The Sezzle Inc (ASX: SZL) share price is soaring by as much as 22% today after the buy now, pay later (BNPL) company released a positive business update.

At the time of writing, the ASX All Ords share is trading for 63 cents. This is just a tad beneath its intraday high of 66 cents, which reflects a 22.22% bump on yesterday’s closing price of 54 cents.

Sezzle’s good news is also pushing up other ASX BNPL shares today. At their intraday peaks, the Zip Co Ltd (ASX: ZIP) share price was 21.4% higher and the Splitit Ltd (ASX: SPT) share price lifted by 14.3%.

By comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) is down 0.35% at the time of writing.

What news is rocketing this ASX All Ords share higher?

Sezzle’s October business update released today revealed an 18% boost to income year over year.

In its statement, the company said “significant progress continues to be made towards profitability”.

Sezzle reaffirmed that it was on track to successfully deliver US$60 million in annualised revenue and cost savings over 1Q FY23.

The company raked in US$11.5 million in October, up 8.7% on the month prior. That’s a new high as a percentage of underlying merchant sales (UMS).

UMS is used as a measure of Sezzle’s revenue because charging merchant fees is one way it makes money. UMS came in at 7.8% in October — a 190 basis points lift year over year.

The net loss for October was US$1.5 million, compared to an average monthly net loss of US$8.6 million over the fourth quarter of FY21.

The adjusted EBTDA for October was negative US$200,000, compared to an average monthly adjusted EBTDA of negative US$8.2 million in Q4 FY21.

What did management say?

Charlie Youakim, Sezzle chair and CEO, said:

Our path to profitability is not just about cost cutting, but also growing revenue. October was the Company’s second-best performance ever, in terms of revenue.

We are looking forward to the upcoming holiday season and expect to reach new highs in top line performance.

We are even more excited about 2023, as we expect to turn the corner in profitability and launch additional revenue generating and cost savings initiatives beyond the US$60.0M announced in 2022.

Sezzle is targeting profitability in 2023. Chief competitor Zip has similar goals, aiming to be cash flow positive by the first half of FY24.

Sezzle and Zip mutually agreed to call off their proposed merger earlier this year.

Pending headwind for BNPL shares?

Some BNPL shares did not receive as much of a kick today. At the time of writing, Humm Group Ltd (ASX: HUM) shares are up 1.82% and Block Inc CDI (ASX: SQ2) shares are up 0.61%.

As we reported earlier, the BNPL sector is awaiting the release of a federal government options paper, which will propose three new models for tighter regulation of the fast-growing industry.

New regulations may present challenges for ASX All Ords shares in the BNPL space. This is because investors generally assume that greater regulation on any business will have a negative impact.

The post Guess which ASX All Ords share is leaping 22% on ‘significant progress towards profitability’ appeared first on The Motley Fool Australia.

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More reading

• Up 18% today: Can the Zip share price really fight City Hall?
• Here are the 10 most shorted ASX shares
• Why Accent, Block, Core Lithium, and Fortescue shares are pushing higher
• 8 All Ords shares that soared 10% or more today
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Bronwyn Allen has positions in ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Humm Group 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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If you’re looking to get in on the upcoming WAM Leaders Limited (ASX: WLE) dividend, time is running short.

The listed investment company (LIC) trades ex-dividend tomorrow, 17 November.

WAM Leaders dividend up 14% from last year

WAM Leaders’ board declared a 4 cent per share interim dividend and a 4 cent per share final dividend in FY 2022. Shareholders received the interim dividend on 29 April. The final dividend will be paid out two weeks from today, on 30 November.

But as we said, WAM trades ex-dividend tomorrow. So in order to pocket that income, investors will need to own shares before today’s closing bell.

The 8 cent per share total, fully franked dividend payout to longer-term shareholders this year represents a record payout and a 14.3% lift from the prior year. At the current share price of $1.55 this represents a 5.2% trailing yield.

WAM Leaders was able to make the record full-year and interim dividend payments after it delivered record investment outperformance in FY 2022. The LIC’s gross portfolio return over the financial year came in at 9.7%, which beat the S&P/ASX 200 Accumulation Index (ASX: XJOA) by a record 16.2%.

This came despite a year of significant market volatility. Or perhaps because of it.

According to WAM Leaders lead portfolio manager of Matthew Haupt, “We welcome periods of uncertainty and volatility, and expect inflection points over the coming year will present further opportunities for our shareholders.”

WAM Leaders share price snapshot

Atop its juicy dividend offer, the WAM Leaders share price has gained 4.2% in 2022. That compares to a 7.6% loss posted by the All Ordinaries Index (ASX: XAO).

The post Keen to pocket the next WAM Leaders dividend? You’d better hurry appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 200 shares that could be too cheap to ignore: fund manager
• Opportunities across the mining sector: Expert names ASX 200 shares to buy

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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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a decline. At the time of writing, the benchmark index is down 0.4% to 7,115.2 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

Aristocrat Leisure Limited (ASX: ALL)

The Aristocrat share price is down 5.5% to $35.74. This follows the release of the gaming technology company’s full year results. Aristocrat reported operating revenue growth of 17.7% to $5,573.7 million and NPATA growth of 27.1% to $1,099.3 million. Goldman Sachs notes that the result was “in line with street; [but] ANZ gaming impacted by supply chain.”

Commonwealth Bank of Australia (ASX: CBA)

The CBA share price is down over 2% to $104.18. This morning, the team at Credit Suisse responded to the banking giant’s first quarter update by downgrading its shares to an underperform rating with a $97.50 price target. Its analysts appear to believe that CBA’s net interest margin improvements will be offset by rising costs.

Core Lithium Ltd (ASX: CXO)

The Core Lithium share price is down a further 4.5% to $1.50. Investors have been selling Core Lithium and other lithium shares over the last couple of sessions amid concerns over demand for the battery making ingredient in China. This follows a note out of Credit Suisse which highlights that a major cathode producer is believed to have slashed production targets.

GrainCorp Ltd (ASX: GNC)

The GrainCorp share price is down almost 3% to $7.77. This is despite the grain exporter releasing its full year results and reporting stellar earnings and dividend growth. Investors may be concerned by the company’s outlook statement. Management warned that heavy rainfall was impacting east coast production.

The post Why Aristocrat, CBA, Core Lithium, and GrainCorp shares are dropping today appeared first on The Motley Fool Australia.

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More reading

• This ASX 200 company just supersized its dividend by 200% So, why is its share price falling?
• CBA share price drops on bearish broker notes
• Can ASX lithium shares really keep dining out at these price levels?
• Are Core Lithium shares suddenly on the nose?
• The future of ASX lithium shares: Are investors looking through rose-coloured glasses?

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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It has been an exceptionally good week to own Fortescue Metals Group Limited (ASX: FMG) shares. How good? Well, the Fortescue share price was sitting at $16.73 a week ago. Today, it is up to $19.83 at the time of writing.

That’s a gain worth a whopping 18.5%, including the 2% or so Fortescue has gained today. It’s not often you see a $60 billion ASX share move 18% in just five trading days.

But it gets better. Fortescue has been on a bit of a tear all month. Since the start of November, the iron ore miner is up a rather incredible 34%. Yep, on 31 October, Fortescue was just $14.70 a share.

So what on earth is going on here that has propelled Fortescue shares so dramatically higher in just the past week?

Well, it seems that one word could sum it up: China.

Fortescue share price lights up amid China rumours

There have been a few developments out of China that have turbocharged investors’ appetite for iron ore miners like Fortescue. As we covered on Monday, China has recently announced a relaxation of COVID travel rules. Quarantine times have been reduced for both inbound travellers and close COVID contacts.

Investors have been eagerly awaiting a sign that China might be preparing to relax its strict (and growth-stalling) ‘zero-COVID’ policies now that the Chinese Communist Party leadership elections are over. This could be a sign this is underway.

Further, as my Fool colleague James covered this week, the Chinese government is also reportedly extending more financial support to its struggling property sector. This sector of the Chinese economy has been partly responsible for the massive demand for iron ore and other commodities that we’ve seen from China in recent years. So this is another potentially positive factor for Fortescue.

All of this good (at least for iron ore miners) news coming out of the world’s second-largest economy is probably what has propelled Fortescue shares higher over the past week. We’ll have to wait and see what happens next for Fortescue and the other big ASX miners.

The post Why has the Fortescue share price leapt 18% in a week? appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Why Accent, Block, Core Lithium, and Fortescue shares are pushing higher
• Why are ASX 200 mining shares going nuts on Monday?
• Are ASX share investors getting their mojo back?
• Fortescue share price surges 9% amid Asian green steel plans

Motley Fool contributor Sebastian Bowen 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 S&P/ASX 200 Index (ASX: XJO) is out of form on Wednesday. In afternoon trade, the benchmark index is down 0.3% to 7,117.9 points.

Four ASX shares that aren’t letting that hold them back today are listed below. Here’s why they are charging higher:

Arafura Rare Earths Ltd (ASX: ARU)

The Arafura share price has jumped 14% to 40 cents. This appears to have been driven by an announcement yesterday afternoon. That announcement revealed that the Mining Management Plan (MMP) for its 100% owned Nolans Neodymium-Praseodymium (NdPr) project has been approved by the Northern Territory Government.

Nufarm Ltd (ASX: NUF)

The Nufarm share price is up 7% to $5.80. Investors have been buying this agricultural chemicals company’s shares following the release of its full year results. Nufarm reported a 24% increase in EBITDA to $447 million on revenue of $3.8 billion. The company also spoke positively about FY 2023 and revealed that it is on track to meet or exceed its FY 2026 revenue aspirations.

Pilbara Minerals Ltd (ASX: PLS)

The Pilbara Minerals share price is up 2.5% to $4.95. This morning this lithium miner unveiled its capital management framework. Pilbara Minerals advised that from FY 2023, it intends to pay out 20% to 30% of its free cash flow as dividends.

Whitehaven Coal Ltd (ASX: WHC)

The Whitehaven Coal share price is up 7% to $8.80. This follows a strong rise by the Nymex coal price overnight. In other news, this morning the company revealed that one of its directors has just bought ~$1.2 million worth of shares via an on-market purchase. Whitehaven Coal’s non-executive director, Raymond Zage, picked up 150,000 shares for an average of $8.24 per share.

The post Why Arafura, Nufarm, Pilbara Minerals, and Whitehaven Coal are charging higher appeared first on The Motley Fool Australia.

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More reading

• Why is the Whitehaven share price whizzing 7% higher today?
• Can ASX lithium shares really keep dining out at these price levels?
• The future of ASX lithium shares: Are investors looking through rose-coloured glasses?
• Guess which ASX 200 share just upped its full-year dividend by 150%
• Pilbara Minerals share price higher on maiden dividend news

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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Looking to buy BHP Group Ltd (ASX: BHP) shares? You might be interested to learn of rumours regarding a potential $2 billion asset sale. Making the whispers more interesting, other ASX miners could be waiting in the wings to snap up the discarded assets.

Right now, the BHP share price is 0.8% higher at $44.29.

For comparison, the S&P/ASX 200 Index (ASX: XJO) has dropped 0.41% today while the S&P/ASX 200 Materials Index (ASX: XMJ) is up 0.74%.

Let’s take a closer look at the $2 billion sale apparently on the table at the iron ore giant.

Own BHP shares? The miner may be considering a $2b sale

Plenty of eyes are likely on BHP shares today amid rumours the company is gearing up to offload two of its coal mines.

The mining goliath is understood to have tapped UBS to sell its Blackwater and Daunia coal mines, The Australian reports.

Both mines are located in Queensland’s Bowen Basin and are said to collectively command a $2 billion valuation.

It follows the potentially US$1.35 billion sale of its 80% interest in BHP Mitsui Coal earlier this year. That business was snapped up by All Ordinaries Index (ASX: XAO) coal producer Stanmore Resources Ltd (ASX: SMR).

The publication claims the potential sale of the two Queensland mines could mark another step in BHP’s spin towards the energy transition.

Meanwhile, shares in BHP takeover target OZ Minerals Limited (ASX: OZL) are in a trading halt today pending news of a “change of control transaction” for the copper miner. All eyes will likely be on the ASX 200 miners as the market waits to hear more juicy details in coming days.

The potential sale of the Blackwater and Dauina mines was recently anticipated by Glenmore Asset Management’s Robert Gregory. The fundie wrote, via Livewire, earlier this month:

We believe it is likely that BHP will also look to divest its Daunia and Blackwater mines at some stage and [Stanmore Resources] would be a strong candidate for both.

It’s also worth noting Stanmore’s Poitrel mine is mere kilometres from BHP’s Dauina mine.

ASX 200 coal stock Coronado Global Resources Ltd (ASX: CRN) has also been flagged by media as a potential buyer. Its Curragh complex is located nearby the Blackwater mine.

The post Looking to buy BHP shares? Here’s why the miner could be in for a $2b windfall appeared first on The Motley Fool Australia.

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More reading

• Despite surging 9% in a week, are BHP shares still cheap?
• OZ Minerals share price halted amid possible new BHP takeover bid
• 2 ASX dividend giants to buy now: brokers
• How I’d aim to generate a growing passive income from dividend shares
• Why are ASX 200 mining shares going nuts on Monday?

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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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.

Some of the most critical questions any investor can ask before buying a stock center on its profit margin. As a rough rule of thumb, it’s usually a good idea to look at stocks with rising margins and avoid those with margins in decline.

Let’s find out why by looking at two market-beating stocks. Illinois Tool Works (NYSE: ITW) and Honeywell International (NASDAQ: HON) have increased more than 250% over the last decade compared to the S&P 500‘s increase of 183%.

Two key benefits of rising margins

The first benefit is somewhat obvious, but the second might come as a surprise. They both relate to margins and their impact on valuation. 

• Rising profit margins, provided revenue keeps growing, mean more profit, which usually means a higher valuation.
• Rising profit margins encourage investors to pay a higher multiple for the stock, leading to higher valuations. 

These arguments are demonstrated in the charts below. Here’s how the two companies have raised operating profit margins over the last decade. 

Data by YCharts.

Here’s a look at how the market has demonstrated a willingness to pay higher multiples for the stocks. The multiple used here is enterprise value (market cap plus net debt) to earnings before interest, taxation, depreciation, and amortization (EBITDA). It’s a commonly used valuation method that factors in debt. 

Data by YCharts

However, it’s not a hard and fast rule. For example, highly cyclical stocks like Caterpillar (NYSE: CAT) can have wildly fluctuating revenue and margins due to the vagaries of the construction, mining, and energy markets and copper. Still, the case for buying Caterpillar’s stock is based on rising profit margins. Caterpillar’s margins will hopefully trend upwards over time while fluctuating on the way. In Caterpillar’s case, it primarily comes down to management’s efforts to expand its higher-margin services revenue. 

Data by YCharts..

Illinois Tool Works and Honeywell

The two companies took different routes to raise their profit margins. Since CEO Scott Santi took over in 2012, Illinois Tool Works has been driven to improve margins through the execution of its enterprise strategy. Its initiatives within the strategy emphasize focusing on markets and product lines where it has an advantage, and practicing its “80/20 front-to-back” practices.

The latter involves a customer-led focus on the 20% of its customers that generates 80% of its revenue and refining its competitive strategy based on feedback from customers. It may sound like simple blocking and tackling, but it’s been good enough to help improve the operating profit margin from 15.9% in 2012 to to around 24% in 2022.

For Honeywell, it’s more a case of investing in growth businesses and “breakthrough” initiatives that give it differentiated products with real pricing power. Examples include quantum computing, airplane Wi-Fi, warehouse automation, building controls, IoT sensors, systems for air taxis and cargo drones, and a host of sustainable technology solutions. In a year of high inflation, it’s imperative to be able to raise prices to offset costs and grow margins. Honeywell is doing just that in 2022, with its prices up 9% year to date , and the company is set to raise its profit margin again this year.

Buy stocks with companies that have rising margins

The examples of Honeywell and Illinois Tool Works highlight the importance of buying stocks with rising margins and a plan or business model to raise margins. 

Similarly, stocks that aren’t raising margins (with the notable caveat of cyclical stocks and very early growth stocks) are worth avoiding. It’s the key metric to look for when appraising a stock.                    

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

The post The key metric investors should watch for every stock appeared first on The Motley Fool Australia.

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More reading

• This ASX 200 company just supersized its dividend by 200% So, why is its share price falling?
• Despite surging 9% in a week, are BHP shares still cheap?
• Buffett buys up big amidst recession fears. One cheap ASX share I’m backing, plus why I’m dissatisfied despite a huge one-day windfall
• Up 18% today: Can the Zip share price really fight City Hall?
• Here’s the Wesfarmers dividend forecast through to 2025

Lee Samaha has positions in Honeywell International. 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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The GrainCorp Ltd (ASX: GNC) share price has taken a tumble on Wednesday.

In afternoon trade, the grain exporter’s shares are down 3% to $7.73.

This puts the GrainCorp share price among the worst performers on the ASX 200 index today.

Interestingly, this decline comes despite the company releasing its FY 2022 results today and supersizing its dividend.

The GrainCorp dividend

This morning, GrainCorp released its full year results and revealed a 174% increase in net profit after tax to $380 million. This was driven by a 127% increase in Agribusiness operating earnings to $624 million and a 63% lift in Processing operating earnings to $127 million.

In light of this strong performance, the GrainCorp board declared a fully franked final dividend of 14 cents per share and a special dividend of 16 cents share.

This took the company’s dividends to a total of 54 cents per share for FY 2022, which is a whopping 200% increase on FY 2021’s 18 cents per share dividend.

Eligible shareholders can look forward to being paid GrainCorp’s final and special dividends next month on 14 December.

So why is the GrainCorp share price falling?

The weakness in the GrainCorp share price today appears to have been driven by management’s outlook commentary.

Although its CEO, Robert Spurway, believes “GrainCorp is well positioned for the new financial year,” he warned that heavy rainfall has been impacting operations on the East Coast of Australia. (ECA).

He notes that “heavy rainfall across large parts of ECA has delayed the harvest by several weeks and continues to present challenges for growers, their communities and local businesses.”

In addition, Spurway highlighted that “flooding will impact both yield and quality in parts of ECA” and that “exceptional margins achieved in the first half of FY22 moderated in the second half.”

All in all, investors appear doubtful that GrainCorp will be able to build on this result in FY 2023 and are now expecting a sizeable earnings and dividend decline.

The post This ASX 200 company just supersized its dividend by 200% So, why is its share price falling? appeared first on The Motley Fool Australia.

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More reading

• GrainCorp share price falls despite soaring earnings and dividend
• Here are the top 10 ASX 200 shares today
• Why Graincorp, Nanosonics, NextDC, and Readytech shares are racing higher
• Here are the top 10 ASX 200 shares today
• Wheat woes: Why the Graincorp share price is charging 8% to the upside 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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BHP Group Ltd (ASX: BHP) shares are up 1.34% in afternoon trade, currently priced at $44.53 per share.

BHP shareholders have enjoyed a positive five days of trading, with the S&P/ASX 200 Index (ASX: XJO) mining stock up 9.64% since this time last week.

Materials stocks have broadly outperformed over the week, which sees the S&P/ASX 200 Materials Index (ASX: XMJ) up 7.3% compared to the 2.2% gain posted by the ASX 200.

And the big iron ore miners have done particularly well, with Fortescue Metals Group Ltd (ASX: FMG) soaring 18.4% over the week.

Which brings us back to the question at hand. With the past week’s gains in the bag, are BHP shares still cheap?

Despite surging 9% in a week, are BHP shares still cheap?

Looking at trailing data rather than forecast estimates, BHP trades on a price-to-earnings (P/E) ratio of 7.0 times with a trailing dividend yield of 11%, fully franked.

Those figures certainly sound promising. But as I said, they are backwards looking.

As my Fool colleague Bruce Jackson pointed out last week:

When it comes to investing, there’s always a catch.

Commodity prices are hard to predict, and typically the time to buy mining stocks is at the bottom of the cycle, not near the top, as is the case now due to booming oil, iron ore and coal prices.

Indeed, few analysts predict that we’ll see iron ore back at the US$160 per tonne it was fetching back in early March this year. Prices which sent BHP shares flying higher.

In fact, the federal budget forecasts that iron ore prices will fall to US$55 per tonne (FOB Australia) by the end of the first quarter in 2023. Though many analysts, including those over at Commonwealth Bank of Australia (ASX: CBA), believe the budget estimate is too conservative and that prices will take longer to retreat.

Indeed, November has seen the iron ore price rebound from some US$81 per tonne on 1 November to just under US$96 per tonne today.

Copper prices are also up 9% in November. And with its copper segment coming in as its second highest revenue earner, that’s also helped boost BHP shares over the week.

Why are copper and iron ore prices rebounding?

The rebound in iron ore and copper has been fuelled on two fronts.

First, the lower-than-expected inflation data out of the United States has raised optimism that global interest rates may not have to ramp up as quickly or as high as previously expected. That would bode well for the construction industries, and copper and iron ore demand.

Second, signs are emerging that China’s government will stimulate its economy and its battered real estate markets. The Middle Kingdom has also indicated it is prepared to scale back some of its economy-hampering COVID-zero policies. China’s voracious appetite for iron ore, used in steel manufacturing, has slipped as its economic growth has sputtered this year.

So, are BHP shares still cheap after the past week’s rally?

The answer there really sits with how the industrial metals fare over the coming months.

Investors would do well to keep their eyes on the economic developments occurring in China and the US, the world’s top two economies.

Should China push forward with stimulus and easing pandemic restrictions amid a softening rate-hiking stance from the US Federal Reserve, BHP shares certainly have the potential to run higher from here.

The post Despite surging 9% in a week, are BHP shares still cheap? appeared first on The Motley Fool Australia.

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

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1) Wall Street rallied overnight Tuesday on hopes of a soft landing for the world’s most important economy.

“US producer price growth stepped down in October by more than expected in the latest sign that inflationary pressures are beginning to ease,” reports Bloomberg.

Bullish investors are hoping inflation has peaked, meaning the Federal Reserve will moderate the pace of its interest rate hikes.

The S&P 500 Index (SP: .INX) has jumped 6.5% higher in just the past four trading days, whilst the NASDAQ-100 Index (NASDAQ: NDX) has soared almost 10% higher in the same period.

Here in Australia, markets have been a little more subdued, partly because the ASX hasn’t fallen as far as US indexes, partly because the S&P/ASX 200 Index (ASX: XJO) is dominated by big miners and banks, and partly because the RBA has already shown its hand by easing the pace of interest rate rises. 

The ASX 200 index is now down a very modest 3.9% over the past 12 months.

2) Not everyone is convinced it’s all plain sailing ahead, and the Federal Reserve will be able to pull off an economic soft landing. From Bloomberg…

“Markets appear to be pricing in a best case scenario of a soft landing and falling inflation triggering a Fed pause,” Venu Krishna, head of US equity strategy at Barclays Plc. 

“In our view, this is not a given and remains a low probability scenario – these are just a few data points on inflation and it needs to be sustained. Even if the Fed eventually pauses, it might not be able to prevent a shallow recession.”

3) Recession or not, soft or hard, Warren Buffett is buying, the Sage of Omaha taking a roughly $US5 billion stake in Taiwan Semiconductor Manufacturing Co (NYSE: TSM), the chip supplier to companies like Nvidia, Qualcomm and Apple. 

Marketwatch headlines the story with…

“Warren Buffett’s chip-stock purchase is a classic example of why you want to be ‘greedy only when others are fearful.’”

According to Bloomberg…

“TSMC shares at home in Taiwan had dropped 28% this year through Monday’s close, as demand for chips has slowed with the economic downturn and investors fretting about oversupply. The company said in October it pulled back on capital spending to about $US36 billion this year, which would still be a record high, down from at least $US40 billion planned previously.”

The 92 year old Buffett has famously said his ideal holding period is forever, a period which will encompass many economic cycles. Such thinking has served him well, given his net worth of over $US100 billion, the vast majority of which was accumulated later in his life, courtesy the power of compounding returns.

4) Conventional wisdom, perhaps built up over the 30 years since Australia had a “proper” recession is that the lucky country will once again keep growing in 2023 and beyond. 

Unemployment remains low, immigration is starting to pick up again and commodity prices are high. The banking sector, as demonstrated by Commonwealth Bank of Australia (ASX: CBA) saying yesterday that credit quality indicators improved in the most recent quarter, remains strong.

Pushing against that goldilocks scenario are falling house prices, high inflation, higher interest rates and weak consumer confidence.

What’s it all mean? It’s a given the Australian economy will slow next year. 

The International Monetary Fund (IMF) has forecast economic growth will slow from 3.7% this year to just 1.7% in 2023-24 as those headwinds hit our shores. But, according to the AFR, it warned “that a deeper plunge in global growth than forecast, more persistent inflation, and a faster-than-expected decline in house prices could push the economy off course.”

“Australia is expected to steer clear of a recession, but with significant downside risks.”

5) What’s all this mean for stock market investors?

We’ve already seen what Warren Buffett thinks.

As for a mere investing mortal like myself, it certainly doesn’t change my view that consumer discretionary stocks – largely retailers – are likely in for a tougher time ahead.

The market always looks forward, and such pessimism could already be priced into a number of retail stocks. 

JB Hi-Fi Limited (ASX: JBH) shares trade on just 9 times earnings and a fully franked dividend yield of 7.3%.

Nick Scali Limited (ASX: NCK) shares trade on 10 times earnings and a fully franked dividend yield of 7.2%.

Super Retail Group Ltd (ASX: SUL) shares trade on 10 times earnings and a fully franked dividend yield of 10.8%.

I’m happy to sit on the sidelines and watch the action play out for those companies. In really tough times, a halving of profits is absolutely possible, turning the share price from cheap to expensive, and dividends can be cut to zero. 

One consumer discretionary stock I’m playing for the coming economic slowdown is Best & Less Group Ltd (ASX: BST). 90% of its items sold retail for less than $20 and their average selling price is a modest $8.33.

Babies and kids grow, and as they do, need replacement clothes, so there’s a repeat purchase element to the Best & Less business… unlike JB Hi-Fi where you can live with your TV for an extra year, or Nick Scali where you can live with your current sofa for a few more years.

Recent commentary from US discount retailer Walmart strengthens the case for a company like Best & Less with Chief Financial Officer John Rainey saying Walmart is winning new business from higher-income shoppers searching for bargains amid a challenging economic environment.

Best & Less shares trade at less than 9 times earnings and on a fully franked dividend yield of 9.1%.

6) Yesterday saw a nice payday for the Jackson Portfolio, with microcap MSL Solutions (ASX: MSL) share price jumping 70% higher on an all-cash takeover agreement. 

There’s plenty of value in the microcap sector, if investors are willing to stomach the volatility and lack of liquidity. 

And there are plenty of value traps too, some of which I’ve found, to my cost, although position-sizing and downside protection has limited my losses. The key, as with any investing, is to buy quality companies that have at least some sort of competitive advantage and have at least an element of recurring revenue. 

MSL Solutions – a company that operates point of sale solutions at major sporting arenas – fits the bill nicely, given the long-term nature of its contracts. 

If only I’d backed myself more, taking an even bigger position. That’s investing, where the fear of the unknown can impact your decision making, and where, despite a large monetary gain, you can still be dissatisfied. I’ll get over it!

The post Buffett buys up big amidst recession fears. One cheap ASX share I’m backing, plus why I’m dissatisfied despite a huge one-day windfall appeared first on The Motley Fool Australia.

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More reading

• CBA share price drops on bearish broker notes
• 3 impressive ASX dividend shares you’ve probably never heard of
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 bank shares: fundie picks winners and losers of the big four
• Why CBA, DGL, Incitec Pivot, and Readytech shares are pushing higher

Motley Fool contributor Bruce Jackson has positions in Best&Less Group Holdings Ltd and MSL Solutions Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Super Retail Group Limited and Taiwan Semiconductor Manufacturing. The Motley Fool Australia has positions in and has recommended Super Retail Group Limited. The Motley Fool Australia has recommended JB Hi-Fi 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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