Category: Stock Market

Warren Buffett has always advocated that investors should buy businesses at a price that’s less than they’re worth. I think some Aussie companies look like cheap ASX shares following their recent reports.

I only like to look at businesses I think can grow over the long term, meaning they’ll be more valuable in three years or five years than today. With that in mind, when the share prices fall, it seems like a good opportunity for me to buy.

Johns Lyng Group Ltd (ASX: JLG)

The Johns Lyng share price is down 10% since 26 February 2024.

The business specialises in restoring a building and its contents after damage by an insured event, including flooding, storms and fire. It’s also growing its presence in the catastrophe work industry.

I saw several things in the HY24 result that cemented my belief it has an exciting future.

Its core business as usual (BAU) revenue rose 13.7% to $426.1 million, though total revenue declined 4% because catastrophe revenue was lower. Core BAU earnings before interest, tax, depreciation and amortisation (EBITDA) rose 28.1% to $55 million and total EBITDA grew 7.5% to $63.9 million – that’s good evidence of operating leverage.

The ASX share also reported that its BAU normalised net profit after tax (NPAT) rose 15.8% to $25 million. If this number can keep growing by double-digits (in percentage terms), then the compounding can enable Johns Lyng to generate much bigger profits in the coming years.

I was also pleased to see that the company is continuing to make acquisitions in the strata management space. Not only does this mean it can create consistent, resilient earnings, but it can also unlock synergies with the core business by utilising those services. I think Warren Buffett would be a fan of this business.

In my opinion, this short-term pullback is a good buy-point for this cheap(er) ASX share. I’m planning to buy more Johns Lyng shares next week.  

Accent Group Ltd (ASX: AX1)

The Accent share price is down 13% from 14 February 2024.

The business continues to add stores across the brands that it owns as well as shoe brands it acts as a distributor for. In the first half of FY24, it saw a total of 72 new stores added. Accent said 22 new Platypus stores have been opened in Australia and New Zealand, along with 17 new Skechers stores.

The ASX share also saw its contactable customers increase by 0.2 million to 10 million.

It saw its gross profit margin improve from 55.2% to 56.6%, which was enough for the business to report a $2 million increase in its gross profit.

While other profit measures decreased, partly due to the inflation of costs, I think the business has a promising future once retail conditions improve.

Its dividend payment of 8.5 cents per share is still an attractive level of passive income.

The trading update was promising. It said total owned sales in the year to date to the end of January 2024 were up 1.6%, while like-for-like sales for the second half were down just 0.7%. The gross profit margin continues to be above last year, while costs continue to be higher, though at a lower rate of increase compared to the first half.

I’m planning to buy some more Accent shares next week. I think this is a very cheap ASX share.  

The post I’m listening to Warren Buffett and loading up on cheap ASX shares in March appeared first on The Motley Fool Australia.

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More reading

• 1 ASX growth stock down 30% to buy right now
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• Invest $10,000 in these buy-rated ASX dividend shares with 5%+ yields
• Guess which ASX 200 stock is nosediving 20% on half-year results

Motley Fool contributor Tristan Harrison has positions in Accent Group and Johns Lyng Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group. The Motley Fool Australia has recommended Accent Group and Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Mesoblast Ltd (ASX: MSB) share price is under pressure on Thursday.

In morning trade, the biotechnology company’s shares are down 2.5% to 29.3 cents.

This follows the release of the company’s half-year results.

Mesoblast share price falls on big loss

• Revenue down 1% to US$3.4 million
• Research and development of US$12.6 million
• Loss after tax of US$32.5 million

What happened during the half?

During the six months ended 31 December, Mesoblast reported a modest 1% decline in revenue to US$3.4 million.

This revenue was largely from the US$3.2 million in commercialisation revenue relating to royalty income earned on sales of TEMCELL in Japan by its licensee JCR.

One positive was its net cash usage. It came in at US$26.6 million for the half, which is a 14% reduction versus the prior corresponding period.

However, that couldn’t stop Mesoblast from recording a loss after tax of US$32.5 million.

Mesoblast ended the period with a cash balance of US$77.6 million.

Management commentary

Mesoblast’s chief executive, Silviu Itescu, highlights that the company was very busy with trials and applications during the half. He said:

We were very busy operationally during the last quarter and continued to have positive engagement with the United States Food and Drug Administration (FDA) across our lead programs. We have strengthened our balance sheet while maintaining overall spending constraint in line with our corporate objectives.

For our product Ryoncil (remestemcel-L) for life-threatening steroid-refractory acute graft-versus-host disease (SR-aGVHD) ahead of our upcoming meeting in March we have provided the FDA with new data from a second potency assay that provides additional product characterization as requested by FDA.

Itescu also highlights that its “Phase 3 back pain trial with rexlemestrocel-L, aiming to confirm the durable pain reduction that was seen in the first Phase 3 trial, is underway.”

Outlook

Management believes that it is on target to achieve a 23% reduction (US$15 million) in net cash usage compared to FY 2023. Though, this will be partially offset by investment in its Phase 3 programs for SR-aGVHD and CLBP.

The post Mesoblast share price tumbles on US$32.5m half-year loss appeared first on The Motley Fool Australia.

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

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The Star Entertainment Group Ltd (ASX: SGR) share price is marching higher today.

Shares in the S&P/ASX 200 Index (ASX: XJO) casino operator closed yesterday trading for 48 cents. In early trade on Thursday, Star Entertainment shares are swapping hands for 50.5 cents apiece, up 5.2%.

For some context, the ASX 200 is down 0.26% at this same time.

This follows the release of Star Entertainment’s half-year results for the six months ending 31 December (H1 FY2024).

Here are the highlights.

Star Entertainment share price gains alongside balance sheet

• Net revenue of $866 million, down 14.6% year on year
• Earnings before interest, taxes, depreciation and amortisation (EBITDA) before significant items of $114 million, down 43.1% from 1H FY 2023
• Net profit after tax (NPAT) before significant items of $25 million, down 42.7% year on year
• Significant items after tax a loss of $15.9 million, compared to a loss of $1.307 billion in the prior corresponding period
• Net cash position of $171 million as at 31 December, up from a net debt position of $596 million as at 30 June

What else happened during the half?

On the plus side of the ledger, and likely helping lift the Star Entertainment share price today, was the company’s statutory NPAT of $9 million, up from the massive significant item impaired net loss of $1.264 billion in 1H FY 2023.

Star Entertainment also continued to make progress with remediation over the six months, with the company’s remediation plan approved in Queensland.

In New South Wales, the proposed casino duty rate uncertainty was resolved. The company said the new arrangements remove the “considerable uncertainty” introduced in December 2022 and will protect the jobs of thousands of its Sydney employees.

Importantly, the half-year also saw a successful $750 million equity raising alongside $450 million debt refinancing. All of Star’s existing debt was cancelled, with management reporting the new debt had been secured “on more favourable terms”.

Also aiding the balance sheet was the $56 million secured from the sale of Sheraton Grand Mirage.

What did management say?

Commenting on the results lifting the Star Entertainment share price today, CEO Robbie Cooke said, “While the group continues to operate in a challenging regulatory environment, The Star has achieved a number of significant milestones in the period.”

Cooke added:

Notwithstanding these achievements, there is still much work to be done. Remediation remains our number one priority. We continue to uplift our risk management, safer gambling and AML capabilities and are starting to embed greater accountability and more robust governance…

In terms of trading performance, earnings have maintained the run rate experienced on exiting Q4 FY23 with EBITDA of $114 million in the half. The start of this calendar year has seen revenue and earnings continue to track our first half run rate.

Star Entertainment share price snapshot

Despite today’s welcome lift, the ASX 200 Casino Operator has a long way to go to recoup recent losses.

The Star Entertainment share price is down 62% since this time last year.

The post Star Entertainment share price jumps 5% on strengthening outlook appeared first on The Motley Fool Australia.

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

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The high-flying DroneShield Ltd (ASX: DRO) share price is having its wings clipped on Thursday.

In morning trade, the counter drone technology company’s shares are down 20% to 74 cents.

What’s going on with the DroneShield share price?

There appear to have been a couple of catalysts for today’s weakness.

The first is profit taking from investors after some incredible gains in recent weeks.

For example, even after today’s decline, the DroneShield share price is up 100% since the start of 2024.

What else?

A broker note out of Bell Potter this morning is also likely to be weighing on its shares.

According to the note, the broker has downgraded DroneShield’s shares to a hold rating with an improved price target of 90 cents.

The good news is that following today’s decline, this price target now implies potential upside of over 20%. Which isn’t bad for a hold rating!

Why the downgrade?

Bell Potter made the move on valuation grounds after its strong gains year to date. It explained:

Our long-term outlook remains positive for DRO based on current macroeconomic conditions and the detailed sales pipeline. However, based on the recent share price appreciation and the current valuation, we downgrade our recommendation to HOLD.

Speaking of the long-term, Bell Potter adds:

We have made minor downgrades to our short-term forecasts but more substantial upgrades to our longer-term forecasts based on the increased visibility over the long-term pipeline. This has included revenue upgrades of 5%, 13% and 13% in CY24, CY25 and CY26, respectively.

It is forecasting revenue of $84.2 million in FY 2024, $101.8 million in FY 2025, and $115.9 million in FY 2026. Whereas profit after tax is expected to be $18.8 million in FY 2024, $26.2 million in FY 2025, and $32 million in FY 2026.

The post Why is the high-flying DroneShield share price crashing 20% today? appeared first on The Motley Fool Australia.

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

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The Harvey Norman Holdings Limited (ASX: HVN) share price is charging higher on Thursday.

In morning trade, the retailer’s shares are up 7% to a 52-week high of $5.06.

This follows the release of the company’s half-year results.

Harvey Norman share price hits 52-week high on half-year results

• Total system sales down 6.8% to $4.64 billion
• Profit before tax down 29.4% to $303.8 million
• Fully franked interim dividend down 23% to 10 cents per share
• Net assets up 1.1% to $4.51 billion

What happened during the half?

For the six months ended 31 December, Harvey Norman reported a 6.8% decline in total system sales to $4.64 billion. This comprises aggregated franchisee sales revenue of $3.16 billion and company-operated sales revenue of $1.48 billion.

Harvey Norman’s profit before tax tumbled 29.4% to $303.8 million. This is its lowest profit in four years and was driven by a combination of lower sales and higher costs. A key driver of this profit decline was its Australian franchising operations, which reported segment profit before tax of $143.08 million. This is down 39.8% over the prior corresponding period.

In light of this profit decline, Harvey Norman’s board has elected to cut its fully franked interim dividend by 23% to 10 cents per share.

Management commentary

Harvey Norman’s chair, Gerry Harvey, commented:

Amid the challenging retail conditions in 1H24, we have continued to deliver sustainable growth in net assets, rising to $4.51 billion as at 31 December 2023, a substantial increase of $1.23 billion since the start of the pandemic, with a 4-year CAGR of 8.3%. Our balance sheet remains strong with total assets of $7.86 billion, anchored by a $4.14 billion property portfolio. Through efficient working capital management across key segments, we have further improved our liquidity position, with 1H24 delivering strong operating cash flows of $497.31 million at a cash conversion ratio of 135%. Our low net debt to equity ratio has continued to improve to 10.75% as at 31 December 2023.

Harvey also revealed that the company’s global expansion is continuing, which will soon include the UK market. He adds:

We are confident in the quality of the Harvey Norman, Domayne and Joyce Mayne brands and the solid market position of our Australian franchisees and overseas company-operated stores. […] Our strong balance sheet and prudent financial management provides us with the capacity to access additional capital to adapt to evolving business needs. We remain committed to our Malaysian expansion plan and it is still our intention to grow to 80 stores by the end of 2028. We continue to source suitable locations overseas to strengthen our global footprint, and are excited by the expansion of the brand in the United Kingdom, with the opening of the Harvey Norman Merry Hill flagship store in England later this year.

Outlook

Potentially giving the Harvey Norman share price a boost has been the release of a trading update.

It has revealed an uptick in sales during January, with Australian Franchise sales up 1.3% and all but one region deliver total and comparable sales growth. This bodes well for its second half performance.

The post Harvey Norman share price jumps to 52-week high on half-year results appeared first on The Motley Fool Australia.

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• Big news: 15 ASX 200 shares smashing 52-week highs this Tuesday
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Harvey Norman. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The BHP Group Ltd (ASX: BHP) share price could benefit if the company’s plans to cut jobs have the desired effect.

Australia’s biggest company usually makes a large amount of profit. However, the recent FY24 half-year result saw a big decline in profitability after large one-off items, being a write-down of the value of its nickel assets, as well as another increase in the cost of the Samarco disaster.

BHP share price to benefit from job cuts?

According to reporting by the Australian Financial Review, the ASX mining share has started cutting jobs as part of a significant restructuring of its global operations across planning, maintenance, logistics, decarbonisation and heritage protection. Specialist teams are being disbanded to “streamline the business” according to the newspaper.

BHP hasn’t announced how many jobs will be cut, but the idea is that each specific commodity division will “run themselves self-sufficiently” amid a decentralisation of its support services.

A BHP spokesman said:

As part of our continuous improvement in how we approach our work, we have made some changes to better align work activities within assets and support quicker decision making.

It was reported that some jobs in the planning and technical division and the health, safety and environment division have already been cut.

BHP’s mining segment will be in charge of maintenance planning and scheduling, which was previously part of BHP’s global technical arm.

Each mining business will finish this process with a similar structure, but implementation will differ in each case.

At the BMO mining conference, the BHP CEO Mike Henry said:

Our near-term outlook for China remains cautious, and conditional on how quickly and effectively pro-growth policies impact the broader Chinese economy.

He also reportedly said its biggest opportunity to unlock value was increasing productivity within its existing assets.

How would job cuts help boost the company?

If BHP has a price/earnings (P/E) ratio of 10 (for example), that means the BHP share price is trading at 10x its earnings. If it can cut costs and increase its ongoing profit by $1 million, that would theoretically boost the market capitalisation of the business by $10 million. Cutting costs by $10 million could boost the market cap by $100 million.

BHP share price snapshot

Over the past year, the BHP share price has dropped by around 5%.

The post How global job cuts could boost the BHP share price appeared first on The Motley Fool Australia.

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More reading

• Why is the BHP share price trailing the ASX 200 on Tuesday?
• Here’s the BHP dividend forecast through to 2026
• Top brokers name 3 ASX shares to buy next week
• Better buy: Fortescue or BHP shares?
• 3 ASX 100 and ASX 200 shares I’d buy now for a $1,820 passive income in 2024!

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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Xero Ltd (ASX: XRO) share price is falling on Thursday morning.

At the time of writing, the cloud accounting platform provider’s shares are down 1.5% to $124.99.

Why is the Xero share price falling?

Investors have been selling the company’s shares today after weakness in the tech sector offset the release of the company’s FY25-27 strategy update ahead of its inaugural Investor Day event.

According to the release, Xero’s strategy is comprised of four strategic priorities that underpin its ambitions. These are as follows:

• Win the 3 x 3 – core accounting, payments and payroll.
• A winning go to market playbook.
• Focused bets to win the future.
• Unleash Xero(s) to win.

Xero’s CEO, Sukhinder Singh Cassidy, commented:

Our strategy is simple, focused, and purpose driven. We have solid foundations, a strong financial profile, turbocharged capabilities, and continued large global TAM to pursue, as we seek to become an even more trusted platform for small businesses and their advisors. As we continue to build Xero for the long term, we aspire to be a world class SaaS business, and believe we have the opportunity to double the size of our business and deliver Rule of 40 or greater performance over 1 time. As we grow, we will also seek to be more balanced between subscriber growth and ARPU expansion.

Digging deeper

In respect to its win the 3 x 3 priority, this includes building winning customer solutions for the three most critical jobs for small businesses – accounting, payments and payroll.

The winning go to market playbook priority involves acquiring and onboarding subscribers to the right products efficiently, deepening customer relationships, and optimising pricing and packaging to drive customer value, usage and growth.

Xero’s focus on bets to win the future includes enhancing customer experience through AI and mobile, as well as realising the potential of its ecosystem and APIs.

Finally, the unleash Xero(s) to win priority involves delivering a purpose and performance-driven employee value proposition and enhancing its product and technology capabilities and operating model.

Strategic BILL integration partnership

Xero has also taken today’s event as an opportunity to announce a new strategic partnership in the United States with BILL.

BILL is a leading financial operations platform for small and midsize businesses with more than 470,000 businesses using its financial automation solution.

Management believes the partnership will strengthen Xero’s US payments offering, adding more value for customers. The embedded solution will allow customers to securely manage, approve and pay bills through Xero using a variety of payment options, without leaving the Xero platform.

Singh Cassidy commented:

Our partnership with BILL further strengthens Xero’s US offering and illustrates our commitment to delivering a winning solution for our customers and driving deeper customer engagement.

Xero AI

Xero has also announced its new generative AI solution, Just Ask Xero (JAX).

This new solution is designed to be a smart business companion that helps customers complete key tasks.

Once available, JAX will help small businesses and their advisors automate accounting tasks, deliver personal insights and reclaim time they can spend on running their businesses.

Customers will be able to “Just Ask Xero” to complete tasks like generating an invoice either in Xero or other apps such as email or WhatsApp. It will complete the task and anticipate and propose other tasks that may follow, such as following up overdue payments or crafting emails.

Outlook

Finally, Xero has reiterated its existing FY 2024 outlook.

This includes targeting an operating expense to operating revenue ratio in FY 2024 of around 75%, which will improve operating income margin compared to FY 2023.

The Xero share price is 62% over the last 12 months.

The post Xero share price falls despite strategy update and new AI solution appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• 3 no-brainer ASX shares to buy under $30
• Leading brokers name 3 ASX shares to buy today
• Buying Xero shares? Here’s what to expect from this week’s update
• I’d buy these great ASX growth shares in March

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 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.

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Investing in ASX shares is a great thing to do to build wealth. But where are we supposed to begin? An excellent ASX exchange-traded fund (ETF) to look at is BetaShares Australia 200 ETF (ASX: A200).

An ETF is a great investment for a beginner because it allows investors to buy a whole group of businesses in a single investment. I wouldn’t want to have to buy 200 different businesses individually and also monitor all of them.

ASX ETFs that follow an index can be done at a cheap cost. They are also providing returns that (almost) match the market – even fund managers fail to beat the market sometimes, so just getting the return of the A200 ETF is a solid return.

A200 ETF has the cheapest costs

There are a lot of different ASX ETFs that are focused on ASX shares such as iShares Core S&P/ASX 200 ETF (ASX: IOZ) and Vanguard Australian Shares Index ETF (ASX: VAS), which have low management costs.

The A200 ETF has the cheapest annual cost of all three of these ASX share options, with a yearly fee of 0.04% – it is the lowest-cost Australian shares ETF available on the ASX.

Lower fees can make a big difference in how much our wealth grows over time.

Solid diversification

If we’re invested in hundreds of different businesses, it lowers the risks relating to a particular business or an industry.

As the name suggests, the A200 ETF is invested in 200 businesses. Those companies are 200 of the biggest businesses on the ASX including BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Woodside Energy Group Ltd (ASX: WDS) and Goodman Group (ASX: GMG).

The returns of the underlying holdings dictate the return of the ASX ETF. For example, if BHP accounts for 10% of the portfolio and BHP makes a 20% return in one year, then the A200 would benefit with a 2% return contribution. The other 199 holdings would dictate the other 90% of the portfolio’s return.

Good dividends

A number of the large ASX shares have an appealing dividend yield, meaning the A200 ETF can deliver a good dividend return. The share price performance is the other part of the return, but that’s unpredictable.

On top of the ordinary dividend, Aussies can benefit from the franking credits that are attached to dividends from Australian companies.

According to Betashares, the ASX ETF pays a distribution quarterly. Its 12-month distribution yield was 3.7% as of 31 January 2024, and 5% grossed-up with the franking credits (at a franking level of 80%).

I think that’s a good level of passive income amid the elevated interest rates.

The post What’s the best way to invest in ASX shares without any experience? Start with this ETF appeared first on The Motley Fool Australia.

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

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Like the rest of the big four banks, Westpac Banking Corp (ASX: WBC) shares are a popular option for passive income.

The banking giant’s shares feature heavily in income portfolios and superannuation funds across the country.

But for those that don’t already own Westpac stock, is it a buy now, hold, or sell now following its update this month?

Let’s see what analysts are saying about Australia’s oldest bank.

Should you buy Westpac stock for passive income on the ASX?

The broker community remains divided on whether you should be buying Westpac shares following its quarterly update.

UBS and Morgan Stanley, for example, currently have the equivalent of sell ratings on its shares with price targets of $20.00 and $21.70, respectively.

Over at Goldman Sachs, Citi, and Morgans, its analysts have hold/neutral ratings with price targets ranging from $22.25 to $23.54.

Whereas Ord Minnett and Macquarie are currently the most positive brokers out there with the equivalent of buy ratings and price targets of $28.00 and $25.00, respectively. Though, it is worth noting that Westpac’s shares have recently surpassed Macquarie’s price target.

What about income?

One thing that the brokers do agree on is that Westpac is likely to provide investors with a decent source of passive income in the near term.

Analysts are forecasting fully franked dividends in the range of $1.42 to $1.46 per share in FY 2024. Based on the current Westpac share price of $26.20, this will mean dividend yields of 5.4% to 5.6%.

And in FY 2025, the forecast dividend widens to a range of $1.39 to $1.50 per share. This equates to yields of 5.3% to 5.7%.

This means that if you were to invest $10,000 into Westpac’s ASX shares, you would expect to receive passive income in the region of $550 in both FY 2024 and FY 2025.

The post ASX passive income: Is Westpac stock a buy, sell, or hold? appeared first on The Motley Fool Australia.

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More reading

• Should ASX income investors buy Westpac shares for dividends?
• How these 4 ASX 200 shares just gained major broker upgrades
• Are Westpac shares a buy following the bank’s results?
• High rates, falling profits: Why are ASX bank shares losing out this reporting season?
• Why are Westpac shares leaping ahead of rival ASX 200 bank stocks on Monday?

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Although what’s defined as “cheap shares” is often in the eye of the beholder, there are some common characteristics investors can look for.

The biggest one is if a business is in a cyclical industry and is temporarily out of favour with investors. If there’s certainty that eventually the good times will roll around, then there’s a decent argument that the shares are inexpensive.

Another is if the stock is suffering from a one-off shock. If you can decipher that in the long run the adverse impact will be negligible on the company, then the shares could be great value.

Perhaps a more unusual scenario might be that the business could be ripe for a takeover or merger. The industry could be experiencing a period of consolidation.

Having thought about these factors, here is a pair of cheap shares that I think are worth considering at the moment:

Market spooked, but the pros aren’t

Camplify Holdings Ltd (ASX: CHL) shares had a bit of a shock recently.

Its contribution to the ASX reporting season last Wednesday saw the stock plunge 17% that day.

But this could be one where investors could now buy up these shares at a terrific price because the anxiety the market is feeling may well be temporary.

All three of Canaccord, Morgans, and Ord Minnett have retained their strong buy ratings, according to broking platform CMC Invest.

The day after the half-year result, Morgans explained why it disagreed with the market’s pessimism:

“The stock closed down ~17% on result day, which we largely attribute to some seasonality in Camplify’s key headline metrics — future bookings, gross margins, etc. 

“We make several cost and margin assumption changes over the forecast period. Our price target remains unchanged and we maintain an ‘add’ recommendation on the stock.”

‘Fundamentally undervalued’ cheap shares 

Internet services provider Superloop Ltd (ASX: SLC) has been on the ASX for nine years, not doing a great deal for its poor shareholders.

The stock was sold at $1 during its initial public offering (IPO) in 2015, but it has rarely exceeded that level since first dipping under it in July 2019.

The shares were slogging it out at 87 cents when the market closed last week.

Then some furious developments over the weekend changed everything.

On Monday morning, boom rival Aussie Broadband Ltd (ASX: ABB) revealed that not only had it taken a 19.9% stake in Superloop, but it wanted to buy the whole thing for 95 cents a share.

By the end of the day the Superloop board had rejected the offer, labelling it “opportunistic” and insisting the price “fundamentally undervalues” the company.

With a warmly received half-year report behind it, Superloop and its investors seem to be confident that the outlook is brighter than what Aussie Broadband is costing it at.

Microequities chief Carlos Gil told the Financial Review that the offer was an insult.

“It’s very, very far from what we consider to be fair value,” he said. 

“We’re very confused as to how they think they could possibly acquire it at this price.”

Even though the Superloop share price has climbed past the $1 mark since Monday, this could be a situation where the story is far from finished.

Aussie Broadband clearly wants larger scale to compete with the larger telcos, and even Superloop shareholders agree the marriage makes sense.

But just not at this price.

CMC Invest currently shows all five analysts covering Superloop rating the stock as a buy.

The post 2 cheap ASX shares to add to your portfolio before they get expensive appeared first on The Motley Fool Australia.

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More reading

• Aussie Broadband share price rises on 1 million customer-strong merger
• Morgans names 3 ASX stocks to buy following results
• 3 under-the-radar ASX shares going gangbusters on results
• The best ASX shares to invest $20,000 in right now
• If I could buy only one ASX stock this February earnings season, it would be…

Motley Fool contributor Tony Yoo has positions in Camplify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Aussie Broadband. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Camplify. The Motley Fool Australia has recommended Aussie Broadband and Camplify. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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