Category: Stock Market

It’s a big day for the S&P/ASX 200 Index (ASX: XJO) today, its biggest day in months. Not because anything too remarkable is happening with the index’s movements themselves this Monday. At the time of writing, the ASX 200 is essentially flat, having gained an unremarkable 0.04% so far this session to just over 6,740 points.

No, it’s a big day for the ASX 200 today because the latest quarterly rebalancing has just taken effect. The ASX 200 has just had a shakeup.

Why do indexes need rebalancing?

Like most indexes, the ASX 200 is constructed through weighting by market capitalisation. This means the largest companies by size enjoy the largest weighting in the index.

So even though there are 200 or so ASX shares in the ASX 200, the largest ones have more influence than the smallest ones. So Commonwealth Bank of Australia (ASX: CBA), for example, has a far more influential presence on the ASX 200 than, say, Bank of Queensland Limited (ASX: BOQ).  

But market capitalisations are determined by a company’s sales price. And, as we know, this changes every trading day. As such, the largest ASX 200 shares by market capitalisation are always in flux.

To make up for this, the ASX 200 is rebalanced every three months to ensure the index is accurately representing the Australian share market. What might have been the ASX 200’s 195th largest share by market cap in one quarter might become the 205th, for example, by the time the next quarter rolls around.

As such, there are normally new companies that leave the index when this rebalancing takes place. These will be replaced by others that have seen their market capitalisation rise over the quarter in question.

So these changes to the ASX 200 Index are normally announced with a few weeks to spare. This gives index funds and other concerned parties the time to adjust and hopefully prevents no unnecessarily wild price swings on the rebalance day.

We found out what the latest rebalancing would involve a few weeks ago on 2 September. But today is the day these changes take effect. So let’s go over some of the biggest changes to the ASX 200 Index that are in place from today.

A new look ASX 200

So, to get the bad news out of the way first, here is a list of the ASX 200 shares that are, well, no longer ASX 200 shares.:

• Life360 Inc (ASX: 360)
• AVZ Minerals Ltd (ASX: AVZ)
• City Chic Collective Ltd (ASX: CCX)
• Clinuvel Pharmaceuticals Limited (ASX: CUV)
• EML Payments Ltd (ASX: EML)
• Janus Henderson Group (ASX: JHG)
• Pointsbet Holdings Ltd (ASX PBH)
• Zip Co Ltd (ASX: ZIP)

In their place, here are the new faces that have just gained an ASX 200 membership card:

• Capricorn Metals Ltd (ASX: CMM)
• Charter Hall Social Infrastructure REIT (ASX: CQE)
• Johns Lyng Group Ltd (ASX: JLG)
• Karoon Energy Ltd (ASX: KAR)
• Lovisa Holdings Ltd (ASX: LOV)
• Smartgroup Corporation Ltd (ASX: SIQ)
• Spark New Zealand Ltd (ASX: SPK)
• Sayona Mining Limited (ASX: SYA)

So some interesting names here, which perhaps some readers might be familiar with.     

ASX 200 membership can be a big deal for a company’s shares. For example, as of today, any ASX 200 index fund or exchange-traded fund (ETF) that tracks the ASX 200 will have now sold any of the companies in our first list. They also would have just welcomed all of the companies in our second list in their funds.

There’s also the prestige that comes along with being in the flagship index of ASX 200 shares.

So today might be a bitter day for some ASX shares that didn’t make the cut this time. But it will also be a happy day for the new companies being welcomed onto the ASX 200 as of this Monday.

The post The ASX 200 is getting a shakeup today. Here’s the tea appeared first on The Motley Fool Australia.

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More reading

• Out in the cold: How are the ASX 200 evictees faring on Monday?
• How are Zip shares faring on their first day outside the ASX 200?
• Here’s why this ASX 200 retail share is on my buy radar
• Here are the 10 most shorted ASX shares
• 5 things to watch on the ASX 200 on Monday

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 positions in and has recommended EML Payments, Johns Lyng Group Limited, Pointsbet Holdings Ltd, and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended EML Payments and SMARTGROUP DEF SET. The Motley Fool Australia has recommended Johns Lyng Group Limited, Lovisa Holdings Ltd, and Pointsbet Holdings Ltd. 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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Today is quarterly rebalance day for the Australian share market.

This is the day that additions and removals from major indices to reflect changes in market capitalisations and liquidity are made effective.

Earlier this month S&P Dow Jones Indices announced a sizeable eight additions and eight removals from the benchmark ASX 200 index.

For the companies entering the index, it often gives their shares a boost. That’s because index funds have to buy them to reflect the change and fund managers that are only allowed to buy ASX 200 shares now have the option to invest.

Conversely, the shares that are kicked out of the ASX 200 index can come under pressure from selling from index funds and fund managers dumping shares they are no longer able to hold due to strict investment mandates.

And while most of the buying and selling is likely to be done in the two weeks between the announcement and the rebalance becoming effective, it is always interesting to see how these shares perform on rebalance day.

How are the ASX 200 evictees performing?

Let’s take a look at how the eight ASX shares that have been kicked out of the ASX 200 today are performing. Here’s a summary:

The AVZ Minerals Ltd (ASX: AVZ) share price has been suspended for over four months and thus has not been impacted (yet) by this rebalance.

The City Chic Collective Ltd (ASX: CCX) share price is down 4% to $1.62 on Monday. This plus sized fashion retailer’s shares are now trading close to a 52-week low.

The Clinuvel Pharmaceuticals Limited (ASX: CUV) share price has dropped 5% to $20.32 today.

The EML Payments Ltd (ASX: EML) share price has tumbled 4% to 90 cents. This struggling payments company’s shares are now down over 70% in 2022.

The Janus Henderson Group (ASX: JHG) share price is down 0.5% today.

The Life360 Inc (ASX: 360) share price is defying the trend and storming 6% higher to $5.64 this afternoon.

The Pointsbet Holdings Ltd (ASX: PBH) share price is also managing to push higher despite its ASX 200 exit. The sports betting company’s shares are up 2% to $2.14.

The Zip Co Ltd (ASX: ZIP) share price is down 2% to 80.5 cents. This buy now pay later provider’s shares are now down 81% in 2022.

The post Out in the cold: How are the ASX 200 evictees faring on Monday? appeared first on The Motley Fool Australia.

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More reading

• The ASX 200 is getting a shakeup today. Here’s the tea
• How are Zip shares faring on their first day outside the ASX 200?
• Here are the 10 most shorted ASX shares
• 5 things to watch on the ASX 200 on Monday
• 2 ASX shares now at a buying opportunity after a shocking 2022: fundie

Motley Fool contributor James Mickleboro has positions in Life360, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended EML Payments, Life360, Inc., Pointsbet Holdings Ltd, and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended EML Payments. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. 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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One Australian billionaire has sold off a major coal asset and reportedly plans to funnel the proceeds into Aussie-born electric vehicle (EV) charging giant Tritium DCFC Ltd (NASDAQ: DCFC) shares.

Trevor St Baker and business partner Brian Flannery have agreed to sell New South Wales’ Vales Point Power Station – responsible for 11% of the state’s energy ­– to Czech group Sev.en Global Investments.

The sale is worth more than $200 million, The Australian reports. St Baker is said to be planning to put the proceeds towards upping his stake in Tritium.

The Tritium share price last traded at US$5.87.

Let’s take a closer look at the billionaire’s apparent plan to increase his holding in the EV charging favourite.

Could this coal sale fuel Tritium’s fire?

Energy billionaire St Barker has sold off a major coal fired power station and apparently intends to reinvest the proceeds into Tritium – a favourite for the energy transition.

St Barker and Flannery reportedly bought the station for $1 million in 2015. They are also said to have pocketed $130 million of dividends from its activities over the three years to 2022.

The billionaire told The Australian he will invest some of the cash generated from the sale into Tritium.

Another portion of the proceeds has also been earmarked to go to Aussie EV fast charging stations business Evie Networks.

Both companies are already mainstays in the St Barker Energy Innovation Fund.

St Barker has also held a seat on the Tritium board since 2013.

Despite his apparent interest in the energy transition, St Barker remains confident coal will play an important role in Australia in the years to come. He commented on the sale of Vales Point, saying:

We continue to have a firm view that around the clock dispatchable generation will be necessary for the NEM well into the future.

Sev.en already has a presence in Australia, holding interests in Queensland’s Millmerran and Callide power stations.

Tritium has been continuing its growth story this year. It opened its first factory in the United States last month, just five months after announcing its planned build.

The post From coal to clean: Aussie billionaire’s plan to further energise Tritium stake appeared first on The Motley Fool Australia.

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More reading

• Why did the Tritium share price just leap 14%?

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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The Zip Co Ltd (ASX: ZIP) share price is down 1.83% in early afternoon trade on Monday.

Zip shares closed on Friday trading for 82 cents and are currently trading for 80.5 cents apiece.

With the benchmark indexes broadly flat at the time of writing, the ASX buy now, pay later (BNPL) share is underperforming on its first day of trading outside the S&P/ASX 200 Index (ASX: XJO).

What are ASX investors considering today?

There look to be two factors throwing up some headwinds for Zip shares today.

First, as mentioned, today is the first day the stock is trading outside of the ASX 200.

That came as part of S&P Dow Jones Indices September quarterly review.

With Zip shares having suffered a horror year, down 82% in 2022 so far, the company’s market cap has fallen to $561 million, no longer qualifying it among the top 200 listed companies.

Getting ousted from the ASX 200 could hamper the BNPL stock, in part because many fund managers are restricted to trading shares listed on the blue-chip index. Those fund managers still holding shares now may find themselves having to sell Zip while others will not be able to snap them up.

Investors are also likely eyeing the upcoming interest rate decision by the US Federal Reserve.

The Fed board will announce its decision on Wednesday (early Thursday morning Aussie time).

Following an uptick in August’s inflation figures in the world’s largest economy – while economists had largely been forecasting a downturn – analysts now predict the Fed will continue to hike rates aggressively to tame fast-rising prices.

Higher rates are bad news for loss-making companies like Zip, which are priced with future earnings in mind. As interest rates climb, so too does the cost of those future earnings. Higher rates will also pressure Zip’s customers and could see an increase in the level of bad debts the company is already struggling with.

How have Zip shares performed longer-term?

Although Zip shares are up 83% from their 23 June lows, the stock remains down a painful 88% over the past 12 months. That compares to a 7.8% loss posted by the All Ordinaries Index (ASX: XAO), its new benchmark index.

The post How are Zip shares faring on their first day outside the ASX 200? appeared first on The Motley Fool Australia.

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More reading

• The ASX 200 is getting a shakeup today. Here’s the tea
• Out in the cold: How are the ASX 200 evictees faring on Monday?
• Here are the 10 most shorted ASX shares
• 5 things to watch on the ASX 200 on Monday
• Why Atlas Arteria, Liontown, St Barbara, and Zip 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 positions in and has recommended ZIPCOLTD FPO. 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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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.

I believe you should buy stocks right now, and I’ll support this position with insights from people far more qualified to walk us through this than I am.

With so much uncertainty in the world and in the economy, I know that now can seem like a poor time to invest. But stock pickers could be in a more advantageous position now than they’ve been for over a decade.

Bull market geniuses or ducks in the rain?

From March 2009 through the end of 2021, the S&P 500 was up over 500%. The march upward only had a couple of brief interruptions, as this chart shows.

^SPX data by YCharts.

If you were buying and holding stocks during this period, it was almost difficult to lose money.

It reminds me of something Berkshire Hathaway Inc.(NYSE: BRKB) CEO Warren Buffett once said. Referencing Berkshire’s 34% gain in 1997 in his letter to shareholders, Buffett wrote: “Last year’s performance was no great triumph: Any investor can chalk up large returns when stocks soar, as they did in 1997. In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world.” 

To restate Buffett’s point, almost all investors look like geniuses in a bull market because stocks are going up everywhere — just buy something. And this is partly due to the broader economy, since there’s a strong correlation between that and the market. When the economy is strong, many businesses do well and their stocks go up.

However, we are entering a whole new world in 2022. The U.S. economy has declined for two consecutive quarters. And things could slow further because of the Federal Reserve, as it raises interest rates to combat inflation. As Fed Chairman Jerome Powell recently said, “Reducing inflation is likely to require a sustained period of below-trend growth.”

According to Powell, increasing interest rates will continue to slow the economy. But it’s also causing the cost of capital to increase, hurting businesses that need financing. 

The clock is ticking (for some)

The situation I’ve described is real. Even companies that have historically burned cash, like Snap Inc.(NYSE: SNAP), are pivoting. When it comes to profits, CEO Evan Spiegel recently said, “We must adapt our strategy accordingly.” For this reason, the company is making several changes, including trying to better monetize its augmented-reality (AR) technology by launching an enterprise business.

But many unprofitable companies won’t be able to adapt. The dot-com bubble more than two decades ago was a similar situation. The market hit its high in early 2000, but the writing was already on the wall. Talking to Forbes at the time, Ron Sege, then the Lycos CEO, said, “There is a certain sense of desperation and anxiety.” Specifically, Sege was talking about insiders’ desire to cash out and leave their companies in light of market conditions.

Insiders want out when their ability to generate shareholder value goes down. I believe that’s the case right now for structurally unprofitable companies in light of changing economic conditions. As Etsy, Inc.(NASDAQ: ETSY) CEO Josh Silverman recently said, “I think we’re going to see a reckoning.” The torrential rain for Buffett’s ducks is over.

However, if you’re thinking about waiting to buy stocks until the shakeout is over, that might not be the best idea. The stock market looks ahead, and it sometimes starts recovering from rock bottom before the economy improves. So unless you know exactly when the economy will recover (you don’t), you risk missing the stock market bottom.

^SPX data by YCharts.

To summarize up to this point, bull markets produce stock winners everywhere. Bearish market conditions like right now prioritize profits and disproportionately hurt weaker companies. And finally, timing the market bottom isn’t easy. Now, here’s what to do with this information.

The strong will get stronger

Sequoia Capital’s Alfred Lin recently wrote in a presentation, “The slower growing companies that were doing it profitably now have the financial flexibility to take advantage of the pullback from cash burning companies.” 

It’s like what Motley Fool contributor Brian Stoffel says with his Antifragile Framework for investing: Stocks that are antifragile “get stronger when stress is applied.” In other words, the present situation is going to be a long-term benefit for a handful of companies. And if you can identify these opportunities while the market is down, it can lead to some market-crushing results, which is why I believe now is a great time to still be buying stocks.

For instance, investors might take a look at PayPal Holdings, Inc. (NASDAQ: PYPL) stock. With so many unprofitable financial-technology companies out there, PayPal could be in a position of strength. The company has already curtailed spending to boost profits. And at a conference on Sept. 12, CEO Dan Schulman said that earnings per share (EPS) for the current quarter were “coming in a bit stronger than expected.” And it’s pivoting to greater profitability while still maintaining revenue growth north of 10%. 

Image-browsing app Pinterest (NYSE: PINS) and advertising-technology company PubMatic, Inc. (NASDAQ: PUBM) are two more businesses that can still thrive in the current market. Both companies are debt-free, are in cash-rich positions, and generate positive cash from operations, as this chart shows.

PINS total long-term debt (quarterly). Data by YCharts.

Granted, both Pinterest and PubMatic generate revenue from ads. And the advertising industry will likely struggle in a slowing economy. But that’s kind of the point. As Lin said, these two have the financial flexibility to grab market share from cash-burning rivals.

In conclusion, investors will need to be more discerning than ever when picking stocks in 2022 and beyond. There are lots of problems, and many businesses will consequently be permanently impaired.

However, this will create amazing long-term opportunities for a select group of companies that I believe will result in life-changing gains over the years to come. I might not accurately identify all of these stocks. But it’s why I want to be picking stocks now more than ever.

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

The post Should you really buy stocks now or wait a while longer? appeared first on The Motley Fool Australia.

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More reading

• Which of these Warren Buffett stocks is the better buy?
• 60% of Warren Buffett’s portfolio is invested in these 3 stocks
• 3 things the world’s smartest investors do in every bear market
• Should you buy stocks now or wait? Here’s Warren Buffett’s advice
• Amazon, Microsoft, and Alphabet have partnered with this US cloud stock. Is it a buy?

Jon Quast has positions in Etsy, PayPal Holdings, Pinterest, and PubMatic, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Etsy, PayPal Holdings, Pinterest, and PubMatic, Inc. The Motley Fool Australia has recommended PayPal Holdings and Pinterest. 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 S&P/ASX 200 Materials Index (ASX: XMJ) is climbing 1.27% in early afternoon trade, but one ASX copper share is soaring far higher.

The Demetallica Ltd (ASX: DRM) share price is currently up 40% at 28 cents a share after hitting an intraday high of 29.5 cents apiece — a jump of almost 48%.

Let’s take a look at why this ASX copper share is on the move today.

Takeover offer

Demetallica shares are taking off on Monday after the company received an off-market takeover offer from AIC Mines Limited (ASX: A1M).

Under the deal, Demetallica shareholders will be offered one AIC Mines share for every 1.5 Demetallica shares. The offer values Dematallica at about $36 million or 33.7 cents per share. This is a 68.5% upside on the company’s last closing price of 20 cents a share.

Demetallica listed on the ASX on 26 May this year after completing an initial public offering (IPO) of 60 million shares. The company’s major project is the Chimera Polymetal Project. This hosts the Jericho, Sandy Creek, and Altia deposits.

The Jericho deposit is adjacent to AIC Mines’ Eloise copper mine. AIC forecasts it will produce about 12,500 tonnes of copper and 6,000 ounces of gold concentrate in FY23. However, this production could increase by 60% should the merger go ahead.

Commenting on the proposed deal, AIC managing director Aaron Colleran said:

Combining AIC Mines and Demetallica is a logical consolidation. The tenement holdings of the two companies adjoin. The Eloise processing facility is only 4 kilometres from Demetallica’s Jericho deposit.

Combining these assets will provide the quickest and most efficient means of developing and mining the Jericho deposit – to the shared benefit of both AIC Mines and Demetallica shareholders.

The deal is conditional on AIC Mines obtaining an interest in at least 50.1% of Dematallica shares and other market conditions being met.

Share price snapshot

The Demetallica share price has risen 10% year to date, adding 22% in the past month.

For perspective, the ASX 200 Materials Index has lost nearly 7% in 2022 so far.

The ASX copper share has a market capitalisation of about $24 million based on its current share price.

The post Guess which ASX copper share is rocketing 48% on Monday appeared first on The Motley Fool Australia.

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More reading

• 3 mining ASX shares ripe for buying now: experts

Motley Fool contributor Monica O’Shea 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 team at Morgans has picked out some of the best ASX shares that it thinks investors should be buying this month.

Among the broker’s top picks are the two ASX shares listed below. Here’s what you need to know about them:

Santos Ltd (ASX: STO)

If you’re interested in gaining exposure to the energy sector, then Santos could be the way to do it.

Morgans believes it is a great option for investors due to its diversified earnings base and strong growth profile.

The broker currently has an add rating and $9.30 price target on the company’s shares. Based on the current Santos share price of $7.76, this implies potential upside of 20% for investors.

Morgans explained:

The resilience of STO’s growth profile and diversified earnings base see it well placed to outperform against a backdrop of a broader sector recovery. While pre-FEED, we see Dorado as likely to provide attractive growth for STO, while its recent acquisition increasing its stake in Darwin LNG has increased our confidence in Barossa’s development. PNG growth meanwhile remains a riskier proposition, with the government adamant it will keep a larger share of economic rents while operator Exxon has significantly deferred growth plans across its global portfolio

Webjet Limited (ASX: WEB)

Another ASX share that Morgans rates highly is Webjet. The broker believes that its shares are trading at an attractive level based on its earnings estimate for the recovery year of FY 2024.

Morgans currently has an add rating and $6.40 price target on its shares. Based on the current Webjet share price of $5.26, this suggests potential upside of 22% over the next 12 months.

The broker commented:

Based on our forecasts, WEB is trading on an FY24 recovery year PE which is at a discount to its five-year average PE (pre-COVID). Its WebBeds (B2B) business is highly leveraged to the northern hemisphere summer holiday season which is forecast to be strong. Webjet OTA is leveraged to ANZ domestic and international travel. Management also wasted a crisis and cost reduction initiatives will reduce its cost base by 20% across the group once the business returns to scale.

The post Broker names 2 of the best ASX shares to buy now appeared first on The Motley Fool Australia.

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More reading

• These are the top ASX 100 buy ideas from Macquarie
• 5 things to watch on the ASX 200 on Monday
• ASX 200 oil giant Santos tipped to unleash US$500m share buyback
• Here are the top 10 ASX 200 shares today
• Here’s why the Santos share price is rebounding on Thursday

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 Webjet Ltd. 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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Shares in Australian lithium player Pilbara Minerals Ltd (ASX: PLS) are pushing up into the green today on no news.

At the time of writing, the Pilbara Minerals share price is trading nearly 6% higher at $4.86 apiece.

As seen below, the share took off in near-vertical fashion from June/July.

Investors have rallied the share in 2022 after an initially difficult period on the chart earlier in the year.

Pilbara shares first reached highs of $3.76 back on 18 January. They then bottomed at $2.04 on 20 June before the market took a turn to the upside.

Equities caught a strong bid across the board in the June/July bounce amid more certainty around inflation and interest rates.

Central Banks around the world have now stepped up to the task of reducing inflation. And it is clarity on this stance that’s given investors short-term confidence.

However, Pilbara has far outpaced the majority of its ASX constituents in the back end of 2022. The stock now trades at 52-week highs at the time of writing.

Are there tailwinds for Pilbara?

Helping spur the upside has been a multivariate equation comprising lithium, batteries, electric vehicles (EVs) and general market activity.

In particular, the surge in demand for EVs has been a net positive for both Pilbara and the price of lithium, with each now trading at all-time highs.

And there looks to be no signs of slowing down. Recent projections by the China Association of Automobile Manufacturers (CAAM) estimate China will sell more than 6 million EVs this year.

Meanwhile, the United States Government’s recent Inflation Reduction Act also provides further tax breaks for those owning an EV.

This is coupled with a wind-back in internal combustion engine production and usage throughout Europe. Some areas are mandating the use of electric mobility in certain zones.

Alas, the landscape for mobility is shifting before our eyes, and it appears to be a lithium-electric vehicle battery-driven story.

This is also relevant to Pilbara considering its battery metals exchange (BMX) auction that takes place on a routine basis.

In addition, the price Pilbara hopes to receive from its own lithium production will directly impact factors such as earnings, return on invested capital and free cash flows. Three critical components in growing corporate value.

It therefore stands to reason that with an expanding price differential in the market for lithium [carbonate, spodumene, battery grade], this will continue to inflect positively on the Pilbara Minerals share price.

Pilbara Minerals share price snapshot

In the meantime, the Pilbara Minerals share price has gained more than 51% this year to date. Pilbara shares are up more than 112% for the past 12 months.

The Pilbara share price trades on a price-to-earnings (P/E) ratio of 24.8x and is priced at more than 10.6x its own book value of equity.

These multiples are each ahead of the GICS Materials Industry peer median scores of 7.25x and 2.9x respectively, according to Refinitiv Eikon data.

As a result, looking at these valuations, questions arise as to whether Pilbara is overvalued relative to its peers at present.

The post Can the Pilbara Minerals share price continue stretching higher? appeared first on The Motley Fool Australia.

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More reading

• ASX lithium mania: Is the ‘incredible amount of interest’ sustainable?
• Here are the 3 most heavily traded ASX 200 shares on Friday
• ASX lithium shares take a beating on Friday
• Why is the Pilbara Minerals share price in reverse today?
• Here are the 3 most heavily traded ASX 200 shares on Thursday

Motley Fool contributor Zach Bristow 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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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.

Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRKB) has long taken an interest in retail stocks and has often succeeded in the sector. One example is Costco Wholesale Corporation (NASDAQ: COST), which he bought more than 20 years ago and sold last year for a massive gain.

Today, Buffett holds positions in retailers such as Amazon.com, Inc. (NASDAQ: AMZN) and RH (NYSE: RH), formerly Restoration Hardware. Still, given the state of the companies and current conditions, only one of these Warren Buffett investments is likely to be more suitable for new buyers.

The state of Amazon

Amazon pioneered the e-commerce industry, eventually developing a reputation for “selling everything.” However, with the development of Amazon Web Services (AWS), it also established the cloud computing industry, making this company a conglomerate.

Buffett took an interest in Amazon in 2019, buying roughly 10.6 million shares in two different lots. Soon after, the company prospered during the pandemic. Locked-down consumers preferred shopping online, while more remote business activity increased the demand for cloud services. But its retail operations experienced slower growth as consumers returned to more offline activities.

Amazon reported $222 billion in revenue in the first half of 2022, a gain of 7% versus the same time frame in 2021. It made modest gains in North America, though international revenue fell. Still, AWS continued to prosper as its revenue surged 35% over the same time frame to $38 billion, about 16% of Amazon’s total.

Also, AWS was the only segment to report positive operating income. It earned $12 billion in operating income in the first two quarters of 2022 versus $7 billion for the company. Higher operating expenses led to a combined operating loss of $5 billion for the North America and international segments. Such results could partly explain why Amazon stock has fallen by nearly one-third from its 52-week high.

However, its price-to-sales (P/S) ratio is less than 3. While it is still pricier than Wal-mart Stores, Inc. (NYSE: WMT)at 0.6 times sales, it is near multiyear lows for the company, which could still make Amazon a buy.

How RH fares

Buffett began buying RH stock in November 2019. He started with about 1.2 million shares. The stock surged amid the pandemic, and early in 2022, he added another 1 million shares.

Unlike Amazon, RH is primarily a luxury retailer, selling furnishings and décor. In many respects, this looks more like a traditional Buffett investment than Amazon. He tends to like products that are always in demand, and his ownership of NFM (once known as the Nebraska Furniture Mart) gives him direct experience in that business.

Still, luxury furnishings might not hold as much appeal in a time of high inflation and sluggish economic growth. RH’s recent performance seems to reflect that softness.

Revenue of about $1.95 billion in the first half of the year rose 5% compared to the same period last year. Still, most of that gain came in the first quarter as second-quarter revenue grew by under 1% year over year. Net income fell 10% during that time frame to $323 million. Higher selling, general, and administrative expenses, as well as losses on the extinguishment of debt, lowered profitability.

Investors have also heavily sold off RH. It has fallen by more than 60% since peaking in August 2021. Nonetheless, Buffett still holds a profit on his original positions in RH. Also, its P/E ratio of 9 is down from more than 75 early last year. That gives it a valuation that could draw the Oracle of Omaha to buy more shares.

Amazon or RH?

In the current environment, Amazon seems like a more profitable choice for investors. It is a more expensive stock by any measure and has not fallen by as much as RH. These two factors might make it seem like less of a Buffett stock.

However, unlike RH, it sells items that tend to appeal to consumers in a struggling economy. Moreover, its fast-growing AWS could still perform well since it cuts costs for its clients. That diversity and appeal in a variety of economic circumstances make it a more suitable choice.

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

The post Which of these Warren Buffett stocks is the better buy? appeared first on The Motley Fool Australia.

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More reading

• 60% of Warren Buffett’s portfolio is invested in these 3 stocks
• 3 things the world’s smartest investors do in every bear market
• Should you buy stocks now or wait? Here’s Warren Buffett’s advice
• Amazon, Microsoft, and Alphabet have partnered with this US cloud stock. Is it a buy?
• 2 unstoppable Warren Buffett stocks that can turn sitting cash into growing wealth

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Costco Wholesale, RH, and Walmart Inc. The Motley Fool Australia has recommended Amazon. 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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Lovisa Holdings Ltd (ASX: LOV) shares are among the newest additions to the S&P/ASX 200 Index (ASX: XJO) today.

For me, Lovisa has been an ASX share that got away. And it could very well continue to do so.

After tumbling to $3.31 in the depths of the COVID crash, Lovisa shares have catapulted 580% to currently sit at $22.51 each.

It’s also one of the few ASX 200 shares sitting comfortably in the green this year. Despite concerns of soaring inflation and rising interest rates, the Lovisa share price has raced 14% higher since the start of the year.

It’s left other ASX 200 shares in the dust, with the broader market printing an 11% fall across the same period.

As Lovisa shares continue to soar to new heights, here are a couple of reasons why I like this ASX 200 retail share.

Terrific economics

Lovisa has great business economics, which are made all the more impressive given the industry it operates in.

Retailing is traditionally a low-margin industry, but Lovisa’s vertically-integrated business model and small store footprint spin up superb margins.

In terms of vertical integration, Lovisa develops, designs, sources, and manufactures all of its products in-house.

This allows the company to quickly respond to changing consumer trends and double down on what’s working. But perhaps even more impressively for investors, it gives the company cost advantages that underpin juicy gross margins.

In FY22, Lovisa boasted gross margins of 79%, enough to even make some ASX 200 tech shares envious. In other words, for every pair of $10 earrings flying off the shelves, it paid suppliers on average just $2.10.

Another beauty of Lovisa is its small store footprint. Being a fast-fashion jewellery retailer, it doesn’t need much space to display, nor stock, its products. Plus, its stores are relatively inexpensive and easy to fit out.

Once up and running, these stores are highly productive, ushering in customers in high-foot-traffic areas looking to indulge on a budget.

As a result, new stores become profitable very quickly, typically paying for themselves within a year.

This helps Lovisa to flaunt strong operating margins, which sat at 18% in FY22.

A global growth story

Lovisa opened its very first store in Chermside, Queensland in 2010. Within a few months, it expanded into New Zealand. And the following year, it entered the South African market.

Fast forward a decade or so and Lovisa is truly a global force, with a store network spanning nearly 20 countries across the globe.

Prior to COVID, around half of Lovisa’s revenue came from its local Australian and New Zealand markets. 

A few years on, international revenue made up 62% of Lovisa’s sales in FY22, growing 118% from the prior year.

Underpinning this growth were 85 net new stores opened during the year, all in international markets but particularly the US. This takes the company’s current total to 629 stores, a number that is only set to continue heading north.

Given the terrific economics we discussed above, it makes sense for Lovisa to be expanding its store network at pace.

It doesn’t always get it right, exiting the Spanish market in 2020, but management has shown its prowess to date. 

The savviness of management was on full display when it swooped on a very opportunistic deal during COVID.

Amid the chaos, Lovisa bought 84 store locations from European jewellery and accessories distributor Beeline. The company then converted these stores to its own format and brand, suddenly commanding a significant presence in Europe in one fell swoop. 

The acquisition came with nearly €10 million and no debt aside from lease liabilities.

All this for a grand purchase price of… €60. Yes, just 60 euros! Plus, Lovisa also received the option to acquire Beeline’s 30 stores in France for an extra €10, which it later went through with.

Beeline was motivated to keep its workforce employed, so Lovisa inherited the staff of these stores along with the leases.

Lovisa share price snapshot

In my eyes, Lovisa is a high-quality ASX retail share with an impressive track record and a healthy pipeline for growth in new and existing markets.

What’s more, against a backdrop of rising interest rates and inflation, Lovisa’s younger customer base and low price point could see it being more resilient than other ASX retail shares in a downturn.

The market reacted positively to Lovisa’s FY22 results, bidding up the company’s shares by almost 20% in the last month.

Lovisa currently commands a market capitalisation of roughly $2.5 billion.

And after doubling its net profit after tax (NPAT) to $58.4 million, Lovisa shares are trading on a trailing price-to-earnings (P/E) ratio of around 42 times.

The post Here’s why this ASX 200 retail share is on my buy radar appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Broker names 2 top ASX shares to buy
• Why Lake Resources, Lovisa, Megaport, and St Barbara shares are dropping
• 5 things to watch on the ASX 200 on Wednesday
• What’s driving ASX 200 consumer shares on Tuesday?

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 recommended Lovisa Holdings Ltd. 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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