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

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

This has been a challenging year all the way around for the investing community. Since notching their respective all-time highs between mid-November and the first week of January, the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), widely followed S&P 500 (SNPINDEX: ^GSPC), and innovation-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) have all plummeted into a bear market. The bond market hasn’t provided much of a safety net, either, with bonds delivering what may well be their worst year in history!

The good news — if there’s any to be found among this market tumult — is that every substantive decline in the major U.S. stock indexes has always represented a buying opportunity for patient investors. But this doesn’t change the fact that heightened volatility and the growing prospect of a U.S. recession has investors on edge and wondering, “When will the bear market bottom?”

Multiple metrics suggest the stock market is headed lower

Over the past couple of months, I’ve highlighted a number of indicators that have had solid success at calling previous bear market bottoms.

For example, outstanding margin debt has an uncanny track record of predicting bear markets. Margin debt being the amount of money borrowed from brokerages with interest to purchase or short-sell securities. When the amount of margin debt rises rapidly, it’s often a sign of increased risk-taking by investors — and an ominous warning for the stock market.

In the three instances since the beginning of 1995 where margin debt rocketed higher by 60% or more in a trailing-12-month (TTM) period, the stock market peaked not long thereafter and entered a bear market. Margin debt plummeted by more than 40% on a TTM basis to signal bottoms for each of the previous two bear markets (2002 and 2009). The current TTM decline in outstanding margin debt is a little over 20%, implying more downside to come.

Valuation-based indicators have signaled additional downside is likely, too. The S&P 500 Shiller price-to-earnings ratio (also known as the cyclically adjusted price-to-earnings ratio, or CAPE ratio) has accurately predicted bear markets five times since 1870. More importantly, a number of previous double-digit percentage declines found their respective bottoms around a Shiller P/E of 22. The current Shiller P/E is still above 27.   

Further, the S&P 500’s forward price-to-earnings ratio is still marginally higher than the 13 to 14 multiple that has signaled the bottom for a number of pullbacks over the past quarter of a century.

Here’s the indicator I’m watching closest to help identify a bottom

However, none of these aforementioned indicators is my absolute favorite when it comes to predicting bear market bottoms.

To be clear, there is no such thing as a perfect predictor of bear market bottoms. If there was, you can rest assured that everyone from Wall Street professionals to everyday investors would be using it by now. Nevertheless, this particular metric has proved quite useful during double-digit percentage declines over the past two decades. I’m talking about analyzing the percentage of stocks in the Nasdaq Composite trading above their 200-day moving average.

Moving averages are used by technical analysts who believe the average price of a stock over a given period provides some form of support. But I’m not thinking of this indicator in this respect. Rather, I’m using the percentage of stocks within the index (Nasdaq) that’s led the market higher and lower for the past quarter of a century as a gauge of investor sentiment.

Historically, investors have a tendency to become overly optimistic during bull markets and push valuations into the stratosphere. Likewise, they can become overly bearish and overshoot to the downside during short periods of pessimism. This indicator helps recognize when those peak periods of pessimism arrive and are a signal for investors to pounce.  

Over the past 20 years, there have been six instances where roughly 12% or fewer of all Nasdaq-listed stocks were above their 200-day moving average. This includes the 2002 dot-com bubble bottom (12.12%); 2009 Great Recession bottom (5.23%); first quarter pullback in 2016 (11.29%); fourth quarter of 2018 pullback (10.11%); COVID-19 crash bottom (7.01%), and June 2022 (8.81%).  Although predicting precisely where this metric will bottom is impossible, a value of 12% or less has historically represented an incredible buying opportunity and has pretty closely called most bear market bottoms.   

As of this writing, following the close of business on Oct. 17, 2022, only 22% of Nasdaq-listed companies were above their 200-day moving average.

Buying stocks during bear markets is a genius move — here’s why

But just because I’m keeping a close eye on this bear market bottom indicator, it doesn’t mean I haven’t been putting money to work on a regular basis during this downturn. That’s because any double-digit percentage decline in the broader market is, historically, a smart time to invest — at least for long-term investors.

As I’ve previously pointed out, market analytics company Crestmont Research publishes the rolling 20-year total returns, including dividends paid, of the S&P 500 every year. For example, the rolling 20-year total return for 1997 would include years 1978 through 1997 and include all dividends paid.

In total, Crestmont has examined 103 end years (1919-2021), which means it’s evaluated every 20-year holding period since 1900 for the S&P 500. The key takeaway is that no 20-year rolling period has produced a negative total return. Whereas you can count on one hand how many end years finished with an annual average total return of 5% or less over 20 years, there are around 40 ending years where the average annual total return over two decades was 10.9% at minimum. 

Patience has continually paid off handsomely for investors, which is why you’re a genius if you’re putting your money to work during this significant bear market downturn.      

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

The post When will the bear market bottom out? This indicator may hold the answer appeared first on The Motley Fool Australia.

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• Why I’m not worried about Fortescue’s $9.6 billion decarbonisation plans smashing my dividends
• The ASX 200 is roaring higher so why is the New Hope share price sinking 7%?
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• How I’d build a portfolio by investing in top ASX shares now

Sean Williams 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.

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

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Fortescue Metals Group Limited (ASX: FMG) shares are recognised as a way to get exposure to iron ore. As well, the Fortescue dividend yield has also been one of the largest in the S&P/ASX 200 Index (ASX: XJO) over the last few years.

However, some analysts are concerned the Fortescue dividend could be headed lower in the coming years.

It’s certainly true that the ASX mining giant is looking to spend a lot of cash on decarbonisation in the years ahead.

A month ago, the company revealed a plan for a US$6.2 billion capital investment to eliminate fossil fuels from its business. The idea is to achieve “real zero terrestrial emissions” (scope 1 and 2) across its iron ore operations by 2030.

Why is Fortescue doing this?

The iron ore giant said that it will eliminate the company’s fossil fuel risk profile, enabling it it to supply its customers with a carbon-free product.

The move is expected to help it lead the market in terms of response to growing customer, community, and investor expectations to reduce carbon emissions.

By 2030, the business is expecting to avert three million tonnes of carbon dioxide (CO2) equivalent emissions per year.

But it’s not just a ‘green’ move. It’s also expected to lead to significant operating cost savings. From 2030, Fortescue is expecting net operating cost savings of US$818 million per annum, costed on prevailing market prices of diesel, gas, and Australian carbon credit units.

By 2030, cumulative operating cost savings are expected to be US$3 billion, with a payback of capital by 2034 at current market prices.

The company said its move will also remove fossil fuel price volatility risks, as well as price risks associated with relying on carbon offsets. Further, it will eliminate risks associated with carbon tax regulation, according to management.

Why I’m not particularly concerned about the Fortescue dividend

There’s no doubt there is a big price tag with this plan. But, I think it’s worth noting a number of things.

First, there are long-term economic (cost) benefits to the plan. The wind and sun don’t cost anything to use each day. Certainly, I want my ASX shares’ management to think about, and invest for, the long term. To me, this seems like a good long-term move.

Second, there are many benefits to going green. Some might say it’s essential for our future that the biggest carbon emitters reach net zero. Fortescue may also be able to achieve a higher price for its iron by being able to supply customers with a carbon-free product. The resources giant also pointed out there is a “significant” new green growth opportunity through the commercialisation of decarbonisation technologies. Plus, the company noted its plan ensures future access to green-driven capital markets.

Third, the timing of the spending is largely planned for between FY24 to FY28. The biggest three years of spending, by far, will be FY25, FY26, and FY27. Fortescue said the costs to purchase its green mining fleet will be aligned with its scheduled asset replacement life cycle and included in its sustaining capital expenditure. In other words, an important portion of the overall spending was going to go towards new vehicles regardless, it’s just that they will be green(er).

In terms of the dividend, I think it’s very likely that the dividend will fall compared to the last two years. But, I put that expectation down to the reduction of the iron ore price in recent months. The commodity price is a key factor for generating revenue and profit for the company. If Fortescue’s profit and dividend were going to stay at FY21 levels for many years, the Fortescue share price may have gone substantially higher.

Volatility is normal

That’s one of the things to know about a cyclical business like this iron ore miner – there will be booms, but also leaner times. Supply and demand play an important role. But both supply and demand can each see volatility.

I think that the times when the iron ore price and Fortescue share price fall significantly could be opportunistic times to invest, but not when the iron ore price is high.

Plus, I like the long-term outlook for Fortescue with its plan to diversify earnings by producing green hydrogen through its Fortescue Future Industries (FFI) division. When that’s up and running, it could make profit and fund part of future dividends.

The post Why I’m not worried about Fortescue’s $9.6 billion decarbonisation plans smashing my dividends appeared first on The Motley Fool Australia.

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• Why have Medibank shares just been suspended from trading on the ASX?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. 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 Vulcan Energy Resources Ltd (ASX: VUL) share price is having a strong start to the week.

In morning trade, the lithium developer’s shares are up over 12% to $6.79.

Why is the Vulcan share price racing higher?

The catalyst for the rise in the Vulcan share price on Monday has been the release of a promising announcement relating to its Zero Carbon Lithium Project in Germany.

According to the release, the company has produced the highest grade, lowest impurity lithium hydroxide to date from its pilot plant.

The lithium hydroxide was produced from Vulcan’s sorption pilot plant, which is located at its commercial geothermal renewable energy plant, with downstream electrolysis processing offsite.

The release notes that the latest material produced graded 57.1% LiOH, which exceeds the best-on-the-market battery grade specification of 56.5% LiOH required from offtake customers. Impurities were also well below market specification minimums.

Another positive is that Vulcan’s pilot plant, which has been operating since April 2021, has now produced sufficient data to complete the company’s Phase 1 Definitive Feasibility Study (DFS), which is scheduled for the first quarter of 2023.

Based on the above, it seems quite likely that the DFS will be a success.

Management commentary

Vulcan’s managing director and CEO, Dr. Francis Wedin, was encouraged by the results. He commented:

As our DFS draws towards its conclusion, we are encouraged by these latest highest grades and lowest impurities recorded to date, from LiCl production from our pilot plant, with electrolysis conducted offsite. The embodied renewable heat within our brine means we are able to leverage sorption, a commercially proven process to extract lithium from brines that requires heat to work. Sorption is highly selective, which means that we can produce a very pure LiCl eluate. This in turn means we are able to use lithium electrolysis, a method of producing lithium hydroxide directly which by its nature produces a very pure product, in excess of the purity required for use in Electric Vehicle (EV) batteries, with minimal reagent usage.

Works are continuing apace on our Demo Plant and DFS, and we are looking forward to sharing further updates with our stakeholders in the coming months, as we continue to execute towards our target of first commercial production from our Zero Carbon Lithium Project in 2025.

The post Vulcan share price rockets 12% on lithium update appeared first on The Motley Fool Australia.

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• Down 30% in 2022: Here’s why I’m holding tight to my Vulcan Energy shares
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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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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

In November 2021, Bitcoin (CRYPTO: BTC) looked unstoppable as its price approached $70,000 per coin. Since then, the cryptocurrency has lost nearly 70% of its value and now trades for around $19,000.

Was this just a big financial experiment gone bust, or should investors continue to look at Bitcoin as a possible vehicle for building a diversified investment portfolio?

It’s certainly possible that the king of cryptos has seen its best days, but there’s also plenty to be optimistic about. When you consider Bitcoin’s history of sell-offs and recoveries and an important upcoming event, this crypto looks quite attractive at current prices.

Bitcoin has a history of crashes and recoveries

If you’ve followed the Bitcoin story for more than a couple of years, you know that huge drawdowns are a common occurrence. In fact, there have been three crashes in the past decade that are worse than the current one:

Year	The Crash	% Loss	The Reason
2011	Fell from $32 to $0.01	99%	Mt. Gox breach
2015	Fell from $1,000 to $170	83%	Chinese ban/Mt. Gox halts trading
2017	Fell from $20,000 to $3,200	84%	Crypto winter

Source: Cointelegraph. Table by author.

The main takeaway is that on all three occasions, Bitcoin recovered from these huge declines.

When you look at the reasons for the previous crashes, the current situation feels rather tame. In 2011, Mt. Gox — a Japanese exchange that was responsible for roughly 70% of all Bitcoin transactions — was hacked, which resulted in the theft of more than 800,000 Bitcoins.

And yet, Bitcoin not only recovered from this predicament but surged to new highs in the years following.

If Bitcoin can survive an event as detrimental as a 99% crash, I have no doubt it can recover from the current bear market and macroeconomic headwinds.

The next halving could push Bitcoin to a new all-time high

Perhaps the most important catalyst in the near term is the next halving, which is scheduled to take place in the second quarter of 2024.

Halving refers to an event that occurs roughly every four years. Bitcoin’s protocol requires that after every 210,000 blocks are mined, the reward given to miners is cut in half. In the early days, miners were rewarded with 50 bitcoins every time they solved a problem.

Fast forward to today, and miners are receiving 6.25 tokens, and that number is scheduled to be cut in half in about 18 months. It doesn’t take a genius to understand that if fewer Bitcoins are being rewarded to miners, the value of those coins is likely to rise. It’s simple supply-and-demand logic.

If we look at past halvings, we see how this premise played out:

Year of Halving	% Increase over the next 12 months
2012	950%
2016	400%
2020	120%

Source: Investopedia. Chart by author.

The light at the end of the tunnel

Bitcoin recently has been lumped into a broad basket of risky investments and, as such, the market has hammered it. But investors should also understand that the market is a leading indicator, and it recovers before the broader economic environment.

It’s entirely possible that we could see a resolution in supply chain constraints caused by the pandemic and the Russian invasion of Ukraine in the next 12 to 24 months, which would ease the rate of inflation. This would likely prompt the Federal Reserve to shift its rate-hiking strategy and could very well be the catalyst growth investors have been waiting for.

Considering that Bitcoin has tracked growth stocks almost in lockstep during the past year, the next halving and a potential decline in inflation could send the coin’s price surging.

^IXIC data by YCharts.

While we can only speculate on the macro environment, we can be certain that the Bitcoin halving will occur sometime in 2024. And if history is any indicator, this is likely to be good news for its price.

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

The post Why the Bitcoin price could soar in the coming years appeared first on The Motley Fool Australia.

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Mark Blank has positions in Bitcoin. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia positions in and recommends Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

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The definition of a ‘top share’ varies among those interested in investing on the ASX.

Some believe top shares are those trading at low valuations with plenty of future prospects. Others could hunt for top shares in nooks and crannies, searching for companies operating in an in-demand corner of the market with little competition.

For every definition of a top share, there’s likely an ASX stock that embodies it. And with the All Ordinaries Index (ASX: XAO) having slumped 13% in 2022, there are plenty of top ASX shares trading at bargain prices right now. Here’s how I would find them.

How I’d craft a portfolio of top ASX shares in 2022

Step 1: What makes an ASX top share?

Possibly the most common definition of a top ASX share is one that offers competitive advantages.

In that case, the dream could be to find a listed company that can corner a market where its offerings are in demand. A company in such a position will likely have little trouble growing its margins faster than its competitors. A loyal, returning customer base could also indicate that a company has a competitive advantage over its peers.

Others might argue that a top ASX share is one that can boast plenty of cash flow and a strong balance sheet, thereby increasing its chances of sailing through tough times.

Finally, a top stock might be one that’s trading at a low valuation due to no fault of its own. They might also be dubbed ‘diamonds in the rough’, having been beaten down by shifting market sentiment or sell-offs despite offering underlying value.

It could also be argued that the criteria for a top share has shifted slightly in 2022 to one that’s either shielded or benefits from inflation and rising interest rates.

Step 2: Building a portfolio

Once I found a few top shares on the ASX, I would get to work building a portfolio. Though, that might be easier said than done.

Of course, I’m a huge fan of diversification, even when investing in top-shelf stocks.

A portfolio that covers numerous stocks in numerous sectors will generally offer the best protection from market shifts. Therefore, I will always encourage those shopping for ASX shares to build a diverse portfolio.

Additionally, as Warren Buffett advises, investors would be wise to understand all the ins and outs of a business and its industry before investing in it.

Thus, those building a portfolio of top shares could find themselves spending a lot of time researching.

Step 3: The power of time

Finally, once I’d built my portfolio of top ASX shares – hopefully taking advantage of market volatility to do so – I’d sit back and trust my picks.

That’s not to say I’d set and forget. I would still seek to be informed about my holdings.

However, good things come with time. More often than not, top shares will reward investors over years and decades, not weeks and months.

Taking this approach could also help to ward off the anxiety that so often accompanies short-term downfalls.

The post How I’d build a portfolio by investing in top ASX shares now appeared first on The Motley Fool Australia.

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• 5 things I love about investing in ASX shares
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The Motley Fool Australia has no positions 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 South32 Ltd (ASX: S32) share price is on the move on Monday morning following the release of the miner’s quarterly update.

In early trade, the mining giant’s shares are up 2.5% to $3.82.

South32 share price higher on first quarter update

Investors have been bidding the South32 share price higher today after a strong night for materials shares on Wall Street on Friday offset the release of a mixed first quarter production update.

For the three months ended 30 September, South32 reported the following production compared to the fourth quarter:

• Alumina down 8% to 1,257kt
• Aluminium up 9% to 279kt
• Copper up 12% to 19kt
• Lead down 5% 24.6kt
• Manganese down 1% to 1,460kt
• Met coal down 8% to 1,270kt
• Nickel down 11% to 14kt
• Silver down 3% to 2,748koz
• Zinc down 9% to 9.6kt

How does this compare to expectations?

This was a mixed quarter from South32, with a number of its operations outperforming expectations and other underperforming consensus estimates.

For example, aluminium, copper, manganese, and nickel production came in ahead of consensus estimates. Whereas alumina, met coal, and zinc production fell short of the market’s expectations.

The soft quarter from its met coal operations was caused by workforce disruptions and has led to management reducing its full year met coal guidance by 5%. This is particularly disappointing given the high prices that the black gold is commanding right now.

One small positive, though, is that management doesn’t expect a material impact on its FY 2023 met coal operating unit cost guidance of US$116/t, with the benefit of a weaker Australian dollar expected to offset the impact of lower volumes.

The rest of the company’s guidance for FY 2023 remains unchanged.

Management commentary

South32’s chief executive officer, Graham Kerr, appeared to be pleased with the quarter. He said:

Highlights during the September 2022 quarter included an 11 per cent increase in copper equivalent production at the Sierra Gorda copper mine in Chile, a nine per cent increase in aluminium production and a six per cent increase in manganese ore production at GEMCO. We maintain a strong outlook with 13 per cent production growth expected in FY23.

We returned US$50M to shareholders via our on-market share buy-back and finished the quarter with a net cash position of US$446M, with a further US$784M returned in October 2022 via fully-franked ordinary and special dividends. Our strong balance sheet and disciplined approach to capital management enables us to continue to make returns to shareholders while investing in our portfolio of growth options focused on metals critical to a low-carbon future.

The post South32 share price higher despite met coal downgrade appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Monday
• Here are the 3 most heavily traded ASX 200 shares on Friday
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Opportunities across the mining sector: Expert names ASX 200 shares to buy
• Morgans names the best ASX resources shares to buy now

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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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:

• Flight Centre Travel Group Ltd (ASX: FLT) continues its long run as the most shorted share on the Australian share market after its short interest rose to 15.1%. Short sellers seem to believe that the market is too bullish on the travel market recovery due to rising living costs.
• Betmakers Technology Group Ltd (ASX: BET) has seen its short interest rise to 14.5%. This betting technology company’s shares are down 60% in 2022 but short sellers appear to believe they can keep falling. In other news, last week it was revealed that major shareholder, Tom Waterhouse, sold $11 million worth of shares in recent weeks
• Block Inc (ASX: SQ2) has seen its short interest rise to 11.8%. Investors continue to target this payments company amid concerns that a global recession could slow its growth.
• Domino’s Pizza Enterprises Ltd (ASX: DMP) has seen its short interest jump to 10.7%. There are fears that cost inflation could be weighing on this pizza chain operator’s performance.
• Megaport Ltd (ASX: MP1) has seen its short interest rise to 10.6%. Short sellers will have been pleased to see this tech share crash lower last week after the release of a soft quarterly update.
• Perpetual Limited (ASX: PPT) has seen its short interest jump to 10%. A number of fund managers have been under pressure this year amid tough trading conditions.
• Lake Resources N.L. (ASX: LKE) has short interest of 9.8%, which is down slightly week on week. Short sellers have major doubts over this lithium developer’s unproven DLE technology.
• Nanosonics Ltd (ASX: NAN) has short interest of 8.3%, which is down week on week. This infection prevention company’s disruptive business model change in the key US market is causing concerns.
• Breville Group Ltd (ASX: BRG) has seen its short interest rise to 8.1%. Investors may be concerned that the uncertain economic backdrop could impact consumer spending on kitchen goods.
• Zip Co Ltd (ASX: ZIP) has returned to the top ten with short interest of 7.8%. Doubts over this buy now pay later provider’s profitability targets continue to weigh on its shares.

The post These are the 10 most shorted ASX shares 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 Betmakers Technology Group Ltd, Block, Inc., MEGAPORT FPO, Nanosonics Limited, and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended Block, Inc. and Nanosonics Limited. The Motley Fool Australia has recommended Betmakers Technology Group Ltd, Dominos Pizza Enterprises Limited, Flight Centre Travel Group Limited, and MEGAPORT FPO. 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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Looking for some dividend shares to add to your income portfolio? If you are, you may want to look at the two listed below.

Both have been rated as buys by analysts and tipped to provide investors with big dividends. Here’s what you need to know about these ASX dividend shares:

HomeCo Daily Needs REIT (ASX: HDN)

The first ASX dividend share to look at is the HomeCo Daily Needs REIT.

HomeCo Daily Needs is a growing property company that invests in convenience-based assets across the neighbourhood retail, large format retail, and health and services sub-sectors.

Goldman Sachs is a fan of the company and believes its shares are “undervalued at its current valuation given its diversified tenant base.” The broker also sees HomeCo Daily Needs’ portfolio as “well positioned to benefit from secular trends toward last-mile fulfilment offerings.”

In respect to dividends, the broker is forecasting dividends per share of 8.3 cents in FY 2023 and 8.5 cents in FY 2024. Based on the current HomeCo Daily Needs share price of $1.16, this will mean dividend yields of 7.1% and 7.3%, respectively.

Goldman has a buy rating and $1.57 price target on its shares.

Telstra Corporation Ltd (ASX: TLS)

Another ASX dividend share that has been tipped to provide income investors with a generous dividend yield is telco giant Telstra.

After battling through a difficult time over the last decade, at long last there is light at the end of the tunnel for the company and its shareholders. In fact, that light is shining very brightly after a return to growth in FY 2022.

The good news is that the company’s new T25 strategy is expected to underpin further solid growth in the coming years, which could be good news for its dividend payments.

For now, though, Morgans is expecting Telstra to continue to pay fully franked 16.5 cents per share dividends in FY 2023 and FY 2024. Based on the current Telstra share price of $3.85, this equates to yields of 4.3%.

Morgans has an add rating and $4.60 price target on the company’s shares.

The post Analysts say these top ASX dividend shares are buys right now 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 positions in and has recommended Telstra Corporation Limited. 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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When the COVID-19 pandemic first hit a couple of years ago, public transport instantly fell out of favour.

Private transport — like cars, motorbikes and scooters — saw sales surge as people around the world sought to get around without close contact with other commuters.

Businesses that supplied, manufactured and sold such vehicles did pretty well and enjoyed a tidy rise in their valuations.

But now that much of the developed world is moving into the post-pandemic era, how will they fare?

The analysts at Auscap Asset Management think that at least two automotive ASX shares have strong futures ahead of them:

‘Considerable earnings tailwind’

Eagers Automotive Ltd (ASX: APE) owns and operates a network of car dealerships in Australia and New Zealand.

The share price enjoyed a spectacular 466% rise from March 2020 to April 2021 on the back of incredible demand for private transport.

Since then the stock has cooled off, with AP Eagers shares now going for about 20% less than at the start of this year.

For the Auscap team, the market is too focused on external drivers rather than the actual business performance.

“Eagers delivered another strong half-year result in August 2022,” its memo to clients read.

“The market continues to focus on the potential for a slowdown in new vehicle orders, given the widespread expectation of a softening consumer environment, although Eagers said they had yet to see a slowdown in demand as of August.”

Pandemic-induced supply constraints have meant Eagers now has a huge backorder of vehicles yet to be delivered. And revenue is not counted until the customer is behind the wheel of their new car.

“Eagers has delivered fewer cars than it has sold in every single month since the onset of the COVID-19 pandemic,” read the memo.

“This record order bank provides Eagers with a considerable earnings tailwind for the rest of this calendar year and into 2023.”

In addition, the company has improved its business throughout the pandemic.

“Eagers has taken advantage of COVID-19 uncertainty and current earnings visibility to improve its dealership footprint with a number of acquisitions and divestments, invest in future growth initiatives such as the AutoMall concept and omni-channel used car offering known as EasyAuto123, and aggressively right-size its cost base.”

Eagers shares currently pay out a dividend yield of 5.8%.

Auscap already holds Eagers shares and has watched in glee as insiders bought up the stock in recent weeks.

“Nick Politis, the company’s 28% shareholder and a major automotive player in his own right, has purchased over $4 million worth of shares on-market since July. Chairman Timothy Crommelin and board member David Blackhall have also bought shares in recent months.”

‘Consistently grown’ market share

The Auscap team also loves the fund’s holding in MotorCycle Holdings Ltd (ASX: MTO), which operates Australia’s largest motorcycle dealership network.

The company is responsible for 12% of all new motorbike sales in the country and sells all 10 of the top-selling brands.

“While the motorcycle industry does experience cyclical swings, Motorcycle Holdings has consistently grown share through both organic and inorganic means since listing in 2016,” read the Auscap memo.

“In addition to growth, MotorCycle Holdings has been focused on diversification, which we think is underappreciated.”

This refers to the recent acquisition of “large” parts and accessories business MOJO, a “consistently profitable” finance joint venture and geographic expansion.

“MOJO is a specialist in scooters, all-terrain vehicles (ATVs) and electric motorcycles. These are categories experiencing structural market share growth where MTO has been underweight,” read the memo.

“While businesses focused purely on distribution can tend to have key supplier risk, we think MOJO has the potential to fit in well and grow strongly within a diversified MotorCycle Holdings.”

The MotorCycle Holdings share price has dipped 19.7% year to date, and currently pays a 8% dividend yield.

The $153 million company, Ausbil analysts believe, is flying “under the radar”.

“[The stock] is currently trading on just 5.6x pro-forma FY22 net profit after tax pre-synergies.

“It has net Debt/EBITDA of just 0.6x and management expects MOJO to experience strong earnings growth in FY2023.”

There is also a connection to the other auto stock, with former Eagers chief Martin Ward set to join the MotorCycle Holdings board.

Ward was at the helm of Eagers over a 15-year period when its profit before tax multiplied more than eight times.

“It is not surprising to us that the MOJO vendors took as much of their acquisition consideration as possible — 50% — in MTO stock.”

The post Vroom vroom: Fund names 2 ASX shares it loves right now appeared first on The Motley Fool Australia.

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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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There are some ASX shares that used to be staples in investor portfolios and superannuation accounts but in recent years have become stinkers.

That could be their own fault for mismanaging their business, or be caused by external factors.

One could name AMP Ltd (ASX: AMP) as an example of the former and Treasury Wine Estates Ltd (ASX: TWE) to demonstrate the latter category.

The AMP share price has lost a painful 80% over the past 4.5 years after a series of financial, governance and staffing scandals of its own making.

Meanwhile, Treasury Wine is about 33% down from its pre-COVID highs after it lost its largest export market, China. In 2020, Beijing imposed stiff tariffs on wine imports in retaliation to Canberra’s call for an independent review into the origins of the pandemic.

However, this week Montgomery Investment Management founder Roger Montgomery stunningly revealed his funds have recently bought both these stocks:

Don’t let this ASX share’s past fool you about the future

Montgomery, in his role as guest lecturer at the University of Sydney, has presented AMP to students as the prototypical example of a company that doesn’t meet the definition of “quality”.

So why did his funds buy into it just now?

“AMP is an example of a so-called ‘improving quality’ company with a strong valuation case because the potential upside is not appreciated, nor factored-in, by the market,” he said on the Montgomery blog.

“To disregard it, or write it off, on the basis of its historical performance, would be to potentially miss the future value being created under investors’ noses.”

Montgomery pointed out the “significant progress” the ASX share has made under new management since the disastrous finance industry Royal Commission.

“Management is completing the divestment of Collimate Capital (formerly AMP Capital) which will result in a strong surplus capital position,” he said.

“The advice division’s losses are less than half of those from a year ago, and it remains on target to break even by 2024.”

The speed of fund outflows from the wealth management business has also slowed. The AMP North platform is attracting new investor capital despite the tarnished AMP brand.

“AMP Bank also remains a steady contributor to group earnings with recent growth outpacing the rest of the industry,” Montgomery said.

“Elsewhere, the bank’s digital-only offering is gaining traction with new and existing customers.”

With the AMP share price tanking so much in recent years, Montgomery believes stock buyers now receive many of these businesses effectively for nothing:

With surplus capital of $2 billion, after the sale of assets, and a valuation of over $1.5 billion for the AMP Bank – based on book value – AMP’s market capitalisation of about $3.5 billion suggests shareholders are receiving the +$100 billion multi-platform AMP North business, the Australian and New Zealand advice business and a share of a Chinese asset management and pension company, for free. 

This is a different business from what it was in 2020

The tragedy of Treasury Wine Estates is so ingrained in investors’ minds that it’s now considered “a barometer for Australian-Sino relations”, according to Montgomery.

But for him, the business now has a completely different investment thesis from two years ago.

“This year, they have embarked on an expansion into the premium luxury sector with acquisitions of other premium wine labels,” said Montgomery.

“The quality of the American division’s earnings has also improved with the divestment of commoditised commercial wines, resulting in lower volume but much higher operating margins operations.”

But the catalyst for his team’s decision to buy into this ASX share recently was its Asian expansion outside of China.

“This occurred despite a virtual ban on the export of the company’s prized Penfolds brand wines, reflecting management’s distribution expertise and providing confidence in their multi-country expansion of the Penfolds brand. 

“The strategy simultaneously expands the company’s total addressable market and reduces geopolitical risk.”

He believes the reduced reliance on China has actually improved the quality of the business and provides better downside protection for investors.

“Growth options concurrent with margin expansion have the potential to grow earnings for many years above current analyst projections.”

The post Why we just bought 2 ASX 200 shares that everyone abandoned: expert appeared first on The Motley Fool Australia.

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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 recommended Treasury Wine Estates Limited. 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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