the GDA share price should indeed turn out to be attractive both at 66 cents and 75 cents. But it’s a competitive market, and premium-priced craft beer may struggle to sell once the “mortgage cliff” hits households. 

I continue to hold my GDA shares, may add, but will mostly just wait, and hope. 

5) The market is shooting first and asking questions later with Temple & Webster (ASX: TPW). The share price of the online furniture and homewares retailer is being taken to the cleaners, currently down 26.67% to $3.63.

Revenue for the first half declined 12% to $207 million, with the company reporting a rather skinny net profit after tax of just $3.9 million. That’s a lot of sales, logistics, marketing, and investments for a tiny return. Compounding things was a decline in active customers to 840,000.

For the first five weeks of the second half, Temple and Webster sales were down 7% over the prior corresponding period, although this has been blamed on strong sales a year earlier due to the omicron outbreak.

Looking ahead, Temple & Webster’s CEO, Mark Coulter says…

“Longer-term, ecommerce in the Australian furniture & homewares category remains highly under-penetrated, and we have a much larger addressable market to go after in our new target verticals.”

Retailing is tough. Competitive, cyclical, and with skinny margins. I’ll wish them the best from the sidelines, and wait for the headwinds to turn to tailwinds. It might take some time.

The post Dash for trash fades as earnings cliff looms for ASX shares, with the market shooting first and asking questions later appeared first on The Motley Fool Australia.

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More reading

• Appen shares dive again. Are they cheap enough to buy?
• Temple & Webster share price sinks 13% on half year results
• Looking for growth? 3 ASX shares experts rate as buys
• Why Appen, Lendlease, Nuix, and Star shares are sinking today
• Could 2023 be the year these ASX AI stocks come roaring back?

Motley Fool contributor Bruce Jackson has positions in Duratec and Good Drinks Australia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Appen 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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