Category: Stock Market

BHP Group Ltd (ASX: BHP) shares are up 1.34% in afternoon trade, currently priced at $44.53 per share.

BHP shareholders have enjoyed a positive five days of trading, with the S&P/ASX 200 Index (ASX: XJO) mining stock up 9.64% since this time last week.

Materials stocks have broadly outperformed over the week, which sees the S&P/ASX 200 Materials Index (ASX: XMJ) up 7.3% compared to the 2.2% gain posted by the ASX 200.

And the big iron ore miners have done particularly well, with Fortescue Metals Group Ltd (ASX: FMG) soaring 18.4% over the week.

Which brings us back to the question at hand. With the past week’s gains in the bag, are BHP shares still cheap?

Despite surging 9% in a week, are BHP shares still cheap?

Looking at trailing data rather than forecast estimates, BHP trades on a price-to-earnings (P/E) ratio of 7.0 times with a trailing dividend yield of 11%, fully franked.

Those figures certainly sound promising. But as I said, they are backwards looking.

As my Fool colleague Bruce Jackson pointed out last week:

When it comes to investing, there’s always a catch.

Commodity prices are hard to predict, and typically the time to buy mining stocks is at the bottom of the cycle, not near the top, as is the case now due to booming oil, iron ore and coal prices.

Indeed, few analysts predict that we’ll see iron ore back at the US$160 per tonne it was fetching back in early March this year. Prices which sent BHP shares flying higher.

In fact, the federal budget forecasts that iron ore prices will fall to US$55 per tonne (FOB Australia) by the end of the first quarter in 2023. Though many analysts, including those over at Commonwealth Bank of Australia (ASX: CBA), believe the budget estimate is too conservative and that prices will take longer to retreat.

Indeed, November has seen the iron ore price rebound from some US$81 per tonne on 1 November to just under US$96 per tonne today.

Copper prices are also up 9% in November. And with its copper segment coming in as its second highest revenue earner, that’s also helped boost BHP shares over the week.

Why are copper and iron ore prices rebounding?

The rebound in iron ore and copper has been fuelled on two fronts.

First, the lower-than-expected inflation data out of the United States has raised optimism that global interest rates may not have to ramp up as quickly or as high as previously expected. That would bode well for the construction industries, and copper and iron ore demand.

Second, signs are emerging that China’s government will stimulate its economy and its battered real estate markets. The Middle Kingdom has also indicated it is prepared to scale back some of its economy-hampering COVID-zero policies. China’s voracious appetite for iron ore, used in steel manufacturing, has slipped as its economic growth has sputtered this year.

So, are BHP shares still cheap after the past week’s rally?

The answer there really sits with how the industrial metals fare over the coming months.

Investors would do well to keep their eyes on the economic developments occurring in China and the US, the world’s top two economies.

Should China push forward with stimulus and easing pandemic restrictions amid a softening rate-hiking stance from the US Federal Reserve, BHP shares certainly have the potential to run higher from here.

The post Despite surging 9% in a week, are BHP shares still cheap? appeared first on The Motley Fool Australia.

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• Why is the BHP share price having such a ripper day?

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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1) Wall Street rallied overnight Tuesday on hopes of a soft landing for the world’s most important economy.

“US producer price growth stepped down in October by more than expected in the latest sign that inflationary pressures are beginning to ease,” reports Bloomberg.

Bullish investors are hoping inflation has peaked, meaning the Federal Reserve will moderate the pace of its interest rate hikes.

The S&P 500 Index (SP: .INX) has jumped 6.5% higher in just the past four trading days, whilst the NASDAQ-100 Index (NASDAQ: NDX) has soared almost 10% higher in the same period.

Here in Australia, markets have been a little more subdued, partly because the ASX hasn’t fallen as far as US indexes, partly because the S&P/ASX 200 Index (ASX: XJO) is dominated by big miners and banks, and partly because the RBA has already shown its hand by easing the pace of interest rate rises. 

The ASX 200 index is now down a very modest 3.9% over the past 12 months.

2) Not everyone is convinced it’s all plain sailing ahead, and the Federal Reserve will be able to pull off an economic soft landing. From Bloomberg…

“Markets appear to be pricing in a best case scenario of a soft landing and falling inflation triggering a Fed pause,” Venu Krishna, head of US equity strategy at Barclays Plc. 

“In our view, this is not a given and remains a low probability scenario – these are just a few data points on inflation and it needs to be sustained. Even if the Fed eventually pauses, it might not be able to prevent a shallow recession.”

3) Recession or not, soft or hard, Warren Buffett is buying, the Sage of Omaha taking a roughly $US5 billion stake in Taiwan Semiconductor Manufacturing Co (NYSE: TSM), the chip supplier to companies like Nvidia, Qualcomm and Apple. 

Marketwatch headlines the story with…

“Warren Buffett’s chip-stock purchase is a classic example of why you want to be ‘greedy only when others are fearful.’”

According to Bloomberg…

“TSMC shares at home in Taiwan had dropped 28% this year through Monday’s close, as demand for chips has slowed with the economic downturn and investors fretting about oversupply. The company said in October it pulled back on capital spending to about $US36 billion this year, which would still be a record high, down from at least $US40 billion planned previously.”

The 92 year old Buffett has famously said his ideal holding period is forever, a period which will encompass many economic cycles. Such thinking has served him well, given his net worth of over $US100 billion, the vast majority of which was accumulated later in his life, courtesy the power of compounding returns.

4) Conventional wisdom, perhaps built up over the 30 years since Australia had a “proper” recession is that the lucky country will once again keep growing in 2023 and beyond. 

Unemployment remains low, immigration is starting to pick up again and commodity prices are high. The banking sector, as demonstrated by Commonwealth Bank of Australia (ASX: CBA) saying yesterday that credit quality indicators improved in the most recent quarter, remains strong.

Pushing against that goldilocks scenario are falling house prices, high inflation, higher interest rates and weak consumer confidence.

What’s it all mean? It’s a given the Australian economy will slow next year. 

The International Monetary Fund (IMF) has forecast economic growth will slow from 3.7% this year to just 1.7% in 2023-24 as those headwinds hit our shores. But, according to the AFR, it warned “that a deeper plunge in global growth than forecast, more persistent inflation, and a faster-than-expected decline in house prices could push the economy off course.”

“Australia is expected to steer clear of a recession, but with significant downside risks.”

5) What’s all this mean for stock market investors?

We’ve already seen what Warren Buffett thinks.

As for a mere investing mortal like myself, it certainly doesn’t change my view that consumer discretionary stocks – largely retailers – are likely in for a tougher time ahead.

The market always looks forward, and such pessimism could already be priced into a number of retail stocks. 

JB Hi-Fi Limited (ASX: JBH) shares trade on just 9 times earnings and a fully franked dividend yield of 7.3%.

Nick Scali Limited (ASX: NCK) shares trade on 10 times earnings and a fully franked dividend yield of 7.2%.

Super Retail Group Ltd (ASX: SUL) shares trade on 10 times earnings and a fully franked dividend yield of 10.8%.

I’m happy to sit on the sidelines and watch the action play out for those companies. In really tough times, a halving of profits is absolutely possible, turning the share price from cheap to expensive, and dividends can be cut to zero. 

One consumer discretionary stock I’m playing for the coming economic slowdown is Best & Less Group Ltd (ASX: BST). 90% of its items sold retail for less than $20 and their average selling price is a modest $8.33.

Babies and kids grow, and as they do, need replacement clothes, so there’s a repeat purchase element to the Best & Less business… unlike JB Hi-Fi where you can live with your TV for an extra year, or Nick Scali where you can live with your current sofa for a few more years.

Recent commentary from US discount retailer Walmart strengthens the case for a company like Best & Less with Chief Financial Officer John Rainey saying Walmart is winning new business from higher-income shoppers searching for bargains amid a challenging economic environment.

Best & Less shares trade at less than 9 times earnings and on a fully franked dividend yield of 9.1%.

6) Yesterday saw a nice payday for the Jackson Portfolio, with microcap MSL Solutions (ASX: MSL) share price jumping 70% higher on an all-cash takeover agreement. 

There’s plenty of value in the microcap sector, if investors are willing to stomach the volatility and lack of liquidity. 

And there are plenty of value traps too, some of which I’ve found, to my cost, although position-sizing and downside protection has limited my losses. The key, as with any investing, is to buy quality companies that have at least some sort of competitive advantage and have at least an element of recurring revenue. 

MSL Solutions – a company that operates point of sale solutions at major sporting arenas – fits the bill nicely, given the long-term nature of its contracts. 

If only I’d backed myself more, taking an even bigger position. That’s investing, where the fear of the unknown can impact your decision making, and where, despite a large monetary gain, you can still be dissatisfied. I’ll get over it!

The post Buffett buys up big amidst recession fears. One cheap ASX share I’m backing, plus why I’m dissatisfied despite a huge one-day windfall appeared first on The Motley Fool Australia.

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More reading

• CBA share price drops on bearish broker notes
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• Why CBA, DGL, Incitec Pivot, and Readytech shares are pushing higher

Motley Fool contributor Bruce Jackson has positions in Best&Less Group Holdings Ltd and MSL Solutions Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Super Retail Group Limited and Taiwan Semiconductor Manufacturing. The Motley Fool Australia has positions in and has recommended Super Retail Group Limited. The Motley Fool Australia has recommended JB Hi-Fi 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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The Zip Co Ltd (ASX: ZIP) share price is screaming 18.5% higher today to 83 cents at the time of writing.

By comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) is down 0.3%.

There is no company news from Zip today. However, its competitor Sezzle Inc (ASX: SZL) has released a positive business update that is sending its share price northwards by 15.8%.

Given both companies operate in the burgeoning buy now, pay later (BNPL) sector, the Zip share price is likely riding on the coattails of Sezzle’s success today.

Meantime, there is a potential headwind on the horizon.

The BNPL sector is currently waiting for the federal government to release an options paper detailing three proposed regulatory models for BNPL service providers.

It’s due to be released any time now, and there may be implications for the Zip share price. (Not to mention the share prices of pretty much every other listed BNPL provider, too.)

Let’s recap.

Will regulatory changes kill the Zip share price?

Regulatory risk has been an issue for BNPL providers for a few years now — and not just in Australia.

You see, at the moment, BNPL providers are not considered credit providers. This means they are not subject to the more rigorous regulations that the banks are. They’re not classed as credit providers because they don’t charge interest on their customers’ layby purchases.

The banks see it differently, claiming BNPL providers are providing credit services and should be required to adhere to the same regulatory code.

Most BNPL providers have fought back and it’s in their interests to do so, given thorough credit checks would likely slow down the customer recruitment process for them.

But as we’ve previously reported, new regulations incorporating credit checks might not affect Zip much — if at all — because it already does them voluntarily.

This is a key operational difference between Zip and other BNPL providers like Afterpay.

Zip CEO says they’re ready for new regs

At Zip’s annual general meeting on 3 November, CEO Larry Diamond said the company was ahead of the curve.

Diamond said:

… we are well positioned for any potential change to the regulatory landscape. Zip is supportive,
and always has been, of simple, fit-for-purpose regulation. Our first credit product, Zip Money, is already regulated under the National Consumer Credit Protection Act (NCCPA) and we conduct identity, credit, and affordability checks on customers.

Zip chair Diane Smith-Gander AO said greater regulation could even be an advantage for Zip.

Smith-Gander said:

Responsible lending and genuine care for the consumer is in our DNA, reflected in our practice of conducting credit and affordability checks on our customers. Given this approach, this may give us an additional operating advantage should regulation develop across our core markets.

If the proposed new regulations in the options paper are tougher than expected, the Zip share price will likely come under pressure.

Fellow BNPL shares like Block Inc CDI (ASX: SQ2) and Sezzle will likely feel it, too, as investors generally perceive greater regulation to be disruptive and costly to business operations.

Meantime, Sezzle’s business update today revealed an 18% increase in its income year-over-year.

Sezzle aims to achieve profitability in 2023, just like its former suitor Zip.

The two companies called off a proposed merger earlier this year.

The post Up 18% today: Can the Zip share price really fight City Hall? appeared first on The Motley Fool Australia.

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More reading

• Why Accent, Block, Nufarm, and Zip shares are racing higher
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• Down 60% since late July, can Zip shares really ’emerge stronger from challenging times’?
• These 10 predictions could help you profit from the stock market regardless of inflation, interest rates or even another bear market
• Why is the Zip share price dropping today?

Motley Fool contributor Bronwyn Allen has positions in ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended Block, Inc. 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 an income investor, then the Wesfarmers Ltd (ASX: WES) dividend might be of interest.

Historically, the conglomerate shares a decent portion of its profits with shareholders each year, providing them with an above-average dividend yield.

Will this trend continue in the future? Let’s take a look at what one broker is expecting from the Wesfarmers dividend in the coming years.

Wesfarmers dividend forecast

First things first, in FY 2022, Wesfarmers paid shareholders a fully franked $1.80 per share dividend. So, with the Wesfarmers share price currently fetching $46.37, this equates to a 3.9% dividend yield.

Unfortunately, according to a recent note out of Goldman Sachs, its analysts are expecting the Wesfarmers dividend to go backwards for a couple of years.

In FY 2023, the broker is forecasting a $1.70 per share fully franked dividend. This equates to a 3.65% dividend yield for income investors. This reduction is expected to be driven by a combination of weaker earnings in FY 2023 due to margin pressures offsetting solid revenue growth and a lower payout ratio of 85%.

For similar reasons, the broker is then forecasting a reduction to $1.63 per share in FY 2024. This will mean a fully franked 3.5% dividend yield for that year.

Finally, in FY 2025, Goldman expects a return to both profit and dividend growth. Its analysts are forecasting a fully franked $1.80 per share dividend for investors that year. Based on the latest Wesfarmers share price, this equates to a fully franked 3.9% dividend yield.

In summary, that will be fully franked dividends per share of $1.70 in FY 2023, $1.63 in FY 2024, and then $1.80 in FY 2025. Which equates to yields of 3.65%, 3.5%, and 3.9%, respectively.

The post Here’s the Wesfarmers dividend forecast through to 2025 appeared first on The Motley Fool Australia.

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More reading

• Thinking about buying your first ASX shares right now? Here are 3 stocks I’d invest in
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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 positions in and has recommended Wesfarmers 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.

Amazon‘s (NASDAQ: AMZN) big news so far this week was the announcement on Monday that the company plans to lay off 10,000 workers. However, the e-commerce and cloud-hosting giant followed up with an even more surprising development.

On Tuesday, the company introduced its new virtual care service, Amazon Clinic, which “connects customers with affordable virtual care options when and how they need it.” Is Amazon stock a buy after the unveiling of this new healthcare service? 

The second time’s the charm?

If this story sounds really familiar, it should. Amazon launched another virtual care service called Amazon Care in 2019. However, the company is shutting that service down by the end of this year.

How does Amazon Clinic differ from Amazon Care? For one thing, it’s much more limited in scope. Amazon Clinic will provide virtual care only for about 20 common conditions. These include acne, allergies, migraines, and urinary tract infections. 

Amazon Care was available nationwide. Amazon Clinic, though, will at least initially be available in only 32 states. Amazon Care also offered in-person healthcare services in many cities, while Amazon Clinic will provide only virtual care services. 

With Amazon Clinic, customers will be able to choose from a list of licensed telehealth providers. However, they’ll have to pay for the services out of pocket. Amazon Clinic won’t accept insurance, at least for now.

Potential impact

Amazon’s shares jumped nearly 4% in early trading on Tuesday. Were investors celebrating that Amazon will once again join the ranks of telehealth stocks? Maybe a little. However, the main reason for Amazon’s surge was that all the major market indexes rose after October wholesale prices increased less than expected.  

The reality is that the impact of Amazon Clinic on the company’s overall business will almost certainly be quite small. Amazon generated revenue of $127.1 billion in the third quarter. It would take a lot of virtual care visits to even amount to chump change in comparison to that massive sales total.

Sure, Amazon Pharmacy could receive a boost from prescriptions stemming from Amazon Clinic. But customers will be able to choose other pharmacies as well. The increased volume for Amazon Pharmacy probably won’t be large, especially in the early innings for Amazon Clinic.

Amazon did say that its healthcare services will be eligible for flexible spending accounts (FSAs) and health savings accounts (HSAs). However, not accepting insurance will almost certainly get in the way of Amazon Clinic making a big impact on the company financially. 

Two different questions

Is Amazon stock a buy because of its new healthcare service? No. The impact of Amazon Clinic probably won’t be great enough to influence investors’ buying decisions. However, whether Amazon stock is a buy at all is a different question. I think that the answer to this second question is a resounding yes.

Amazon still has significant growth opportunities. The latest indication that inflation could be moderating should be great news for the company. Lower inflation would benefit Amazon’s e-commerce business as well as its Amazon Web Services cloud hosting unit.            

The stock has fallen the most from its peak since the Great Recession. History shows that when Amazon experiences a steep decline, it roars back.

Amazon Clinic could eventually be a huge success. But even if it isn’t, the virtual care service highlights Amazon’s ability to expand into new markets. Sometimes the company will win with these moves and sometimes it won’t. However, stocks with as many potential ways to generate growth as Amazon tend to perform really well over the long term. 

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

The post Amazon unveils new healthcare service: Is the stock a buy? appeared first on The Motley Fool Australia.

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More reading

• Don’t be fooled. Amazon’s international business is more profitable than you think
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Keith Speights has positions in Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. 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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Since the Coles Group Ltd (ASX: COL) share price first listed on the ASX back in late 2018, the company has quickly built up a reputation for strong and consistent dividend income. Coles has paid out two dividends per year since finding its own two feet on the ASX.    

What’s more, the company has managed to increase its annual dividends every year since 2019. That includes during the COVID-disrupted year of 2020, not something arch-rival Woolworths Group Ltd (ASX: WOW) can say.

And yet the Coles share price hasn’t quite been so kind. Today (at the time of writing), Coles is sitting at $16.55 a share. This puts the supermarket operator at a year-to-date loss of 7.5%. Coles has lost close to 15% of its value since mid-August alone when the company hit a new record high of $19.65. 

Saying that, the company still remains well above the approximate $1.50 levels it floated at back in 2018. Investors are still up a healthy 29% or so since Coles was spun out of Wesfarmers Ltd (ASX: WES) back then.  

But we can conclude that the only meaningful returns Coles shares have enjoyed over the past two or so years, at least on today’s pricing, have come from dividends.

So how much dividend income are investors enjoying from their Coles shares?

How much dividend income would $10,000 worth of Coles shares yield?

Well, let’s say an investor has $10,000 worth of Coles shares right now. That would give the said investor 604 shares at today’s pricing, with a little change left over.

So Coles has dutifully doled out its two dividends already in 2022. The first was the interim payment of 33 cents per share that was received on 31 March. Those 604 shares would have yielded a cash payment of $199.32 for that dividend.

The second was the final dividend of 30 cents per share that investors enjoyed on 28 September. That would have yielded a payment of $181.20. So together, our investor would have been paid a total of $380.52 in 2022 for their $10,000 worth of Coles shares.

That’s a yield worth 3.81% on the current Coles share price. Since Coles’ dividends came fully franked as well, that yield grosses up to 5.44% with the value of those franking credits included.  

The post Here’s how much dividend income $10,000 worth of Coles shares will get you today appeared first on The Motley Fool Australia.

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More reading

• Experts name the blue chip ASX 200 dividend shares to buy now
• Are ASX share investors getting their mojo back?
• Top ASX dividend shares to buy in November 2022
• Worried about your income in retirement? Take a look at these 3 ASX 200 dividend shares
• Coles share price slips as boss says ‘best is still to come’

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 positions in and has recommended COLESGROUP DEF SET and Wesfarmers 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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The Whitehaven Coal Ltd (ASX: WHC) share price is well and truly in the green today despite no news having been released by the coal producer.

It’s joined in the green by many of its S&P/ASX 200 Energy Index (ASX: XEJ) peers as the sector leads the S&P/ASX 200 Index (ASX: XJO). Meanwhile, the company has slammed a mooted tax on thermal coal and gas.

Right now, the Whitehaven Coal share price is $8.765, 6.5% higher than its previous close.

At the same time, the ASX 200 has dropped 0.51% and the energy sector is up 1.49%.

Let’s take a closer look at what might be going on with the ASX 200 coal favourite today.

Whitehaven share price lifts 7% on Wednesday

The Whitehaven share price is powering up on Wednesday. Its joined in the green by fellow coal producers New Hope Corporation Limited (ASX: NHC) and Coronado Global Resources Inc (ASX: CRN). They’ve gained 5% and 3.7% respectively at the time of writing.

It comes after coal futures lifted 5.9% to US$198.65 a tonne overnight, according to CommSec.

Meanwhile, Whitehaven has hit headlines after urging the federal government to “rule out” a contemplated tax on thermal coal exports intended to lower energy prices. The company today said:

The compounding nature of the measures the Government is actively considering, or has refused to rule out in the case of a new mining tax, is bad news for jobs and investor confidence and is hard to reconcile with Labor’s stated support for Australian mining – including coal – in its pre-election policy platform.

Treasurer Jim Chalmers leant away from tax talk yesterday, telling ABC Radio National:

Our first preference is to try and find a regulatory solution here, rather than a tax solution.

There’s an important reason to leave all the options on the table and that is; there’s a lot of complex interactions here in these markets … [we need] a temporary, meaningful, sensible, responsible intervention in this market which recognises that these high prices brought about by a war in Europe have the potential to strangle our local industries and make life harder for Australians.

But Whitehaven is sceptical a tax would do anything to address energy prices. It said:

Further taxing our coal exports won’t make electricity cheaper for Australian consumers, it will just cost jobs and undermine our reputation as a reliable trading partner.

The rising cost of living is something the Government must address but a new tax will never be a cure for high domestic energy prices.

The post Why is the Whitehaven share price whizzing 7% higher today? appeared first on The Motley Fool Australia.

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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 Commonwealth Bank of Australia (ASX: CBA) share price is under pressure on Wednesday.

In afternoon trade, the banking giant’s shares are down almost 3% to $103.47.

Why is the CBA share price is dropping?

Investors have been hitting the sell button today after a number of brokers remained bearish on the bank following its first quarter update.

One of those brokers is Credit Suisse, which has downgraded the Australia’s largest bank’s shares to an underperform rating with a trimmed price target of $97.50. This implies potential downside of almost 6% for investors.

Credit Suisse has reduced its earnings estimates to reflects inflationary pressures and higher bad debts assumptions, which have offset higher net interest margin forecasts.

What else is being said?

Elsewhere, the team at Goldman Sachs has reiterated its sell rating with an improved price target of $90.98. This suggests even greater downside risk of 12% for investors from current levels.

Goldman’s main concerns are its valuation. While the broker acknowledges that CBA has a strong franchise, it highlights that it isn’t immune from intense competition and tough economic conditions.

As a result, it doesn’t believe the CBA share price deserves to trade at such a premium. Its analysts explained:

While the 1Q23 update highlighted the strength of the CBA franchise (particularly deposits), reflected in its very strong NIM performance, we reiterate our Sell given: i) it does remain more exposed to the intense competition we are currently observing in mortgages (albeit CBA appears to be favouring NIM over volumes), ii) we expect that potential further macro downside is likely to more adversely impact the household this cycle, which CBA is more exposed to, and iii) domestic volume trends have tracked towards system levels. We therefore do not believe its fundamentals justify the 51% 12-mo fwd PER premium it is currently trading on versus peers, compared to the 20% historic average.

The post CBA share price drops on bearish broker notes appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
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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 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 CSL Limited (ASX: CSL) share price has been edging higher in recent weeks. But could it see even further gains as it grows profit?

One expert has outlined why the business could see a promising future.

Writing in an article on Livewire, Kristiaan Rehder from Kardinia Capital said that the end of easy money and the normalising of conditions means that markets are now rewarding stock pickers “more than ever”.

He noted there has been a reduction of the price-to-earnings (p/e) ratio, which is “well-progressed”. Though there have not been “meaningful earnings downgrades across the broader Australian market”.

Kardinia Capital is expecting further p/e multiple contraction “coupled with earnings downgrades,” making for a “challenging investment environment”.

Rehder said that, in this market, companies with a track record and earnings quality “come to the fore, giving an advantage to a well-structured investment process with a more disciplined approach”.

Rehder then picked some ASX shares the investment team believes could outperform over the next five years, including CSL shares.

Strong tailwinds

The fund manager describes the business as developing “plasma-derived and recombinant therapies to treat serious diseases”. Further, it “manufactures influenza vaccines and treats iron deficiency and kidney disease following its recent acquisition of Vifor”.

One of the things that attracted Kardinia Capital was that CSL’s management has “proven adept at maintaining high returns,” with a return on invested capital (ROIC) of at least 20%. The fund manager attributed that to “consistent product development and innovation to drive growth into existing and new markets”.

Another positive element to the business, in the fund manager’s eyes, is that the company has a high market share in industries that have “strong tailwinds”.

Double-digit earnings growth predicted

At the moment, CSL has higher levels of debt because of the amount of funding it needed to acquire the Vifor business. The business raised about $7 billion in a capital raising, though the total acquisition price represented US$11.7 billion, or AU$16.4 billion, at the time of the deal.

However, the fund manager believes that “strong cash flows” will help gearing return to a “more manageable level”.

Rehder said that the CSL share price is trading on a “high earnings multiple”. But, the fund manager suggests the valuation is attractive. That’s because the pharma is “expecting double-digit earnings growth over the next few years as plasma collections recover post-pandemic”.

Recent CSL share price movements

Over the past month, CSL has gone up by around 4%.

The post Looking to buy CSL shares? Why this fundie is tipping ‘double-digit earnings growth’ appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. 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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A little-known ASX energy share is leading the charge higher today.

Heading into the lunch hour the All Ordinaries Index (ASX: XAO) is down 0.3% while the S&P/ASX 200 Energy Index (ASX: XEJ) is up 1.3%.

However, ASX oil and gas junior Bass Oil Ltd (ASX: BAS) just rocketed an eye-popping 154.1%. This came after the ASX energy share reported it had identified a “significant gas resource”.

Shares were placed in a trading halt in late morning pending a further announcement, which was just released. That clarified a few typos from the original release, which stated “billions” of barrels of oil rather than “millions”.

ASX energy share leaps on gas discovery

Investors sent the Bass Oil share price soaring after the explorer reported on the results from an independent geological assessment conducted by Fluid Energy Consultants.

According to the release, Fluid identified a potential gas in place of 21 trillion cubic feet (TCF) along with 845 million barrels in place of condensate/oil. The gas and oil potential sits in Bass’s 100% owned PEL 182 site, located in the Cooper Basin in South Australia.

The ASX energy share stated that gas from deep coals, lying below 2,500 metres, represents a new significant gas play in the Cooper Basin as well as a potential new material source of gas for the Australian market.

Commenting on the development, Bass Oil managing director, Tino Guglielmo said:

This is a very exciting development for Bass and its shareholders. At a time when the domestic gas market continues to face huge challenges meeting demand, this new potential gas resource represents a credible material contributor of gas to the domestic market.”

A new gas resource of this kind is able to be commercialised efficiently due to the mature infrastructure of the Cooper Basin.

What’s next?

As far as what’s next for the ASX energy share, Bass said it is studying the best commercialisation strategies to progress the opportunities at PEL 182. Among the options, the company said it is considering self-funding, farmout, and third-party investment.

The post Guess which ASX energy share just rocketed 154% on a new gas discovery appeared first on The Motley Fool Australia.

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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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