The CSL Ltd (ASX: CSL) share price is under pressure on Monday.

In morning trade, the biotechnology company’s shares are down 6% to $286.14.

Why is the CSL share price falling?

Investors have been hitting the sell button this morning after CSL released disappointing trial results for its highly anticipated CSL112 product.

The company has been undertaking the Phase 3 AEGIS-II trial evaluating the efficacy and safety of CSL112 compared to placebo in reducing the risk of major adverse cardiovascular events (MACE) in patients following an acute myocardial infarction (AMI).

According to the release, while there were no major safety or tolerability concerns with CSL112, unfortunately, the study did not meet its primary efficacy endpoint of MACE reduction at 90 days.

As a result, CSL revealed that there are no plans for a near-term regulatory filing. Which is a big blow given how analysts have previously estimated that CSL112 could pull in peak sales of US$3 billion per year.

This isn’t goodbye

While CSL isn’t pushing ahead with a near term regulatory filing, it isn’t necessarily saying goodbye to CSL112 just yet.

The company’s Head of R&D, Dr Bill Mezzanotte, commented:

Substantial work remains to fully analyse and understand the complete data and then to determine any development path ahead for this asset. We thank all the patients, families, caregivers, and investigators for their support and participation in the AEGIS program.

AEGIS-II is the most ambitious study in our company’s history and we are proud of the quality of the study we delivered and the enhanced capabilities we developed to do so. We plan to apply these capabilities as well as our plasma protein platform to future unmet medical need in cardiovascular and metabolic conditions as well as those in our other strategic therapeutic areas.

The post CSL share price sinks 6% on major trial failure appeared first on The Motley Fool Australia.

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More reading

• 3 things ASX investors should watch this week
• Own CSL shares? What to expect from its half-year results
• Here’s how the ASX 200 market sectors stacked up this week
• Morgans says these ASX 50 shares are strong buys
• Up 28% since October, why are CSL shares attracting regulator scrutiny?

Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended CSL. 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 Wesfarmers Ltd (ASX: WES) share price has been a solid performer in the last few months, despite challenging economic conditions. It’s up more than 14% in the past six months.

The company is one of my blue-chip favourites. It usually offers an appealing mix of earnings growth and a decent dividend yield.  

What does this business do?

Wesfarmers is the parent company of a number of different well-known brands including Bunnings, Kmart, Officeworks, Target, Catch and Priceline.

It has a chemicals, energy and fertilisers business called WesCEF, and it also owns a few other industrial businesses, including Blackwoods and Coregas.

The company recently made acquisitive moves in the healthcare sector with deals to buy Silk Laser Australia and Instantscripts. These were logical bolt-on acquisitions for the Australian Pharmaceutical Industries/healthcare division, which includes Priceline and Clear Skincare Clinics.

Are Wesfarmers shares a good long-term buy?

There are two main elements that make me believe it’s a star ASX blue-chip stock.

First, the strength and diversification of its businesses are impressive to me.

Bunnings, Kmart and Officeworks are what I’d consider market leaders. And owning the best brands can come with a number of advantages, in my opinion.

A major strength of Wesfarmers is its ability and flexibility to buy different businesses in various industries. This allows it to find the best opportunities anywhere in the economy and apply its expertise and scale.

The other positive I want to point to is the company’s impressive financials.

What I particularly like is the return on equity (ROE) and return on capital (ROC). It shows it’s very profitable for the money it retains, and bodes well for medium-term growth (and Wesfarmers shares) if it can keep making those sorts of internal returns.

In FY23, Wesfarmers as a whole generated a ROE of 31.4%, which is a fantastic level of profitability. The company does pay attractive dividends, but I’d point out that it makes such good money on retained profit it would be vindicated to retain and invest more.

The company’s biggest and most profitable divisions – Kmart and Bunnings – earn excellent returns. Bunnings reported a ROC of 65.4% in FY23, and Kmart Group reported a ROC of 47%.

To me, those numbers justify the business trading on the price/earnings (P/E) ratio that it does. According to Commsec, Wesfarmers shares are currently valued at 27x FY24’s estimated earnings.

The post Are Wesfarmers shares a good long-term buy? appeared first on The Motley Fool Australia.

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More reading

• 2 ASX stocks that could explode in February
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• Would I be crazy to buy Wesfarmers shares at $58?
• Beginner investors: 5 top Aussie stocks I’d buy for 2024
• Where I’d invest $2,000 in ASX 20 shares today

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 Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. 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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At the start of each week, I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Pilbara Minerals Ltd (ASX: PLS) is still the most shorted ASX share with short interest of 20.6%, which is up slightly week on week. Short sellers continue to target the lithium miner due to weak battery materials prices.
• Syrah Resources Ltd (ASX: SYR) has short interest of 18.5%, which is up week on week again. Weak graphite prices have weighed heavily on its operations and balance sheet.
• Core Lithium Ltd (ASX: CXO) has short interest of 12.7%, which is down slightly week on week. This lithium miner’s shares are down over 80% since this time last year, much to the delight of short sellers.
• Sayona Mining Ltd (ASX: SYA) has 11.7% of its shares held short, which is up week on week again. Short sellers have been loading up on this lithium miner’s shares after it revealed costs that were significantly higher than the price it was receiving for its product.
• IDP Education Ltd (ASX: IEL) has 9.9% of its shares held short, which is down week on week. Short sellers appear to be betting that the loss of its monopoly in Canada and student visa changes will mean IDP Education underperforms expectations.
• Deep Yellow Limited (ASX: DYL) has seen its short interest rise to 9.3%. Short sellers don’t appear to believe that uranium prices will remain as strong as the market expects.
• Genesis Minerals Ltd (ASX: GMD) has seen its short interest rise to 9.3%. This seems to be because of concerns over integration risks from recent acquisitions.
• Chalice Mining Ltd (ASX: CHN) has short interest of 9.1%, which is up strongly week on week. Short sellers appear to believe that capital raisings will be required in the near term.
• Weebit Nano Ltd (ASX: WBT) has short interest of 8.7%, which is up week on week again. This semiconductor company recently reported quarterly revenue of less than $0.5 million. It ended last week with a market capitalisation of $700 million.
• Flight Centre Travel Group Ltd (ASX: FLT) has 8.4% of its shares held short, which is flat week on week. Short sellers may believe the market is too optimistic on the travel agent’s growth and revenue margin assumptions.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

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• Is Flight Centre about to regain ASX dividend share status?

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 Idp Education. The Motley Fool Australia has recommended Flight Centre Travel Group and Idp Education. 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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ASX dividend stock KMD Brands Ltd (ASX: KMD) has suffered heavily. It’s down 13% this year, 36% in the last year and 60% from October 2021.

That’s painful for the ASX retail share. It’s interesting to me that this retail company is down so much when various others have risen strongly in the last few weeks or months like Wesfarmers Ltd (ASX: WES), JB Hi-fi Limited (ASX: JBH), Lovisa Holdings Ltd (ASX: LOV), Myer Holdings Ltd (ASX: MYR), Premier Investments Limited (ASX: PMV) and Temple & Webster Group Ltd (ASX: TPW).

Still, I think KMD Brands could pay significant passive income in a year or two.

KMD Brands is the business behind the businesses of Kathmandu, Rip Curl and Oboz. In other words, its products are for the outdoors when it’s cold, the outdoors when it’s hot and for hiking.

What’s going wrong?

KMD Brands reported in December 2023 a trading update that group sales were down 12.5% year over year, reflecting “ongoing weakness in consumer sentiment”.

The ASX dividend stock has had trouble beating its comparable sales after record sales in FY23. Wholesale sales for Rip Curl and Oboz have declined, with retailers reducing inventory holdings in the short term.

At the time of the update, the company said its group underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for FY24 to date was $16 million lower than last year.

One of the positives from that update was that the overall gross profit margin improved, with “operating costs well controlled and actively managed”.

It also advised that its group working capital had decreased 10.2% year over year – it’s making progress towards its target of 18% of sales for the full year, which the company is expecting to drive strong cash flow generation in the second half.

How big could the dividends be?

When the share price of an ASX dividend stock falls, it boosts the prospective dividend yield. For example, when an ASX share with a 5% dividend yield falls 10%, the yield becomes 5.5%. A company can avoid this becoming a potential dividend trap as long as its fundamentals are sound.

I think KMD’s earnings can rebound in FY25 and beyond when retail conditions hopefully improve, particularly if interest rates fall. Demand for KMD’s products may not be as consistent as food demand at Woolworths Group Ltd (ASX: WOW), but I think KMD Brands can still make a decent profit in FY24 and then recover in the subsequent years.

Commsec forecast numbers suggest it can make earnings per share (EPS) of 6.5 cents in FY25 and 8.3 cents in FY26, putting it at 9.5x FY25’s estimated earnings and 7.5x FY26’s estimated earnings.

The low price/earnings (P/E) ratio means the future payouts could be huge. At the current KMD share price, it could pay dividend yields of 7.6% in FY25 and 9% in FY26, according to Commsec.

If the company’s earnings can rebound (in the next couple of years) I think there’s a good chance the ASX dividend stock could deliver strong outperformance at these levels.

The post 1 ASX dividend stock down 60% to buy right now appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Lovisa and Temple & Webster Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa, Temple & Webster Group, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended Jb Hi-Fi, Lovisa, Premier Investments, and Temple & Webster 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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I love investing in ASX shares that have lots of growth potential. Of course, we’d love all of our investments to be big winners. There’s one factor that I think can really help.

When I look at some of the better performers in the S&P/ASX 100 (ASX: XTO) over the last decade, I’m thinking about names like CSL Ltd (ASX: CSL), Macquarie Group Ltd (ASX: MQG), Aristocrat Leisure Limited (ASX: ALL), WiseTech Global Ltd (ASX: WTC), Cochlear Limited (ASX: COH), Xero Ltd (ASX: XRO), Goodman Group (ASX: GMG) and Altium Limited (ASX: ALU).

There’s one element they all have in common.

International growth

The one thing that ties all of those businesses together is that they have significant international growth earnings and can grow a lot more globally.

Australia and New Zealand are great countries, but we’re talking about a total population of around 32 million. There are billions more potential customers in other countries, or lots of other businesses and governments, for ASX shares to tap into.

Xero would probably be a lot smaller without its northern hemisphere subscribers and the possibility of more growth there.

Macquarie would likely be a much smaller investment bank without its operations in other regions.

WiseTech would probably be a smaller software business if it only dealt with the Australian and New Zealand divisions of the global logistics businesses.

Goodman would probably be smaller without the ability to build warehouses beyond the domestic markets it’s in here.

Businesses that have a good product or service, and can successfully take that overseas, give themselves a much bigger growth runway because of the larger total addressable market.

Look for the next ASX share winners

The market is very aware of the growth story of the ASX 100 share names that I’ve already talked about. They can continue to do well, but they’re certainly priced for the success they’re expected to achieve in the short term.

I think some of the next big winners will be ones that have smaller market capitalisations but the ability to become much larger thanks to their addressable market and the trajectory they’re headed in.

That’s why I like names like Lovisa Holdings Ltd (ASX: LOV), Johns Lyng Group Ltd (ASX: JLG), Frontier Digital Ventures Ltd (ASX: FDV), Airtasker Ltd (ASX: ART), Siteminder Ltd (ASX: SDR) and Close The Loop Ltd (ASX: CLG).

But there are plenty of others that could deliver on their international growth potential.

The post I think this ONE factor gives ASX shares a huge chance to make big returns appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Altium, Close The Loop, Johns Lyng Group, and Lovisa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, CSL, Cochlear, Frontier Digital Ventures, Goodman Group, Johns Lyng Group, Lovisa, Macquarie Group, SiteMinder, WiseTech Global, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Airtasker. The Motley Fool Australia has positions in and has recommended Macquarie Group, SiteMinder, WiseTech Global, and Xero. The Motley Fool Australia has recommended CSL, Close The Loop, Cochlear, Frontier Digital Ventures, Goodman Group, Johns Lyng Group, and Lovisa. 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 Pinnacle Investment Management Group Ltd (ASX: PNI) share price has climbed more than 40% from 27 October 2023.

Happily, I invested at around that time and have shared in this sizeable 40% return from the S&P/ASX 200 Index (ASX: XJO) stock.

I’ll admit that part of me – the part that wants to avoid potential losses (loss aversion) – has been wondering whether to take profits off the table. Locking in 40% in three months is an excellent annualised return.

But I think the company has a lot more long-term growth potential. Plus, there’s no need to pay capital gains tax prematurely.

For readers unfamiliar with this ASX 200 stock, it helps quality fund managers start their own funds management businesses.

Pinnacle takes a stake in a new funds business (affiliate) and then helps with a variety of services, including seed funds under management (FUM) and working capital, distribution and client services, middle office and fund administration, compliance, finance, legal, technology and more.

What’s left for the fund managers to do? The most important thing: investing for clients.

The company’s recent FY24 first-half result highlighted a number of reasons why I’m staying invested and why I think it’s a buy.

Continuing outperformance

Pinnacle says that 81% of affiliate 5-year strategies had outperformed their respective benchmarks as at 31 December 2023, which is underpinning ongoing performance fee contributions. That shows the quality of the underlying managers.

In the HY24 result, performance fees contributed $12.3 million of Pinnacle’s net profit (up from $0.9 million in the FY23 first half).

Ongoing dividend strength

The ASX 200 stock has increased its dividend payouts almost every year since 2016, apart from COVID-impacted 2020, when it maintained its dividend.

Pinnacle also it maintained its dividend payout in its HY24 results, though I expect dividend growth in the annual result if it continues the level of performance it’s achieving.

FUM growth

Aggregate affiliate FUM rose 9% to $100.1 billion over the six months to 31 December 2023, which was an increase of $8.2 billion in dollar terms.

In HY24, it experienced net inflows of $4.5 billion (compared to outflows of $1.5 billion in HY23), with $1.8 billion of retail inflows.

As FUM rises, it can lead to growing management fees, which are more consistent than performance fees.

Growth initiatives

The ASX 200 stock is seeing ongoing international expansion in both affiliates and distribution. Newer affiliates in both the United Kingdom and North America are experiencing “early success”.

Adding new affiliates, existing affiliates starting new funds, and growing its distribution presence into new areas – these activities expand the growth runway and increase the FUM potential.

When I add all of that together, I think Pinnacle shares can keep growing from here over the longer term.

The post I’ve made 40% in 3 months on this ASX 200 stock, I still think it’s a buy appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today

Motley Fool contributor Tristan Harrison has positions in Pinnacle Investment Management Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Pinnacle Investment Management Group. The Motley Fool Australia has positions in and has recommended Pinnacle Investment Management 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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There are a lot of ASX-listed exchange-traded funds (ETFs) that investors can choose from. iShares Global 100 ETF (ASX: IOO) is one way to gain diversification and own global winners.

I think Aussies need a certain amount of international exposure in their portfolios. The Australian share market is great, but there are a lot of other great businesses out there.

Some ASX ETFs provide enormous diversification, owning more than 1000 holdings. We don’t necessarily need to own a huge amount — just enough for good diversification but not to reduce the potential return performance.

100 leaders

The iShares Global 100 ETF invests in 100 of the biggest companies in the world. I think 100 businesses is a good number for strong diversification.

We’re talking about businesses like Microsoft, Apple, Nvidia, Amazon.com, Alphabet, Eli Lilly, Mastercard, ASML, Samsung, Toyota, Walmart, LVMH, Caterpillar, BHP Group Ltd (ASX: BHP), HSBC, Siemens and Unilever.

Many are the best in the world, or among the best, at what they do.

Pleasingly, the ETF’s biggest allocation is to the IT sector, which I think has the strongest potential for returns due to margins and no physical limitations to software.

Geographic diversification

It’s good to see some geographic spread of holdings beyond the United States in the iShares Global 100. Countries with a weighting of more than 2% include the United Kingdom, Switzerland, France, Japan and Germany.

Of course, there’s more to it than just where the business is listed. The underlying companies within this ASX ETF don’t just generate revenue in one country, such as the US. They make money globally, which means they offer global earnings diversification.

For example, Apple and Microsoft are company giants that generate revenue in almost every country.

Strong returns

The iShares Global 100 ETF has performed very strongly over the longer term, though past performance is no guarantee of future returns.

The IOO ETF has returned an average of 16.7% per annum over the past five years, which is a very pleasing rate of wealth-building.

The names within the portfolio are likely to keep changing over time, but as a group, I think they can keep doing well. These are the biggest businesses in the world making the biggest profits. I believe can keep making returns from their economic moats and large scale.

Ultimately, investing is about making returns, and this is a good option, in my opinion.

The post Want to invest in global winners? I’d buy this ASX ETF appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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 ASML, Alphabet, Amazon, Apple, Mastercard, Microsoft, Nvidia, and Walmart. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended HSBC Holdings and Unilever Plc and has recommended the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool Australia has recommended ASML, Alphabet, Amazon, Apple, Mastercard, and Nvidia. 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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ANZ Group Holdings Ltd (ASX: ANZ) shares have gone on an impressive run in the last month, rising by 7%. In the same time period, the S&P/ASX 200 Index (ASX: XJO) has lifted 2%.

It seems that 2024 has been kind to ASX bank shares so far. Is this a good time to invest in ANZ?

Positives about investing in ANZ shares

Inflation in Australia is heading in the right direction, which could lead to benefits in a number of ways.

Lower inflation typically reduces the spending burden of other expense categories for household and business borrowers, making it more likely they can afford their repayments.

If inflation continues to fall, it will hopefully prompt the Reserve Bank of Australia (RBA) to cut interest rates. If that happens, it could reduce the risk of borrowers defaulting on their mortgage payments.

Lower interest rates could also have the positive impact of boosting the price/earnings (P/E) ratio at which investors are willing to buy ASX shares, including ANZ stock. Interest rates are meant to act like gravity on asset prices, so if rates go lower, asset prices could generally go higher.

ANZ shares could still pay an impressive dividend yield because the P/E ratio is still quite low compared to other sectors. According to Commsec, the ANZ share price is valued at 13x FY24’s estimated earnings. And it could pay a grossed-up dividend yield of 8.4%.

And the negatives

The ANZ share price has jumped despite a projection that net profit after tax (NPAT) is going to fall in FY24.

It’s still facing a lot of competition from non-bank lenders and other ASX bank shares, including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Macquarie Group Ltd (ASX: MQG). Heightened competition could continue to push down on margins.

Banks are also having to compete hard for customer funds with appealing savings accounts for households. They are having to pay back the cheap COVID-era funding that was prompted by the RBA.

Due to its size and the nature of the industry, I’m not sure how quickly ANZ may be able to grow its profit from here.

Income-seekers may like the bank, but it’s not the sort of company I’m looking to buy for strong growth returns in my portfolio.

The post The pros and cons of buying ANZ shares right now appeared first on The Motley Fool Australia.

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• Better ASX bank buy: ANZ or NAB shares?

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 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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Investors with a higher than average tolerance risk might want to check out the ASX small cap shares listed below.

That’s because they have been tipped as buys with potential to rise strongly from current levels. Here’s what you need to know about them:

Cettire Ltd (ASX: CTT)

This rapidly growing online luxury products retailer’s shares could be in the buy zone still despite more than doubling in value over the last 12 months.

That’s the view of analysts at Bell Potter, which responded to the ASX small cap share’s half year results by retaining their buy rating with an improved price target of $4.80. This implies potential upside of 15% for investors over the next 12 months. The broker said:

We think CTT’s ability to outperform their peer group far outweighs others given the ~0.9% market share and further supported by the current consolidation the luxury ecommerce market. We also view CTT’s current EBITDA margins ahead of other ecommerce players with minimum risk associated with the drop-ship inventory model. We retain our BUY recommendation.

IPD Group Ltd (ASX: IPG)

Bell Potter is also feeling bullish about this small cap ASX share.

IPD is a distributor of compliant and innovative electrical infrastructure products with value-add custom-made solutions. Bell Potter believes it has a major long-term opportunity with electric vehicle charging and data centres. It said:

Electrification is emerging as a dominant market narrative and IPD Group is strongly leveraged to this growth trend through its supply of ‘low voltage’ electrical equipment that reduces the energy use of buildings and infrastructure. IPD has delivered two years of 15-20% organic growth since listing and we think 2024 is shaping up to be another strong year driven by continued ABB market share wins and a growing presence in data centres

Bell Potter has a buy rating and $5.75 price target on its shares. This implies potential upside of 19% for investors from current levels.

The post Why Bell Potter says these ASX small cap shares are buys appeared first on The Motley Fool Australia.

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More reading

• Bell Potter says this rocketing small cap ASX share can keep climbing
• Why Cettire, Dexus Industria, Pilbara Minerals, and Zip shares are jumping today
• Cettire share price rockets 40% on ‘exceptional result’
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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 Ipd Group. The Motley Fool Australia has recommended Cettire and Ipd 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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High interest rates have impacted demand for a number of companies. I’m going to write about three ASX shares that I think could see a recovery if and when the Reserve Bank of Australia (RBA) starts cutting interest rates.

Some ASX companies have done remarkably well despite the headwinds they’re facing. I think a fall in the interest rates may mean earnings are boosted and investors are willing to pay for a higher price/earnings (P/E) ratio.

Here’s why I’m optimistic about these three ASX shares.

Beacon Lighting Group Ltd (ASX: BLX)

Beacon Lighting describes itself as a leading national and international provider of innovative, technologically advanced and energy-efficient lighting and cooling solutions. It may be best known for lighting, but it also claims to have the largest range of fans in Australia. Many of the company’s product ranges are exclusive to Beacon.

I think lower interest rates could spur demand for household renovation and construction, which could flow into demand for Beacon products.

Beacon also has a sizeable and growing international division – this is exciting because of the scale of the markets in North America and Asia. If Australian rates fall, it could weaken the Australian dollar, which would increase the value of those international sales in Australian dollar terms.  

According to the forecast on Commsec, the Beacon Lighting share price is valued at 19x FY24’s estimated earnings.

Reece Ltd (ASX: REH)

Reece claims to be Australia’s largest plumbing and bathroom supplies business. It has an expansive network of showrooms in Australia, and it also has a growing presence in the United States after an acquisition a few years ago. Reece is also involved in irrigation, pools, HVAC and civil works in Australia.

The ASX share is another name that could benefit from a recovery in renovation and construction activity in Australia (and the US) if central bank interest rates fall.

Reece is planning to open between 10 to 15 branches per year in the US, which could be a useful tailwind for earnings (and be boosted by a weaker Australian dollar if rates fall). The company is working on non-plumbing network expansion in Australia and New Zealand.

From the outside, Reece appears to be well-managed, and in three to five years, I think the business could be making a lot more profit.

According to the forecast on Commsec, the Reece share price is valued at 42x FY24’s estimated earnings.

Metcash Limited (ASX: MTS)

Metcash is a diversified business with food, liquor and hardware earnings. It supplies independent retailers around the country including IGA supermarkets, Cellarbrations, The Bottle-O, IGA Liquor, Porters Liquor, Thirsty Camel, Big Bargain Bottleshop and Duncans.

What excites me most about this business is the hardware division, which includes Total Tools, Home Timber & Hardware and Total Tools. It also supports independent operators under the small format convenience banners Thrifty-Link Hardware and True Value Hardware. I believe this division can benefit substantially if interest rates are cut by the RBA.

While the hardware operations aren’t as strong as Bunnings, I think they are worthy competitors. The Metcash share price is only trading at 13x FY24’s estimated earnings, according to Commsec. I think this is a low P/E ratio for the quality of the business.

The ASX share also recently announced the acquisitions of Superior Food (a leading Australian foodservice distribution business), Bianco Construction Supplies (a business operating in SA and NT), and Alpine Truss (one of the largest frame and truss operators in Australia). These companies can help diversify and grow earnings.

The post 3 ASX shares that could soar thanks to the RBA appeared first on The Motley Fool Australia.

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More reading

• Why Champion Iron, Core Lithium, Metcash, and West African shares are sinking
• These 3 ASX 200 shares just got some big broker upgrades!
• Why are Metcash shares tumbling today?
• Metcash shares paused for $325m capital raising to fund Superior Food acquisition
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor Tristan Harrison has positions in Metcash. 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 Metcash. 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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