Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part three of this edition, we’re rejoined by Kristiaan Rehder, portfolio manager of the Bennelong Kardinia Absolute Return Fund.

The Motley Fool: With the changing economic dynamics in 2022, are there any sectors you’re likely to avoid over the coming months?

Kristiaan Rehder: If you go back in history, whenever you go through an economic recession or serious slowdown, the one subclass that always does poorly is zero earnings stocks. That’s without exception.

So, for most of this year, we’ve avoided this class as well as the high-multiple, expensive names. We’ve also avoided consumer discretionary names because we believe the pressure that the central banks are putting the consumer under is going to have an effect on spending.

An obvious sector that is on the front line of those thematics is the high-multiple tech sectors. Early in the year, we were heavily short the tech sector. But given how dramatic the falls have been, we’ve been taking profits from the tech sector shorts.

MF: Which sectors look promising in the coming quarter?

KR: We’re remaining alert to acquiring quality businesses at cheaper prices in this market selloff. That’s what we’ve been doing in this past week.

We’re looking to add some exposure to the high cash flow energy sector. And also looking to selectively add resource names to the portfolio in the event of a more comprehensive stimulus program out of China. But we’ll do that cautiously and selectively.

We’re staying away from the developers and the explorers and looking at the producers, which are trading cheaply and are generating a lot of cash at the moment.

MF: Which S&P/ASX 200 Index (ASX: XJO) shares are you most confidently long on at the moment?

KR: We’ve got a decent position in National Australia Bank Ltd (ASX: NAB).

We think banking margins will be stronger than expected. Given the larger-than-expected rate hikes by central banks, it wouldn’t surprise any of your readers’ that the banks have been slow to lift deposit rates but have been quick to pass on lending rates. In that situation, you see an expansion of margins.

So far, the sector has been benefiting from a benign outlook for bad debts, given their liquid balance sheets and their strong capital positions.

The large caveat over all of this is whether the Australian economy can skate around an economic recession. I think that will be clear in the next three months.

Another large position of ours is ResMed Inc (ASX: RMD). It’s a sleep apnoea device manufacturer. A clear leader in an attractive market with long-term, realisable penetration upside.

Its major competitor, Philips (Respironics), is suffering a material product recall at the moment. So, we’re expecting ResMed to continue to gain market share in that space.

And Pilbara Minerals Ltd (ASX: PLS) has been a longstanding favourite of ours. I think we spoke about this one last year.

It’s performed very strongly since then. The stock is up 50% this calendar year, after a 270% rise in 2021. So, maybe some of the best returns are behind it. But it continues to offer high-quality exposure to that green energy thematic, via its long-life, low-cost lithium mines in WA.

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

KR: Earnings downgrades, given the risk of recession, remains the biggest threat to markets by far.

I think history would suggest that the soft landings, which currently central banks are quick to point out have occurred in the past, are actually very hard to do. If you listen to central banks, they constantly refer to soft landing from the past, such as 1965, 1984 and 1994. But in those years, inflation was far lower than what we’re experiencing today.

A better comparison, in our minds, is periods of high inflation and low unemployment, which are the two factors that we’re seeing today.

If you go back through history, there are four periods in the post-war era where those characteristics occurred. The most recent was in the mid-2000s, just before the GFC. Inflation was above 4% due to higher energy prices, with low unemployment. In all four instances, the economy ended in recession. And that suggests that this latest inflation period could end in some sort of recession too.

There’s an argument the US is already in a recession. But I think it will all become clear in the next three months.

MF: And what’s the biggest opportunity for investors over the coming months?

KR: As far as this year is concerned, we’re not sure this is the year to be taking enormous risks. It’s more about protecting capital. It’s still very risky out there, so not losing capital is really the name of the game.

That doesn’t mean we aren’t looking at companies from the long side. We’ve got an extensive list of companies we like that exhibit the kind of winning attributes we look at. Such as a robust balance sheet, strong management team, growing market, and growing market share.

But we’ve held off purchasing a number of these names because we just couldn’t get comfortable with valuations. Now valuations are coming back into that buy zone with the recent market fall. So we’re starting to add a number of these names to the portfolio.

That’s certainly where the opportunities sit. Quality names which have been marked down with the broader market selloff. Which have resilient earnings that will do well over the next two to three years.

***

If you missed part one of our interview with Kristiaan Rehder, you can find that here, and part two right here.

The post 3 ASX 200 shares to weather a bear market: fund manager appeared first on The Motley Fool Australia.

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More reading

• Here’s how ASX 200 banks stand to benefit from the budget
• Top brokers name 3 ASX shares to buy today
• Why Codan, Coles, Medibank, and Pilbara Minerals shares are sinking
• ‘Too far, too fast’: Pilbara Minerals share price falls on broker downgrade
• Could the best be yet to come for the NAB 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 positions in and has recommended ResMed Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed Inc. 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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On Wednesday, the S&P/ASX 200 Index (ASX: XJO) fought hard to record a modest gain. The benchmark index rose 0.2% to 6,810.9 points.

Will the market be able to build on this on Thursday? Here are five things to watch:

ASX 200 expected to rise

The Australian share market looks set to push higher again on Thursday despite a poor night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 31 points or 0.45% higher this morning. In late trade in the United States, the Dow Jones is up 0.1%, the S&P 500 is down 0.65% and the NASDAQ has dropped 1.9%.

Oil prices jump

Energy producers including Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could have a great day after oil prices jumped on Wednesday night. According to Bloomberg, the WTI crude oil price is up 3.25% to US$88.10 a barrel and the Brent crude oil price is up 2.6% to US$95.92 a barrel. Record high US crude exports and strong refining demand boosted prices.

ANZ full year results

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price will be on watch today when the banking giant releases its full year results. According to a note out of Goldman Sachs, its analysts expect ANZ to report cash earnings of $3,309 million for the second half and $6,422 million for FY 2022. The latter will be a 3.6% increase over the prior corresponding period. This is expected to result in a 143.4 cents per share full year dividend being paid.

Mineral Resources named as a buy

The Mineral Resources Limited (ASX: MIN) share price could keep rising according to analysts at Goldman Sachs. In response to the mining and mining services company’s quarterly update, the broker has retained its buy rating with an improved price target of $80.00.

Gold price rises

Gold miners Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) could have a decent day after the gold price pushed higher overnight. According to CNBC, the spot gold price is up 0.65% to US$1,669 an ounce. The gold price hit a two-week high after the US dollar and treasury yields softened.

The post 5 things to watch on the ASX 200 on Thursday appeared first on The Motley Fool Australia.

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More reading

• Here’s how ASX 200 banks stand to benefit from the budget
• Here are the top 10 ASX 200 shares today
• Why is the Whitehaven share price getting beaten up today?
• Is the Lynas share price a buy ahead of tomorrow’s update?
• Here are the 3 most heavily traded ASX 200 shares on Wednesday

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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In today’s volatile and uncertain environment, it can be reassuring that there are certain characteristics of shares that perform well over the long term.

In investing lingo, these types of shares are known as compounders because they can offer compounding returns to their holders during both boom and bust cycles of the economy.

Specifically, compounders share the following characteristics:

• Solid balance sheets with little to no long-term debt
• High earnings margin, and
• Consistent earnings growth over the past decade

The total debt/equity percentage on the balance sheet is one helpful ratio in uncovering a company’s fundamentals. We also consider net income margin percentage for earnings and the 10-year compound annual growth rate (CAGR) of diluted earnings per share (EPS) percentage to gauge earnings growth.

We’ve researched some compounders that share these fundamentals below.

Whitehaven Coal Ltd (ASX: WHC)

Whitehaven has low debt with a total debt/equity percentage of 5.81%. Its earnings margin is also strong at 39.6% while its earnings growth stands at 33.4%.

Recent positive developments also support the coal producer’s fundamentals. In the company’s most recent quarterly report, the average price of coal lept from $514 a tonne in Q2 2022 to $581 a tonne in Q3 2022.

A macro factor working in Whitehaven’s favour is that demand for coal is beating supply, putting upwards price pressure on the commodity.

Magellan Financial Group Ltd (ASX: MFG)

Magellan is another compounder that has strong fundamentals. Its total debt/equity percentage is 1.22% while its earnings margin beats others on this list by a huge amount at 69.6%. Its earnings growth rate is also a healthy 37.6%.

The troubled fund has ambitious plans in the future for turning its fortunes around. Last Thursday, the company announced at its annual general meeting that it intends growing its funds under management to more than $100 billion over the next five years.

Some tactics Magellan will use to reach this target include the creation of an incentive plan that unifies employee and shareholder interests.

Pro Medicus Limited (ASX: PME)

Pro Medicus has a total debt/equity percentage of 2.24% and an earnings margin of 47.2%. Its earnings growth rate is the highest on the list at 49.7%.

Although the medical imaging IT company has an unusually high price-to-earnings (P/E) ratio of 129.51, some experts agree with the claim it deserves to be considered a compounder.

Hayborough Investment Partners’ Ben Rundle believes it ticks all the boxes of a great share investment. This includes its earnings, product, and management team. Meantime, Medallion Financial’s Michael Wayne says that these fundamentals are “trending in the right direction”.

The bullish sentiment surrounding the stock may be vindicated when it holds its annual general meeting on 21 November.

The post How to find wealth compounders inside the ASX 200 right now appeared first on The Motley Fool Australia.

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More reading

• Why is the Whitehaven share price getting beaten up today?
• Have ASX 200 high-yield dividend shares been a blessing or a curse in 2022?
• Why did the South32 share price take a beating on Tuesday?
• This ASX 200 share turned $10k into $1 million in just 10 years
• Why did ASX 200 coal shares have such a cracking Friday?

Motley Fool contributor Matthew Farley 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 Pro Medicus Ltd. The Motley Fool Australia has positions in and has recommended Pro Medicus Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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S&P/ASX 200 Index (ASX: XJO) banks have all outperformed the benchmark index over the past month.

Since the opening bell on 26 September, the ASX 200 is up a welcome 5.28%.

As for the ASX 200 banks:

• Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares have gained 12.15%
• Commonwealth Bank of Australia (ASX: CBA) shares are up 8.96%
• Westpac Banking Corp (ASX: WBC) shares are up 13.36%
• National Australia Bank Ltd (ASX: NAB) shares have gained 9.27%

And that doesn’t include dividends. All of the big four banks pay fully franked dividends, offering investors some tax friendly income alongside potential share price gains.

While the past month has been a good one for ASX 200 banks, they could be in for some more tailwinds ahead, thanks to the latest Australian Federal budget.

One million new homes shine spotlight on ASX 200 banks

The budget Treasurer Jim Chalmers unveiled to parliament largely met with expectations from the election promises that helped propel Labor to victory.

Among the keystones was the introduction of the National Housing Accord with state governments and industry to build one million new homes over a period of five years, commencing in 2024.

Saxo Markets strategist, Jessica Amir, noted this could offer some support to the ASX 200 banks.

According to Amir:

The government will establish a $10 billion housing Australia future fund, with an aim of providing 20,000 new social housing dwellings. $350m will be spent over 5 years in delivering 10,000 affordable dwellings, with state governments to provide another 10,000 homes. The government also committed to its pre-election promise of a shared equity scheme, allowing eligible people to buy a house with a smaller deposit.

Atop major infrastructure and construction companies that stand to benefit, Amir pointed to the ASX 200 banks. “Eyes will also be on banks that could benefit from housing policies, so CBA, ANZ Bank, NAB, as well as Westpac,” among the other big financial institutions, she said.

The post Here’s how ASX 200 banks stand to benefit from the budget appeared first on The Motley Fool Australia.

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More reading

• Why this expert is loading up on CBA shares in case of a recession
• Top brokers name 3 ASX shares to buy today
• Own ANZ shares? Here’s why the bank just copped a $25 million fine
• CommSec penalised $20 million for rorting customers
• Could the best be yet to come for the NAB 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 recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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S&P/ASX 200 Index (ASX: XJO) shares in the real estate space are not the most exciting stocks for investors today. When interest rates are going up, investing in property shares sounds dumb. Right?

Let’s check out the numbers.

Over 2022 so far, the S&P/ASX 200 A-REIT Index (ASX: XPJ) is down 26%. That’s pretty close to the dismal performance of the S&P/ASX 200 Information Technology Index (ASX: XIJ), down 33%.

Yet we don’t hear about real estate shares nearly as much as technology shares. They just ain’t sexy.

Real estate shares are also down further than S&P/ASX 200 Consumer Discretionary (ASX: XDJ) shares, which have dominated headlines as experts tout cratering consumer confidence ahead due to inflation.

Consumer discretionary shares are down 20.8%, meaning they’re performing 5% better than property shares. Hmm.

Real estate options in the ASX 200

There are 76 real estate ASX shares on the market. Most of them are real estate investment trusts (REITs) representing a wide variety of areas in the property sector.

For example, there’s Mirvac Group (ASX: MGR), which is a major housing developer, and Scentre Group (ASX: SCG), the largest owner of premium Australian and New Zealand shopping malls. There are also property management and investment companies like Charter Hall Group (ASX: CHC).

Do you regret not buying that house?

If you did a straw poll among 50-plus-year-old Australians, odds are most of them will have a story lamenting a property they didn’t buy and what it’s worth today.

It’s a pretty common ‘kick thyself’ theme. They look back and wonder why on Earth they didn’t buy when prices were soft or falling.

Could we have a similar situation staring us in the face with ASX 200 real estate shares today?

Experts say buy this ASX 200 property share

The experts seem to think so, and one ASX 200 share they seem to be backing with conviction is Goodman Group (ASX: GMG).

According to data published on the Westpac trading platform, nine out of 14 analysts have a strong buy rating on Goodman shares today. Four say hold and one recommends a ‘moderate’ sell.

Presumably, a factor in their decision-making is the 36% decline in the Goodman share price in 2022.

What this has done is reduce the price-to-earnings (P/E) ratio to 9.1, which is well below the market and real estate sector averages of 14-plus.

As my colleague James reported yesterday, top broker Goldman Sachs is bullish, saying:

GMG continues to demonstrate its strong platform and positioning as evident in [the FY22] result, supported by our expectation of a strong outlook for the Industrial sector more broadly, with a number of favourable fundamentals underpinning future long-term demand for industrial space.

Goldman has a buy rating and a 12-month price target of $25.40 on this ASX 200 property share. That’s a 49.85% potential upside in just one year, by the way. Kinda sexy.

Who is Goodman Group?

Goodman Group is the largest REIT in Australia. Among property shares, it’s certainly a blue chip.

It’s also one of the largest shares on the ASX 200 with a market capitalisation of $31.14 billion.

Goodman is an integrated global property group that specialises in industrial property. Warehouses, factories, distribution centres, business and office parks — that sort of thing.

It has four divisions — property investment, fund management, property services, and property development. It operates in 14 countries across the Asia Pacific, Europe, the United Kingdom and the Americas.

According to founder and CEO Greg Goodman, they have $73 billion worth of real estate assets under management and $13.6 billion of developments in the pipeline.

The company manages 410 properties in total. It had an operating profit of $1.5 billion in 2022, according to its annual report.

Goodman shares closed the session on Wednesday at $16.95, up 2.36% for the day.

It has a 52-week high of $26.96 and a 52-week low of $15.57.

The post Down 36% in 2022, why analysts reckon this ASX 200 share is a bargain buy right now appeared first on The Motley Fool Australia.

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More reading

• Analysts say these high quality blue chip ASX 200 shares are buys
• The ‘controversial’ ASX 200 share to stash for 4 years: expert
• 3 ASX 200 shares I’d pounce on when the clouds clear: expert
• Analysts say these beaten down blue chip ASX 200 shares can rise 50%
• Goodman share price hits two-year low: Time to buy?

Motley Fool contributor Bronwyn Allen 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 Goldman Sachs. 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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Australian markets were rangebound again today with the benchmark S&P/ASX 200 Index (ASX: XJO) creeping just 12 points higher to close at 6,810 — up 0.18% on the day.

The downside has been heavy this year for ASX 200 investors, and active stock pickers have moved front and centre once again.

Company fundamentals and company-specific features have become the new driving factors in equity markets, more so than the abundant liquidity of the past two years.

What this means for ASX 200 shares moving ahead remains to be seen. Nonetheless, investor preferences have changed.

IPH looking strong, expert says

As the wave of macro-headwinds continues for ASX companies, fundamentals are once again the most important piece of the puzzle.

With that, strong business models, producing strong, known cash flows, are standing out.

One ASX 200 share worth looking at is IPH Ltd (ASX: IPH), according to one expert. Celeste Funds Management’s Sheryl Chand identified the intellectual property services company as an opportunity in an article on Livewire today.

Chand noted IPH’s acquisition of Canadian specialist IP law firm Smart & Biggar earlier this year for $390 million, labelling it a ‘best in class’ acquisition of Canada’s IP assets.

“Not only does management expect EPS accretion of 10% in the first full year of ownership, but also the acquisition is strategically transformative for IPH,” she said.

However, it’s the company’s simple-to-understand business model and ability to make projections that are the most appealing in IPH’s case, Chand says.

IPH has a simple operating model and straight-forward financial reports. For example, their revenue recognition is easy to understand and does not require significant judgement or complex calculations.

We also like that they have predictable, recurring revenues, and a capital-light business model which is free from inventory-risk.

They also use reputable auditors and maintain a clean track record of reporting with no indicators of material misstatements.

It is for these reasons the fund is bullish on IPH and its operations domestically and abroad.

In the meantime, the share is up more than 10% this year to date, having bounced off a low in June.

It now trades back in line with its pre-pandemic highs, as seen on the chart below.

The post Buy this ASX 200 share with ‘predictable, recurring revenues’ and no inventory risk: expert appeared first on The Motley Fool Australia.

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More reading

• Top brokers name 3 ASX shares to buy today

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended IPH Ltd. The Motley Fool Australia has recommended IPH Ltd. 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) posted another green day on Wednesday, bringing its gains for the week so far to 2.01%. The index closed today’s session 0.18% higher at 6,810.9 points.

That was despite the latest inflation figures from the Australian Bureau of Statistics, which show the nation’s consumer price index (CPI) hit 7.3% over the 12 months to the September quarter – its highest in 32 years.

The S&P/ASX 200 Consumer Staples Index (ASX: XSJ) tumbled 2.4% amid the data’s release, while the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) fell 0.5%.

The S&P/ASX 200 Energy Index (ASX: XEJ) also suffered, falling 1.4% despite oil prices rising.

The Brent crude oil price lifted 0.3% to US$93.52 a barrel overnight while the US Nymex crude oil price gained 0.9% to US$85.32 a barrel

Meanwhile, the S&P/ASX 200 Real Estate Index (ASX: XRE) rose 2.5% on Wednesday while the S&P/ASX 200 Utilities Index (ASX: XUJ) lifted 2.4%.

All in all, eight of the ASX 200’s 11 sectors closed higher. But which share outperformed all others? Keep reading to find out.

Top 10 ASX 200 shares countdown

The Costa Group Holdings Ltd (ASX: CGC) share price led the way on the index today, gaining 11% after its historical parent entity snapped up a 13.78% stake in the company.  

Today’s biggest gains were made by these shares:

ASX-listed company	Share price	Price change
Costa Group Holdings Ltd (ASX: CGC)	$2.47	10.76%
GUD Holdings Limited (ASX: GUD)	$7.65	5.37%
Ramelius Resources Limited (ASX: RMS)	$0.655	4.8%
Nufarm Ltd (ASX: NUF)	$5.63	4.45%
Charter Hall Long WALE REIT (ASX: CLW)	$4.30	4.12%
Centuria Industrial REIT (ASX: CIP)	$2.91	3.93%
Alumina Limited (ASX: AWC)	$1.335	3.89%
APA Group (ASX: APA)	$10.26	3.85%
De Grey Mining Limited (ASX: DEG)	$1.09	3.81%
Northern Star Resources Ltd (ASX: NST)	$8.56	3.51%

Our top 10 shares countdown is a recurring end-of-day summary to let you know which companies were making big moves on the day. Check in at Fool.com.au after the weekday market closes to see which stocks make the countdown.

The post Here are the top 10 ASX 200 shares today appeared first on The Motley Fool Australia.

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More reading

• Why is the Whitehaven share price getting beaten up today?
• Is the Lynas share price a buy ahead of tomorrow’s update?
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Could this tailwind fuel Flight Centre’s share price into the future?
• Why Australian Strategic Materials, Bega Cheese, Costa, and Elmo shares are racing higher

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 positions in and has recommended APA Group. The Motley Fool Australia has recommended COSTA GRP 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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The BrainChip Holdings Ltd (ASX: BRN) share price ended the day lower on Wednesday.

The semiconductor company’s shares fell over 1.5% to 85.5 cents.

This means that the BrainChip share price is now down 9% since this time last week.

Why is the BrainChip share price down 9% in a week?

The BrainChip share price has tumbled in recent sessions despite there being no news out of the company.

However, it is worth highlighting that over the last six months, short sellers have been building large positions in the loss-making company.

BrainChip’s short interest was as low as 1.1% in March, whereas this month it was as high as 6.9%. This could have put pressure on the sell side of the equation.

While no short sellers have explained why they are targeting the company, its market capitalisation of $1.5 billion on next to no revenue could be a reason.

In addition, BrainChip is the only ASX 200 share that I’m aware of that doesn’t have any broker coverage. This could be interpreted as a sign that the smart money doesn’t believe BrainChip’s shares are investment grade.

As a result, the company may need to start generating some meaningful revenue in the near future to force a change of sentiment.

Time will tell if it does.

The post Why has the BrainChip share price plunged 9% in a week? appeared first on The Motley Fool Australia.

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• If I’d invested $1,000 in BrainChip shares a year ago, would I be happy right now?
• Why Bapcor, BrainChip, Evolution Mining, and Redbubble shares are sinking
• Can the BrainChip share price continue its growth run this quarter?
• Warning: BrainChip shares are being targeted by short sellers
• Why BrainChip, Emeco, Harvey Norman, and Pilbara Minerals shares are dropping

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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1) Overnight Tuesday, Wall Street rose for a third straight day on a combination of strong corporate earnings and falling bond yields. Excerpt from Bloomberg…

Investors still expect the Fed to raise rates by three-quarters of a percentage point during its meeting next week. But recent economic data is already showing that Fed tightening has started to weigh on the US economy, leading investors to speculate that the central bank may be approaching the end of its aggressive tightening campaign. This renewed expectation of less hawkishness from the Fed, as well as a better-than-expected earnings season so far, have pushed stocks higher in recent days.

2) Earnings from Coca-Cola and General Motors topped estimates. But the wheels fell off after the market close, with Google parent Alphabet missing earnings estimates and fellow tech-giant Microsoft reporting a disappointing revenue forecast.

In after-market trading, both the Alphabet share price and the Microsoft share price fell more than 6%.

It was only yesterday when I said “earnings risk” might usurp the risk of higher interest rates as the dominant driver of equity markets. 

Most of the heavy lifting has already been done on interest rates. Although there’s a lag, the desired effect – a slowing of economic growth – is starting to show up in corporate results. If Alphabet and Microsoft are feeling it, you can bet your bottom dollar companies with much less of a competitive advantage will be paddling upstream.

This bear market rally may be about to run out of steam.

3) Turning to Australia, the ASX 200 is largely flat in afternoon trade, at first following Wall Street’s lead higher, then falling back after Q3 headline inflation jumped to an annual rate of 7.3%, higher than expectations.

Naturally, Australian bond yields rose as talk of the RBA raising interest rates by 50 basis points on Melbourne Cup day came back into play. That said, according to the Australian Financial Review, interbank futures are implying only a 25% chance of the RBA hiking by 50 basis points. 

Markets have been hanging on the prospect of central banks slowing their rate of interest rate increases. For the time being, inflation is winning the battle, with equities, despite their recent bounce, coming a long second.

4) Speaking of earnings risk, one of today’s victims is Codan Ltd (ASX: CDA), the company best known for its gold metal detectors.

The Codan share price is being taken to the woolshed today after it forecast a significant contraction in first-half sales at its dominant Minelab division. Here’s what the company said:

Like many businesses we are operating under challenging market conditions, with geopolitical issues, a high inflationary environment and an increasing risk of global recession. The risk of declining sentiment may impact sales in the short term and management continues to monitor this risk closely.

The company expects sales for Minelab to be in the region of $75 to $80 million in the first half of FY23, compared to $138 million in the prior corresponding period. The reduction primarily relates to the disrupted nature of the African market, normalisation of sales as we transition to living with COVID…

Codan joins a long line of COVID beneficiaries – government stimulus in some African countries was seemingly spent on buying gold detectors – turned post-COVID flops. 

Codan shares are now down 80% from their June 2021 high. Ouch.

5) One of the other high profile COVID boom-to-bust stocks is Kogan.com Ltd (ASX:KGN). 

Unlike Codan, the Kogan share price is on the rise today despite reporting first-quarter gross sales falling 38.8%, cycling a quarter in the prior year that was heavily impacted by COVID-19 lockdown orders, a period when online retailers saw booming sales.

Investors today were buoyed by Kogan accelerating the sale of its final excess inventory, with the ever-optimistic Ruslan Kogan saying he does not believe the first quarter trading result is indicative of its projected trading performance.

Inflation and rising interest rates are putting pressure on households across Australia and New Zealand. It’s in the Kogan.com DNA to obsess over delivering the most in demand products and services at the best possible prices. We know that during periods of belt tightening like this, our responsibility to be the best place for Aussies and Kiwis to get a bargain on their key household items is more important than ever.

Good luck to Mr Kogan and his Kogan.com business. Kogan.com shares have fallen 86% from their October 2020 peak, although they have bounced almost 30% higher off their July 2022 low.

Whilst Kogan does indeed compete on price, it’s not the only discount retailer on the web. And when belts are being tightened, replacement cycles for cheap TVs and the like just might blow out a little.

6) The consumer discretionary stock I’m playing for the coming economic slowdown is Best & Less Group (ASX: BST). 

50% of its sales are in the baby and kids market. As children grow, they need bigger clothes, so there is a repeat purchase element to the business. 90% of its items sold retail for less than $20 and their average selling price is a modest $8.33.

Best & Less is profitable, has net cash on its balance sheet, and pays an attractive fully franked dividend.

Best and Less shares trade on eight times earnings with a fully franked dividend yield of 9.5%. Whilst not immune to an economic slowdown and having formidable competitors in the likes of Big W and Kmart, there does appear to be a decent level of downside protection for Best & Less shareholders.

The post The bear market rally has seen the ASX 200 jump five percent higher in October. It could all be about to run out of steam appeared first on The Motley Fool Australia.

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More reading

• Why Codan, Coles, Medibank, and Pilbara Minerals shares are sinking
• Why is this ASX All Ords share crashing 20% today?
• Kogan share price jumps despite first quarter sales collapse
• Here’s how I allocate my ASX share portfolio and why
• Nasdaq bear market: 2 magnificent US growth stocks you’ll regret not buying on the dip

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Bruce Jackson has positions in Alphabet (A shares), Alphabet (C shares), and Best&Less Group Holdings Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Kogan.com ltd, 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. The Motley Fool Australia has positions in and has recommended Kogan.com ltd. The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). 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 ASX is welcoming a new exchange-traded fund (ETF) to its boards today. New ASX ETFs aren’t a new phenomenon. We seem to get a new one every couple of months these days. But the Global X Green Metal Miners ETF (ASX: GMTL) taps into an area that has seen white-hot interest on the ASX in recent months.

This new ETF from provider Global X does pretty much what it says on the tin. According to the provider, the fund invests in materials shares that have “strategic allocations to green metals such as lithium, copper, nickel and cobalt”.

However, this is not an ASX-centric ETF. ASX shares only make up 11.7% of this ETF’s portfolio as it currently stands. A plurality of the Green Metals ETF’s holdings hails from China at 42.2% of the portfolio. The United States and Canada make up another 10% each. That leaves 26.1% with ‘other countries.

In order to make the cut into his ETF, a green metal extractor, processor or trader must derive at least 50% of its revenues from green metals.

What kind of shares are in the Green Metal Miners ETF?

At present, the fund has 46 holdings. We don’t know all of them, but here is a list of the top ten by weighting and where they are from:

1. Albemarle Corp (US) at an 8.6% weighting
2. Eve Energy Co Ltd (China) at 6.7%
3. Ganfeng Lithium Group Co Ltd (China) at 5.8%
4. First Quantum Minerals Ltd (Canada) at 5.5%
5. Sociedad Quimica y Minera de Chile SA (Chile) at 4.5%
6. Zhejiang Huayou Cobalt Co Ltd (China) at 4.2%
7. Our own Pilbara Minerals Ltd (ASX: PLS) at 4%
8. Norsk Hydro ASA (Norway) at 3.7%
9. Boliden AB (Sweden) at 3.6%
10. China Northern Rare Earth Group High-Tech Co Ltd (China) at 3.5%

So how has this ETF fared on its first day of trading? Well, Green Metal Miners units hit the ASX at $10 per unit this morning. At present, the ETF has risen by… 0.3% to $10.03 per unit.

The Global X Green Metal Miners ETF charges a management fee of 0.69% per annum.

The post The Global X Green Metal Miners ETF just hit the ASX. Here’s the lowdown appeared first on The Motley Fool Australia.

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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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