Category: Stock Market

The Mineral Resources Limited (ASX: MIN) share price is charging higher today, currently up 6.4% to $47.70.

The S&P/ASX 200 Index (ASX: XJO) mining services company and resource producer is enjoying its second day of big gains, having closed up 4.5% yesterday at $44.83.

So, why are Mineral Resource shares rallying? Let’s take a closer look.

What’s piquing ASX 200 investor interest?

Among its other holdings, Mineral Resources has a portfolio of mining operations focused on iron ore.

Mineral Resources shares have come under pressure in recent months as China’s voracious demand for the industrial metal has slipped as the country continues its economy-hobbling COVID-zero policies.

But iron ore staged another rally overnight. After gaining 1.8% the previous night, iron ore is up another 2.2% to US$115 per tonne.

That’s not only helping drive the Mineral Resources share price to another strong performance. It’s also pushing most large-cap resource stocks higher, as witnessed by the outperformance of the S&P/ASX 200 Resource Index (ASX: XJR).

While the ASX 200 is up a healthy 0.9% at the time of writing, the ASX 200 Resource Index has gained more than three times that much, up 2.8%.

Industry giant BHP Group Ltd (ASX: BHP) has gained 2.1% today, while Fortescue Metals Group Limited (ASX: FMG) is up 2.7%.

Atop its iron ore exposure, Mineral Resources has a strong lithium portfolio, and the broader lithium sector is also seeing some outsized gains today.

Mineral Resources share price snapshot

Despite the two-day rally, the Mineral Resources share price remains down by 19% in 2022. That compares to a 12% year-to-date loss posted by the ASX 200.

Mineral Resources shares are also down by 16% over the past year and by more than 20% over the past month.

Longer-term, they are up 291% over five years.

The post The Mineral Resources share price is leaping higher again today. Here’s why appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX shares today
• Is now the time to be buying beaten down ASX 200 mining shares?
• These ASX 200 mining shares are bouncing back on Thursday
• Here’s what led the Mineral Resources share price to sink 25% in June?
• Why are these ASX 200 mining shares behind the eight ball today?

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

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The Melbana Energy Ltd (ASX: MAY) share price is on course to end the week on a very positive note.

In morning trade, the oil and gas exploration company’s shares are up 19% to 12.5 cents.

Why is the Melbana Energy share price racing higher?

Investors have been bidding the Melbana Energy share price higher today after the company released an update on its Alameda Reservoir in Cuba.

According to the release, independent reserves and resources certifier McDaniel & Associates has completed its resource assessment for the second reservoir encountered by the Alameda-1 exploration well – the Alameda structure.

It certified the following:

• 3 billion barrels of oil in place
• 148 million barrels of Prospective Resource
• 56% chance of discovery

What does this mean overall?

This means that the first two reservoirs have now been independently assessed to contain a combined 4.8 billion barrels of oil in place and 267 million barrels of prospective resource.

But it may not end there. The company reminded investors that there’s still a third structure to add into the equation in the future. McDaniel’s resource assessment of the third and final structure encountered is still to be received.

Melbana Energy’s executive chairman, Andrew Purcell, was very pleased with the news. He commented:

This is a pleasing and very material addition to the considerable prospective resource estimate previously announced for the Amistad structure in the upper sheet. It reminds us all of the potential scale of the reservoirs that were encountered whilst drilling the Alameda-1 exploration well – a total volume of estimated recoverable resource that we expect will increase further again once the estimate for the final structure, Marti, is available to us.

The post Here’s why the Melbana Energy share price is ripping 19% ahead today appeared first on The Motley Fool Australia.

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More reading

• Why did the Allkem share price soar 60% in FY22?
• Here’s why the Magellan share price is sinking 6% today
• A high-quality ASX 200 share to capitalise on market volatility: fundie
• The Vanguard Australian Shares Index ETF hit an all-time high in FY22 … and finished down more than 10%
• Which e-commerce company is the best buy during this bear market?

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 Bruce Jackson.

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The Allkem Ltd (ASX: AKE) share price surged overall in the financial year despite a tough June.

The lithium explorer’s share price leapt 59.8% from $6.45 at market open on 1 July 2021 to $10.31 at market close on 30 June. In today’s trade, the Allkem share price is currently rising 5.94% at $10.53.

Let’s take a look at how the Allkem share price performed in the 2022 financial year.

How did the year pan out?

The Allkem share price hit a financial year high of $14.01 on 27 May before descending in June.

Allkem is a global lithium explorer with a wide range of projects in Western Australia, Argentina, Japan and Quebec.

The company’s shares surged in November to $10.08 after the company’s AGM. In this update, Allkem, then known as Orocobre, advised that lithium demand was expected to grow until 2040.

In December, Allkem was added to the ASX 100 index in a quarterly rebalance. Shares jumped on the back of this news. The company also changed its name from Orocobre to Allkem.

In January, Ord Minnett downgraded the Alkem share price from a buy to accumulate with a $12.50 price target.

Broker updates were more positive for Allkem in February. Morgans placed a $14.83 price target on Allkem in March, due to predictions of strong earnings growth in the future. Bell Potter also predicted the company’s share price could double. The broker was positive on the outlook of lithium prices.

In February, Allkem shares leapt on the back of the company’s half year results. Allkem reported US$192.3 million of revenue in the first half of the year. The Olaroz project in Argentina saw a 142% boost in revenue.

In early April, Allkem shares were on the rise amid news from the company’s Argentina operations. The Olaroz resource increased from 6.4 to 16.2 million tonnes of lithium carbonate equivalent (LCE). Meanwhile, at Sal de Vida, Allkem expanded future capacity to 45,000 tonnes per annum (tpa).

Investors appeared to respond well to Allkem’s quarterly update in April. The Mt Cattlin and Olaroz operations both achieved record revenue. The company reported revenue of US$235 million and a gross operating cash margin of US$189 million in the third quarter.

In May, the Allkem share price benefited from positive broker coverage. Morgans placed a $16.98 price target on the company’s shares with an add rating. At the time, analysts said:

AKE has been a strong performer in recent weeks but we continue to see long term valuation upside with persistent tightness in the lithium market.

June was a tough month for the Allkem share price. However, it was not alone in the lithium sector. Lake Resources N.L. (ASX: LKE) shares slid 49%, while Core Lithium Ltd (ASX: CXO) shares fell 31%. A note out of Goldman Sachs predicting lithium demand to fall weighed on ASX lithium shares.

Allkem share price summary

Allkem shares have jumped 56% in a year and 1% year to date.

In contrast, the S&P/ASX 200 Materials Index (ASX: XMJ) has fallen 11% in a year and 8% year to date.

The company has a market capitalisation of about $6.71 billion based on its current share price.

The post Why did the Allkem share price soar 60% in FY22? appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX shares today
• Is now the time to be buying beaten down ASX 200 mining shares?
• Can ASX lithium shares recharge in FY23?
• ASX lithium stocks avoid share price shock amid commodities lashing
• Down 25% in a month, what is the outlook for the Allkem share price in July?

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 market may be pushing higher today but the same cannot be said for the Magellan Financial Group Ltd (ASX: MFG) share price.

In early trade, the struggling fund manager’s shares were down as much as 6% to $11.51.

The Magellan share price has recovered a touch since then but remains 2.5% lower at $11.96 at the time of writing.

Why is the Magellan share price under pressure?

Investors have been selling down the Magellan share price again this morning after the embattled fund manager released its latest funds under management (FUM) update.

As you might have guessed from the reaction by investors, that update wasn’t a very positive one. In fact, Magellan revealed that its FUM continues to bleed out.

According to the release, Magellan’s FUM stood at $61.3 billion at the end of June. This is down 5.7% from $65 billion at the end of the previous month.

As shown below, the company saw its FUM fall across the board.

• Global Equities FUM fell 5.4% to $33.3 billion
• Infrastructure FUM was down 2.9% to $20.1 billion
• Australian Equities FUM dropped 13.2% to $7.9 billion

What happened?

Management advised that this reflects unfavourable market movements and net outflows across both retail and institutional channels. It explained:

The change in FUM over the June quarter comprised market movements (reflecting recent volatility and foreign exchange) and net outflows. For the June quarter, Magellan experienced net outflows of $5.2 billion, which comprised of net retail outflows of $1.7 billion and net institutional outflows of $3.5 billion.

The company also provided an update on its performance fees for FY 2022. It revealed that it is entitled to estimated performance fees of approximately $11 million for the year ended 30 June 2022. This is down from approximately $30 million a year earlier.

The Magellan share price is now down almost 40% in 2022.

The post Here’s why the Magellan share price is sinking 6% today appeared first on The Motley Fool Australia.

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• 5 ASX dividend shares with the highest yields in FY22
• Here are the top 10 ASX shares today
• Wipeout: Why did the Magellan share price sink 70% in FY22?
• Why Audio Pixels, Lake Resources, Link, and Magellan shares are dropping
• Why is the Magellan share price sinking 9% today?

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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S&P/ASX 200 Index (ASX: XJO) shares, like the rest of the market, have seen plenty of volatility this year.

Even among the venerable blue chips, share price swings of 10% or more in a week have not been uncommon in 2022.

While that can add some angst for those investors checking the daily performance of their ASX 200 share portfolios, it can also throw up some opportunities.

Asked what investments he’s made to capitalise on the recent volatility, Matt Williams, portfolio manager at Airlie Funds Management, named building materials company James Hardie Industries PLC (ASX: JHX).

ASX 200 share trading on a very attractive multiple

According to Williams (quoted by The Australian Financial Review):

We’ve added to our James Hardie position. It’s a rare high-quality global company that has such a strong position in its markets and achieves high returns on capital, yet it’s trading on a very attractive multiple.

At the current share price of $35.61, James Hardie trades at a price-to-earnings (P/E) ratio of 21 times.

Williams also sees a lot of longer-term growth potential for this ASX 200 share:

The market is concerned about the US housing cycle, but I’d be very surprised if in three to five years this company is not in a lot stronger position and the share price a lot higher due to its continued penetration into the housing siding market.

Then there are the strong profit margins.

“Every other building materials company in the world would kill to earn the 20% plus margins and 20% plus return on capital that Hardies produces,” Williams said.

James Hardie snapshot

James Hardie has a market cap of $15.1 billion. The ASX 200 share pays a trailing dividend yield of 2.0%, unfranked.

This year has been a tough one for the James Hardie share price, down 41% since the opening bell on 4 January. That compares to the 12% loss posted by the ASX 200.

Longer term, James Hardie shares are up 54% over the past five years.

The post A high-quality ASX 200 share to capitalise on market volatility: fundie appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX shares today
• Here are the top 10 ASX shares today
• Why this top broker sees 50%+ upside to the Boral share price
• ‘Global leader at attractive prices’: expert names 2 ASX shares to buy now
• Why the James Hardie share price has ‘fallen far enough’: fundie

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

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The Vanguard Australian Shares Index ETF (ASX: VAS) went through a lot of volatility during the 2022 financial year.

The VAS exchange-traded fund reached a new all-time high during FY22. It hit $97.75 in mid-August 2021 and got close to that level a couple of times over the financial year.

However, it finished the year down by just over 10% as it dropped quickly in June 2022.

For readers that don’t know, the Vanguard Australian Shares Index ETF tracks the S&P/ASX 300 Index (ASX: XKO). That means the VAS ETF attempts to deliver the same returns as the ASX 300. It’s one of the biggest index funds in Australia.

What ASX shares are in the VAS ETF?

As you might have already guessed, this ETF has 300 positions. But, let’s look at the 10 largest holdings in the portfolio. At the end of May 2022, these were the 10 biggest allocations:

BHP Group Ltd (ASX: BHP) – 10.2% of the portfolio

Commonwealth Bank of Australia (ASX: CBA) – 8.1%

CSL Limited (ASX: CSL) – 5.9%

National Australia Bank Ltd (ASX: NAB) – 4.6%

Westpac Banking Corp (ASX: WBC) – 3.8%

Australia and New Zealand Banking Group Ltd (ASX: ANZ) – 3.2%

Macquarie Group Ltd (ASX: MQG) – 3%

Wesfarmers Ltd (ASX: WES) – 2.4%

Telstra Corporation Ltd (ASX: TLS) – 2.1%

Transurban Group (ASX: TCL) – 2%

As the investments with the biggest allocations in the Vanguard Australian Shares Index ETF, these are the ones that have the biggest influence on the returns of the fund.

An ETF simply tracks the underlying performance of the holdings. If that group of shares collectively goes down in value, then the ETF will go down as well.

What this means is that the VAS ETF dropped around 10% over FY22 because the ASX 300 collectively fell during FY22.

What happened in FY22?

There were periods of strength for the ASX 300 in the 2022 financial year, particularly in the first few months and in March and April 2022 when the iron ore price was relatively strong. This helped the earnings and share prices of names like BHP, Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO).

We have also seen periods of collective strength for the big four ASX bank shares where profitability was improving, dividends were rising and the outlook appeared very healthy. We also saw share buybacks from the big banks. But now there are concerns of rising bad debts amid higher interest rates.

The year ended with a whimper as it dropped by around 9% in June 2022. That market reaction came amid rising inflation and interest rates. The Reserve Bank of Australia (RBA) increased the interest rate by 50 basis points (or 0.5%).

Why do interest rates matter? Ray Dalio, the billionaire founder of Bridgewater Associates, once said: “It all comes down to interest rates. As an investor, all you’re doing is putting up a lump sum payment for a future cash flow.”

The post The Vanguard Australian Shares Index ETF hit an all-time high in FY22 … and finished down more than 10% appeared first on The Motley Fool Australia.

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More reading

• How did the Vanguard Australian Shares Index ETF perform in June?
• Down 15% in 2022, is it time to jump on Vanguard Australian Shares Index ETF?
• Is VAS a better investment than an ASX dividend ETF?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited and Wesfarmers Limited. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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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.

Stock market headlines aren’t pretty right now. The S&P 500 Index (SP: .INX) experienced its worst first half of the year since 1970. It is in a full-blown bear market and with lingering economic issues, things could get worse before they get better. It can be difficult for investors to navigate these stressful times.

However, the basic game plan shouldn’t change for those focused on the long term. Let’s look at two steps that long-term investors can take to sail through this challenging period.

1. Avoid panic selling

When the going gets rough, it can be tempting to resort to panic selling (that is, offloading shares of companies you own in anticipation of a coming stock decline). This tendency is a bit understandable. If markets are going to keep falling, perhaps it’s best to limit your losses. But it is not a wise strategy, at least not for those focused on the long game.

Market downturns don’t last forever and, on average, bull markets tend to last longer than bear markets. That’s why holding onto shares of excellent companies even through the worst market crash is worth it. Here is some evidence. The S&P 500 bottomed out in March 2020 following the coronavirus-induced bear market. Since then, the index is up by 71% — even after its recent slide.

^SPX data by YCharts

However, reassessing your investments can be great when a bear market hits. Has the investment thesis of any of your holdings fundamentally changed for the worse? If so, it might be worth considering selling. If not, dumping your shares is the opposite of a good idea. If anything, a bear market is a good time to purchase more shares of the excellent companies you own. This brings us to our second point.

2. Pick up bargain stocks 

Market crashes don’t discriminate. Even companies performing exceptionally well or those with excellent prospects often end up being pulled down by the rest. The result: You can find plenty of great stocks that have been thrown in the discount bin. And once the market does recover, you will reap the benefits.

Let’s look at a company that looks too cheap to ignore at current levels: Teladoc (NYSE: TDOC). True, the telemedicine specialist has had its share of troubles. That includes the company’s massive $6.7 billion net loss in the first quarter, although it was due to a non-cash impairment charge related to its 2020 acquisition of Livongo Health. Teladoc overpaid for this acquisition.

Despite this and other issues, Teladoc looks far too cheap as its shares have now fallen below their pre-pandemic levels. That makes little sense, considering the company’s standing in the telemedicine industry and its progress during the pandemic. In all likelihood, telemedicine is here to stay.

The technology is convenient for physicians and patients and helps the latter save money. The flexibility of telehealth services can also allow healthcare providers to attend to more patients overall. All these benefits should lead to greater utilization of telemedicine in the coming years.

Teladoc has already built a network of physicians offering hundreds of sub-specialties, along with more than 11,000 associated care locations. Plus, more than 50% of the Fortune 500 companies and some of the largest health insurers are on its client list. Meanwhile, the company’s business keeps growing.

In the first quarter, Teladoc’s revenue increased by 25% year over year to $565.4 million, while its total visits jumped by 35% to 4.5 million. Average revenue per U.S. member and total paid memberships were also on the rise. Despite the red ink on the bottom line, Teladoc continues to make headway in the telemedicine market.

And given that the industry seems to have a bright future, Teladoc is an excellent healthcare stock to consider buying on the dip. 

Keep your eyes on the prize

Bear markets can be stressful, but a disciplined and patient approach can help you get through them. Reassessing your investments and taking advantage of others’ decisions to panic sell are great moves to consider in these troubling times. In five years, the market will almost certainly be substantially up from its current levels, and those who held on will be glad they did.

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

The post 2 things investors should do in a bear market appeared first on The Motley Fool Australia.

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Prosper Junior Bakiny has positions in Teladoc Health. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Teladoc Health. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

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The Northern Star Resources Ltd (ASX: NST) share price failed to generate positive returns for shareholders in FY22.

The price of gold recorded severe volatility throughout the financial year which heavily weighed on the ASX gold miner’s shares.

At 30 June 2021, the Northern Star share price closed at $9.78. The same time this year saw the share price close at $6.84, representing a fall of around 30% over the 12 months.

In comparison, the share price of fellow miner Newcrest Mining Ltd (ASX: NCM) lost 17% across the same time frame.

Let’s take a look at what dragged down Northern Star shares in FY22.

What happened to Northern Star during FY22?

There are a couple of likely reasons why the Northern Star share price fell into a hole during FY22.

After trading sideways from July 2021 to January 2022, the Russian war in Ukraine in the following month sparked a commodity boom.

Gold prices accelerated above the psychological US$2,000 barrier and drove Northern Star shares to a 52-week high of $11.59 in mid-April.

However, strong inflationary movements and lower than forecasted GDP readings appear to have soured investor appetite shortly after.

The price of the yellow metal soon went on to trade below US$1,750 an ounce – a level not seen since September 2021.

Higher interest rates tend to drag down the price of precious metals, and investors traditionally switch their focus to government bonds.

With major central banks around the world increasing interest rates, this has put selling pressure on Northern Star shares.

Last week, the gold miner’s shares touched a multi-year low of $6.78 before recovering some lost ground.

Its shares are at $6.93 as of Thursday’s market close.

The company also disappointed market expectations with its March quarterly update.

Management blamed the result on tough trading conditions against an overall challenging operating backdrop.

Nonetheless, several brokers remain bullish on Northern Star shares given its strong fundamentals and current valuation.

Northern Star share price snapshot

A gloomy economic outlook due to soaring inflation levels and interest rate hikes has led the Northern Star share price to tumble 26% in 2022.

The S&P/ASX 200 Resources Index (ASX: XJR) has also headed south but has posted a smaller loss of around 4% year to date.

The sector represents 48 of the largest S&P/ASX 200 Index (ASX: XJO) companies in the energy, metals and mining industry.

Northern Star has a price-to-earnings (P/E) ratio of 6.31 and commands a market capitalisation of roughly $8.04 billion.

The post Why did the Northern Star share price lose its shine in FY22? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• What’s the outlook for ASX 200 dividend shares in FY23?
• Could rising rates hurt ASX 200 bank shares in the longer run?
• It’s been a crazy year for Core Lithium shares so far. What’s next?
• Here are the top 10 ASX shares today

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

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If you’re wondering where to invest during these uncertain times, then the exchange traded funds (ETFs) listed below could be worth considering.

Both have just been rated as buys by analysts and tipped as top options in the current environment. Here’s what you need to know:

ETFS S&P 500 High Yield Low Volatility ETF (ASX: ZYUS)

The first ETF for investors to consider is the ETFS S&P 500 High Yield Low Volatility ETF.

This ETF aims to provide investors with a return that tracks the performance of the S&P 500 Low Volatility High Dividend Index. This index is designed to provide exposure to 50 high-yielding, low volatility stocks from the S&P 500 while meeting diversification and tradability requirements.

Among its holdings are IBM, Kinder Morgan, Kraft Heinz, Philip Morris, and Verizon.

Felicity Thomas from Shaw and Partners is a fan of this ETF. She told Livewire:

I really like ETF Securities High Yield Low Volatility ETF. Essentially, I really like their methodology. They look at the top 75 high-quality businesses and they only take 10 high-yielding companies per sector, and they remove the 25 most volatile. It’s got names like Kraft, IBM, and Verizon and also pays a quality distribution. And I think everyone’s looking for defensive yield at the moment.

VanEck Vectors MSCI World ex Australia Quality ETF (ASX: QUAL)

Another ETF for investors to look at is the VanEck Vectors MSCI World ex Australia Quality ETF. It provides investors with access to a portfolio of high quality shares outside Australia.

To be included in the ETF these companies need to pass certain criteria such as having low leverage, high growth rates, and high returns on equity. Companies that have made it into the fund include Apple, Microsoft, Nike, and Nvidia.

Apt Wealth’s Sarah Gonzales is very positive on the ETF and named it as her top pick right now. She told Livewire:

My preferred ETF is the VanEck MSCI International Quality ETF. I think it provides exposure to that quality factor, which tends to outperform in market downturns. It does focus on factors like return and equity, year-on-year growth of earnings and also levels of debt. These are proxies for profitability, earnings variability, and the level of debt of companies. Particularly if we are going into a recession,  I think these are really the factors that I think we should focus on.

The post Here are 2 buy-rated ASX ETFs for casting a wider net during uncertainty appeared first on The Motley Fool Australia.

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More reading

• Here are 2 high quality ETFs analysts rate as buys
• Are these 2 high quality ETFs in the buy zone this month?

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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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.

During the peak pandemic years, e-commerce stocks could do no wrong. Now, they are entirely out of favor with the market. However, does this weakness present a buying opportunity?

Some of the top e-commerce stocks on my checklist are Amazon (NASDAQ: AMZN), MercadoLibre (NASDAQ: MELI), Shopify (NYSE: SHOP), and Etsy (NASDAQ: ETSY). Each is down significantly from their record highs. While all might be solid companies, are their stocks a buy? Let’s find out.

The businesses

Each company operates in its own market niche:

• Amazon is the world’s largest e-retailer and sells practically anything you could ever want. It also has a growing cloud computing business that diversifies the company.
• MercadoLibre is focused on Latin America and has an e-commerce platform, digital payments business, shipping logistics division, and consumer credit arm.
• Shopify isn’t a direct e-commerce play, but it provides the software necessary for businesses to launch their e-commerce store.
• Etsy’s site offers products that are often customizable and typically sold by individuals with a relatively small operation.   

All four companies saw massive sales growth during the pandemic, but only one has maintained its growth rate through 2022.

AMZN Revenue (Quarterly YoY Growth) data by YCharts

When the other businesses’ sales growth fell dramatically, MercadoLibre’s stayed steady at 63%. This was primarily due to 113% year-over-year (YOY) growth of its fintech revenue during the first quarter. However, its commerce revenue still grew a respectable 44% (which was higher than any of the other companies).

Both Amazon and Etsy had abysmal first quarters, and it won’t get better for Etsy. Management projects Q2 sales to rise 7% at the midpoint, a metric that a weakening consumer could impact. Most of Etsy’s goods are discretionary and nonessential during tough times. But this sentiment may be baked into the stock, which trades for 20 times free cash flow.

Amazon was propped up by its Amazon Web Services (AWS) cloud computing division in the first quarter as its sales rose 37% over the year-ago period. However, North American commerce sales only rose 8%, while international sales fell 6%. Additionally, Amazon’s free cash flow slid further into negative territory, with Amazon burning an astounding $29 billion during the quarter.

Etsy and Amazon both had horrendous quarters, and besides AWS, there doesn’t seem to be a light at the end of the tunnel. But what about Shopify?

Those who may not have checked on Shopify’s stock lately may be wondering, “Why is this stock priced so low?”

As of June 28, Shopify split its stock 10-for-1, which means each share is now worth a tenth of what it used to, but investors who held the stock received nine additional shares to make up for the split.

As for the business, Shopify’s sales grew a steady 22%. This rise was driven by a 29% increase in its merchant solutions segment, which takes a cut of each item sold through Shopify’s platform. Because Shopify merchants have to pay a monthly fee to use its software, the company should be able to maintain a solid chunk of its business regardless of how the consumer is doing. However, it could see a material slowdown due to the weakening consumer because its merchant solutions made up 72% of Q1 revenue. 

Business outlook

Looking forward, it’s hard to get excited about Etsy’s growth prospects. It operates in a niche that thrives when the consumer is flush with cash — something we are not experiencing currently. Amazon’s only bright spot is AWS, which has massive tailwinds behind it. As for the e-commerce business, it’s almost too big to grow rapidly anymore.

Shopify has a long way to go before fully deploying its vision for a complete e-commerce solution, but many stores have already taken the leap from brick-and-mortar to online with Shopify. Now, Shopify’s growth will be driven by the growth of its clients, which could still be significant.

MercadoLibre has by far the best outlook. With its fintech divisions, there seems to be no sign of slowing down. Additionally, only about 4.9% of total retail sales occur online in Latin America versus 16.1% in the U.S. Latin America is home to more than 650 million people, giving MercadoLibre a vast growth runway.

Stock valuations

Comparing each stock directly from a price-to-sales ratio standpoint is dangerous as each has a different margin profile. However, examining where the stocks have traded historically can give investors insight into how cheap they are.

AMZN PS Ratio data by YCharts

From this chart, Amazon is returning to valuation levels last seen in 2016. On the flip side, MercadoLibre is valued the same as it was at the depths of the Great Recession. MercadoLibre isn’t nearly as in trouble as it was in 2009 when the financial system was on the brink of collapsing. However, that is how the market values it. 

Both Shopify and Etsy are much younger, so investors don’t have as much of a historical record on which to base their analysis.

SHOP PS Ratio data by YCharts

These two are returning to lows reached in 2016. However, growth prospects were greater back then because e-commerce wasn’t as developed. Now that the largest e-commerce catalyst that will likely ever occur has subsided, the future growth story isn’t as bright for Shopify or Etsy, leading to a lower valuation.

It’s hard to ignore how superior MercadoLibre appears to be as an investment. It’s growing the fastest, has a sizable market available, and is valued cheaply. That’s not to say it is risk-free since operating in Latin America can be tumultuous with governments and economies.

However, with its wide footprint, it should be able to weather almost any storm it experiences. So of the four, MercadoLibre is my top e-commerce stock to buy, and it really isn’t close.

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

The post Which e-commerce company is the best buy during this bear market? appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Etsy, MercadoLibre, and Shopify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Etsy, MercadoLibre, and Shopify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. 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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