Category: Stock Market

Over the last few years, it has almost seemed as though ‘profitable‘ was a dirty word when discussing ASX buy now, pay later (BNPL) companies. However, that might be set to change as the sector struggles to gather the same hype that it once had, and competition continues to build.

Latitude and Humm deal puts emphasis on profits

Yesterday, Latitude Group Holdings Ltd (ASX: LFS) drew a figurative line in the sand with its $335 million offer to acquire the BNPL services business of Humm Group Ltd (ASX: HUM). The deal stands as a monument for valuing ASX BNPL shares on a more traditional basis.

For context, Block Inc (NYSE: SQ) (formerly Square) made its offer to acquire Afterpay Ltd (ASX: APT) last year, valuing the company at approximately 42 times its 2021 revenue. Whereas, the Latitude deal reflects a price-to-earnings (P/E) ratio of roughly 6 on Humm’s FY21 profits.

While Humm may not be growing at the same pace as some of its younger peers, the deal has reinvigorated doubts for the future profitability of other ASX BNPL shares.

Both Latitude and Humm are already producing considerable profits, which is ultimately what the end goal is for any investor. Meanwhile, larger names in the sector such as Afterpay and Zip Co Ltd (ASX: Z1P) are widening their losses as they fight for greater market share.

Here’s a quick comparison of earnings/losses among the big ASX BNPL players:

• Afterpay: $156.3 million loss in FY21, widening from a $19.8 million loss in FY20
• Zip: $658.8 million loss in FY21, widening from a $19.9 million loss in FY20
• Latitude: $101 million profit (no comparable)
• Humm: $57.1 million profit in FY21, increasing from $21 million in FY20

Point of difference to other ASX BNPL shares

Profitability isn’t the only difference Latitude can count against its competitors. In discussing the future of instalment payments, CEO Ahmed Fahour highlighted his belief that the company will benefit as regulation seeps into the BNPL sector.

At a minimum, they’re going to say this is credit, and you need to do a credit assessment. It’s no different to any other things. We believe that’s where it’s going to go.

Ahmed Fahour, Latitude CEO

The potential merging of Latitude and Humm comes at a time when the likes of Afterpay are touching 52-week lows. Fears of central banks lifting rates in the near future have put unprofitable growth shares under pressure.

The post The only 2 profitable ASX BNPL players are merging. Now what? appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX shares today
• Why BHP, Clinuvel, Latitude, and Peet shares are pushing higher
• Latitude (ASX:LFS) share price higher on $335m Humm BNPL acquisition
• Humm (ASX:HUM) share price shoots 8% higher after BNPL takeover approach
• These were the 5 top performing ASX BNPL shares of 2021

Motley Fool contributor Mitchell Lawler owns Afterpay Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended Afterpay Limited. The Motley Fool Australia has recommended Humm 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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As we’ve established here at the Motley Fool, 2021 was a decent year for ASX shares. Over the year just gone, the S&P/ASX 200 Index (ASX: XJO) managed a gain of roughly 13%. That’s not including the extra percentage points we can assume from dividend and franking returns. But how did the Australian Foundation Investment Co Ltd (ASX: AFI) go?

The year that was for the Australian Foundation Investment Company

The Australian Foundation Investment Company (or AFIC for short) is one of the oldest and most popular listed investment companies (LICs) on the ASX. It was founded way back in 1928, decades before anyone had even heard of an index fund. AFIC is designed to give its investors a broad and simple investment across the ASX share market.

It holds a large basket of close to 100 shares. The most prominent of these are mostly the blue-chip shares we all know and love. As of 30 November 2021, these included (in order of portfolio weighting) Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), BHP Group Ltd (ASX: BHP), Macquarie Group Ltd (ASX: MQG), and Wesfarmers Ltd (ASX: WES).

So let’s see how AFIC fared across 2021 compared to the ASX 200, and an index exchange-traded fund (ETF) that tracks the ASX 200. After all, there’s arguably not much point in investing in a company like AFIC (or by extension, any company) if it can’t beat the market’s return.

AFIC started the year off at a share price of $7.30. It finished up on New Year’s Eve at $8.46 a share. That’s a capital gain of 15.9%.

So far, so good. But we also have AFIC’s fully franked dividends to consider as well. Last year, AFIC paid out two dividends. There was a February interim paycheque of 10 cents per share, as well as the final August dividend of 14 cents per share. These 24 cents per share in dividends equate to a yield of 2.84% on AFIC’s last share price of 2021. Grossed-up with AFIC’s full franking and that yield grows to roughly 4.06%. And that pulls AFIC’s returns for 2021 up past 19%.

By comparison, the ASX 200-tracking iShares Core S&P/ASX 200 ETF (ASX: IOZ) managed a return of 17.11% for the year just gone. So AFIC was a definite market beater over 2021.

How did AFIC beat the ASX 200?

So how did this LIC manage this outperformance? Well, it’s likely that it mostly comes down to how AFIC held different shares from the ASX 200 in 2021, and in different weightings. You can see how those top 5 holdings listed above differ from the ASX 200’s, which includes National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), for example.

So no doubt AFIC shareholders will be pleased with the year they’ve just enjoyed from this LIC. Let’s see if it can offer a repeat performance in 2022.

At the current AFIC share price of $8.62 (at the time of writing), this LIC has a market capitalisation of $10.5 billion, with a trailing dividend yield of 2.8%.

The post How did the AFIC (ASX:AFI) share price manage to outperform in 2021? appeared first on The Motley Fool Australia.

More reading

• Index killer? Here’s how AFIC (ASX:AFI) shares stack up to the ASX 200
• Invested in AFIC (ASX:AFI) shares? Here’s what to watch in 2022
• Why has the AFIC (ASX:AFI) share price had such an average start to December?

Motley Fool contributor Sebastian Bowen owns National Australia Bank Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended CSL Ltd. The Motley Fool Australia owns and has recommended 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 Bruce Jackson.

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The South32 Ltd (ASX: S32) share price was one of the best performers among the large cap miners in 2021.

Over the 12 months, the mining giant’s shares rose a sizeable 62%.

Why did the South32 share price charge higher in 2021?

Investors were buying South32’s shares last year thanks partly to its strong performance in FY 2021.

For the 12 months ended 30 June, South32 reported a 4% increase in revenue to US$6,337 million and a 32% lift in EBITDA to US$1,564 million.

This strong result was underpinned by record production at Worsley Alumina, Brazil Alumina, and Australia Manganese.

Positive outlook

Also giving the South32 share price a boost was its increasingly positive outlook.

This is largely due to its exposure to aluminium and the recent acquisition of a stake in the Sierra Gorda copper mine in Chile.

Goldman Sachs is particularly positive on South32’s aluminium exposure.

It recently commented: “S32 is positive on aluminium over the medium to long run and is seeing positive sign posts on China production caps with greater focus on environmental issues, positively impacting price. Even with recent pullback in pricing over the last month, pricing remains at strong levels, with S32 expecting demand to continue to grow and inventories to shrink.”

The broker expects this to lead to very strong free cash flow generation, which it believes will underpin very big dividends.

Goldman said: “We forecast a FCF yield of c. 16-18% in FY22 & FY23 (over 20% at spot), driven mostly by exposure to base metals (aluminium & alumina c. 50% of FY22 EBITDA, zinc/nickel c. 20%). We assume the buyback continues to be extended (at US$250mn p.a) and S32 continues to pay out 70% of earnings (40% ordinary, 30% special dividend component). On our estimates, S32 is on a dividend yield of c. 11-12% in FY22 & FY23 [~9-10% at today’s levels].”

In light of the above, the broker believes the South32 share price can keep rising from here. It has put a conviction buy rating and $4.40 price target on its shares, which implies potential upside of 11%.

The post Why the South32 (ASX:S32) share price jumped 62% in 2021 appeared first on The Motley Fool Australia.

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• ASX 200 (ASX:XJO) midday update: Afterpay sinks again, BHP and Rio rise
• Why the South32 (ASX:S32) share price is pushing higher again today
• 2 ASX 200 mining shares to buy in January
• Brokers name 3 ASX shares to buy
• Why has the South32 (ASX:S32) share price surged another 14% in December?

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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Shares in Megaport Ltd (ASX: MP1) have started the year poorly and are now down 4.95% for the week at the time of writing.

The plunge extends a 13.82% downward wave that Megaport shares have ridden into over the last month, alongside weakness in the broad tech sector.

Updates out of the global provider of interconnection services’ camp have been sparse during this time and there’s been nothing price-sensitive to comment on.

Why’s the Megaport share price under pressure?

In order to paint the picture of what might be underlying the movement in Megaport’s share price, we have to look at the market mechanics behind it all.

More broadly, the S&P/ASX All Technology index (XTX) has been lumpy across the past month as well and is down 3% in that time after plunging 6% in the past week.

Part of the sector-wide selloff in tech stocks is driven by the US Federal Reserve’s recent talks on potentially raising rates earlier than expected this year.

A quick rewind here for context. Early in 2021, Fed’ chair Jerome Powell said it would not be targeting interest rate and/or yield curve hikes until 2023 or 2024 in wake of the COVID-19 pandemic.

However, amid global supply chain disruptions and manufacturing bottlenecks bought on by the pandemic, inflation statistics were well above global targets in 2021. Fourth quarter inflation in the US alone was 6% year on year for example.

Central banks use variables like interest rates to control the level of inflation in the economy. With inflation soaring in the US, the Fed has little choice but to dial up interest rates in order to wind down surging prices in the real economy.

The problem is that a low interest rate environment is fantastic for asset valuations. It boils down to the mathematics in how assets are valued, says the CFA Institute, but in simple terms, analysts use certain interest rates to value and price stocks.

A rising rate/yield on the 10-year US Treasury note – a proxy to use in asset valuations – for instance, would compress stock valuations, whereas a lower yield sends them higher. These valuations in turn have a considerable impact on share prices and how the market allocates capital.

Global share markets have enjoyed a period of record low interest rates for the past 10 years following the global financial crisis (GFC). Government policy has been to promote credit and liquidity in that time.

As such, high-growth tech stocks have flourished during that time, because investors have grown their risk appetite in response. In effect, they paid a premium ‘today’ to purchase a slice of growth into the future, according to the Nasdaq itself.

Fast forward to today and the outlook isn’t as rosy. Hence the Fed needs to hike rates in order to rein in inflation, which in turn is a net-negative for high-growth tech stocks across the board.

Even though higher rates hurt the valuations on assets like stocks, the impact is disproportionate to unprofitable tech companies that may be trading at a premium.

This explains why the broad ASX tech indices are down following the Fed’s most recent meeting and the release of its minutes this week, according to analysis from Bloomberg Intelligence.

Megaport, being a constituent of the tech sector in Australia, is likely to be impacted by the spillover from this negative momentum.

Especially as there have been no price-sensitive updates from the company this past month that indicate anything has changed for the company fundamentally.

The pressure extends sector wide to the ASX tech basket to start off 2022.

Megaport share price snapshot

Despite the recent weakness, the Megaport share price has climbed 37% in the past 12 months. Last year was a positive one for the company, with many inflection points sending its share price to new highs.

Zooming out over an even wider time frame, then Megaport is trading near its all-time highs which it nudged past in November 2021.

As such, it has outpaced the benchmark S&P/ASX 200 Index (ASX: XJO)’s return across each of these longer-term time frames.

The post Why has the Megaport (ASX:MP1) share price tumbled 14% in a month? appeared first on The Motley Fool Australia.

More reading

• 2 exciting ASX 200 tech shares to buy
• 3 excellent ASX growth shares analysts are excited about

The author has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. 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 Woolworths Group Ltd (ASX: WOW) share price is struggling this week amid a broader market sell-off.

In the two years since the first outbreak of COVID-19 in 2020, the supermarket giant has profited as consumers took to “pantry-loading” along the way. So, why is the current Omicron outbreak sending the company’s share price sideways?

At the time of writing, the Woolworths share price is trading at $37.62. That’s 0.5% higher than its previous close but 1.9% lower than it was at the end of 2021 and 7% lower than its price 30 days ago.

For context, the S&P/ASX 200 Index (ASX: XJO) has slid 0.2% since the end of 2021 and has gained 1.8% over the last 30 days.

Let’s take a closer look at how Woolworths shares have reacted to recent COVID-19 outbreaks.

How does the Woolworths share price perform during outbreaks?

The Woolworths share price was boosted in 2020 after the company stated that, while the pandemic initially brought many hurdles for the supermarket, it had generally resulted in increased sales. The company said:

In [the second half of financial year 2020], total sales growth of 10.4% on a normalised basis was driven by COVID pantry-loading and higher in-home consumption through lockdown and community movement restrictions.

That was reflected once more in Woolworths’ results for financial year 2021. However, the party now seems to have ended.

Along with the rest of Australia, Woolworths began its journey with Omicron around the same time it announced the Delta strain’s negative impact, which sent it share price plummeting 7%.

Lockdowns brought about by outbreaks of the Delta strain saw the supermarket’s customers returning to more ‘normal’ shopping patterns. However, COVID-19 related costs still hit the company in the first half of financial year 2022.

Challenges ahead

And now, the current outbreak has brought around both new and old COVID challenges.

The supermarket issued a plea to customers earlier this week. It asked for patience as supply chain issues hit New South Wales and Queensland.

One such issue is absenteeism at distribution centres. Many staff members at some of the company’s warehouses have either contracted the virus or been forced to isolate at home.

According to reporting by The Australian, other food distributers are calling to remove close contact rules. They believe such rules are currently stifling the industry.

The Woolworths share price isn’t the only supermarket struggling through the first week of 2022. That of Coles Group Ltd (ASX: COL) has also slipped 2%.

Additionally, Woolworths retracted its takeover bid for Australian Pharmaceutical Industries Ltd (ASX: API) this morning. That news will likely impact its share price today as well.

The post If supermarkets are ‘COVID winners’, why is the Woolworths (ASX:WOW) share price sliding into 2022? appeared first on The Motley Fool Australia.

More reading

• API (ASX:API) share price crashes 12% after Woolworths withdraws takeover offer
• Wesfarmers (ASX:WES) share price higher after receiving API takeover boost
• Leading brokers name 3 ASX shares to sell today
• Woolworths (ASX:WOW) share price shrugs off COVID-induced supply issues
• December has been pretty dire for the Woolworths (ASX:WOW) share price. Here’s why

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 owns and has recommended COLESGROUP DEF SET. 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 Nearmap Ltd (ASX: NEA) share price is off to a rough start in 2022. The company’s stock has tumbled this week despite no news being released to the market.

As of the end of last year, the Nearmap share price was $1.55. At the time of writing, it is trading at $1.42. That represents an 8.4% slump over the course of just 4 sessions.

Though, it hasn’t been green skies for the broader market either. The S&P/ASX 200 Index (ASX: XJO) is currently down 0.2% year to date. Meanwhile, the All Ordinaries Index (ASX: XAO) has slid 0.3%.

Let’s take a look at what might be weighing on the aerial imaging company’s stock this week.

What’s driving the Nearmap share price lower?

This week brought a blood bath for the ASX tech sector and the Nearmap share price suffered alongside its peers.

The S&P/ASX All Technology Index (ASX: XTX) has tumbled 5.5% since the beginning of 2022, while the S&P/ASX 200 Info Tech Index (ASX: XIJ) has slumped 6.6%.

ASX tech shares’ slip was made worse by a dire day yesterday. Their struggles followed a rough session in the United States that pushed the tech-heavy Nasdaq index 1.3% lower.

Following Thursday’s session, the Nearmap share price was one of the indexes’ worst performers of 2022 so far.

However, Afterpay Ltd (ASX: APT) outdid the imaging company’s poor trade. The ASX buy now, pay later giant has seen its share price flop 11% since the end of 2021.

Interestingly, the last news the market heard from Nearmap was extremely positive.

On 14 December, the company announced the annualised contract value of its North American business will soon surpass that of its Australian and New Zealand leg. Additionally, its annualised contract value is on track to reach its previously given guidance.  

The announcement boosted the Nearmap share price by 4.7%. It managed to hold onto much of that gain until this week.

However, it’s not all bad news this year — at the time of writing, Nearmap shares are up 1.79% to $1.42.

The post The Nearmap (ASX:NEA) share price is already down 8% this year. What’s going on appeared first on The Motley Fool Australia.

More reading

• Why are ASX 200 tech shares getting hammered today?
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• Why Charter Hall, Nearmap, PolyNovo, and Virtus Health are racing higher

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. owns and has recommended Afterpay Limited and Nearmap Ltd. The Motley Fool Australia owns and has recommended Afterpay Limited and Nearmap Ltd. 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 Atomos Ltd (ASX: AMS) share price is heading north this morning after the company announced a positive sales update.

At the time of writing, the video technology company’s shares are up 14.8% to $1.13.

Atomos continues to achieve record sales growth

The Atomos share price is rising after the company revealed it has performed better than its previous sales guidance.

According to its release, Atomos has delivered $40.9 million in unaudited sales for the first-half of FY22. The result was slightly above the previous guidance of $40 million for the 6 months ending 31 December 2021.

In contrast, $32.8 million was achieved the prior period (H1 FY21), a 25% improvement. Although, the first-half of last year’s financial result was heavily impacted by global COVID-19 lockdowns which affected trading conditions.

Pleasingly, the current sales performance surpasses the company’s half-year record reported in the prior corresponding period.

Atomos noted it has successfully navigated through H1 FY22 with minimal disruption to its core products, Ninja V and Ninja V+. While there were some stock outages of products experienced in the first half, this is expected to be less significant in H2 FY22.

What did management say?

Commenting on the result pushing up the Atomos share price today, CEO Estelle McGechie said:

I’m very pleased with the 25% growth in 1H’22 sales over the prior year period given the significant disruption to supply chains for many companies across the world. Our team has worked very hard to navigate these issues and our continued growth is a testament to that. We see our sales only further accelerating in the second half of FY22 and are able to reconfirm our full year sales guidance of $95m+.

Furthermore, our cost measures and governance are robust enabling a reconfirmation of our full year EBITDA [earnings before interest, taxes, depreciation, and amortisation] margin in excess of 12% for the underlying Atomos business. This does not include approximately $1m of opex [operating expense] costs which we expect to incur from our recent investment in Videogram.

Atomos share price snapshot

The Atomos share price travelled higher in the later part of 2021, before hitting the brakes and moving in reverse.

Over the past 12 months, the company’s shares have gained around 4% for investors, factoring in today’s rise.

Based on the current share price, Atomos commands a market capitalisation of $245.70 million, with approximately 222.35 million shares outstanding.

The post Here’s why the Atomos (ASX:AMS) share price is surging 15% today appeared first on The Motley Fool Australia.

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• Wesfarmers (ASX:WES) share price higher after receiving API takeover boost
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Atomos Ltd. The Motley Fool Australia has recommended Atomos Ltd. 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) has certainly had a good run over the past 12 months.

Despite yesterday’s pullback, the ASX 200 is up almost 10% since this time last year.

While few will complain about 10% annual returns, the ASX 200 banks, with the exception of Westpac Banking Corp (ASX: WBC), have all done much better.

While Westpac trailed the benchmark with a 7.5% gain over 12 months, National Australia Bank Ltd. (ASX: NAB) led the charge, gaining 25.7%.

The Commonwealth Bank of Australia (ASX: CBA) share price was the next best performer among the ASX 200 banks, gaining 18.2%. Coming in a close third, with a share price gain of 17.1% is Australia and New Zealand Banking Group Ltd (ASX: ANZ).

And don’t forget the franked dividends the banks offer. In that category, Westpac comes out ahead, paying a trailing dividend yield of 5.45%, fully franked.

That’s the 12 months gone by.

Looking ahead, with interest rates increasingly likely to rise internationally and Down Under, what might investors expect from the big banks?

Does the prospect of higher rates make ASX 200 bank shares more attractive?

With global central banks, including the Reserve Bank of Australia (RBA), often taking their lead from the US Federal Reserve, investors have been keeping a keen eye on the Fed.

And the Fed is looking ever more likely to raise rates as much as 3 times in 2022.

According to The Wall Street Journal, “Traders in interest-rate futures are pricing in a 71 per cent chance that the Fed will raise its short-term target rate from its range of 0 per cent to 0.25 per cent by the end of its March meeting.” That’s up from 32% just 1 month ago.

The yield on 10-year US Treasury notes has been trending higher and now tops 1.7%.

Rising interest rates are likely to change the playing field for numerous shares.

Growth shares, like many tech companies, could come under increased pressure as much of their earnings won’t be realised until well into the future. While other sectors, like financials and ASX 200 bank shares, could receive a welcome tailwind.

The market action in both the US and Australia yesterday offer some indication of what investors might expect from rising rates.

In the US, the tech-heavy Nasdaq has been sliding, while yesterday the big banks like Bank of America, Wells Fargo and Citigroup all gained some 2%.

Here in Australia, the ASX 200 sank 2.7% yesterday, while the S&P/ASX All Technology Index (ASX: XTX) fell a staggering 5.6%.

As for the ASX 200 bank shares?

ANZ closed flat yesterday; NAB gained a slender 0.04%; Westpac gained 0.2%; and the CBA share price also closed up 0.2%.

Advantage financials?

As the WSJ reports, Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management “intends to target the broad market and European banks that stand to benefit when rates rise, rather than US tech.”

Closer to home, Saxo Capital Markets Australian market strategist, Jessica Amir said that interest rates were rising for the first time in a decade. According to the Australian, she said “this would help banks make bigger profits from mortgages”.

Baker Young’s managed portfolio analyst, Toby Grimm was also bullish on the overall outlook for ASX 200 bank shares. Atop his belief that Woolworths Group Ltd (ASX: WOW) is set to outperform, he said that the banks “should also be interesting”.

His leading option among the ASX 200 banks is CBA.

The post Does the prospect of higher rates make ASX 200 bank shares more attractive? appeared first on The Motley Fool Australia.

More reading

• Own Westpac (ASX:WBC) shares? Top broker says ‘there is still a lot of work to be done’
• Could NAB (ASX:NAB) shares be a dividend gold mine this year?
• Is the Bank of Queensland (ASX:BOQ) share price a better buy than CBA? Here’s what top brokers say
• Here’s why the ANZ (ASX:ANZ) share price had such a great run in 2021
• Here’s why the CBA share price had such a good run in December

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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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.

Thursday brought continued uncertainty to Wall Street, as investors kept trying to consider the ramifications of the Federal Reserve’s latest meeting for the stock market and the economy. As of 1 p.m. ET, the Dow Jones Industrial Average (DJINDICES: ^DJI) was down 24 points to 36,383. However, the S&P 500 (SNPINDEX: ^GSPC) added 14 points to 4,714, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) gained 47 points to 15,147.

Cryptocurrencies, however, continued to lose value, extending declines from all-time highs several months ago. As the tug of war between crypto bulls and bears goes on, though, the more important question of how average investors perceive the digital asset market remains unanswered. Today’s market action reveals a shortcoming of the crypto market, and change will be necessary before many investors will take cryptocurrency seriously.

Moving in lockstep

On its face, there wasn’t anything particularly unusual about today’s moves in prices of top crypto assets. Bitcoin (CRYPTO: BTC) was down almost 6% to just over $43,000. Ethereum (CRYPTO: ETH), meanwhile, fell 8% to around $3,425.

There wasn’t anything fundamental that stood out as justifying these steep moves. Rather, investor sentiment seemed to hinge on the perception that crypto asset values will rise and fall with monetary policy, and the Fed’s tightening stance is seen as a threat to further upward moves in Bitcoin and Ethereum.

Indeed, the near-universal downward movement throughout the cryptocurrency realm provides evidence for that view. If you look at the top 40 or so digital assets, you’ll see very consistent, nearly lockstep movements downward. The only two exceptions early this afternoon were Cosmos (CRYPTO: ATOM) and Decentraland (CRYPTO: MANA), which actually gained ground.

Not all cryptos are the same

That kind of price movement is what you expect when investors don’t see much distinction across different investments in a given asset class. Precious metals investors are used to seeing some days when gold, silver, platinum, and palladium all fall by roughly the same percentages in response to macroeconomic factors that affect them similarly. However, each market has its own dynamics, with supply and demand disruptions not necessarily moving completely in parallel.

The same should be true of cryptocurrencies. When Ethereum takes steps to extend the utility of its platform beyond what Bitcoin can offer, then you should see days when Ethereum rises but Bitcoin falls. Similarly, when smaller crypto projects find success, you should see more divergence across different digital assets, with potential rivals losing ground in comparison to assets that are gaining adoption and becoming fundamentally stronger.

To be fair, you can see some winners and losers shake out when you look more at long-term performance. Gains in Ethereum prices have outpaced Bitcoin’s returns. You can find smaller tokens with stellar performance that leave larger digital assets in the dust. However, much of that has to do with liquidity and the relative size of markets, both of which can amplify price movements.

Still, there’s enough correlation across all crypto assets that investors can’t count on being rewarded for making smart calls about which cryptocurrency projects have the greatest chance of long-term success in their respective missions. That makes the risks involved untenable for many investors. But if the market matures to the point where you start to see clear divergences between winning crypto ideas and losing ones, it could spur the mainstream investor interest that so many in the cryptocurrency arena have looked forward to for years now. 

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

The post This has to happen before investors take cryptocurrency seriously appeared first on The Motley Fool Australia.

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• Can these 3 ‘Ethereum Killers’ actually kill Ethereum in 2022?
• Investing in Bitcoin? Here’s what the crypto experts are predicting for 2022
• Here’s what happened with the Ethereum price in 2021

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and recommends Bitcoin and Ethereum. 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.

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

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The Australian Pharmaceutical Industries Ltd (ASX: API) share price has come under pressure on Friday.

This follows news that Woolworths Group Ltd (ASX: WOW) has pulled out of the race to acquire the pharmacy chain operator.

At the time of writing, the API share price is down by a sizeable 12% to $1.52.

What’s happening?

This morning Woolworths announced that it has withdrawn its $1.75 per share takeover offer following a period of due diligence. The retail giant advised that its due diligence revealed that the financial returns from the transaction were not sufficient.

The release explained: “Following the completion of a comprehensive due diligence process, Woolworths Group has advised API that it has withdrawn its proposal as it has not been able to validate the financial returns it requires in line with the Group’s capital allocation framework.”

Woolworths CEO, Brad Banducci, commented: “We are grateful to the Board and leadership team of API for their constructive engagement and support throughout the due diligence process.”

What now?

This news now puts rival Wesfarmers Ltd (ASX: WES) in pole position to acquire the Priceline operator.

However, much to the disappointment of API shareholders, the Kmart operator’s offer was considerably lower than Woolworth’s offer.

Wesfarmers has signed an agreement to acquire API for $1.55 per share, which was 10% lower than where the API share price was trading on Thursday. Though, this will be reduced to $1.53 to reflect a recently paid 2 cents per share dividend.

In response to today’s news, API stated that the agreement with Wesfarmers “remains in place and is on track for completion in the first quarter of calendar year 2022.”

In the meantime, the company will continue to keep the market informed in accordance with its continuous disclosure obligations.

The post API (ASX:API) share price crashes 12% after Woolworths withdraws takeover offer appeared first on The Motley Fool Australia.

More reading

• Wesfarmers (ASX:WES) share price higher after receiving API takeover boost
• How does the Wesfarmers (ASX:WES) dividend compare to other ASX 200 blue chips?
• Leading brokers name 3 ASX shares to sell today
• Woolworths (ASX:WOW) share price shrugs off COVID-induced supply issues
• December has been pretty dire for the Woolworths (ASX:WOW) share price. Here’s why

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 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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