Category: Stock Market

Shares in diversified financial services company AMP Ltd (ASX: AMP) finished the day less than 1% in the green on Wednesday at 90.5 cents apiece.

That’s a welcomed reversal of a downtrend that’s been in place since 10 February around about the time when AMP released its full year results for FY21.

AMP shares have since compressed hard from their previous high of $1.07 – achieved right before earnings – and are now around 16% behind at the close on Wednesday.

Why are AMP shares struggling?

ASX financial shares have softened over the past 4 weeks amid global conflict that has seen the ‘weaponisation’ of the global financial system.

Sanctions placed on the Russian central banking system and its ability to participate in global payments has rocked banking shares around the world.

The S&P/ASX 200 Financials Index (ASX: XFJ) has fallen 3% in the past month and is now down 5.5% since trading recommenced on January 4.

Meanwhile, the S&P 500 Financials Sector index (INDEX: SPF) has tanked 12% whereas the BetaShares Australian Financials Sector ETF (ASX: QFN), SmartShares Australian Financials ETF (ASX: ASF) and the Nasdaq Bank Index (NASDAQ: BANK) have each sunk 3.5%, 5% and 10% respectively.

Each of these proxies for the Australian and global financial sector illustrates that sentiment on financial shares is quite low right now, and investors are looking to unload their positions.

AMP is no different – its share price has collapsed almost 7% in the past month and is therefore trailing the diversified ETF products listed above.

Not only that, but AMP also opted to withhold paying a dividend in its most recent set of results, giving shareholders a lower total return and also less cover over the downside.

Seeing as AMP’s share price has continued to decline over the past 1–5 years on a consistent basis, the trend observed over the last few weeks isn’t out of the norm for shareholders.

In just the last 3-months, shares have tumbled from a previous high of $1.20 on 8 November – itself basically at 52-week lows as well.

So when taking a more pragmatic approach, arguably, the downward momentum was already in place for AMP, and the recent world-staged events were the right ‘spark’ to have them crashing lower.

A series of scandals, wrongdoings and ongoing investigations have marred the AMP share price during this time.

Check out AMP’s performance on the chart versus the same instruments listed above, only this time over a 5-year period. The value gap continues to widen as time goes on.

AMP share price snapshot

In the last 12 months, the AMP share price has collapsed more than 38% after sliding another 10% this year to date.

During the previous month alone, shares have fallen another 6% and are also down 6% in the past 5 days of trading.

The post The AMP (ASX:AMP) share price has dumped 16% in under 4 weeks. What’s happening? appeared first on The Motley Fool Australia.

More reading

• Why did the AMP (ASX:AMP) share price leap 8% in February?
• AMP (ASX:AMP) share price lifts as new suitor for capital arm emerges
• These 3 ASX 200 shares are topping the volume charts on Wednesday
• Here’s why AMP (ASX:AMP) shares are set for a transformation
• Top brokers name 3 ASX shares to sell next week

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

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If you’re looking for exposure to the healthcare sector, then you may want to consider the two ASX shares listed below.

These ASX healthcare shares have recently been named among the best shares to buy this month by the team at Morgans. Here’s why the broker is bullish on these ASX shares:

Cochlear Limited (ASX: COH)

The first ASX healthcare share that Morgans is a fan of is this hearing solutions company. The broker likes Cochlear due to its leadership position in implantable hearing solutions and the improving outlook for demand. Morgans believes the latter is pointing to an improving earnings profile.

The broker explained: “Cochlear maintains a dominant position in the implantable hearing solutions segment. While we continue to believe a full recovery from Covid-based disruptions still has time to play out, improving demand and strong pipeline, coupled with management’s increasing confidence, is all suggestive of an improving earnings profile.”

Morgans has an add rating and $233.20 price target on the company’s shares.

ResMed Inc (ASX: RMD)

Another ASX healthcare share that the team at Morgans rates as a buy this month is sleep treatment focused medical device company, ResMed. Its analysts rate ResMed highly due to its very positive long term outlook, which is being underpinned by the company’s digital platform.

Its analysts commented: “While we believe the next few quarters will likely be volatile, as Covid-related demand for ventilators continues to slow and core sleep apnoea volumes gradually lift, nothing changes our medium/longer term view that the company remains well-placed as it builds a unique, patient-centric, connected-care digital platform that addresses the main pinch points across the healthcare value chain.”

Morgans currently has an add rating and $40.46 price target on ResMed’s shares.

The post 2 of the best ASX healthcare shares to buy now according to analysts appeared first on The Motley Fool Australia.

More reading

• 3 more of Morgans’ best ASX share ideas for March
• You can’t pick the bottom, but these 4 ASX shares are already bargains: expert
• Why does this broker say to sell Cochlear (ASX:COH) shares in 2022?
• 2 ASX healthcare shares analysts rate as buys
• Analysts name 3 ASX 200 shares with potential upside of 20%+

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. owns and has recommended Cochlear Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. 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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At the latest Westpac Banking Corp (ASX: WBC) share price, is it the cheapest bank that Aussies can buy?

Westpac used to be the second biggest bank in Australia. However, the deterioration of its market capitalisation and the strength of National Australia Bank Ltd (ASX: NAB) has meant that it has slipped down the rankings.

But the market capitalisation doesn’t necessarily mean one bank is cheaper than another.

One of the popular ways to compare banks is by the multiple that their earnings are valued at. This is also called the price/earnings ratio, or p/e ratio.

There are many different banks to compare on the ASX.

Westpac is one of the largest ones. NAB, Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) are the other big four banks.

Then there are a few smaller financial institutions like Bank of Queensland Limited (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN) and Mystate Ltd (ASX: MYS).

Suncorp Group Ltd (ASX: SUN) and Macquarie Group Ltd (ASX: MQG) also have sizeable banking divisions, but they have large non-banking operations as well which makes them less comparable.

At today’s Westpac share price, is it the cheapest bank?

Using the earnings estimates on Commsec, let’s compare the different forward earnings multiples for FY23 – there isn’t much of FY22 left, which included differing COVID-19 impacts.

The Westpac share price is valued at 12x FY23’s estimated earnings.

Other banks

CBA shares are currently valued at 18x FY23’s estimated earnings.

The NAB share price is valued at 13x FY23’s estimated earnings.

ANZ shares are valued at 11x FY23’s estimated earnings.

So, of the big four ASX banks, Westpac is not the cheapest. But it is the second cheapest on the projected earnings side of things.

But what about the smaller banks?

The BOQ share price is valued at 10.6x FY23’s estimated earnings, so it’s a little cheaper than ANZ.

Bendigo Bank shares are priced at 12x FY23’s estimated earnings.

The Mystate share price is valued at 12x FY23’s estimated earnings.

Is the Westpac share price a buy?

It may not be the cheapest bank on the ASX, but analysts can still rate the business as a buy.

Brokers are pretty mixed on the bank at the moment. For example, Morgans and UBS both rate Westpac as a buy, with price targets of $29.50 and $27 respectively. That implies a potential upside over the next year of 34% and 23%, respectively. Both of these brokers say that Westpac is their favourite bank.

However, others are less convinced. The broker Morgan Stanley only rates Westpac ‘equal-weight’ because of uncertainty about the revenue, with a price target of just $22.20 – that’s only slightly higher than where it is right now. But, it did note the start of Westpac’s cost reduction actions.

Credit Suisse is another broker that is ‘neutral’ on the bank with a price rating of $23. That would imply a mid-single-digit rise for the Westpac share price.

The post Is the Westpac (ASX:WBC) share price the cheapest bank to buy right now? appeared first on The Motley Fool Australia.

More reading

• Broker names 2 high yield ASX dividend shares to buy right now
• 3 blue chip ASX 200 shares analysts are tipping as buys
• Record $36bn in dividends could help ASX share market recovery
• Own NAB (ASX:NAB) shares? Here’s why the bank is this brokers top pick
• CBA (ASX:CBA) boss says this presents ‘a lot of opportunity’ for the bank

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 no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Bendigo and Adelaide Bank 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 Bruce Jackson.

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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Monash Investors portfolio manager Sebastian Correia reveals the ASX share he’d hold for years, and the one he wished he had for years.

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?

Sebastian Correia: That question, we’ve been asked that in a variety of different ways before. It’s often the kiss of death for stocks.

A lot can change in four years, right?

Back in 2018, I don’t think many of us would’ve predicted we’d have a global pandemic, or, even before it ended, the biggest conflict in Europe since World War II. 

But look, all exogenous risks aside, I’d be happy to hold Johns Lyng Group Ltd (ASX: JLG) for four years because of all the points I mentioned above. It ticks all the resilience points that I just mentioned around the pricing power, cash flow generation, and it’s got strong tailwinds behind it. It’s got an untapped North American market, which is about $100 billion at a much higher margin.

Climate change-influenced weather patterns are provided as a tailwind. I don’t like to factor that in my forecast, but that’s also just something to have on the back burner. And because of inflation, if they can pass on those pricing costs, they can maintain their margins and therefore be even more strongly positioned to take advantage of any opportunities that come up in the market to acquire. 

It’s got a couple of adjacencies — strata management, for example. I’m very sceptical about synergies when management mentions them, but there’s a lot of plausible synergies I think have the potential to be exploited if they so choose. So there’s a lot there that you could get excited about.

The one thing about John Lyng is that… the market realises it’s a high-quality stock, and therefore it could trade at a higher valuation than I would like. With OFX Group Ltd (ASX: OFX), it’s so easy to get that upside, right? With JLG, they have to execute against the expectations that they’ve set, but they’ve been able to do so for so long in the past. Having spoken to management several times, I’m quite confident that they can do that subject to some other crazy thing that would happen in the markets, like another war or something.

MF: The share price has cooled off a little bit this year.

SC: Yes, exactly. The CEO, Scott Didier, bought another million dollars worth of stock on-market, I think, two weeks ago. So he obviously sees that it’s been oversold, and I would tend to agree. 

And the last thing I’d mention on that one is just that four years, based on current information, is a long time.

When I’d spoken earlier around Monash, when they set it up, they had developed or observed a broad suite of recurring business situations and patterns of behaviour. This is one of them that informs our idea generation. That is, John Lyng consistently exceeded consensus earnings to expectations over the years. 

For example, in December 2019, the analyst consensus revenue forecast for financial year 2022 was about $465 million. By the next year, so by December 2020, this forecast for that same year… had grown by 23% to $570 [million]. Then three years on, by December 2021, that same year FY 2022’s revenue forecast had grown by 70%. 

So each year, the analysts are forced to increase their earnings, or the revenue expectations in this case for the stock, because they just happened to hit their milestones so successfully.

Looking back

MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.

SC: Yeah, I’ve got plenty. It’s a part of being a fund manager. 

Balancing conviction in a position while the price stands against you is quite hard. So at Monash, we’ve developed almost like a pre-mortem selling discipline that I’m exceptionally strict on following. So if the facts of the investment thesis change, even for a stock that I absolutely love, I don’t really have too much difficulty in selling to protect our investors’ capital. 

So I don’t really have too many regrets in that regard, but I have quite a few opportunities that we knew about but failed to buy in at the time and ended up being multibaggers.

The one that came to mind, when I thought about your question, was an extremely valuable lesson to me. It happened back in October 2019. And it involved a telecommunications company called OptiComm. 

OptiComm, before it got taken over by Uniti Group Ltd (ASX: UWL), constructed and maintained an alternative network to the NBN, arguably superior. The beauty of the business was that the residential developers would pay OptiComm to come in, and build, and integrate its network into the development project. After the completion of the project and the residents moved in, OptiComm would then earn recurring revenue by providing the internet connectivity through an approved list of retail service providers that they managed.

So it was a phenomenal business model. In essence, it was getting paid to build an asset that they controlled, and from which it received recurring revenue. When someone else pays for your cap-ex, and you get to cop all revenue on the property…

MF: Daylight robbery!

SC: Yeah, exactly. So I was quite convinced at that time that it was going to be a success. And I did the DCF [discounted cash flow] valuation modelling and did all the due diligence, and it was well above our investment hurdle of 60% upside. But we didn’t buy because we had some concerns around a large chunk of stock that was going to come out of escrow in the next few weeks or something like that.

And that was when it was about $3. And in less than a year, it more than doubled, before being acquired by Uniti Wireless Group at a premium. 

Luckily, I can say I learned from that mistake because I did a lot of due diligence into Uniti when they acquired that. And we took a stake in Uniti… But oh, how I wish I could have been in there from the beginning.

The post I’m still kicking myself for missing the ASX company with the perfect business model: expert appeared first on The Motley Fool Australia.

More reading

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• Here are the top 10 ASX shares today
• Why Nanosonics, Superloop, Uniti, and Zip shares are tumbling today
• Uniti (ASX:UWL) share price tumbles 10% despite revenue surging 98%

Motley Fool contributor Tony Yoo 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 Uniti Group Limited. 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 A2 Milk Company Ltd (ASX: A2M) share price has been a very poor performer over the last 12 months.

Since this time last year, the struggling infant formula company’s shares have lost 40% of their value.

This means the A2 Milk share price is now down by over 70% since the middle of 2020.

Is the weakness in the A2 Milk share price a buying opportunity?

Opinion remains largely divided on the A2 Milk share price. However, one broker that is brave enough to recommend the embattled company as a buy is Bell Potter.

According to a recent note, the broker has a buy rating and $7.70 price target on the company’s shares.

Based on the current A2 Milk share price of $5.38, this implies potential upside of 43% for investors over the next 12 months.

What did the broker say?

Bell Potter saw enough positives in A2 Milk’s half year results last month to remain positive on the company.

It commented: “Our Buy rating remains unchanged. We saw plenty to like in this result: (1) growth in stage 1 market share in the MBS [mother and baby store] channel from 2.1% to 2.5% (indicative of new customer recruitment); (2) a beat in China direct channels sales in 1H22 and a closer alignment of sell-in and sell-out levels in 2Q22; (3) reinvestment of outperformance into marketing, to support FY23-24e revenue growth; and (4) progress on articulating a margin capture strategy at MVM.”

Importantly, Bell Potter has not made any material changes to its earnings estimates following its results. It continues to expect the company’s underlying net profit to be double FY 2021’s levels in FY 2024.

Based on this, the broker estimates that the A2 Milk share price currently trades at approximately 28x FY 2024 earnings. While this is not conventionally cheap, Bell Potter appears to believe it deserves to trade at this level.

The post Why this broker sees 40% upside for the A2 Milk (ASX:A2M) share price appeared first on The Motley Fool Australia.

More reading

• Hot or cold? Here’s how the A2 Milk (ASX:A2M) share price performed in February
• A2 Milk (ASX:A2M) share price slips amid ‘long-term implications’ of flooding
• Why this top broker rates these ASX shares as buys in March
• What’s next for the A2 Milk (ASX:A2M) share price?
• Why the A2 Milk (ASX:A2M) share price can climb 40%: 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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. 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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If you’re looking for dividends shares with big yields, then you may want to look at the ones listed below.

Here’s why analysts at Morgans rate these high yield dividend shares as buys:

Adairs Ltd (ASX: ADH)

The first high yield ASX dividend share for investors to consider is Adairs. It is the leading furniture and homewares retailer behind the online-only Mocka brand, the recently acquired Focus on Furniture brand, and the eponymous Adairs brand.

These brands give Adairs a strong position in a category which is benefitting from the shift online and structurally higher spending on the home relative to pre-COVID levels.

And while FY 2022 will be a tough year because of COVID headwinds, the team at Morgans expect a swift rebound in FY 2023.

It commented: “In FY23, we expect Focus to have bedded down and to have started a strategy of improving store economics while expanding its footprint. We expect the NDC [national distribution centre} to be up and running and delivering efficiencies. We expect Mocka to be making its first steps towards an omni-channel strategy. These factors underpin an expectation of positive earnings growth in FY23 and FY24, which we do not think are reflected in the multiple. ADD.”

Morgans currently has an add rating and $3.50 price target on its shares. As for dividends, its analysts are forecasting fully franked dividends of 19 cents per share in FY 2022 and 26 cents per share in FY 2023.

Based on the current Adairs share price of $2.76, this will mean yields of 6.9% and 9.4%, respectively, over the next couple of years.

Westpac Banking Corp (ASX: WBC)

Another high yield ASX dividend share to consider buying is Westpac. This banking giant’s shares have come under pressure recently due to margin weakness and cost cutting doubts.

The team at Morgans is also positive on Australia’s oldest bank and see the recent share price weakness as a buying opportunity.

Earlier this week it said: “WBC is our preferred major bank. We believe WBC offers the most compelling valuation of the major banks. In terms of quality of overall risk profile, we believe WBC is a close second to CBA. On credit risk, we believe WBC is positioned relatively defensively due to its loan book being more skewed to Australian home lending.”

Morgans currently has an add rating and $29.50 price target on the bank’s shares.

In respect to dividends, the broker has pencilled in fully franked dividends per share of $1.19 in FY 2022 and then $1.60 in FY 2023. Based on the current Westpac share price of $21.96, this will mean yields of 5.4% and 7.3%, respectively.

The post Broker names 2 high yield ASX dividend shares to buy right now appeared first on The Motley Fool Australia.

More reading

• 3 blue chip ASX 200 shares analysts are tipping as buys
• Is this still the dawning of the age of ASX commodity shares?
• Record $36bn in dividends could help ASX share market recovery
• 3 under-the-radar commodity prices soaring since the Ukraine crisis
• Here’s why the BHP (ASX:BHP) boss is still optimistic about China

Motley Fool contributor James Mickleboro owns Westpac Banking Corporation. 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 Westpac Banking Corporation. 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 current Wesfarmers Ltd (ASX: WES) share price may offer a grossed-up dividend yield of 5% in FY22. Does this make it good enough to consider?

Since the start of the year, the Wesfarmers share price has fallen by 18.5%.

Not only are the shares cheaper than they were before, but it also means that the prospective dividend yield is bigger.

Wesfarmers is committed to achieving good shareholder returns. Its dividend is a sizeable part of that overall effort. That dividend is funded by the earnings of several businesses including Bunnings, Kmart, Officeworks and Target.

How big will the Wesfarmers dividend be in FY22?

Only the Wesfarmers board can decide how big the dividend payments will be. The board members may not have decided yet on the final dividend payment for the 2022 financial year.

However, analysts do like to try to estimate how large they think the dividend is going to be.

Commsec numbers suggest an estimated annual dividend of $1.66. At the last Wesfarmers share price, that represents a grossed-up dividend yield of FY22.

In the FY22 half-year result, the business decided to reduce the interim dividend by 9.1% to $0.80 per share. That came after a 12.7% reduction in net profit after tax (NPAT) and a 29.8% decline in the operating cash flow.

Why did the profitability drop?

Management said that the first six months of FY22 represented the most disrupted period for its businesses since the start of COVID-19 with extended store closes and trading restrictions.

However, the company pointed to continued resilience by Bunnings with its operating model and ability to meet its customers’ needs in a difficult operating environment, delivering sales growth for the half, despite cycling very strong demand in the prior year.

The company also continues to invest in its data and digital ecosystem, including the investment in the shared data asset and scalable customer data architecture as well advanced analytics, specialist technical expertise and robust data governance.

Is the Wesfarmers share price a buy for dividends?

The FY22 dividend isn’t the only dividend to think about. Commsec numbers say that in FY23 Wesfarmers is expected to pay a dividend of $1.81 per share and in FY24 it will pay an annual dividend of $1.93 per share. That translates into a grossed-up dividend yield of 5.3% in FY23 and 5.6% in FY24.

The broker Morgans currently rates it as a buy, with a price target of $58.50. Whilst the company is suffering from a number of COVID impacts, such as supply chain effects and more inventory, it thinks that Wesfarmers will come back stronger when these issues subside.

On Morgans’ numbers, the Wesfarmers share price is valued at 25x FY22’s estimated earnings.

The post Is the Wesfarmers (ASX:WES) share price a buy for the 5% dividend yield? appeared first on The Motley Fool Australia.

More reading

• 3 blue chip ASX 200 shares analysts are tipping as buys
• What’s the difference between lithium hydroxide and spodumene and which ASX shares are involved with each one?
• Broker names 3 of the best ASX 200 shares to buy in March
• Could Wesfarmers (ASX:WES) be gearing up for an electrifying investment?
• 2 ASX 50 shares Morgans rates as buys

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 no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Wesfarmers Limited. 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 S&P/ASX 300 Index (ASX: XKO) will welcome 14 ASX shares to the family this month.

While its sister S&P/ASX 200 Index (ASX: XJO) is the flagship index for gauging how the Australian share market is going, the ASX 300 still plays an important role.

Any business that enters the ASX 300 can proudly declare it has “made it” to the big time, according to QVG portfolio manager Chris Prunty.

“The 300 is the benchmark that index funds such as the $9.6 billion Vanguard Australian Shares Index ETF (ASX: VAS) seek to replicate,” he posted on Livewire.

“It’s also the pool that many quantitative and institutional managers tend to use as a cut-off for their potential investable universe.”

Not all index entrants are quality

Prunty, however, is disturbed at the latest cohort of ASX shares to be admitted.

“The most interesting thing about the most recent set of 300 entries is the lack of quality,” he said.

“Just 4 of the 14 companies going into the 300 are profitable.”

He took $2.8 billion index entrant AVZ Minerals Ltd (ASX: AVZ) as an example of how climbing market capitalisation doesn’t equate to a good investment.

“AVZ Minerals is a lithium developer operating in the Democratic Republic of the Congo,” he said.

“To AVZ’s credit they have a monster deposit but our enthusiasm is tempered by the fact the DRC ranks 175 out of 189 countries on the 2020 Human Development Index and is one of the most difficult mining jurisdictions in the world.”

The adverse operating environment and “no meaningful cash flow” until financial year 2024, also puts off Prunty’s team.

The good, the bad and the ugly

The QVG team calculated that these 4 ASX shares are the only entrants to the ASX 300 that are turning a profit:

• Aussie Broadband Ltd (ASX: ABB)
• APM Human Services International Ltd (ASX: APM)
• MA Financial Group Ltd (ASX: MAF)
• PWR Holdings Ltd (ASX: PWH)

Considering this is such a small minority of the stocks joining the index, Prunty warns investors to be mindful when considering buying any of the entrants.

“Be aware there are technical factors such as index inclusions that can drive share prices well above fair value. Don’t get caught up in thematic mania, or if you can’t help yourself, keep your bets small,” he said.

“If you buy an index product, be aware you’re buying the good, the bad and the ugly.”

The post Warning: Only 4 ASX shares just added to ASX 300 are profitable appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Record $36bn in dividends could help ASX share market recovery
• Here are the top 10 ASX shares today
• Here are the 3 most heavily traded ASX 200 shares this Wednesday
• Aussie Broadband (ASX:ABB) share price advances amid directors offloading shares

Motley Fool contributor Tony Yoo owns Aussie Broadband Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Aussie Broadband Limited and PWR Holdings Limited. The Motley Fool Australia has recommended Aussie Broadband Limited and PWR Holdings Limited. 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 S&P/ASX 200 Index (ASX: XJO) closed well into the green yesterday, up 1%.

Still the ASX 200 remains down more than 7% since the opening bell on 4 January.

The initial slide was largely fuelled by investor fears over fast rising inflation. That came with the realisation that Reserve Bank of Australia (RBA) could be lifting the official cash rate from the historic low 0.10% a lot sooner than the central bank had forecast at the end of 2021.

Higher interest rates can put pressure on share markets, as the cost of money essentially goes up.

This saw the ASX 200 fall 8.2% in January.

Tech shares were particularly hard hit. Many tech shares are priced with distant future earnings in mind. Hence the 17.1% decline in the S&P/ASX All Technology Index (ASX: XTX) in January.

Things briefly began to tick higher from there.

Until, as you’re aware, Russia first massed its troops around Ukraine and then invaded in an all-out assault.

Atop the horrific human toll, Russia’s invasion has sent commodity prices soaring, with many trading at all-time highs. Brent crude oil topped US$130 per barrel overnight.

And that could accelerate the pace at which ASX investors can expect the first RBA rate rise from governor Philip Lowe.

Can ASX investors expect higher rates this year?

Speaking at The Australian Financial Review Business Summit in Sydney, Lowe pointed out that inflation in Australia remains well below that witnessed in the United States and many other developed nations.

The RBA governor appeared in no hurry to increase the cash rate, noting that moving too soon could impact the strongly rebounding labour market. And he’s not yet convinced that inflation will sustainably run ahead of the RBA’s 2–3% target range.

According to Lowe (quoted by the AFR):

The Reserve Bank will respond as needed and do what is necessary to maintain low and stable inflation in Australia… Australia has the opportunity to secure a lower rate of unemployment than has been the case for some decades. Moving too early could put this at risk. The recent lift in inflation has brought us closer to the point where inflation is sustainably in the target range. So, too, have recent global developments. But we are not yet at that point.

Lowe said that while the RBA believes headline inflation will run higher than 4%, it remained unclear how long that might last. “We can afford to look through a period of temporarily high inflation because of higher oil prices and commodity price shocks if we think that they will eventually wash through,” he said.

“There is a risk if these higher inflation rates are sustained as a result of a sequence of negative supply shocks, that wages growth picks up more quickly than forecast as workers seek compensation for the higher inflation,” Lowe added.

In his formal remarks, Lowe left open the door for a higher cash rate in 2022:

In this uncertain environment – and with the starting points for wages growth and underlying inflation in Australia – we can take the time to assess the incoming information and review how the uncertainties are resolved. Given the outlook, though, it is plausible that the cash rate will be increased later this year.

What the economists are saying

While Lowe sounded a somewhat dovish tone, many leading economists are forecasting ASX shares could be impacted (some negatively, others positively) by rising rates as early as June. With more rate rises likely to follow in 2022 alone.

Among them, Commonwealth Bank of Australia (ASX: CBA) head of Australian economics, Gareth Aird and his team are expecting the RBA to make its first rate lift in June.

Last month, before Russia launched its war in Ukraine, Aird said:

We are very comfortable with our expectation that the Q1 2022 underlying inflation data will be a lot stronger than the RBA’s forecast. If the Q1 2022 CPI prints in line with our forecast, the RBA will not need an additional CPI to conclude that inflation is ‘sustainably within the target range’. The RBA will simply need to be satisfied that wages growth is moving towards the desired levels.

On the outlook for inflation down under, AMP Capital Markets economist, Diana Mousina said:

In Australia, the total inflation impact from the Russia/Ukraine war and the floods will add 0.5 percentage points to March quarter headline inflation and 0.2 percentage points in the June quarter from lingering high commodity prices. This means that we expect annual headline inflation growth of just over 5% in June and around 4.5% over the year to December.

Now all this doesn’t mean it’s time to panic.

ASX shares have weathered rising rates before. And over the long-term most of them have come out just fine. As have their shareholders.

But with rising rates looming on the horizon, ASX investors may wish to run the slide rule over their specific holdings.

The post Should ASX investors brace for higher interest rates in 2022? appeared first on The Motley Fool Australia.

More reading

• Warning: Only 4 ASX shares just added to ASX 300 are profitable
• Is the Nickel Mines (ASX:NIC) share price chaos a buying opportunity?
• 5 things to watch on the ASX 200 on Thursday
• 3 blue chip ASX 200 shares analysts are tipping as buys
• Is this still the dawning of the age of ASX commodity shares?

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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It was a wild day for the Nickel Mines Ltd (ASX: NIC) share price on Wednesday.

As I mentioned here at lunch yesterday, the nickel producer’s shares were sold down by almost 23% amid concerns over one of its largest customers and shareholders, Xiang Guangda of steel maker Tsingshan, getting caught up in a massive short squeeze after the nickel price rocketed to US$100,000 a tonne.

This sparked fears over the solvency of Tsingshan and the impact this could have on agreements and its shareholdings.

Better late than never, Nickel Mines eventually came out with an announcement in the afternoon advising that the company has spoken to Tsingshan. It revealed that it was business as usual and its largest shareholder had no plans to sell shares.

This led to the Nickel Mines share price paring the majority of its decline to end the day 4.5% lower at $1.41.

Is the Nickel Mines share price chaos a buying opportunity?

According to a notes out of Bell Potter, its analysts believe investors should you this recent volatility to their advantage.

This morning the broker has reiterated its buy rating and $1.76 price target on the company’s shares.

Based on the current Nickel Mines share price, this implies potential upside of almost 25% over the next 12 months and over 29% if you include its 4.3% dividend yield.

What did the broker say?

Bell Potter gave its take on recent developments.

It said: “NIC entered and subsequently exited a Trading Halt on Wednesday 9 March, following a 23% drop in its share price in morning trade on the ASX. This resulted from speculation around the possible implications for Tsingshan Holding Group (a private company), the world’s largest stainless steel producer and parent company of Shanghai Decent Investment (SDI). SDI is NIC’s largest shareholder (17.9%) and partner in the Indonesian Morowali Industrial Park (IMIP) and Indonesia Weda Bay Industrial Park (IWIP), where NIC’s Nickel Pig Iron (NPI) operations are hosted.”

“According to reports, Tsingshan held a 200kt nickel short position, struck at US$21,000/t. Following the suspension and cancellation of LME nickel trades for Tuesday 8th March, the mark-to-market valuation of the position, calculated on Monday’s cash closing price of US$48,200/t, was ~US$7.4 billion. Market concerns related to the solvency of Tsingshan, the status of operations and development at the IWIP and IWIP and the potential forced sale of SDI’s shareholding in NIC,” the broker added.

But Bell Potter isn’t concerned by any of the above. In fact, it believes it is likely to that “Tsingshan (annual revenues US$56 billion and regarded as the world’s lowest cost stainless steel producer) will close out its short position, supported by physical delivery, without compromising its long-term financial viability.”

All in all, the broker believes this is an opportunity for investors to buy a nickel producer with strong earnings growth potential in the near term.

It concludes: “We view NIC’s steep price drop as an acquisition opportunity. We continue to forecast aggressive EPS growth of 82% and 85% for FY22 and FY23 and we retain our Buy recommendation.”

The post Is the Nickel Mines (ASX:NIC) share price chaos a buying opportunity? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Is this still the dawning of the age of ASX commodity shares?
• What happened to the Nickel Mines (ASX:NIC) share price today?
• 3 under-the-radar commodity prices soaring since the Ukraine crisis
• Here are the 3 most heavily traded ASX 200 shares this Wednesday

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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