Category: Stock Market

Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Elvest Co portfolio manager Adrian Ezquerro nominates two ASX shares that he’d be happy to hold for years to come.

The ASX share for a comfortable night’s sleep

The Motley Fool: If the market closed tomorrow for four years, which stock would you want to hold?

Adrian Ezquerro: This is a really good question. I must admit it’s something I’ve thought about. Being an analyst, you think about these sorts of things and having been well read in Warren Buffett, it’s something I’ve considered for a long period of time. 

I actually tend to think about this in two different ways and maybe that might be a bit strange. But anyway, without being too crass, firstly I think about a scenario where I’m asked about what would happen if, say, I was hit by a bus and I had to nominate one stock to leave to my wife and kids. This is the first way that I would frame it.

With that in mind, this would obviously need to be a stock that’s got a great long-term track record. It’s a strong, well-diversified business, it still has some long term growth potential, but has significant downside protection and preferably pays a regular dividend income. 

It’s in this context I’ll nominate Brickworks Limited (ASX: BKW). Brickworks has three core divisions. That’s investments, industrial property and building materials, as the name suggests. 

The investment division is basically a 26% shareholding in Washington H Soul Pattinson and Co Ltd (ASX: SOL), and that’s got a market cap in excess of $9 billion. And that provides exposure to high-quality assets across telco, energy, financial services and basically the industrial sector of the Australian economy. That’s the investment division. 

The industrial property division largely sits within a 50-50 joint venture Goodman Group (ASX: GMG). Brickworks is a massive landholder and over time they vend industrial property into that JV and that then becomes a trust. That’s developed into industrial assets and it’s leased on long-term deals to the likes of Amazon.com Inc (NASDAQ: AMZN), Coles Group Ltd (ASX: COL), Woolworths Group (ASX: WOW), et cetera. That’s highly valuable itself. 

For context, the current market cap of Brickworks is about $3 billion. If you were to have $3 billion and you were to buy the whole company, you would get that shareholding in Soul Patts, and that’s worth about $2.4 billion at current prices. The net assets of the industrial property and Brickworks’ share of that’s about $1.5 billion. Then you’d get the net tangible asset base of Brickworks building materials business, which minus group net debt is worth a few hundred million.

In total, you get asset backing of about $4.2 billion, which is close to $28 a share on a pre-tax basis. The current market price is between $20 and $21, and for that you get exposed to a really high-quality diversified portfolio at what we feel is a substantial discount to fair value. 

And that’s for a business that has consistently grown its ordinary dividend for, I think it’s something like 45, 46 years consecutively. That’s a remarkable achievement. It’s quite rare in the Australian market. 

I’d say, on a relative basis to my second stock that I’ll mention, it’s a lower-risk option and certainly more stable with downside protection.

Now, the second way that I tend to think about this type of question is what’s a stock that’s highly likely to substantially grow its earnings in the coming years? And, of course, the extension of that is, what stock might have multi-bag potential?

In this context I’d probably highlight the stock RPMGlobal Holdings Ltd (ASX: RUL). RPM is a leading provider of mine planning and operations software and that’s mainly to global tier one and tier two miners, many of which you’d know. The likes of BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Glencore PLC (LON: GLEN), et cetera. 

Their products basically improve the efficiency of mining operations. In many cases, it replaces more manual legacy processes with more efficient software solutions. 

For context, its market cap is about $350 million. It’s got close to $40 million in cash, so it’s a well-funded business and the CEO has got a pretty good track record. He’s invested quite heavily over the past decade in evolving this business and its software solutions so that it’s now really well positioned as a vendor-of-choice for major mines. 

One of the most significant developments, though, in RPM’s recent history is that it successfully transitioned its revenue model from a perpetual licence model to a subscription revenue model.

This is really powerful and it’s important to understand in the context of its recent results because as you take out the value of the more lumpy perpetual sales, which have a higher one-off dollar value, and you transition that to a subscription revenue model, that has implications for your year-on-year cash flow. What it does [is] it clearly embeds longer-term value in the business. 

They’re now about to see the fruits of all that labour. If you look ahead, its revenue base now from a software division is largely recurring and it’s now pretty well established in the operations of BHP, Rio, Glencore, and many, many others. We actually see scope for substantial further contracts in the next 12 to 24 months. And for the first time in many years, management has actually provided guidance for the year ahead and I think that reflects their confidence in this pivot towards subscription revenue.

They guided to EBITDA of $14.2 million in the coming year, and that’s up from about $4 million achieved in FY22. And we actually think that that might, firstly, prove conservative and we’re also expecting even more growth in FY24 given the timing of new contract awards. 

You’ve got a scenario where you’ve got pretty explosive earnings growth, cash generation we expect to be really strong and… backed by growing recurring revenue profile. That’s pretty exciting. Again, it’s not without risk, but if it’s executed to plan, we expect that the stock may do pretty well over the next four or five years.

MF: The company was founded in 1968, which is quite old for a software company, isn’t it?

AE: Actually it started as an advisory business and RPM itself, the initials of some of the founders, it evolved out of an advisory business and that advisory business still exists today. 

I know I’ve talked about the software division, but that in itself has done pretty well in recent times and they’ve now got an ESG division, which as you can imagine, is seeing a lot of growth in demand. 

MF: That’s great. One safe one and one exciting one to hold onto for the next four years.

The post One ‘safe’ and one ‘exciting’ ASX share to own for years like Warren Buffett: fund manager appeared first on The Motley Fool Australia.

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More reading

• 2 blue chip ASX 200 shares to boost your portfolio: experts
• If I had to own only one ASX 200 share forever, this would be it
• Goodman share price crumbles 5% amid Wall St woes
• Why I’m seriously considering buying these ASX shares following today’s market crash
• Steady compounders: 3 ASX 200 shares that have delivered over a decade

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tony Yoo has positions in Amazon, RPMGlobal Holdings, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Brickworks, RPMGlobal Holdings, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks, COLESGROUP DEF SET, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Amazon and RPMGlobal Holdings. 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 you’re looking for dividend shares to buy, then the two listed below could be worth checking out.

Both have been named as buys by analysts recently and tipped to provide very attractive yields. Here’s what you need to know about them:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share that has been tipped as a buy is footwear retailer Accent.

This is due to its attractive valuation and expectations that the company is well-placed to bounce back from a very difficult 12 months.

The team at Morgans recently commented:

AX1’s renewed focus on selling at full price will, in our view, support a recovery in the gross profit margin in FY23 back towards historical averages. We welcome AX1’s moderation of the pace of its store rollout in favour of a more selective expansion strategy focused on return on investment. We see AX1 as undervalued at the current share price.

Morgans is also expecting some attractive dividend yields from the company’s shares. It is forecasting fully franked dividends of 9 cents per share in FY 2023 and 11 cents per share in FY 2024. Based on the current Accent share price of $1.36, this will mean yields of 6.6% and 8.1%, respectively.

The broker also sees plenty of upside for its shares with its add rating with a $2.00 price target.

HomeCo Daily Needs REIT (ASX: HDN)

Another ASX dividend share that has been named as a buy for income investors is HomeCo Daily Needs.

HomeCo Daily Needs is a property investment company with a focus on metro-located, convenience-based assets across neighbourhood retail, large format retail, and health and services.

Goldman Sachs is a big fan of the company and believes its shares are cheap at the current levels. Particularly given its positive outlook due to the shift to omni channel retailing.

The broker commented:

We continue to believe HDN is undervalued at its current valuation given its diversified tenant base, and see it as well positioned to benefit from the shift to omni channel retailing, with additional external growth opportunities to drive earnings growth over the medium-term.

Its analysts also see potential for some big dividend yields in the coming years. The broker is forecasting dividends of 8.3 cents per share in FY 2023 and 8.5 cents per share in FY 2024. Based on the current HomeCo Daily Needs REIT unit price of $1.26, this will mean big yields of 6.6% and 6.75%, respectively.

Goldman currently has a buy rating and $1.63 price target on HomeCo Daily Needs’ shares.

The post Experts say these top ASX dividend shares are buys appeared first on The Motley Fool Australia.

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More reading

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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 Accent 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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On Friday, the S&P/ASX 200 Index (ASX: XJO) finished a very difficult week with another day in the red. The benchmark index fell 1.5% to 6,739.1 points.

Will the market be able to bounce back from this on Monday? Here are five things to watch:

ASX 200 expected to edge lower

The Australian share market looks set to start the week in a subdued fashion. This follows a poor finish to the week on Wall Street on Friday. According to the latest SPI futures, the ASX 200 is expected to open the day 2 points lower this morning. On Wall Street, the Dow Jones was down 0.45%, the S&P 500 dropped 0.7%, and the NASDAQ tumbled 0.9%.

Oil prices rise

Energy producers Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) could have a better start to the week after oil prices pushed higher on Friday. According to Bloomberg, the WTI crude oil price was up slightly to US$85.11 a barrel and the Brent crude oil price rose 0.55% to US$91.35 a barrel. This wasn’t enough to prevent a small weekly decline due to demand concerns.

ASX 200 rebalance

Today is quarterly rebalance day. This means a number of shares such as Life360 Inc (ASX: 360) and Zip Co Ltd (ASX: ZIP) will be kicked out of the ASX 200 index this morning. This could put a bit of pressure on their shares if index funds have not yet sold down their holdings. Lovisa Holdings Ltd (ASX: LOV) is one of the shares replacing them and joining the benchmark index today following the rebalance.

Gold price rises

Gold miners including Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) could have a decent start to the week on Monday after the gold price rose on Friday night. According to CNBC, the spot gold price was up 0.4% to US$1,683.5 an ounce. However, this wasn’t enough to stop the precious metal from recording a sizeable weekly decline amid rate hike concerns.

Iron ore price falls

It could be a tough start to the week for BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) shares after the iron ore price dropped on Friday night. According to Metal Bulletin, the spot iron ore price has fallen 2.6% to US$98.45 a tonne.

The post 5 things to watch on the ASX 200 on Monday appeared first on The Motley Fool Australia.

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More reading

• Analysts name 2 ASX 200 mining shares to buy
• Could the latest news out of China bode well for ASX 200 iron ore shares?
• Broker names 2 top ASX shares to buy
• Why did ASX 200 gold shares have such a rough day?
• Why Atlas Arteria, Liontown, St Barbara, and Zip shares are dropping today

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If you’re looking for an easy way to invest your hard-earned money, then exchange traded funds (ETFs) could be worth considering.

Rather than deciding on which individual shares you should put your funds into, ETFs allow you to invest in a large group of shares through just a single investment.

With that in mind, here are two ETFs that are highly rated:

BetaShares Global Energy Companies ETF (ASX: FUEL)

The first ETF that investors might want to look at is the BetaShares Global Energy Companies ETF.

As you might have guessed from its name, this ETF provides investors with an easy way to gain exposure to the booming energy sector.

And while oil prices have recently softened, they look unlikely to fall much lower. Particularly given how oil cartel OPEC has threatened to cut production to boost prices.

This would be good news for the companies held by the fund. These include BP, Chevron, ConocoPhillips, ExxonMobil, Halliburton, Kinder Morgan, Phillips 66, Royal Dutch Shell, and Total. BetaShares notes that these companies are larger, more geographically diversified, and more vertically integrated than Australian-listed energy companies.

VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)

Another ETF for investors to consider is the VanEck Vectors Video Gaming and eSports ETF.

This ETF gives investors access to a portfolio of the largest companies involved in video game development, hardware, and esports. This is an industry benefiting from an estimated 2.7 billion+ gamers globally, which is more than active Apple phones and Netflix subscriptions combined.

According to Statista, revenue in the video games segment is projected to reach US$208.60 billion in 2022 and then grow almost 8% per annum through to US$304.70 billion by 2027.

This bodes well for the companies included in the fund such as graphics processing unit developer Nvidia and gaming giants Electronic Arts, Nintendo, Roblox, Take-Two, and Tencent.

The post 2 high quality ETFs for ASX investors in September appeared first on The Motley Fool Australia.

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• 2 tech ETFs I think are smart buys in September
• 3 wonderful ETFs for ASX investors to buy today
• Why I’d buy these 2 ASX ETFs right now
• 3 fantastic ETFs for ASX investors to buy today
• 3 quality ETFs for ASX investors in September

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 BetaShares Global Energy Companies ETF – Currency Hedged. The Motley Fool Australia has recommended VanEck Vectors ETF Trust – VanEck Vectors Video Gaming and eSports 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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Investors that are wanting to diversify their portfolio with some mining sector exposure might want to check out the two ASX 200 shares listed below.

Both have been tipped as top options for investors in the sector with meaningful upside potential. Here’s what you need to know about these mining shares:

BHP Group Ltd (ASX: BHP)

The first ASX 200 mining share that has been named as a buy is BHP.

The Big Australian is of course one of the world’s largest miners with a collection of high quality operations across a range of commodities. This includes coal, copper, iron ore, and nickel.

The team at Morgans are bullish on the mining giant. This is thanks to the company’s diverse operations, which they feel make it a lower risk option for investors. The broker commented:

We view BHP as relatively low risk given its superior diversification relative to its major global mining peers. The spread of BHP’s operations also supplies some defence against direct COVID-19 impact on earnings contributors. While there are more leveraged plays sensitive to a global recovery scenario, we see BHP as holding an attractive combination of upside sensitivity, balance sheet strength and resilient dividend profile.

Morgans has a buy rating and $48.00 price target on BHP’s shares.

Iluka Resources Limited (ASX: ILU)

Another ASX 200 mining share for investors to consider is Iluka.

It is a mineral sands and rare earths company that owns a number of quality projects across South Australia and Western Australia. One of these is the exciting Eneabba project, where the company is developing a fully integrated rare earths refinery.

Goldman Sachs is very positive on Iluka. This is due to its strong production growth outlook and exposure to in-demand rare earths. The broker commented:

We are positive on ILU’s project pipeline and forecast >40% production growth in mineral sands volumes, c.18ktpa of Rare Earths (~3.5-4ktpa of high value NdPr). We think ILU’s Eneabba RE refinery is a strategic asset considering it will be only the third western world RE refinery

Goldman Sachs currently has a conviction buy rating and $13.30 price target on Iluka’s shares.

The post Analysts name 2 ASX 200 mining shares to buy appeared first on The Motley Fool Australia.

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More reading

• Could the latest news out of China bode well for ASX 200 iron ore shares?
• BHP shares: Buy, hold, or fold?
• 3 blue-chip ASX 200 shares touting the highest dividend yield in September
• What’s with ASX copper shares on Thursday?
• ASX 200 shares dump $60 billion in horror session. Here’s how Wednesday unfolded

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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People will often refer to ‘recession-proof’ investments. Companies that can weather tough economic environments. Consumer staples, such as your supermarket giants and agricultural commodity providers, are often put into this category.

However, the following ASX All Ords share operates in an industry that is as dependable as it gets.

No matter the state of the economy, people will continue to pass away. It is a sad, but inevitable, fact of life. However, for an investor, a funeral service provider could offer a stable and consistent holding to their portfolio.

Personally, I believe Propel Funeral Partners Ltd (ASX: PFP) has huge growth potential in a timeless industry… and here’s why.

Fragmented market ripe for consolidation

The funeral services industry is probably not discussed much due to the nature of the business. Let’s be honest, it doesn’t exactly make for the most cheerful of topics. Though, I tend to think — because of this — it is often overlooked as a worthwhile investment.

There are quite a few compelling tailwinds for the sector. Most notably, the industry is highly fractured — with the majority of funerals in Australia handled by small family-owned and operated service providers. Propel Funeral Partners estimates that around 71.3% of the market consists of these smaller businesses.

This provides a large opportunity for a fast-growing ASX All Ords share, such as Propel, to consolidate the industry. Its main competition is fellow ASX-listed funeral operator Invocare Limited (ASX: IVC), with a market share of 21.7%.

Given the sizeable domestic market opportunity, I believe Propel could continue to win market share and consolidate the industry. Already, the company has demonstrated a successful acquisition strategy. In six years, Propel has grown its revenue from $22.4 million to $145.2 million.

During FY22, the ASX All Ords constituent tallied up six acquisitions for a total of $21 million. Based on the company’s available funding capacity of $136 million, it appears positioned to continue to grow its market share.

In my eyes, it seems the market is unwilling to expect the same level of growth from Propel as it has demonstrated in the past. I’m of the opinion that the management team will continue to execute its strategy.

How has this ASX All Ords share fared?

Over the last 12 months, this ASX All Ords share has far exceeded the market average return. Propel shares are up an impressive 17.9% during this time. Meanwhile, the S&P/ASX All Ordinaries Index (ASX: XAO) has tumbled 10%.

In my opinion, that’s a pretty good example of how reliable this company can be. After all, it operates in a market where every single person uses its service — even if it’s only once.

The post They say there are only 2 guarantees in life, and this ASX All Ords share is focused on 1 of them appeared first on The Motley Fool Australia.

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More reading

• Propel Funeral Partners share price dips despite ‘another record year’

Motley Fool contributor Mitchell Lawler 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 Propel Funeral Partners 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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Two opposing views by Wall Street gurus will only add to investors’ angst as the market ends the week deep in the red.

The S&P/ASX 200 Index (ASX: XJO) lost 1.4% to 6,747 on Friday and is down around 3% for the past week.

The weakness won’t surprise many as history has shown September and October to be among the worst times of the year for global share markets.

What is the market’s next move?

But those debating whether to buy the dip for the much anticipated Christmas rally will be torn by conflicting forecasts from Cathie Wood and Ray Dalio.

Wood is the founder of Ark Investment Management and was named top stock picker of 2020 by Bloomberg. Dalio is a billionaire investor and founder of the world’s largest hedge fund, Bridgewater Associates.

Wood is using the market weakness to snap up shares while Dalio is warning of another sharp drop for equities.

Inflation outlook will decide market direction

Their opposite views can be essentially boiled down to inflation expectations. Ark Investment bought 27 shares on Tuesday amid the sharpest sell-off on the NASDAQ-100 (NASDAQ: NDX) since March 2020, reported Bloomberg.

Wood is playing chicken with the US Federal Reserve. The Fed unleashed the market volatility by aggressively hiking interest rates to control runaway inflation.

The buying spree is likely related to Wood’s prediction that high inflation will soon turn into deflation.

As inflation is bad for share valuations, deflation will arguably have the opposite effect. This is particularly so for tech shares, which have borne the brunt of the market sell-off.

Warnings of a new bear market

But not many would share her view on deflation. If anything, Ray Dalio reckons the market is underestimating the inflation problem.

In a tweet to his 234k followers, Dalio said:

Right now, the markets are discounting inflation over the next 10 years of 2.6 percent in the US. My guesstimate is that it will be around 4.5 percent to 5 percent long term, barring shocks (e.g., worsening economic wars in Europe and Asia, or more droughts and floods) and significantly higher with shocks.

He is also predicting that rates will have to rise to around 4.5% too and that will trigger a 20% drop in share prices. A peak-to-through fall of 20% or more would officially put shares in a bear market.

Foolish takeaway

However, Dalio stressed that these are only “guesstimates”. Who can blame him when central banks have gotten their inflation forecasts so wrong?

Perhaps the more important lesson from history is not to try to pick market bottoms. Over the longer-term, persistent investors have made good returns from buying quality shares – regardless of the market cycle.

The post Chalk and cheese: 2 iconic share investors couldn’t be further apart on the market’s next move appeared first on The Motley Fool Australia.

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More reading

• Why experts say these ASX growth shares are buys
• Netflix Stock: Headed to $240?
• Goldman Sachs names 3 mid cap ASX shares to buy
• Could the latest news out of China bode well for ASX 200 iron ore shares?
• Up 50% in a month, fundie reveals ASX micro-cap share in a ‘beautiful position’

Motley Fool contributor Brendon Lau 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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Looking for growth shares to buy? Listed below are two growth shares that have recently been named as buys.

Here’s what you need to know about these ASX growth shares:

IDP Education Ltd (ASX: IEL)

The first ASX growth share that analysts are tipping as a buy is language testing and student placement company IDP Education.

In respect to language testing, IDP is the co-owner of the IELTS test, which is the English test that is trusted by more governments, universities and organisations than any other. Demand for this test softened during the worst of the pandemic, but has since rebounded very strongly. This led to the company reporting bumper sales and profit growth for FY 2022 last month.

Goldman Sachs is confident that the company’s growth can continue in the coming years thanks to strong underlying system demand. It commented:

IEL is trading c.40% below its 5-yr average P/E premium to the ASX200 Industrials with a forecast 37% FY22-25E EPS CAGR, we remain Buy-rated. We have upgraded EPS in FY23/FY24 by 1.7%/0.8% on the back of the stronger FY22 result, continued strong revenue growth and margin expansion. The balance sheet is in a resilient position with c.A$40mn of net cash to facilitate any bolt-on acquisitions or ramp up in organic investment in new offices and technology.

Goldman has a buy rating and $35.50 price target on the company’s shares.

Treasury Wine Estates Ltd (ASX: TWE)

Another ASX growth share that has been tipped as a buy is Treasury Wine.

It is the wine giant behind popular brands including 19 Crimes, Wolf Blass, and the jewel in the crown, Penfolds.

It has been a turbulent few years for Treasury Wine. After being effectively kicked out of the lucrative China market, the company has been busy reallocating its sales into other markets. The good news is that this has been successful and the company is back on track again.

The even better news is that Morgans is expecting this strong form to continue in the coming years. It commented:

TWE owns much loved iconic wine brands, the jewel in the crown being Penfolds. We rate its management team highly. The foundations are now in place for TWE to deliver strong earnings growth from the 2H22 over the next few years. Trading at a material discount to our valuation and other luxury brand owners, TWE is a key pick for us.

Morgans has an add rating and $13.93 price target on the company’s shares.

The post Why experts say these ASX growth shares are buys appeared first on The Motley Fool Australia.

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More reading

• Broker names 2 of the best ASX shares to buy now
• Up 9% this year, could Treasury Wine shares still be ripe for the picking?
• 2 ASX growth shares analysts rate as buys right now
• ‘Unparalleled’: 2 experts reckon this ASX share is a long-term buy
• 2 ASX 200 shares named as buys by a top broker

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 Idp Education Pty Ltd. The Motley Fool Australia has recommended Treasury Wine Estates Limited. 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.

After getting annihilated in the first half of 2022, shares of streaming-TV giant Netflix, Inc. (NASDAQ: NFLX) have seen some upward momentum recently. Indeed, since July 1, the stock has risen about 25%. Of course, this gain still leaves the stock far from where it was at the beginning of the year. Shares are down more than 60% year to date.

An analyst from JPMorgan Chase thinks the stock could continue to rise from here. There’s increased investor interest in the stock ahead of the company’s upcoming launch of its ad business, Doug Anmuth said in a note to investors on Wednesday. How far could the stock rise? The JPMorgan analyst has a $240 12-month price target for the stock, indicating he believes there’s still meaningful upside for the streaming service company’s shares ahead.

Subscriber headwinds

While it’s encouraging to hear that Anmuth is betting Netflix stock can add to its already-impressive gains since the middle of this summer, a $240 price target notably only represents 7% upside from where shares are trading at the time of this writing. The reason for Anmuth’s conservative outlook for the stock? He believes there’s uncertainty surrounding how the company’s subscriber trends will add in the second half of 2022. So even if he’s optimistic about the potential for Netflix’s long-awaited ad-supported tier, headwinds to subscriber growth are keeping many investors on the sidelines.

Second-quarter subscribers fell sequentially for the second quarter in a row, declining from 221.6 million in the first quarter of 2022 to 220.7 million. Fortunately, Netflix guided for sequential growth in Q3, though the expected uptick is anemic. Netflix guided for 1 million new members in Q3. 

Until Netflix’s subscriber growth starts to pick up some speed, some investors and analysts may worry about the company’s long-term prospects.

Betting on ads

Fortunately, however, Netflix may soon drive enough top-line growth from the launch of its ad-supported tier to help soothe any investor concerns about the company’s suppressed subscriber growth. Management said in its second-quarter update that it expects to launch its first ad-supported tier early next year.

Investors are likely hoping the addition of a new way for consumers to watch Netflix content will attract incremental revenue. Indeed, it’s one of the key pillars behind management’s plan to reaccelerate its revenue growth.

“While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues),” Netflix said in the company’s second-quarter letter to shareholders.

Given Netflix’s near-term challenges with subscriber growth, Anmuth may be right to be conservative with his 12-month price target. But with shares priced at just 19 times earnings at the time of this writing, investors may not be fully appreciating the potential impact of a new ad business next year. Shares may be more undervalued than Anmuth’s $240 price target suggests.

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

The post Netflix Stock: Headed to $240? appeared first on The Motley Fool Australia.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Daniel Sparks 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 Netflix. The Motley Fool Australia has recommended Netflix. 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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If you’re looking for some options in the mid cap space, then you might want to check out the ones listed below.

Here’s why analysts at Goldman Sachs recently named these ASX mid cap shares as buys:

Adairs Ltd (ASX: ADH)

This homewares retailer is a mid cap ASX share to buy according to Goldman Sachs. Its analysts are very positive on the company due to its loyal customer base and store expansion opportunity. The broker currently has a buy rating and $3.05 price target on its shares. It commented:

The core Adairs business has a highly loyal customer base, and ongoing store roll-out opportunity: ADH is has a strong brand presence across Australia, a highly engaged and loyal customer base (>1mn Linen Lover members), and ongoing opportunity to roll out new and upsized stores. […] Attractive valuation and high dividend yield: we view valuation as undemanding with ADH trading on 6.9x FY23E P/E

Hipages Group Holdings Ltd (ASX: HPG)

Another mid cap ASX share that Goldman Sachs rates highly is Hipages. It is a leading Australian-based online platform and software as a service (SaaS) provider. The Hipages platform connects tradies with residential and commercial consumers, and also allows them to communicate and run general admin duties. Goldman sees it as a great long term option for investors. It currently has a buy rating and $2.20 price target on its shares. It commented:

Longer term, we believe HPG presents a compelling long growth opportunity as it builds out an essential ecosystem of services for tradies

Temple & Webster Group Ltd (ASX: TPW)

This online furniture retailer is another mid cap share to buy according to the broker. Goldman likes the company due to its leadership position in a market that is in the process of shifting online. The broker recently initiated coverage on the company’s shares with a buy rating and $7.55 price target. It said:

We believe the business has a material runway for long-term growth, supported by a large and growing TAM driven by increasing e-commerce penetration which still lags other comparable markets (Aus 16% vs. UK/US 28%/25%), even after a large pull forward in online sales over the last 2-3 years. […] We believe TPW can deliver long term structural growth, despite a slowdown in the near term macro environment.

The post Goldman Sachs names 3 mid cap ASX shares to buy appeared first on The Motley Fool Australia.

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More reading

• I think this exciting ASX 300 share is a buy in the sell-off
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• I think these 2 high-yield All Ords ASX dividend shares are buys in September
• 2 ASX growth shares analysts rate as buys right now
• Goldman Sachs names 2 exciting small cap ASX shares to buy

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 ADAIRS FPO, Hipages Group Holdings Ltd., and Temple & Webster Group Ltd. The Motley Fool Australia has positions in and has recommended ADAIRS FPO and Hipages Group Holdings Ltd. The Motley Fool Australia has recommended Temple & Webster Group 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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