The Mesoblast Ltd (ASX: MSB) share price is on form again on Thursday.

In morning trade, the biotechnology company’s shares are up 11% to a 52-week high of $1.33.

This means the Mesoblast share price is now up over 50% since the start of the year, as you can see on the chart below.

Why is the Mesoblast share price charging higher today?

Investors have been buying Mesoblast shares again on Thursday after the company made another positive announcement.

According to the release, the United States Food and Drug Administration’s (FDA) Office of Tissues and Advanced Therapies has granted Mesoblast Regenerative Medicine Advanced Therapy (RMAT) designation to rexlemestrocel-L.

This is for the treatment of chronic low back pain (CLBP) associated with disc degeneration, in combination with hyaluronic acid (HA) as the delivery agent for injection into the lumbar disc.

What does this mean?

RMAT designations are good news for Mesoblast as they aim to expedite the development of regenerative medicine therapies that are treating serious or life-threatening disease or conditions where preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs.

The release notes that RMAT designation for rexlemestrocel-L provides all the benefits of breakthrough and fast track designations, including rolling review and eligibility for priority review when filing a Biologics License Application (BLA).

Management highlights that there is a significant need for a safe, effective, and durable opioid-sparing treatment in patients with CLBP associated with degenerative disc disease.

The good news is that a completed 404-patient randomised, blinded placebo-controlled Phase 3 trial of rexlemestrocel-L combined with HA has delivered promising results. It was for this reason that the FDA granted its RMAT designation.

Mesoblast’s Chief Executive, Silviu Itescu, commented:

We are pleased to receive RMAT designation for our cellular therapy to treat CLBP due to disc degeneration. We look forward to working closely with FDA to efficiently generate the additional data needed to support marketing approval of rexlemestrocel-L for the treatment of this serious and debilitating condition.

Mesoblast highlights that CLBP is a serious condition with an annual prevalence of low back pain in the general US adult population of 10% to 30% and a lifetime prevalence in US adults as high as 65% to 80%. This makes it a potentially lucrative market for Mesoblast to target.

The post Mesoblast share price soars 11% on FDA update appeared first on The Motley Fool Australia.

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More reading

• 2 ASX All Ords shares going gangbusters on Monday
• Why Argosy Minerals, Credit Corp, Flight Centre, and Mesoblast shares are racing higher
• Guess which ASX All Ords biotech share is rocketing 13% on FDA news
• Why Brainchip, Core Lithium, Deterra Royalties, and Mesoblast shares are falling

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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S&P/ASX 200 Index (ASX: XJO) tech stock Megaport Ltd (ASX: MP1) is on a bit of a rollercoaster on Thursday. 

The tech company, which provides Network as a Service (NaaS) solutions, closed yesterday trading for $6.19 per share. In early morning trade shares were swapping hands for $6.63 apiece, up 7.1%.

In later morning trade, those fortunes reversed, with the ASX 200 tech stock now trading for $5.85, down 5.5%.

Here’s what investors are considering.

Megaport share price seesaws on results

This morning Megaport released its results for the half-year ended 31 December (1H FY23).

(Note that all the figures quoted are in US dollars.)

The ASX 200 tech share is seeing some wild price swings and is currently deep in the red despite reporting revenue of US$47.4 million, a 27% increase compared to 1H FY22.

Monthly recurring revenue (for the last month of the reported period) increased 11% to $8.3 million.

Profits after direct network costs and partner commissions came in at $31.1 million, up 38% from the prior corresponding period.

While net losses improved from the $14.7 million reported in 1H FY22, 1H FY23 still saw the company report a net loss of $9.2 million.

Normalised earnings before interest, taxes, depreciation and amortisation (EBITDA) leapt from a loss during the corresponding half-year, to $2.3 million for the current reporting period.

As of December, the ASX 200 tech stock had 2,739 customers across 802 enabled data centres in 150 cities. The company has been broadening its footprint, reporting it reached 138 cities in 2021.

The Megaport share price could be under some pressure with the reported reduction in its cash and cash equivalents balance to $39.2 million. That’s down from $56.9 million on 30 June 2022.

The board did not declare any dividends.

How has the ASX 200 tech stock been tracking?

As you can see in the chart below, it’s been a difficult year for the ASX 200 tech stock. Over the past 12 months, the Megaport share price is down 57%.

The post ASX 200 tech stock Megaport leaps on open then plunges on half-year results appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• 3 ASX tech shares that could return 100% in 2023
• These are the 10 most shorted ASX shares
• Top brokers name 3 ASX shares to buy next week
• Brokers name 3 ASX shares to buy now

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 positions in and has recommended Megaport. The Motley Fool Australia has recommended Megaport. 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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Wouldn’t it be nice if you could turn $10,000 into $50,000 by the end of the decade? Well, the good news is that this sort of return is not unheard of with ASX shares.

While it certainly is rare, it does happen. So, why not aim for it?

How to turn $10,000 into $50,000 in seven years

To turn a $10,000 investment into $50,000 in the space of seven years, you’re going to need to generate an average annual return of 26% per annum.

This is significantly higher than the share market’s historical average of 10% per annum.

It also means that your investment will have to increase fourfold during that time. In light of this, I believe the best chance of generating this type of return is to look at the smaller side of the market.

After all, it is much easier for a $500 million to $1 billion company to grow four times its current size than it is for a $50 billion company.

However, the smaller we go looking for big returns, the higher we climb up the risk scale. This makes this endeavour suitable only for investors with a higher tolerance for risk.

With that in mind, here are a couple of ASX shares that I believe have the potential to generate very strong returns over the remainder of the 2020s.

Life360 Inc (ASX: 360)

Life360 is a $1.1 billion location technology company. It is best known for its eponymous Life360 app, which currently has 50 million global active users. The company also bolstered its offering with recent acquisitions of wearables company Jiobit and items tracking company Tile. These are opening the door to cross and upselling opportunities.

Goldman Sachs estimates that Life360 has a US$12 billion global total addressable market (TAM). This compares to the company’s 2022 revenue guidance of US$225 million to US$240 million. It also means that even if Life360 grew its revenue four times over, it would still have captured less than 10% of its TAM.

And with the company expecting to be profitable this year, the days of dilutive capital raisings appear to be over. All in all, I believe this means it could be onwards and upwards from here for this ASX tech share.

Temple & Webster Group Ltd (ASX: TPW)

Another ASX share that I believe has the potential to turn a $10,000 investment into $50,000 by 2023 is Temple & Webster. It is Australia’s leading online furniture and homewares retailer with a market capitalisation of $650 million.

Once again, I am going to call on Goldman Sachs to support my argument with this one. The broker is expecting the company to grow its earnings before interest, tax, depreciation and amortisation (EBITDA) by a compound annual growth rate (CAGR) of 22% over the next 10 years.

And with the shift to online shopping still in its early stages for furniture sales, Temple & Webster commanding a leadership position, and the category having high barriers to entry, I feel that Goldman’s forecast is achievable.

As a result, if it does deliver on Goldman’s forecast, I believe it is highly possible for the Temple & Webster share price to generate a 26% per annum return over the next seven years.

The post 2 top ASX shares that could turn $10,000 into $50,000 by 2030 appeared first on The Motley Fool Australia.

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More reading

• 10 ASX stocks to buy before they report this earnings season: Goldman
• Top ASX value shares to buy in February 2023
• How to create a million-dollar ASX share portfolio in two decades
• A new bull market is coming: 3 ASX shares I’d load up on before it gets here
• Goldman reveals the ASX shares that could surprise to the upside (and downside) this reporting season

Motley Fool contributor James Mickleboro has positions in Life360. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360 and Temple & Webster Group. The Motley Fool Australia has recommended 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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The Qantas Airways Limited (ASX: QAN) share price is above the S&P/ASX 200 Index (ASX: XJO)’s clouds on Thursday amid what could be exciting news for the airline.

First up, its takeover target Alliance Aviation Services Ltd (ASX: AQZ) has posted a return to profit.

Meanwhile, the United Nations’ International Civil Aviation Organization (ICAO) has forecast demand for air travel will make a complete recovery this year, returning to pre-pandemic levels.

Right now, the Qantas share price is trading at $6.55, flat with its previous close.

For comparison, the ASX 200 has dropped 0.35% at the time of writing.

Let’s take a closer look at what might be going right for the flying kangaroo this morning.

Qantas share price gains amid takeover target’s profitability

The Qantas share price is outperforming amid the release of Alliance Aviation’s half-year earnings. Here are the key takeaways from the takeover target’s results, released after the market closed on Wednesday:

• $9.5 million statutory profit – a $14 million improvement on that of the prior comparable period (pcp)
• Statutory earnings before interest, tax, depreciation, and amortisation (EBITDA) nearly doubled to reach $42.2 million
• Revenue lifted $68.4 million to $238.5 million
• Underlying cash flow came in at $27.4 million
• Declined to pay a dividend

The Alliance Aviation share price is down 0.87% to trade at $3.40 at the time of writing.

Qantas put forward a successful $4.75 per share bid for the aviation services provider in May 2022, valuing it at $764.5 million.

However, the Australian Competition & Consumer Commission (ACCC) is proving hard to convince. It’s concerned the acquisition could have a negative impact on competition in the aviation sector.

Demand for air travel tipped to grow in 2023

Qantas might also be front of mind today after the ICAO stated it expects passenger demand for air travel to reach pre-pandemic levels by the first quarter of 2023.  

Demand is tipped to be around 4% stronger than it was in 2019 this year, translating to a compound annual growth rate of 0.7% between 2019 and 2024.

It also tips airlines to return to profitability in the final quarter of 2023, ending three years of losses, as long as risks impacting international air transport don’t escalate.

Qantas expects to beat that prediction. The ASX 200 airline upgraded its first-half guidance in November, tipping a $1.35 billion to $1.45 billion underlying profit before tax for the period.

The post What’s going on with the Qantas share price today? appeared first on The Motley Fool Australia.

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More reading

• Why experts say these ASX 200 blue chip shares are buys
• 10 ASX stocks to buy before they report this earnings season: Goldman
• Virgin IPO talks are heating up. So why is the Qantas share price still climbing?
• Up 25% in a year, is it time to cash in Qantas shares?
• Should I buy Qantas shares before the company’s ASX earnings update?

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Alliance Aviation Services. 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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Some ASX dividend stocks can seem expensive, while others appear very cheap. I think the ones that have good dividend yields and are expected to grow earnings could be great options for passive income.

When an ASX share has a low price/earnings (P/E) ratio it naturally boosts the dividend yield on offer.

In valuation terms, a lower P/E ratio is seen as cheaper. It describes what multiple of earnings the business is trading at. The lower the better, if the business is expected to grow earnings over time.

I think these are two of the best cheap ASX shares to consider.

Shaver Shop Group Ltd (ASX: SSG)

Shaver Shop is a leading retailer in Australia of hair removal products. It also offers beauty and oral care products.

The business is part of a growing market. According to Shaver Shop, there is a growing demand for beauty and personal care products – the beauty and personal care market in Australia is expected to grow from just over $10 billion to $12 billion by 2026.

New products are released every year, enabling the business to sell the most advanced products in those categories. The business is growing its store network, with its eyes on growth in New Zealand.

The ASX dividend stock has grown its dividend each year since 2017 and this is expected to continue to FY25. According to Commsec, it could pay a grossed-up dividend yield of 12.1% in FY23 and 13.8% by FY25.

The business seems very cheap to me. Using Commsec’s EPS projection of 12.6 cents, it’s priced at 10 times FY23’s estimated earnings, with growth forecast for FY24 and FY25.

Pengana Capital Group Ltd (ASX: PCG)

Pengana is a fund manager that offers a variety of investment funds for investors. The business ended December 2022 with funds under management (FUM) of $3.2 billion, which is similar to where it finished June 2022.

Investment markets have generally risen since December, giving the company a positive outlook for the second half of FY23.

At the company’s annual general meeting (AGM), it said that private market strategies are expected to become the dominant source of profitability. Pengana said it’s well-placed to grow in this market, with its global private equity vehicle Pengana Equity Trust Pvt (ASX: PE1).

The ASX dividend stock has also been working on developing private credit strategies. It said it has “strong growth potential with large capacities.” It will be launched in the second half of FY23.

The latest half-year dividend from Pengana was 8 cents per share. If Pengana were to pay 16 cents per share in FY23, it would be a grossed-up dividend yield of 13%. Since 9 February 2023, the Pengana share price has dropped around 23%, making it seem much cheaper.

The post 2 ASX dividend stocks I think are dirt-cheap right now appeared first on The Motley Fool Australia.

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• Here’s how I’d start building a second income this February, for $30 a week
• Can these next-gen dividend heroes provide a passive income for life?
• Which ASX dividend shares I’d buy now to target $50,000 of annual passive income
• Top ASX value shares to buy in 2023

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 Sayona Mining Ltd (ASX: SYA) share price has roared 26% in 2023 to trade at 24 cents right now.

Interestingly, however, the S&P/ASX 200 Index (ASX: XJO) lithium share isn’t short of shorters. In fact, it’s currently the fifth most shorted company on the ASX. More than 9% of its stocks are effectively being used to bet against it.

Is that a sign that market watchers should steer clear of Sayona shares? Let’s take a look.

Sayona shares among the market’s most shorted

Before we consider whether the notable short interest in Sayona shares could be a red flag for investors, let’s recap what it means.

Short selling is a way in which one aims to profit from a falling share price. A short seller will borrow a company’s stock and immediately sell it on the market for cash.

When it comes time to return the borrowed shares, they’ll buy them on market, hopefully for less cash than they sold them for. They then take the difference as profit (or loss).

So, it seems many market participants are sceptical of the Sayona share price’s future performance. Perhaps more important to consider, though, is why.

What’s turned short sellers’ attention to the ASX 200 lithium share?

There are many reasons short sellers might turn to a particular company.

For instance, short sellers might be disenchanted by the future of lithium prices and might be shorting the lithium hopeful in response.

Interestingly, Sayona’s journey towards profitable lithium production looks like it could be a unique one.

Sayona hopes to restart production at its North American Lithium operation this quarter.

However, much of the lithium produced at the operation will be bought by the company’s partner Piedmont Lithium Inc (ASX: PLL) for up to US$900 a tonne. That’s far below current spot prices. Additionally, lithium prices have been tipped to fall in the coming years as supply catches up with demand.

Of course, the company’s whopping short position might have nothing to do with its business. It’s also worth noting its ASX 200 lithium peers Core Lithium Ltd (ASX: CXO), Liontown Resources Ltd (ASX: LTR), and Lake Resources N.L. (ASX: LKE) are also among the ASX’s 10 most shorted shares right now.

Still, I’d argue a high short position might represent a risk for long-term investors. Thus, those interested in Sayona shares might want to contemplate its considerable short position before buying its shares.

The post ASX 200 lithium share Sayona is heavily shorted. Should you steer clear? appeared first on The Motley Fool Australia.

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• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• Here are the 3 most heavily traded ASX 200 shares on Monday
• These are the 10 most shorted ASX shares
• Here are the 3 most heavily traded ASX 200 shares on Friday

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia 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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If you’re looking for growth shares for your portfolio, it could be worth checking out what Macquarie Group Ltd (ASX: MQG) is telling its clients.

The investment bank’s Macquarie Wealth Management (MWM) business operates recommended portfolios for growth and income investors which it updates monthly.

Macquarie notes that the MWM Recommended Portfolios represent a starting point to form a portfolio with growth or income characteristics.

Among its top growth picks right now are the ASX 200 shares listed below:

CSL Limited (ASX: CSL)

This biotherapeutics giant takes the top spot with a portfolio weighting of 8.3%. Macquarie has an outperform rating and $343.00 price target on its shares, which compares favourably to the latest CSL share price of $306.20.

Mineral Resources Ltd (ASX: MIN)

The next largest position in the portfolio is this ASX 200 mining and mining services company with a portfolio weighting of 7.7%. The broker currently has an outperform rating and $126.00 price target on the company’s shares. This suggests decent upside for the Mineral Resources share price, which is currently fetching $91.19.

Computershare Limited (ASX: CPU)

Another ASX 200 share in the portfolio is administration services company, Computershare. It is the third largest holding in Macquarie’s growth portfolio with a 7.5% weighting. The broker has an outperform rating and lofty $31.00 price target on its shares. This compares favourably to the latest Computershare share price of $24.39.

Pilbara Minerals Ltd (ASX: PLS)

Finally, Macquarie is a big fan of this ASX 200 lithium share and has included in its growth portfolio again with a weighting of 6.7%. The broker currently has an outperform rating and $7.50 price target on its shares. This suggests major upside potential for the Pilbara Minerals share price from the current level of $4.94.

The post These ASX 200 shares are top picks in Macquarie’s growth portfolio appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today
• Top brokers name 3 ASX shares to buy today
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• With interest rates heading higher again, the risk is to the downside for these popular blue chip ASX shares
• Macquarie share price continues to climb as acquisition speculations heat up

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 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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More than one expert is hinting that copper might be the new trendy commodity among ASX investors, like what lithium has been the last few years.

Just this week The Motley Fool reported Argonaut associate dealer Harrison Massey spruik a copper miner as a buy, and Shaw and Partners senior investment advisor Adam Dawes do the same.

Now Maqro Capital head of trading Mark Gardner has piled on, explaining why there will be a massive price swell for the commodity.

Plus, in a post on Livewire, he named the three best ASX shares to get copper exposure:

Why copper is about to see a huge shortage

Gardner pointed out that coal, nickel and lithium all experienced a “price squeeze” over the past 12 months.

“The EV transition drove the squeeze in lithium, rare earths and nickel — all of which are key components of battery making,” he said.

“While the battery materials shortage will largely be solved by oncoming global production over the next few years, copper is the forgotten commodity that is required to conduct all this energy, both fossil and green.”

Four red flags are indicating to Gardner that demand will far outstrip supply of copper for the coming period:

• Over-reliance on one region for supply,
• Lack of new mines due to environmental pressure
• Record-low inventory levels
• Supply issues due to geopolitics

“Arguments one and four are dangerously related. The two biggest global producers of copper are Chile and Peru. Together, the South American powerhouses make up 43% of the world supply,” said Gardner.

“They also happen to be in political disarray.”

Peru recently saw a failed coup that triggered mass demonstrations.

“The protests already threatened 30% of Peru’s copper supply with some Chinese miners having already closed down some mines,” Gardner said.

“This is the equivalent to 75% of Australian production shutting down tomorrow. If political unrest continues, 13% of the world supply may come under threat.”

Chile is going through its own issues, with high inflation and unemployment.

“This has seen the crime rate jump by a staggering 50% and protests from the left gaining momentum, which will spell disaster for the foreign-owned copper mines.”

The lack of new mines has led to a depletion of most of the copper that was warehoused or recycled.

A perfect storm is, therefore, brewing.

“Copper has all the hallmarks of being the next big price squeeze in the commodity sector.” 

How to get exposure to copper on the ASX

Asked to name the three best ASX shares for investors to gain copper exposure, Gardner admitted the opportunities were scarce.

So his first pick was actually an exchange-traded fund — Global X Copper Miners ETF AUD (ASX: WIRE).

“This new ETF from GlobalX ETFs has some of the best copper producers from around the globe,” 

“Canada, Australia, Mexico and China make up over 60% of the ETF, which largely avoids the perils of the South American unrest with only a 5.8% exposure to Chile.”

The second opportunity is possibly the “last man standing” after OZ Minerals Limited (ASX: OZL) disappears from the bourse after the BHP Group Ltd (ASX: BHP) takeover.

“Sandfire Resources Ltd (ASX: SFR) is one of the last large cap copper plays left on the ASX,” said Gardner.

“Given the strong copper price dynamics, we see strong potential for the company to exceed revenue expectations.”

The third pick is a smaller player but, according to Gardner, may offer the greatest upside.

“Aeris Resources Ltd (ASX: AIS) has five tenements with four in production in 2023. The combined mine life of the five projects is 18 years with 57 to 71kt of production expected from the group next year and 780kt in reserves.”

The post Is copper the new lithium? Expert names 3 ASX shares to buy appeared first on The Motley Fool Australia.

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• Best buy for 2023: Expert’s pick for the one ASX share to grab right now
• 3 top ASX mining shares I’d dig into and buy in February
• Why Bega Cheese, IAG, Northern Star, and Sandfire shares are dropping
• Here are the top 10 ASX 200 shares today
• Investing in ASX 200 copper shares? Here’s the outlook for the red metal in 2023

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has 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 BHP Group Ltd (ASX: BHP) share price has been a very strong performer in recent months.

In fact, as you can see on the chart below, since this time six months ago, the Big Australian’s shares are up 24%.

As a comparison, the benchmark ASX 200 index is up 7% over the same period. That’s a cool 17% outperformance from this mining giant’s shares.

Can the BHP share price keep climbing?

Unfortunately, one leading broker is calling time on the BHP share price gains.

Morgans has just released its best ideas list for February. These are the ASX shares that the broker thinks offer the highest risk-adjusted returns over a 12-month timeframe and are supported by a higher-than-average level of confidence. They are also its most preferred sector exposures.

But for the first time since March 2020, there is no BHP in the broker’s best ideas list this month. It has been replaced with Mineral Resources Ltd (ASX: MIN).

According to the note, the broker made the move on valuation grounds after the aforementioned strong gain by the BHP share price. It also believes its earnings profile and trading conditions have softened recently.

In light of this, it has put a hold rating and $47.00 price target on the miner’s shares. This price target is a touch lower than the current BHP share price of $48.10.

Commenting on the removal, Morgans said:

BHP remains in robust shape, but compared to mid-2022 its earnings profile, operating conditions and global macro conditions have all reduced. Despite this BHP continues to push to fresh record highs in terms of share price. As a result we are left believing BHP is trading moderately ahead of fundamentals and maintain our Hold rating with an upgraded A$47ps target.

The post Can the BHP share price keep rising or has it peaked? appeared first on The Motley Fool Australia.

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More reading

• This little-known ASX share offers ‘inflation protection at a reasonable price’: fund manager
• With interest rates heading higher again, the risk is to the downside for these popular blue chip ASX shares
• Invest $20,000 in ASX 200 shares and get $1,500 each year without lifting a finger
• Why BHP shares are poised to continue delivering strong dividends in 2023: expert
• BHP share price jumps as Oz Minerals acquisition clears major hurdle

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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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part three of this edition, we’re rejoined by Adam Lund, analyst, head of trading & co-founder, Spheria Asset Management.

Motley Fool: Your focus is on the smaller end of the market with the Spheria Australian Smaller Companies Fund and Spheria Australian Microcap Fund. Are there any ASX shares or broader sectors you’re looking to avoid in 2023?

Adam Lund: We try to avoid bubble-like themes and sectors riding excessive momentum.

The lithium complex is an area of the market that we’re currently avoiding given the expansion in market cap that is being paid for negative earnings.

The lithium cost curve versus the spot price does not make any sense to us given even the highest-cost producers are able to turn a profit at current spot prices, which only invites more supply to the market.

MF: What’s your outlook for lithium prices then?

AL: We’re starting to see early signs of this unwinding with the spodumene price down more than 30% from recent highs and lithium carbonate down about 20% from recent highs.

Yet, despite that, ASX lithium shares continue to rally, perhaps on increased hope for China demand as the government focuses on stimulating consumption.

MF: So, that’s an area you’ll avoid for now. On the flip side, which sectors look promising in the coming quarter?

AL: We think that the retail sector has been mispriced by the market with quality retail players priced for a depression-like environment.

With consumer spending patterns holding, at least for the short-term, we’re currently witnessing a re-rate to the sector as investors scramble to close their underweight to consumer discretionary exposure ahead of earnings season.

The market is starting to look through peak inflation and the rate hike cycle and investors will be watching inflation data closely over the coming quarter and positioning accordingly.

MF: Are any other sectors looking like they’ll outperform in 2023?

AL: Another area of the market we like is what I’d describe as ‘value tech’.

In the early stages of this year, we’ve seen a renewed optimism in the market which has seen a rotation into sectors such as growth tech – those which had been oversold with the market last year.

However, it’s value tech that we view as an attractive part of the market today, given our valuation obsession. We expect M&A activity to heat up in this space over the short to medium term.

MF: What do see as the biggest threat for ASX shares in the year ahead?

AL: Inflation and the rate hike cycle is a key risk for markets. Further rate hikes will see pressure on equity markets.

But, should we start to see signs of peak inflation, the risk may shift to the upside as the market moves to price a holding pattern in rates and potential future rate cuts, which would likely see a rotation back towards equities and riskier assets.

The market often overplays macro factors which creates opportunities for long-term investors. We have been positioning the portfolio towards longer-duration assets with the view that the market has overplayed the rate hike cycle.

We are of the opinion that we are closer to the top of the rate hike cycle than the bottom and have been fully invested for this reason.

MF: If the market closed tomorrow for five years, which ASX share would you be sure to want in your portfolio?

AL: An ASX share named Deterra Royalties Ltd (ASX: DRR) would certainly be one to own under this scenario.

Deterra owns a portfolio of mining royalties including a 1.23% royalty on iron ore production at a site in the Pilbara region known as Mining Area C. The site is majority owned by BHP Group Ltd (ASX: BHP) and has an estimated mine life of more than 50 years.

Royalties provide an annuity-like income stream, and Mining Area C – the jewel in Deterra’s crown – has a production capacity that’s likely to more than double over the next few years, which will see investors benefit from capacity payments as the production profile expands.

Deterra currently trades on 11 times EV to EBIT [enterprise value to earnings before interest and taxes], pays a 6% fully franked dividend yield, has strong cash flow conversion, and operates on a 96% EBIT margin with a net cash balance sheet.

The royalty is paid on a percentage of revenue, thus offering investors inflation protection at a reasonable price, which is important in the inflationary environment we are currently operating in.

**

If you missed the earlier installations of our fund manager interview series with Adam Lund, you can read part one right here and part two by clicking here.

(You can find out more about Spheria Asset Management’s fund offerings here.)

The post This little-known ASX share offers ‘inflation protection at a reasonable price’: fund manager appeared first on The Motley Fool Australia.

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More reading

• With interest rates heading higher again, the risk is to the downside for these popular blue chip ASX shares
• Invest $20,000 in ASX 200 shares and get $1,500 each year without lifting a finger
• Why BHP shares are poised to continue delivering strong dividends in 2023: expert
• BHP share price jumps as Oz Minerals acquisition clears major hurdle
• Why are ASX 200 iron ore shares being hammered hard on Friday?

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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