The Fortescue Metals Group Limited (ASX: FMG) share price is up 3% and the Rio Tinto Limited (ASX: RIO) share price is up 2.6% amid intriguing news of a possible link-up between the two about green hydrogen.

For readers that don’t know, Fortescue is increasingly focused on being a major green energy producer through its Fortescue Future Industries (FFI) division.

FFI wants to build a portfolio of green hydrogen production facilities around the world. It has a goal of making 15mt of green hydrogen per annum by 2030, with a further increase in the subsequent years.

Rio Tinto’s chief scientist Nigel Steward recently had a number of things to say about green hydrogen, according to reporting by the Australian Financial Review.

Steward said that hydrogen was still “prohibitively expensive” and required a “technology breakthrough” to get the cost down. He suggested that green hydrogen couldn’t be transported without hurting the environment, so Rio Tinto would only produce hydrogen where it is consumed.

While Rio Tinto’s chief scientist doesn’t see green hydrogen as an energy carrier, he suggested it could be used to make steel, iron and titanium, and in alumina refineries.

Fortescue and Rio Tinto to work together?

After that scepticism, it may be surprising to learn that Rio Tinto and Fortescue are now planning talks regarding green hydrogen.

According to reporting by the AFR, Rio Tinto boss Jakob Stausholm has contacted Fortescue’s leader Andrew Forrest to see if the two ASX iron ore shares can “find common ground on green hydrogen and its potential to replace fossil fuels.”

The two miners’ chief scientists will “meet and compare notes on hydrogen in the spirit of collaboration”.

However, at this stage, it’s uncertain if this will lead to the two businesses working together on decarbonisation. Fortescue reportedly doesn’t have a chief scientist at the moment, so FFI would be represented by leaders of the research team.

Forrest defends green hydrogen

In the face of Rio Tinto’s chief scientist’s criticism, Forrest acknowledged that hydrogen could have a “small impact” on the atmosphere and was quoted by the AFR:

He was quickly reminded that green hydrogen is not a greenhouse gas.

But that is like blaming the policeman for defending a house and saying the burglar is doing a good job. The world must go to green hydrogen and Rio Tinto, like every other responsible mining company around the world, know it has to come off fossil fuels.

Some scientists say it is harder than other scientists, but I can tell you we are just getting on and doing it.

We have a very collaborative relationship with Rio, and we want to make sure our chief scientists are singing off the same songbook.

Snapshot

Over the last month, the Fortescue share price has jumped 25% and the Rio Tinto share price has surged 19%.

The post Is this the beginning of a beautiful green hydrogen friendship between Fortescue and Rio Tinto? appeared first on The Motley Fool Australia.

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More reading

• Dividend darling becomes disappointment: What happened to Fortescue shares?
• 5 things to watch on the ASX 200 on Friday
• Is the Rio Tinto share price going to sparkle in December?
• Here are the top 10 ASX 200 shares today
• Why have 100,000 new investors been buying Fortescue shares over the past 3 years?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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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Something strange is happening with the iShares S&P 500 ETF (ASX: IVV) this week. Back on Monday, units of this exchange-traded fund (ETF) were trading for almost $600 each. But today, this ETF is going for just $39.07 per unit. It also seems to have a new ticker code.

So has this popular ASX ETF really lost almost 95% of its value this week?

The iShares S&P 500 ETF is one of the most widely-held ETFs on the ASX. It’s actually the ASX’s most popular internationally-based fund. This ETF tracks the S&P 500 Index (SP: .INX), which is the most widely tracked index in the world.

It represents the 500 largest companies on the US markets by market capitalisation. That includes everything from Apple, Microsoft, and Amazon to Exxon Mobil, Coca-Cola, and McDonald’s.

So no, this ETF hasn’t collapsed by 95% this week. If the US S&P 500 Index was down 95% in one week, we’d certainly all know about it.

Rather, this ETF has just undergone a stock split.

A stock split for the S&P 500 ETF?

A stock split occurs when a company or ETF decides to increase its share (or, in this case, unit) count. It issues new shares (or units) to existing investors, at the same time diluting the value of the existing shares out there.

This has the effect of lowering the share (or unit) price of the company or ETF, but makes up for this by giving away new shares (or units).

This can be done for a number of reasons. But most do so to boost liquidity and to make it easier for investors to buy and sell shares or units.

At the start of this week, one single unit of the iShares S&P 500 ETF would set an investor back almost $600. That makes it a rather unwieldy investment to have to deal with.

This ETF’s provider must have thought so too, because back on 23 November, BlackRock announced that the iShares S&P 500 ETF would be undergoing a 15-to-1 stock split.

That means that for every one unit of this ETF, investors now own 15. Concurrently, the unit price of this ETF has just been reduced by a factor of 15.

So if an ASX investor used to own 10 iShares S&P 500 units, worth $5,860, today, they own 150 units, each worth $39.07. Same value, different path to getting there.

So no investor has been left better, or worse off, from this split. It’s just a cosmetic change for all intents and purposes.

Is it IVV or IVVDB?

But what’s with the new ticker code? Yes, the iShares S&P 500 ETF used to trade under the code ‘IVV’. But today, the ETF has seemingly switched to ‘IVVDB’. Well, this is a temporary situation.

As we covered last week, part of the stock split process involves the ETF trading under a ‘deferred settlement’ basis. So today, the ‘IVVDB’ units represent the deferred settlement units.

This will only be in place until 13 December. That’s when the deferred settlement period will have concluded and the ETF reverts to its old ‘IVV’ code.

The IVVDB units will seamlessly be converted into IVV units when this happens. So if you’re desperate to buy the newly-split ETF today, don’t let the new code hold you back.

The post Is the iShares S&P 500 ETF (IVV) really down 95% today? appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Amazon.com, Apple, Coca-Cola, McDonald’s, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon.com, Apple, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Amazon.com, Apple, and iShares S&p 500 ETF. 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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Fortescue Metals Group Limited (ASX: FMG) shares used to be an S&P/ASX 200 Index (ASX: XJO) dividend favourite.

Indeed, the stock was trading with a whopping 19.6% trailing dividend yield this time last year. However, that figure has plunged alongside its 2022 offerings.

Fortescue shares provided investors with $3.58 in dividends last year. This year, they’ve handed out just $2.07 apiece – leaving the stock with a 9.6% yield.

Indeed, the iron ore giant’s dwindling dividends were the biggest impact driving Australia’s total offerings 13% lower last quarter, according to the latest Janus Henderson Global Dividend Index. Let’s take a look at what’s been going wrong.

Fortescue shares disappoint dividend fans

This year has likely been a rough one for dividend-focused Fortescue shareholders.

The company was the world’s fourth-largest dividend payer in the September quarter of 2022. Fast forward 12 months and it has slipped to unlucky number 13.

The biggest impact driving down its dividends? Lower metals prices.

As an iron ore producer, the company’s bottom line is nearly entirely dependent on the steelmaking ingredient’s value. Unfortunately, that tumbled last financial year.

The miner posted an average realised iron ore price of US$99.80 per dry metric tonne over the 12 months ended 30 June. That was down from US$135.32 over the previous 12 months.

As a result, Fortescue’s basic earnings per share (EPS) slumped 38% to $2.77. As dividends are generally paid out of a company’s profits, falling earnings likely caused it to drop its payouts by 42% year on year.

Silver lining?

It’s important to note there is, of course, a silver lining to the stock’s dividend debacle. Its yield has not only been weighed down by its smaller offerings, but also its rising share price.

The Fortescue share price has gained 17% over the last 12 months to trade at $21.44 today.

For comparison, the S&P/ASX 200 Index (ASX: XJO) has fallen 2% in that time while the S&P/ASX 200 Materials Index (ASX: XMJ) has lifted 14%.

The post Dividend darling becomes disappointment: What happened to Fortescue shares? appeared first on The Motley Fool Australia.

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• 3 top ASX 200 dividend shares I think are bargain buys right now
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• 5 things to watch on the ASX 200 on Thursday

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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The market may be climbing higher again today but the same cannot be said for the lithium industry.

Once again on Friday, the ASX 200 lithium shares are under pressure and dropping into the red.

Here’s a summary of how they are performing today:

• The Allkem Ltd (ASX: AKE) share price is down 2.5%
• The Core Lithium Ltd (ASX: CXO) share price is down 4%
• The Liontown Resources Ltd (ASX: LTR) share price is down 4%
• The Pilbara Minerals Ltd (ASX: PLS) share price is down 1%

Why are ASX 200 lithium shares being sold off?

Investors have been hitting the sell button this week after Goldman Sachs warned that lithium prices could be heading materially lower from the second half of next year.

As covered here, the broker is forecasting the following for lithium prices:

• Lithium carbonate
  • 2022 US$59,331
  • 2023 US$53,300
  • 2024 US$11,000
  • 2025 US$11,000
• Lithium hydroxide
  • 2022 US$67,240
  • 2023 US$58,015
  • 2024 US$12,500
  • 2025 US$12,500
• Spodumene 6%
  • 2022 US$4,233
  • 2023 US$4,330
  • 2024 US$800
  • 2025 US$800

Why might lithium prices crumble?

While Goldman expects lithium demand to grow strongly, it is forecasting supply to grow even quicker. This is expected to lead to an oversupply of the white metal by 2025. At that point, the broker expects global lithium demand to be ~1,300kt LCE but lithium production to hit ~1,700kt LCE.

Goldman expects this to be driven by a large increase in production both inside and outside of China. It explained:

Over the last two years, we have seen an increasingly supportive policy environment for electric vehicles from extended subsidies in China to the Inflation Reduction Act in the US which is supporting supply growth through joint ventures between OEM’s (original equipment manufacturers) and junior miners. We estimate ex-China lithium supply to grow 48% vs. a Chinese supply growth of 37%, which combined will add 221kt LCE of supply over 2023 and then 312kt in 2024.

The post Why are ASX 200 lithium shares taking another beating on Friday? appeared first on The Motley Fool Australia.

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• Core Lithium share price falls after being hit with sell rating from Goldman Sachs

Motley Fool contributor James Mickleboro has positions in Allkem. 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 Warrego Energy Ltd (ASX: WGO) share price has come off the boil as it appears the ongoing takeover battle for the company’s stock may have drawn to a close.

Shares in the ASX energy stock are down 3.3% in morning trade to 29.5 cents per share.

The Warrego Energy share price has leapt 30% over the past two weeks amid a bidding war as Beach Energy Ltd (ASX: BPT) and Gina Rinehart’s Hancock Energy have sought to gain controlling ownership of Warrego’s gas assets.

Earlier this week Strike Energy Ltd (ASX: STX) tossed its hat into the ring as well, reporting it was increasing its shareholding in Warrego to 19.9%.

Here are the latest developments.

What’s happening with the takeover battle?

The Warrego Energy share price is in the red after Beach reported it does not intend to match the revised Hancock takeover offer. Hancock had earlier lifted its offer from 23 cents per share to 28 cents per share.

The Warrego board noted that in the absence of a superior proposal it’s withdrawn its prior recommendation favouring the revised Beach scheme proposal. The board now “unanimously recommends that Warrego shareholders accept the Hancock takeover offer”.

At 28 cents per share, that’s 5% below the current Warrego Energy share price.

Addressing Strike Energy’s 19.9% ownership, the board said:

This increase in Strike’s percentage ownership of Warrego does not impact the availability of the revised Hancock takeover offer, which … is not subject to any minimum acceptance condition.

Commenting on the decision, Beach CEO, Morné Engelbrecht said:

The multiple party bidding process for Warrego has reinforced our view of the value of our dominant acreage position in the Perth Basin and encourages us to expand our current active exploration drilling program in one of the most exciting gas plays in Australia.

Warrego Energy share price snapshot

The Warrego Energy share price, shown in the chart below, has soared 143% in 2022. That compares very favourably to the 7% year to date loss posted by the All Ordinaries Index (ASX: XAO).

The post Warrego Energy share price slides as Hancock takeover offer trumps Beach appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Friday
• 5 things to watch on the ASX 200 on Thursday
• Why Coronado, GQG, Patriot Battery Metals, and Strike shares are pushing higher
• Why Beach, Bellevue Gold, Block, and Brainchip shares are dropping
• Why is Clough’s collapse wreaking havoc on the Beach Energy share price?

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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Now is a great time to look at S&P/ASX 200 Index (ASX: XJO) dividend shares in my opinion, as some have been hit by volatility in 2022.

Higher interest rates hurt the valuations of riskier assets because they appear less appealing than a stronger income return from ‘safe’ government bonds or term deposits.

While share markets have been recovering in the last couple of months, I think there are still plenty of investment opportunities. Here’s why I think the ASX shares below could be bargains.

Centuria Industrial REIT (ASX: CIP)

This real estate investment trust (REIT) is the largest Australian pure-play ASX-listed industrial property owner.

Since the beginning of 2022, the Centuria Industrial REIT share price has dropped more than 23%, which has had the impact of boosting the potential distribution yield.

It’s expecting to pay a total distribution of 16 cents per unit in FY23, which translates into a forward distribution yield of around 15%.

The ASX property share recently said that its pro forma net tangible assets (NTA) per unit was $4.11 after valuations were done for 31 December 2022.

Centuria Industrial REIT’s share price is at a 22% discount to this figure, though I wouldn’t be surprised to see the NTA decline again a little in another six months.

Jesse Curtis, the Centuria Industrial REIT fund manager, said that rental growth was offsetting higher interest rates for the ASX 200 dividend share:

Occupier demand for industrial property remains strong with low vacancy and limited supply continuing to drive rental growth across industrial markets. While capitalisation rates have widened, this has been substantially offset by the value of Centuria Industrial REIT leasing success and growth in market rent with the portfolio value reducing modestly.

Sonic Healthcare Ltd (ASX: SHL)

Sonic Healthcare is a leading global healthcare pathology company. It has a large presence in several countries, including Australia, the United Kingdom, the United States and Germany.

The Sonic Healthcare share price is down 34% in the year to date, and it’s close to a 52-week low.

While COVID-19 testing has significantly reduced, the ASX healthcare share is still making quite a lot of money from the procedure – which I see as extra earnings. In October 2022, the company’s COVID-19 testing revenue amounted to $57.7 million. This money can be used to make acquisitions or increase shareholder returns, such as a share buyback.

The base business revenue – which excludes COVID testing – saw a 6.7% revenue growth in the first four months of FY23.

With a “progressive dividend policy”, the ASX 200 dividend share is projected to pay a grossed-up dividend yield of 4.7% in FY23, according to Commsec numbers.

JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi is a leading electronics retailer with stores in Australia and New Zealand. The company also owns The Good Guys.

It’s logical to think people are less likely to buy new gadgets during a downturn. But, I believe items like smartphones and computers are unlikely to see a big decrease because of how integral they now are for communication, work, entertainment and education. So, the company’s sales could hold up quite well, in my opinion.

The JB Hi-Fi share price has sunk 20% since its peak in March 2022.

Trading continues to be strong for the ASX 200 dividend share. In the first quarter of FY23, sales for each of its divisions were up by at least 12%. And I think the business can continue to generate strong earnings and pay solid dividends in the coming period.

According to Commsec, JB Hi-Fi is projected to pay a grossed-up dividend yield of 8.5% in FY23.

The post 3 top ASX 200 dividend shares I think are bargain buys right now appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Jb Hi-Fi and Sonic Healthcare. 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 Westpac Banking Corp (ASX: WBC) share price fell slightly in November, but could December be a better month?

Westpac shares fell 1.4% in November to close the month at $23.77. For perspective, the benchmark S&P/ASX 200 Index (ASX: XJO) climbed 6.1% in November.

Let’s take a look at the outlook for the Westpac share price in December.

What’s going on at Westpac?

The ASX bank share had one major announcement that appeared to impact its share price in November. On 7 November, the Westpac share price slid 4% on the back of the company’s full-year results.

The bank’s cash earnings fell 1% to $5.276 million in the 12 months ending on 30 September. However, despite this, the board still declared fully franked dividends of $1.25 per share . The bank’s net interest margin fell 17 basis points to 1.87%.

However, overall, Westpac shares have still climbed 10% year to date.

Meanwhile, the team at Morgans has named Westpac among the best ASX share ideas for December.

Analysts said they view Westpac as having “the greatest potential” for return on equity improvement among the major banks, provided its business transformation initiatives are successful. Morgans added:

The sources of this improvement include improved loan origination and processing capability, cost reductions (including from divestments and cost-out), rapid leverage to higher rates environment, and reduced regulatory credit risk intensity of non-home loan book.

Yield including franking is attractive for income-oriented investors, while the ROE improvement should deliver share price growth.

Morgans has placed an add rating on the Westpac share price with a $25.80 price target. Its shares are currently swapping hands for $23.44 apiece.

Goldman Sachs has a buy rating on the Westpac share price despite the lower net interest margin (NIM) in FY22. The broker said:

While on the surface, the FY22 result suggested WBC’s NIM leverage was underwhelming relative to some peers, we think 2H22 was adversely impacted by late-in-the-half liquidity build, and management’s guidance on its FY23 NIM trajectory was better than we had previously anticipated.

What else?

The Reserve Bank of Australia lifted the official cash rate by a further 0.25% to 3.10% earlier this week. Following this announcement, Westpac announced it would increase its home loan variable interest rates by 0.25% for new and existing customers from 20 December.

Commenting on the impact of inflation and interest rates on the bank’s approach to capital management in The Australian this week, Westpac CEO Peter King said:

When I think about the bank, we’ve built our capital levels and we’ve got good liquidity buffers — so the bank is in really good shape heading into 2023, where we expect growth to slow.

We’re in a good position to help customers get through some of the challenges that the current environment is producing.

Share price snapshot

The Westpac share price has risen nearly 12% in the last year.

For perspective, the ASX 200 has fallen around 3% over the past 12 months.

Westpac has a market capitalisation of about $81.5 billion based on the current share price.

The post After sliding into the red last month, what’s the outlook for the Westpac share price in December? appeared first on The Motley Fool Australia.

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More reading

• 3 passive income ASX 200 dividend shares that can help make you richer
• Morgans names 2 more of the best ASX shares to buy in December
• 5 things to watch on the ASX 200 on Tuesday
• Will the RBA raise rates again next week? Here’s what Westpac expects
• Buy Westpac and this ASX dividend share: broker

Motley Fool contributor Monica O’Shea 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 Westpac Banking. 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 Downer EDI Ltd (ASX: DOW) share price is under pressure again on Friday.

In morning trade, the engineering and construction company’s shares are down a further 7% to $3.54.

This means the Downer share price is now down 26% over the last two trading sessions and 40% since this time last year.

Why is the Downer share price being sold off?

Investors have been selling off Downer’s shares this week after the company revealed that it has identified historical misreporting of its Australia utilities business’ revenue and work in progress in one of its maintenance contracts.

According to the release, the company estimates that this misreporting could result in a historical overstatement of pre-tax earnings of between $30 million and $40 million.

What else?

Another disappointment that has put pressure on the Downer share price was the scrapping of its guidance for FY 2023 for unrelated matters.

Downer’s CEO and managing director, Grant Fenn, revealed that “the challenge for the last seven months of [FY 2023] has become too large” to achieve its profit growth guidance of 10% and 20%.

Fenn advised that its “road services and utilities businesses have been heavily impacted by weather” and its “businesses have been battling with staff shortages and supply chain issues.”

In other news, this morning Macquarie responded to the update by downgrading Downer’s shares to a neutral rating and slashed its price target to $4.05.

The post Carnage continues for Downer share price on Friday appeared first on The Motley Fool Australia.

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• Why Core Lithium, Downer, Link, and Renascor shares are dropping today
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Medibank Private Ltd (ASX: MPL) share price is in the red on Friday amid news the company will be shutting down its systems to undertake a cybersecurity overhaul this weekend.

The company famously suffered a cyberattack in October that saw criminals take off with the personal – and often sensitive – data of 10 million Australians.

The Medibank share price is $2.975 right now, 0.17% lower than its previous close.

For comparison, the S&P/ASX 200 Index (ASX: XJO) is up 0.38% at the time of writing – spending its first morning in the green since Monday.

Let’s take a closer look at the latest from the private health insurance company.

Medibank share price slumps amid cyber shutdown news

The Medibank share price is defying the market’s gains this morning.

Meanwhile, the company is preparing to take its Medicare and ahm systems offline from 8:30pm AEDT tonight to strengthen its security protections and undertake maintenance. Its retail stores and customer contact centre will also close on Saturday.

It clarified there’s been no suspicious activity detected since 12 October and the company apologised for any inconvenience caused by this weekend’s works. Continuing:

This is the next necessary phase of our ongoing work to further safeguard our network, called ‘Operation Safeguard’.

Since the cybercrime we have bolstered existing monitoring, added further detection and forensics capability across the Medibank system and network, and have scaled up analytical support via specialist third parties.

IT security experts from Microsoft will be onsite at the company’s Melbourne headquarters to complete the operation, which has been in the planning stages for several weeks.

Latest on Medibank data hack

Medibank is also continuing to analyse stolen data the group behind its cyberattack published to the dark web.

It confirmed the number of customer files impacted by the breach remains the same. It will soon begin to contact customers who had limited provider related data made public, such as provider number, admission date and discharge date.

The Medibank share price is still 16% lower than it was before news of the attack broke. It is also down 14% year to date and 11% over the last 12 months.

Comparatively, the ASX 200 has dropped 5% in 2022 and 2% since this time last year.

The post Medibank share price slumps ahead of major shutdown and cybersecurity overhaul appeared first on The Motley Fool Australia.

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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 positions in and has recommended Microsoft. 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 returns you can generate from investing in the right ASX penny stock can be huge. However, the trade-off is that these types of investments can be very risky.

One penny stock that I believe offers a compelling risk/reward for investors over the long term is Arafura Rare Earths Ltd (ASX: ARU).

It is the rare earths developer behind the Nolans Project in the Northern Territory.

The company notes that this globally significant and strategic project is underpinned by low-risk mineral resources that have the potential to supply a significant proportion of the world’s neodymium and praseodymium (NdPr) demand. Once developed, Nolans will become a major supplier of these critical minerals to the high-performance neodymium magnet (NdFeB) permanent magnet market.

The NdFeB permanent magnet market is the largest market for NdPr oxide, and Arafura’s product mix is ideally suited to meet demand from leading magnet producers in Japan and China, as well as automotive and wind turbine end users in Europe, Japan, Korea and the USA.

Why could this be a penny stock to buy?

I think Arafura Rare Earths could be a great long-term option due to the growing demand for NdPr and the lack of supply. In 2020, the total global supply of NdPr oxide was 46,000 tonnes. To meet projected demand in 2030, global supply for NdPr oxide needs to expand by a further 52,000 tonnes.

The company notes that this increasing demand is being driven by the permanent NdFeB magnets market. These magnets typically contain up to 30% NdPr metal and are shaping the future of the automotive and wind power energy generation industries.

In respect to the automotive industry, maturing powertrain technologies in the sector are driving growth for permanent magnet electric motors used in hybrid EVs (HEV) and battery EVs (BEV). This is being supported by leading automotive manufacturers across the world increasingly avoiding traditional petrol and diesel combustion engines for more efficient and cleaner HEV and BEV alternatives.

A testament to this is that Arafura has already signed agreements with Hyundai and Kia for almost half of its planned annual production that will be made available on long-term sale arrangements.

Recent capital raising

One of the reasons why I think now is a good time to buy Arafura shares for the long term is the company’s strong balance sheet following its recent capital raising.

Earlier this week, Arafura received firm commitments for a $121 million placement to accelerate the Nolans Project development schedule. This will see the company’s construction program kick off in 2023, which means production isn’t too far off.

It is also worth noting that mining magnate Gina Rinehart took part in this capital raising. Her Hancock Prospecting business put $60 million into the placement, which leaves it with a 10% shareholding.

Given Rinehart’s track record, I wouldn’t bet against her on this penny stock.

The post One ASX penny stock I’d buy for 2023 and hold for a decade appeared first on The Motley Fool Australia.

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More reading

• 5 ASX shares involved with rare earths (aside from Lynas)
• Why Arafura, Mayne Pharma, Pilbara Minerals, and Tyro shares are dropping today
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• Why is the Arafura Rare Earths share price on hold today?
• Why is the Arafura share price crashing 9% today?

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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