Category: Stock Market

When you think of Woodside Energy Group Ltd (ASX: WDS) shares, data centres probably aren’t the first thing that springs to mind.

But the S&P/ASX 200 Index (ASX: XJO) oil and gas stock is eyeing the booming growth of data centres, and the booming growth in energy demand they’re likely to spawn.

As you’re likely aware, the artificial intelligence (AI) revolution is heating up to meteoric speed.

This is likely to present a host of positives and negatives for humanity over the decade ahead.

One of the challenges is providing the energy all this new computing power requires. Particularly in a world intent on reaching net zero emissions by 2050.

You see, not only will the rapid advancement of AI see more data centres constructed. These AI enabled data centres also use roughly 10 times as much energy as traditional facilities.

Enter Woodside shares.

How Woodside shares could power your AI co-pilot

As The Australian Financial Review reported, Woodside CEO Meg O’Neill has been discussing the potential for “a liquid hydrogen value chain” with a several data centre operators in Singapore.

The island nation’s government has stipulated that data centres must secure their own sustainable energy sources.

Back in March, O’Neill was championing the company’s since rejected Climate Transition Action Plan (CTAP) as a potential boon for Woodside shares.

“I firmly believe Woodside is built to thrive through the energy transition and our Climate Transition Action Plan shows how we plan to achieve this,” she said.

Indeed, the report released to the ASX contains the word hydrogen 18 times, with Woodside noting its intentions to leverage “infrastructure to monetise undeveloped gas, including optionality for hydrogen”.

The company also revealed plans for commercial scale renewable hydrogen produced from electrolysis.

Now, CTAP is headed back to the drawing board after shareholders voted it down in late April.

O’Neill was clearly frustrated by the result. She commented:

The world wants reliable energy, they want cheap energy, they want green energy, and they want all of those three things tomorrow. And the pathway to get from where we are today to where the world would like to be is a pathway that is going to take time.

But Woodside shares could still become more closely linked with hydrogen.

And data centres could help pave the way.

Addressing the data centre operators she’s been speaking with in Singapore earlier this week, O’Neill said:

With that kind of customer, we feel like we have an opportunity to work with them to find a solution that will meet their needs and allow us to make these investments in low carbon fuels.

The post How data centres could lift Woodside shares appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Monday
• How much could a $10,000 investment in Woodside shares be worth in 12 months?
• Buying ASX 200 energy shares? Here’s the latest IEA oil forecast

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.

BHP Group Ltd (ASX: BHP) shares came under pressure on Thursday.

The mining giant’s shares fell 3% to end the day at $44.91.

This was driven by concerns over the company’s decision to increase its takeover offer for Anglo American plc (LSE: AAL).

And while the offer has since been rejected, the two parties will continue discussions for another week. Investors may believe that BHP will return with an improved offer and are clearly not seeing value in its plan to acquire the copper miner.

In light of yesterday’s weakness, BHP shares are now down almost 11% since the turn of the year. Does this leave the Big Australian trading at an attractive level for investors? Let’s see what analysts at Goldman Sachs are saying about the miner.

Are BHP shares good value?

According to a recent note out of the investment bank, its analysts think that the mining giant’s shares are good value at current levels.

The broker has a buy rating and $49.00 price target on them. This implies potential upside of 9.1% for investors over the next 12 months.

To put that into context, a $10,000 investment would grow to be worth approximately $10,910 if Goldman is on the money with its recommendation.

But the returns won’t stop there. BHP is one of the more generous dividend payers on the Australian share market.

Goldman expects this to remain the case and is forecasting fully franked dividends per share of 142 US cents in FY 2024 and then 126 US cents in FY 2025.

Assuming that BHP pays out 134 US cents (A$2.03) over the next 12 months (final dividend of FY 2024 and interim dividend of FY 2025), this would mean a 4.5% dividend yield for investors.

This would boost the total return on offer with BHP shares to 13.6% and lead to $450 in dividends from a $10,000 investment.

Why are its shares a buy?

Commenting on its buy rating, the broker said:

Attractive valuation, but at a premium to RIO: BHP is currently trading at ~6.0x NTM EBITDA, (25-yr average EV/EBITDA of ~6-7x) vs. RIO on ~5.5x. BHP is trading at 0.9x NAV (A$49.2/sh), vs. RIO at ~0.9x NAV. That said, we believe this premium vs. peers can be partly maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore where BHP maintains superior FCF/t vs. peers), high returning copper growth, and lower iron ore replacement & decarbonisation capex.

Optionality with +US$20bn copper pipeline and strong production growth over 24/25: we continue to believe that BHP’s major opportunity is growing copper production in Chile at Escondida and Spence, and growing copper production and capturing synergies in South Australia between Olympic Dam and the previous OZL assets. We estimate BHP will grow Cu Eq production by ~2%/6% in FY24/25 (excluding the divestment of Blackwater and Daunia).

The post Should you buy BHP shares after recent weakness? appeared first on The Motley Fool Australia.

More reading

• Why BHP, Nufarm, Peninsula Energy, and Regis Resource shares are sinking today
• Deal or no deal? Why the BHP share price is crumbling today
• 5 things to watch on the ASX 200 on Thursday
• BHP shares on watch after new $74b Anglo American takeover offer rejected
• ASX 200 mining stocks flying higher on ‘most relaxed’ Chinese stimulus ever

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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.

On Thursday, the S&P/ASX 200 Index (ASX: XJO) had a poor session and dropped into the red. The benchmark index fell 0.45% to 7,811.8 points.

Will the market be able to bounce back from this on Friday and end the week on a high? Here are five things to watch:

ASX 200 poised to sink

The Australian share market looks set to end the week deep in the red following a poor session on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open 89 points or 1.1% lower this morning. On Wall Street, the Dow Jones was down 1.5%, the S&P 500 fell 0.75%, and the NASDAQ was 0.4% lower.

Oil prices fall

ASX 200 energy shares such as Beach Energy Ltd (ASX: BPT) and Karoon Energy Ltd (ASX: KAR) could have a tough finish to the week after oil prices dropped again overnight. According to Bloomberg, the WTI crude oil price is down 1% to US$76.81 a barrel and the Brent crude oil price is down 0.7% to US$81.30 a barrel. This was the fourth session in a row of declines for oil prices.

Buy Xero shares

The Xero Ltd (ASX: XRO) share price surged higher on Thursday following the release of the cloud accounting platform provider’s full year results. Despite its strong gain, Goldman Sachs believes that Xero shares are still great value. According to a note, the broker has reiterated its conviction buy rating with an improved price target of $164.00. This implies almost 22% upside for investors over the next 12 months. It commented: “Our 12m TP is +5% to A$164, reflecting earnings and roll-forward to FY26E base-year (multiple reduced to 33X, from 40X). Stay Buy rated (on CL).”

Gold price sinks

ASX 200 gold shares Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a difficult finish to the week after the gold price sank overnight. According to CNBC, the spot gold price is down 2.4% to US$2,335.3 an ounce. This was driven by hawkish comments out of the US Federal Reserve.

Nufarm shares rated hold

Nufarm Ltd (ASX: NUF) shares remain close to being fully valued despite a heavy decline on Thursday. In response to the agricultural chemicals company’s half year results, Bell Potter has retained its hold rating and cut its price target down to $5.10 (from $6.35). The broker said: “We see FY24e as an abnormally difficult year and believe the beyond yield earnings story is compelling. However, we struggle to see the catalyst to drive a ~20% upward movement in ag-chem prices by FY26e (which is required to achieve group revenue targets), in the context of 9yr highs of exports exChina, while pricing remains subdued.”

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

More reading

• What are analysts saying about Xero shares following its blockbuster results?
• Here are the top 10 ASX 200 shares today
• Beaten-up ASX 200 stock surges 12% on buyout rumour
• Why Australian Ethical, Cromwell Property, Smartpay, and Xero shares are surging
• ASX 200 shares vs. property: Which has performed better since the COVID crash?

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Xero Ltd (ASX: XRO) shares certainly were in fine form on Thursday.

The cloud accounting platform provider’s shares ended the day almost 9% higher at $134.84.

This compares favourably to a 0.45% decline by the ASX 200 index.

Why did Xero shares rocket?

Investors were scrambling to buy the company’s shares after being impressed with its FY 2024 results.

For the 12 months ended 31 March, Xero reported a 22% increase in operating revenue to NZ$1.71 billion. This was driven by a 419,000 increase in subscribers to 4.16 million and a 14% lift in average revenue per user to NZ$39.29.

At the end of the period, the company’s annualised monthly recurring revenue reached almost NZ$2 billion, which is up 26% year on year.

Also increasing strongly were Xero’s earnings. Its adjusted EBITDA jumped 75% to NZ$526.5 million and its net profit swung from a loss of NZ$133.5 million to positive NZ$174.6 million.

Also catching the eye was the company’s free cash flow generation. Xero’s free cash flow was NZ$342.1 million for the 12 months. This is more than triple the NZ$102.3 million the company recorded in FY 2023.

Broker reaction

Analysts at Goldman Sachs were impressed with the result and appear to feel vindicated for having Xero shares on their conviction list.

Commenting on the company’s results, the broker said:

Key positives: (1) Rule of 40 exceeded (41%) and record EBIT margins delivered (2H24 of 21% vs. 10% in 1H24, 8% 2H23) as XRO benefits from strong revenue growth, cost controls and much lower than expected capex. However we do note some delayed product investment and associated CAC contributed to the lower than expected expense ratio (i.e. 73% vs. c.75% guidance that was re-iterated in February); (2) Revenue trends into FY25 are much stronger than anticipated, given better exit-ARPUs, particularly in the International segment. (3) Subscriber growth in the key UK (+17k) & NA (+3k) markets was stronger than GSe.

In light of the above, its analysts have reiterated their conviction buy rating and lifted their price target to $164.00. Based on the current Xero share price of $134.84, this implies potential upside of almost 22% for investors over the next 12 months. Goldman concludes:

We revise XRO FY25-26 EBIT +2% to +1%, to reflect a stronger revenue outlook (+4% across FY25-26) partly offset by higher costs (72.9% ratio in FY25). Our 12m TP is +5% to A$164, reflecting earnings and roll-forward to FY26E base-year (multiple reduced to 33X, from 40X). Stay Buy rated (on CL).

The post What are analysts saying about Xero shares following its blockbuster results? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Why Australian Ethical, Cromwell Property, Smartpay, and Xero shares are surging
• Xero share price leaps 8% on staggering earnings upheaval
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The world is currently going through a major transition to clean energy.

And while there are many ways to gain exposure to this megatrend, one that investors may be overlooking is Worley Ltd (ASX: WOR).

That’s the view of analysts at Goldman Sachs, which have just upgraded the ASX 100 stock on the belief that it will benefit greatly from the energy transition.

What is Worley?

Worley is a global engineering company that provides engineering design and project delivery services. This includes providing maintenance, reliability support services, and advisory services to the energy, chemical and resources sectors.

It is the ASX 100 stock’s exposure to the energy sector that is getting Goldman most excited. It explains:

WOR remains well-placed to benefit from the energy transition. Notwithstanding some near term deceleration in our estimates, we believe WOR’s outlook remains positive supported by customer capex with investments in 1) Energy security; 2) Energy affordability; and 3) Sustainability.

WOR noted that in some cases energy transition project economics were currently challenged, but overall customer capex is still being deployed and WOR is able to capture spend in its traditional business. Our assessment of consensus (Factset) forecast for select customer capex forecasts shows continued upgrades and importantly, peer margin forecasts have also been revised higher.

Buy this ASX 100 stock

In light of the above and with the ASX 100 stock down 14% year to date, Goldman feels now is the time to pounce on Worley’s shares.

According to the note, the broker has upgraded its shares to a buy rating with a $17.50 price target. Based on its current share price of $15.07, this implies potential upside of 16% for investors over the next 12 months.

In addition, the broker is expecting dividend yields of 3.5% in FY 2024 and then 3.9% in FY 2025.

Commenting on the upgrade, the broker said:

WOR’s average NTM premium to peers is now back in line with the 3yr average of 11% (noting that our 12m TP is based on this relativity sustaining for NTM+1 earnings). Vs the S&P/ASX 200, WOR is trading broadly in line with market vs a 3yr average premium of 26% (5yr average of 9%). We view the recent decline in WOR’s share price (-6% over the last 6 months vs +11% for ASX200) relative to the market as a buying opportunity, without an impact to our fundamental valuation. Our DCF & EV/EBIT based TP (methodology unch.) increases 1% to $17.50 which provides 16% potential upside vs our coverage median of ~9%.

Overall, this could make it a good option if you’re wanting exposure to the clean energy thematic.

The post Upgraded: Buy this ASX 100 stock to leverage the energy transition megatrend appeared first on The Motley Fool Australia.

More reading

• Why Boss Energy, Meteoric Resources, Pantoro, and Worley shares are falling today
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• Guess which ASX 200 stock is crashing 11% after its largest shareholder dumped $1.4b of shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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.

I regularly invest in ASX dividend shares for my portfolio because they offer the potential for appealing passive income and capital growth.

Businesses that are growing earnings or increasing their underlying value can raise their payouts for shareholders.

Here are two S&P/ASX 300 Index (ASX: XKO) shares that have built an impressive history of paying reliable dividends while investing in long-term growth within their businesses.

Rural Funds Group (ASX: RFF)

This real estate investment trust (REIT) owns various types of farmland, including almonds, macadamias, cattle, vineyards and cropping.

Since starting to pay a distribution in 2014, the business has grown or maintained its distribution each year. In the longer term, it aims to grow its distribution by 4% per annum.

Rural Funds invests in its farms to make them more productive and valuable to tenants. One key project currently is transforming some cropping farms into macadamia farms, which are expected to generate more rent as capital is deployed.

Rural Funds is benefiting from some lease contracts with rental growth linked to inflation, which has been elevated in the last couple of years. A significant portion of its remaining rent has fixed annual rental increases.

The passive income machine pays its distribution quarterly — currently an annualised amount of 5.8%. The Rural Funds share price is trading at a 34% discount to its stated adjusted net asset value (NAV) at 31 December 2023.

Brickworks Limited (ASX: BKW)

I have invested in Brickworks shares multiple times over the past year, including recently, due to the compelling assets it owns.

Brickworks is the largest brickmaker in Australia. It also manufactures stone and masonry, roofing, cement, timber battens, and other products.

The ASX dividend share has a 50% stake in a large and growing industrial property trust that is steadily building and completing massive logistics warehouses on excess land Brickworks owned solely before it was sold to the trust.

There is a large demand for industrial properties as companies look to onshore more of their supply networks. The growth of e-commerce is also a good tailwind for warehouse demand, which is driving the rental and capital value of these properties.

Brickworks also owns around a quarter of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Soul Patts is an investment house that owns a diversified portfolio of defensive assets, which is growing its dividend and the underlying portfolio value over the long term.

The Soul Patts investment provides stability to Brickworks’ earnings during a downturn in Australian demand for building products.

The rental distributions from Brickworks’ property investment and the dividends from Soul Patts are enough to fund the Brickworks dividend.

Brickworks has grown its passive income payment yearly since 2014 and hasn’t cut its dividend for almost 50 years. The ASX dividend share currently has a grossed-up dividend yield of 3.5%.

The post Why I keep loading up on these 2 ASX passive income machines appeared first on The Motley Fool Australia.

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• Here are 3 reliable ASX shares I’d buy instead of the big four banks right now

Motley Fool contributor Tristan Harrison has positions in Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Are you on the hunt for some big dividend yields? If you are, then read on.

That’s because the three ASX dividend shares listed below have been named as buys and tipped to offer yields of 6%+.

Here’s what you need to know about them:

APA Group (ASX: APA)

APA Group owns and operates energy infrastructure assets and businesses, including energy infrastructure, comprising gas transmission, gas storage and processing, and gas-fired and renewable energy power generation businesses.

These businesses have been generating growing income over the last couple of decades. This has allowed the company to consistently increase its dividend for almost 20 years.

The good news is that this trend is expected to continue in the coming years. For example, Macquarie expects an increase to 56 cents per share in FY 2024 and then 57.5 cents per share in FY 2025. Based on the current APA Group share price of $8.74, this equates to 6.4% and 6.6% dividend yields, respectively.

Macquarie has an outperform rating and $9.40 price target on its shares.

Dalrymple Bay Infrastructure Ltd (ASX: DBI)

Another ASX dividend share that could provide income investors with big dividend yields is Dalrymple Bay Infrastructure. As its name implies, it is the long-term operator of the Dalrymple Bay Coal Terminal in Queensland.

Analysts at Morgans are feeling positive about Dalrymple Bay Infrastructure’s outlook and believe the company is well-placed to pay some big dividends. They are forecasting dividends per share of 22 cents in FY 2024 and then 22.9 cents in FY 2024. Based on the latest Dalrymple Bay Infrastructure share price of $2.97, this will mean very generous yields of 7.4% and 7.7%, respectively.

Morgans has an add rating and $3.05 price target on its shares.

HomeCo Daily Needs REIT (ASX: HDN)

Morgans is also a big fan of HomeCo Daily Needs and sees it as an ASX dividend share to buy.

It is a property company that invests predominately in metro-located, convenience based assets, across the target sub-sectors of neighbourhood retail, large format retail, and health and services.

Morgans likes the company due to its resilient cashflows. It also sees it as a beneficiary of accelerating click and collect trends.

As for dividends, the broker is forecasting dividends per share of 8 cents in FY 2024 and then 9 cents in FY 2025. Based on the current HomeCo Daily Needs share price of $1.25, this will mean yields of 6.4% and 7.2%, respectively.

Morgans has an add rating and $1.37 price target on its shares.

The post These ASX dividend shares offer 6%+ yields right now appeared first on The Motley Fool Australia.

More reading

• Buy these ASX shares and get 6% and 7% dividend yields
• Morgans says these ASX dividend shares are top buys
• 4 ASX income stocks to buy for 4% to 8% dividend yields
• Looking to retire? Buy these ASX dividend shares for passive income
• 2 high-yield ASX dividend shares to buy as they bounce

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Apa Group and Macquarie Group. The Motley Fool Australia has recommended HomeCo Daily Needs REIT. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

If you’re wanting to build a strong portfolio, then having a few blue chip ASX 200 shares in there could be a good idea.

They can make a good foundation to build from due to their strong and established business models, experienced management teams, and robust cash flows.

But which blue chips could be buys for investors right now? Four that analysts are positive on are listed below. Here’s what you need to know about them:

Coles Group Ltd (ASX: COL)

Analysts at Bell Potter think that Coles could be a blue chip ASX 200 share to buys. It is of course one of the big two supermarket operators in the Australian market. In addition, Coles has a sprawling liquor store network across brands such as First Choice and Liquorland.

Bell Potter believes the company is well-positioned for growth thanks to the benefits of immigration and its supply chain improvements. In light of this, the broker recently named Coles on its favoured list with a buy rating and $19.00 price target on its shares.

Flight Centre Travel Group Ltd (ASX: FLT)

Another ASX 200 blue chip share that has been given the thumbs up by analysts is Flight Centre. It is a travel agent giant with operations across the world.

The team at Morgans is feeling very positive about the company’s outlook. It notes that “FLT has the greatest risk, reward profile of our travel stocks under coverage.

The broker has add rating and $27.27 price target on its shares.

Qantas Airways Limited (ASX: QAN)

Analysts at Goldman Sachs thinks that this airline operator’s shares are great value at current levels. In fact, its analysts highlight that they “believe QAN is not priced for a generic recovery, let alone prospects for improved earnings capacity.”

The broker currently has a buy rating and $8.05 price target on the Flying Kangaroo’s shares.

Treasury Wine Estates Ltd (ASX: TWE)

Finally, the team at UBS thinks that Treasury Wine could be an ASX 200 blue chip share to buy right now. It is the wine giant behind brands such as Penfolds, DAOU Vineyards, 19 Crimes, Lindeman’s, and Blossom Hill.

UBS thinks the company’s shares are undervalued currently. Especially now that China has just removed its tariffs from Australian wine. It believes this larger market opportunity means that its shares deserve to trade on higher multiples.

As a result, the broker has put a buy rating and $15.25 price target on them.

The post 4 super ASX 200 blue chip shares to buy appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• Here’s the Coles share price I would buy at
• How much could a $10,000 investment in Qantas shares be worth in 12 months?
• Broker says these ASX dividend shares are top buys
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Motley Fool contributor James Mickleboro has positions in Treasury Wine Estates. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool Australia has recommended Flight Centre Travel Group and Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Paying $80 for a $100 note… sounds too good to be true. Yet, that’s essentially how Warren Buffett made market-beating returns early in his investing career. Do these opportunities still exist among Australian companies? I believe so… and I’ve found what could be the top ASX stock to buy for this ‘deep value’ approach.

The $788 million company is a candidate for the legendary billionaire’s old investment strategy, but it also might be an improvement. While most of Buffett’s picks under this approach were good for a quick buck, this S&P/ASX All Ordinaries Index (ASX: XAO) company could have long-term legs.

Warren Buffett’s highly profitable, old-school strategy

You might be wondering… what is the investing strategy that the co-founder of Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B) used to apply—and if it were so good, why is it the old Warren way? Wouldn’t the great Buffett still be putting it to work?

Well, the approach is referred to as ‘cigar butt investing’. It’s a value investing strategy at its core. You want to find a company that has been discarded — like a cigar butt — that still has more puffs of smoke in it. In other words, the company still has more value than investors give it credit for.

Looking at a business’s book value is a simple way to identify companies that may fall into this category.

In a worst-case scenario, a business can be liquidated, selling its assets to erase debts and provide any leftover case to investors. A company’s book value can roughly estimate its liquidation value. A price-to-book (P/B) ratio below 1 might indicate that there’s some value to be realised.

How profitable was this way of investing for Buffett? Take a look for yourself at the returns under the Buffett Partnership compared to the Dow Jones below:

Year	Buffett Partnership	Dow Jones
1957	10.4%	-8.4%
1958	40.9%	38.5%
1959	25.9%	20.0%
1960	22.8%	-6.2%
1961	45.9%	22.4%
1962	13.9%	-7.6%
1963	38.7%	20.6%
1964	27.8%	18.7%
1965	47.2%	14.2%
1966	20.4%	-15.6%
1967	35.9%	19.0%
1968	58.8%	7.7%

The Oracle from Omaha closed down this fund after 1968. Buffett later justified this by saying the fund had become too large to find cigar butt investing stocks big enough to move the needle at its size. However, that shouldn’t be an issue for people like you and me — unless you’ve won the lotto…

ASX stock to buy with plenty of puff

Rural Funds Group (ASX: RFF) is a perfect candidate for cigar butt investing. The Australian real estate investment trust (REIT) owns a mix of agricultural assets across the country and trades on a P/B ratio of 0.7 times book value.

As I said, this company is valued at nearly $790 million. Yet Rural Funds Group holds $1.045 billion in net assets when you subtract the liabilities. In my opinion, this suggests a straightforward path to a 32% upside for this ASX stock.

It’s not without its risks. The value of its properties can fluctuate depending on weather conditions, natural disasters, and leasing arrangements. However, land is in high demand and short supply. As such, I’m confident land prices are more likely to appreciate than depreciate.

Lastly, I think this top ASX stock to buy is better than a traditional cigar butt pick because of one key reason…

Buffett was looking for one puff to boost a company’s share price before offloading. In contrast, I believe Rural Funds Group could be the cigar that keeps on giving in the long run. Developing and managing land for various intensive activities is critical. Rural Funds has the know-how and capital to keep acquiring land and adding value.

The post Top ASX stock to buy as a thrifty investor (the old Warren Buffett way) appeared first on The Motley Fool Australia.

More reading

• 4 ASX income stocks to buy for 4% to 8% dividend yields
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• Why I think this ASX 300 stock is a fantastic pick for dividend income

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

The post Here are the top 10 ASX 200 shares today appeared first on The Motley Fool Australia.

More reading

• Beaten-up ASX 200 stock surges 12% on buyout rumour
• Why Australian Ethical, Cromwell Property, Smartpay, and Xero shares are surging
• ASX 200 shares vs. property: Which has performed better since the COVID crash?
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Reliance Worldwide and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Aub Group, Challenger, Collins Foods, Sonic Healthcare, and Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.