Stock Pick

  • Goldman Sachs says these ASX 200 shares could rise over 40%

    A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements

    A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements

    If you’re looking for some new investments, it could be worth hearing what Goldman Sachs is saying about the ASX 200 shares listed below.

    Its analysts rate these shares highly and see major upside potential for investors over the next 12 months. Here’s what it is saying:

    NextDC Ltd (ASX: NXT)

    The first ASX 200 share that has been named as a buy is data centre operator NextDC.

    NextDC continued its strong growth in FY 2022 thanks to the ever-increasing demand for space in its data centres thanks to the structural shift to the cloud.

    The good news is that Goldman Sachs believes this strong demand is here to stay for some time to come. The broker has previously highlighted NextDC’s “compelling” growth profile, its proven and profitable business model, and digital infrastructure characteristics.

    Goldman currently has a buy rating and $14.30 price target on its shares. Based on the current NextDC share price of $9.06, this suggests potential upside of 49%.

    Xero Limited (ASX: XRO)

    Another ASX 200 share that could be a top option for investors according to Goldman Sachs is Xero.

    It is a cloud accounting platform provider with ~3.3 million subscribers globally. From these subscribers, the company is currently generating annualised monthly recurring revenue (AMRR) of NZ$1.2 billion and EBITDA of NZ$212.7 million.

    Pleasingly, although 3.3 million sounds like a lot of subscribers, it is barely scratching the surface of its addressable market, which management estimates to be 45 million subscribers globally. This gives the company a major runway for growth over the next decade.

    Goldman also highlights that Xero is “well-placed to navigate this [economic] uncertainty given the stickiness & importance of its software.”

    The broker has a buy rating and $111.00 price target on Xero’s shares. Based on the current Xero share price of $77.00, this suggests potential upside of 44% for investors.

    The post Goldman Sachs says these ASX 200 shares could rise over 40% appeared first on The Motley Fool Australia.

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    Motley Fool contributor James Mickleboro has positions in NEXTDC Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. 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 mistake this billionaire investor is warning others not to make amid recession fears

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    There has been a lot of volatility on the ASX share market. But how low are valuations going to go with S&P/ASX 200 Index (ASX: XJO) shares? Have some businesses already seen a bottom in terms of their declines?

    Some investors may be thinking that share prices and asset prices may fall further because interest rates are still going up.

    Would it be better to wait for a lower price, or should investors jump on what’s available today?

    Billionaire investor and co-founder of private equity business The Carlyle Group, David Rubenstein, thinks investors should jump in now.

    Time to be greedy?

    Talking at CNBC’s Delivering Alpha Investor Summit in New York, Rubenstein said:

    People shouldn’t be afraid of going in and buying things now. The great fortunes in the investment world are often made by buying things at discounts.

    Aside from the COVID-19 crash in 2020, the US share market has been on a bull run since the Global Financial Crisis, so there haven’t been many times when investors can buy shares at a discount.

    Rubenstein said that a number of names are now trading at a relative discount, according to CNBC reporting.

    He thinks it would be better to start investing now than trying to guess when the market bottom will be. Rubenstein believes the share market is “much closer to the bottom” than the top. He doesn’t think shares will fall another 50% or even 25% from here. The US share market could also influence ASX shares. He also said:

    It’s a fool’s errand to find the bottom in the market or the top in the market. Trying to wait to the absolute bottom is probably a mistake, in my view.

    What’s going to happen next with ASX shares?

    Let me just consult my crystal ball here…

    It seems likely that central banks are going to keep increasing interest rates because inflation hasn’t been brought under control yet.

    However, assets aren’t necessarily going to drop in valuation in sync as higher interest rates rise.

    The tricky thing for investors is that interest rates can have a big effect on share prices, bond values, and savings account interest rates. We just don’t know how high interest rates will need to go.

    After that, we don’t know what the ‘normal’ interest rate will be for Australia or the US. There is a big difference, in my opinion, in an interest rate between 2% and 3%.

    For me, I continue to invest each month into ASX shares that I think are good value at the time. This could be described as dollar-cost averaging.

    I’m enjoying the lower prices that we’re seeing and will take advantage of them as long as possible. I believe that buying at this level will help my long-term wealth-building.

    The post The mistake this billionaire investor is warning others not to make amid recession fears appeared first on The Motley Fool Australia.

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

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  • Loser or bargain? Fundie’s verdict on 3 popular ASX shares that have nosedived

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    Ask A Fund Manager

    The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Auscap Asset Management portfolio manager Tim Carleton gives his thoughts on three ASX shares that are deeply in the red this year.

    Cut or keep?

    The Motley Fool: Now let’s take a look at three ASX shares that have fallen off the cliff recently, to see what you would do with them.

    First is 4WD accessories maker ARB Corporation Limited (ASX: ARB), which has seen its share price halve so far this year.

    Tim Carleton: This is one stock that we are looking to add to. We own it in the portfolio that we’d certainly be interested in adding to the exposure. A very, very high quality business. 

    You’re right, they manufacture and distribute 4WD accessories. They’ve had a few transitory issues lately, but they still have a significant runway for growth overseas. So we’re mindful of elevated demand through COVID, but there are lots of opportunities for them to grow revenue and earnings through organic expansion. And at the moment you’ve seen the multiple pull right back. So we would be looking to add to that exposure at the right point.

    MF: How about Charter Hall Group (ASX: CHC), which has almost halved in 2022?

    TC: If you own it, it’s probably worth continuing to hold. 

    I mean, its issue is that it’s facing macroeconomic pressure in the form of higher interest rates. So higher interest rates are negative for capitalisation rates. 

    [Charter Hall]’s a fund manager primarily in the real estate space and real estate fund managers have had this wonderful tailwind for a long time now of declining interest rates. And as interest rates fell, the relative attraction of the yields offered by REITs increased, which led to people bidding up those asset prices. As a result, capitalisation rates, which [are] the rates used to value property trusts, were declining.

    That was pushing up valuations. That was a very, very powerful tailwind for fund managers such as Charter Hall. 

    We’re now probably in the opposite environment. So what was a tailwind is probably a headwind. But I think that has been reflected in the multiple. It’s currently trading on about 12 times, or a little over 12 times, earnings. A lot of their assets under management, I think, [are] reasonably sticky. So that’s not a particularly large multiple for the quality of the business. 

    If you didn’t have a position, it’s probably a little bit more difficult because, like I said, you are most likely facing some headwinds over the coming years as capitalisation rates head north and therefore valuations come down, which makes it harder to generate performance fees — harder to accumulate further assets in that sort of environment than the one we just experienced for the last decade.

    MF: Breville Group Ltd (ASX: BRG) shares have plunged 43% so far this year. What are your thoughts?

    TC: Breville is, again, one that we would look to add to at the right time. 

    The market is concerned about pullback in appliance expenditure, and we think rightly so, and that’s across the globe. And obviously, these guys operate in many, many different markets or have a presence in many markets around the world. But once this washes through, this business should still have plenty of organic growth as they can expand into new geographies. 

    They’re creating products all the time. They spend a considerable amount of money on research and development each year. That means that they’re always at the forefront of products in their space that are very, very highly regarded by consumers. 

    And that is their competitive advantage, right? Their competitive advantage is having products that consumers want. And it lets them earn a well above-average return on their capital, in selling those products. 

    So to the extent that we get an opportunity at an attractive price, and we’re probably not too far off that at the moment, we will certainly be looking to add to our Breville exposure.

    The post Loser or bargain? Fundie’s verdict on 3 popular ASX shares that have nosedived appeared first on The Motley Fool Australia.

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

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  • Analysts name 2 ASX 200 dividend shares to buy now

    A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop in front of them.

    A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop in front of them.

    The ASX 200 index is home to a large number of companies that reward their shareholders with dividends each year.

    Two that offer investors particularly generous yields right now are listed below. Here’s why these ASX 200 dividend shares have been tipped as buys:

    Bank of Queensland Limited (ASX: BOQ)

    Bank of Queensland could be an ASX 200 dividend share to buy.

    It is a challenger to the big four banks and the owner of the Bank of Queensland, ME Bank, and Virgin Money Australia brands.

    The team at Citi is positive on the company. Although it suspects that mortgage loan growth could slow as rates rise, it expects cost synergies from the ME Bank acquisition to be supportive of earnings growth.

    In light of this, Citi has put a buy rating and $8.75 price target on the bank’s shares. This compares very favourably to the current Bank of Queensland share price of $6.63.

    But it gets better. Citi is forecasting fully franked dividends per share of 46 cents in FY 2022 and then 50 cents per share in FY 2023. This will mean very big yields of 6.9% and 7.5%, respectively.

    Wesfarmers Ltd (ASX: WES)

    Another ASX 200 dividend share that could be in the buy zone is Wesfarmers.

    It is the conglomerate behind a collection of high quality businesses such as Bunnings, Coregas, Covalent Lithium, Kmart, and Officeworks.

    Analysts at Morgans are big fans of the company and believe its “highly regarded management team” and “quality retail portfolio” have positioned it well for growth in the coming years.

    As a result, the broker currently has an add rating and $55.60 price target on its shares.

    As for dividends, Morgans is forecasting fully franked dividends per share of $1.82 in FY 2023 and $1.89 in FY 2024. Based on the current Wesfarmers share price of $44.02, this will mean yields of 4.1% and 4.3%, respectively.

    The post Analysts name 2 ASX 200 dividend shares to buy now appeared first on The Motley Fool Australia.

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  • Could this be a looming risk for IAG shares?

    The Insurance Australia Group Ltd (ASX: IAG) share price has lifted this week, but what is the future outlook?

    IAG shares have jumped almost 4% since market close on Friday — including a 1.1% gain on Thursday — and are currently worth $4.58 a piece.

    So what could be ahead for IAG shares?

    What’s ahead for IAG?

    IAG is an insurance giant operating in Australia, New Zealand and Asia.

    Macquarie analysts are concerned market churn may place pressure on IAG shares and the Suncorp Group Ltd (ASX: SUN) share price.

    The analysts raised concerns churn will rise across the insurance sector amid a potential affordability crunch, The Australian reported.

    But analysts reportedly believe Suncorp may outperform IAG due to better underlying insurance trading ratio margin.

    However, Wilson Asset Management (WAM)’s Anna Milne is more positive on the IAG share price. As my Foolish colleague Mitch reported recently, she believes it is one of multiple ASX shares that are among “the highest-quality names in their respective sector”.

    Milne also sees the company’s national expansion as a positive for IAG.

    Commenting on the outlook for IAG, she said:

    IAG is the owner of the brand NRMA, which is one of Australia’s most trusted brands. The psychology of investing in these [IAG and others] quality names is that when share prices decline, it’s seen as an opportunity to get these high-quality names on sale.

    IAG reported a $347 million profit in the 2022 financial year, compared to a $427 million loss in FY21.

    The company paid a partially franked final dividend of 5 cents per share in September, taking total dividends for the financial year to 11 cents.

    Share price snapshot

    IAG shares have shed nearly 7% in the past year, while they have risen nearly 8% year to date.

    For perspective, the ASX 200 has lost nearly 9% in the past year.

    IAG has a market capitalisation of more than $11 billion based on the current share price.

    The post Could this be a looming risk for IAG shares? appeared first on The Motley Fool Australia.

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    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 positions in and has recommended Insurance Australia Group Limited. The Motley Fool Australia has recommended Macquarie 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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  • 5 things to watch on the ASX 200 on Friday

    A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.

    A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.

    On Thursday, the S&P/ASX 200 Index (ASX: XJO) had a very strong day and stormed notably higher. The benchmark index rose 1.45% to 6,555 points.

    Will the market be able to build on this on Friday and end the week on a high? Here are five things to watch:

    ASX 200 expected to sink

    The Australian share market looks set to give back some of yesterday’s gains after a very poor night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open 24 points or 0.4% lower this morning. In the United States, the Dow Jones was down 1.55%, the S&P 500 dropped 2.1%, and the Nasdaq tumbled 2.85%. This meant the S&P 500 hit a new low for 2022.

    Oil prices fall

    Energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a subdued finish to the week after oil prices pulled back overnight. According to Bloomberg, the WTI crude oil price is down 0.7% to US$81.55 a barrel and the Brent crude oil price is down 0.85% to US$88.57 a barrel. This was despite news that OPEC+ is considering an output cut.

    Dividends being paid

    Today is payday for a number of dividend-paying ASX 200 shares. Energy producer Beach, battery materials miner IGO Ltd (ASX: IGO), energy company Origin Energy Ltd (ASX: ORG), and wine giant Treasury Wine Estates Ltd (ASX: TWE) are among those rewarding their shareholders with dividend payments today.

    Gold price edges lower

    Gold miners including Newcrest Mining Ltd (ASX: NCM) and St Barbara Ltd (ASX: SBM) will be on watch after the gold price edged lower overnight. According to CNBC, the spot gold price is down 0.1% to US$1,668.80 an ounce. Rate hike fears are weighing on the gold price.

    Premier Investments rated neutral

    The Premier Investments Limited (ASX: PMV) share price is fully valued according to analysts at Goldman Sachs. This morning the broker has responded to the retail conglomerate’s full year results by retaining its neutral rating with an improved price target of $21.40. Goldman was impressed with Premier’s strong beat but has concerns over its softening outlook.

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

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    Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Premier Investments Limited and Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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  • Are these beaten down ASX 200 shares going cheap?

    Four investors stand in a line holding cash fanned in their hands with thoughtful looks on their faces.

    Four investors stand in a line holding cash fanned in their hands with thoughtful looks on their faces.

    With the market going through a very turbulent time, a number of ASX 200 shares have been hit hard.

    Two that have been beaten down in 2022 and could be great value now are listed below. Here’s what analysts are saying about them:

    Domino’s Pizza Enterprises Ltd (ASX: DMP)

    This pizza chain operator’s shares have been sold off this year. This has been driven by weakness in Japan and concerns over inflationary pressures.

    Nevertheless, the team at Morgans remains positive on the company and appears to see the recent share price weakness as a buying opportunity.

    Morgans likes the company due to its very positive long term growth outlook.  It said:

    DMP is the largest Domino’s franchisee outside the US and one of the largest quick-service restaurant companies in the world. It is an affordable option that has performed well historically even in times of inflation or slower economic growth.

    The engine of DMP’s growth is its ability to roll out new stores all over the world. It added 438 stores to its global network in the year to June 2022, a pace of expansion that we forecast to accelerate to nearly 600 in FY23. This will take the total to almost 4,000 stores, up fourfold over a ten-year period. Over the next ten years, DMP expects to grow organically to 7,250 stores in the 13 countries in which it currently operates. This means DMP expects to more than double in size again by 2033, not including any future acquisitions.

    Morgans has an add rating and $90.00 price target on the company’s shares. This compares favourably to the latest Domino’s share price of $54.15.

    Goodman Group (ASX: GMG)

    Another ASX 200 share that has fallen hard this year is Goodman. It is an integrated commercial property company with a focus on industrial assets.

    Goldman Sachs believes the weakness in the Goodman share price is a bit of a gift to investors. Particularly given the quality of the company and its positive growth outlook.

    Its analysts thought the company’s shares were great value last month when they were down 22% year to date. Goodman’s shares have fallen even further since then, which is likely to have the broker licking its lips now. It previously commented:

    Year to date, GMG shares are down ~22% [now 39%!], underperforming the ASX200 by ~17% and the ASX200 REIT index by ~5%. We estimate that GMG currently trades on a P/E to growth ratio of ~2.2x (vs. 5-yr historical average of ~2.7x). GMG offers an estimated FY22-24e earnings CAGR of ~14%, screening relatively attractively on a growth adjusted basis relative to our REIT coverage average of ~4%.

    Goldman has a buy rating and $25.40 price target on the company’s shares. This compares nicely to the latest Goodman share price of $16.23.

    The post Are these beaten down ASX 200 shares going cheap? appeared first on The Motley Fool Australia.

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    Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises 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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  • Experts say these small cap ASX shares are buys

    a man sits at his computer screen scrolling with his fingers with a satisfied smile on his face as though he is very content with the news he is receiving.

    a man sits at his computer screen scrolling with his fingers with a satisfied smile on his face as though he is very content with the news he is receiving.

    If you’re wanting to invest in small cap shares, then you may want to check out the two listed below.

    Here’s why experts think these ASX shares could be top options for investors right now:

    Nitro Software Ltd (ASX: NTO)

    The first small cap that experts rate highly is Nitro Software.

    It is a document productivity software company that is aiming to drive digital transformation in organisations around the world. Nitro is doing this with its Nitro Productivity Suite, which provides businesses of all sizes with integrated PDF productivity and electronic signature tools.

    And while the company has been growing at a rapid rate in recent years, it is still only scratching the surface of its enormous market opportunity. Management commented:

    With a strong balance sheet and zero debt, we are well placed to cement and expand our position in the fast-growing US$28 billion eSigning and PDF productivity market as customers increasingly demand the suite of high-security high-trust products we offer.

    Goldman Sachs is very positive on the company and currently has a buy rating and $2.05 price target on its shares.

    PlaySide Studios Limited (ASX: PLY)

    Another small cap ASX share that experts are tipping as a buy is PlaySide Studios.

    It is one of the largest video game developers in the ANZ region. It provides titles in a range of categories, including self-published games based on original intellectual property and game development services in collaboration with studios such as Take-Two Interactive, Activision Blizzard, Meta, Disney, Pixar, Warner Bros, and Nickelodeon.

    The company also has a growing interest in NFTs and generated $9 million in sales from them during the first half.

    Ord Minnett is a fan of the company. It currently has a speculative buy rating and 85 cents price target on its shares.

    The post Experts say these small cap ASX shares are buys appeared first on The Motley Fool Australia.

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    Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Nitro Software 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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  • Expert reveals ‘one of the most important things’ to do in the share market right now

    A businessman keeps calm in the face of inflationA businessman keeps calm in the face of inflation

    The S&P/ASX 200 Index (ASX: XJO) finished up 1.4% on Thursday at 6,555 points.

    In the year to date, the benchmark index has dropped almost 14% as the market grapples with the challenges of rising inflation and interest rates. This means only one thing: Volatility.

    As reported by CNBC, staying invested during volatility is difficult but crucial for share investors, according to Mary Callahan Erdoes, the CEO of JPMorgan Asset & Wealth Management.

    At CNBC’s Delivering Alpha investor summit in New York, Erdoes said:

    While the world is focused on all the black swan events, there will be white swans that emerge.

    Keeping your eye out for those white swans and … staying invested in these markets is one of the most important things and one of the most difficult things.

    Stand by for some industry lingo

    Before we go any further with Erdoes’ comments, here’s a quick reminder on the following fin-speak.

    • The term ‘black swan’ describes a market-moving event that no one saw coming. Case in point: COVID-19
    • The term ‘white swan’ is a predictable crisis that can be addressed
    • The term ‘alpha’ means returns that beat the general market (we’ll talk about alpha in a sec)

    Got that? Okay, here’s some more from Erdoes.

    There’s ‘alpha everywhere’

    Erdoes says investors should search the market for opportunities. She said:

    There is alpha everywhere. It’s in stocks. It’s in bonds. It’s in currencies. It’s in real estate. It’s in private markets. It’s in public markets. It’s everywhere, because we are in such a state of change.

    Erdoes is an expert, so she’s going to look far beyond her home market for opportunities. Some ASX share investors do the same, so let’s check out her views on international stocks.

    Erdoes said:

    Don’t fight investing in China. It’s a country that is going to emerge from COVID. It’s a country that is going to put its 22% youth employment back to work. It’s an economy that is going to continue to invest in EVs, semis, et cetera.

    She also likes United Kingdom banking stocks, adopting a Buffett-esque view of being ‘greedy only when others are fearful‘.

    She said:

    Last week people said don’t invest in a single thing in the UK. That is exactly when people like us, and people in the room, think, ’Let’s go look right there’.

    Let history be your guide

    The following table published by CBNC demonstrates how staying in the market has worked at various historical points. What it does is ensure you are in the market on its best days of recovery.

    While this data represents the S&P 500 in the US, the same principle applies to ASX shares, too.

    Source: cnbc.com

    The post Expert reveals ‘one of the most important things’ to do in the share market right now appeared first on The Motley Fool Australia.

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    JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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 JPMorgan Chase. 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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  • Could fear of inflation mean ‘missing out on periods of strong share market returns’?

    A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.

    The latest Australian inflation data shows the ‘new’ consumer price index (CPI) fell by 20 basis points to 6.8% from July to August.

    Nevertheless, markets are still wagering that the Reserve Bank of Australia (RBA) will deliver a 50 basis point increase to the cash rate when it meets for its policy meeting next week.

    Should it complete the full 50 basis points this would bring its policy rate to a near-decade high of 2.85%.

    Surprisingly, while still an enormously high CPI print for July–August, markets have taken the small decrease in inflation reasonably well. The S&P/ASX 200 Index (ASX: XJO) closed 1.44% higher on Thursday.

    Inflation must go: RBA

    The stimulus for the RBA’s hiking cycle is the abnormally high inflation and central banks around the world have made a commitment to stamp it out.

    Empirical data shows that inflation is a unique and nasty occurrence for investor portfolios as it hurts both stocks and bonds – thus breaking down traditional rules of diversification.

    As a result, the downside seen on the charts this year has been deep and widely felt.

    However, those opting to sit on the sidelines for too long might be missing out on some ample opportunities to invest, so says Pengana Capital.

    “[H]istoric data suggests that waiting for certainty that markets have bottomed, and interest rates are again falling, may mean missing out on periods of strong share market returns,” the firm recently wrote on its website.

    Pengana notes that markets are forward-looking and are constantly seeking to price in all of the ‘negative’ news – be it surrounding an event, a particular company, or the economy at large.

    This is important, as by the time the worst of any economic fallout is felt, investors will already be looking at what is coming next.

    In the event of a recession, say, the market would be looking to when the next upswing in the economic cycle will be, versus the current situation.

    Market positioning is very important

    How the market perceives the future has implications on what ‘factors’ are set to perform as well, namely growth or value stocks.

    Pengana notes that growth, while overly sensitive to the business cycle, often makes a comeback earlier than most originally predict.

    Oftentimes, the firm says, this comeback performance begins to stage itself before there is a full market bottom – as was seen in 2002 and 2009, following those two market crashes.

    Thinking about Pengana’s arguments a little more, there’s actually weight behind them. Markets do move in cycles, and there is always a winning and losing side to every trade.

    In particular, waiting on the sidelines for too long in this economic climate also prohibits the investor from participating in large shifts in investor sentiment.

    Right now, for example, the Great British Pound (GBP) is taking a beating on the foreign exchanges, and this has forward-reaching implications for companies who are domiciled here, and export to the country.

    Further, there’s also been an enormous rally in commodity prices in a cause-effect pattern throughout the past 12 months, and this has set ASX mining giants up to pay large dividends for years to come.

    The point is, being a prudent investor means continuously weighing up a large data set and then synthesising that data into quick, actionable insights to make decisions.

    Often that means thinking beyond the current situation, keeping a long-term view in mind always.

    That also means trying to pick a top or bottom in the cycle is a risk not worth taking, a point that’s backed up by years of historical data. Instead, remaining true to the tried and tested ‘tenements’ of investing are paramount.

    As the saying goes, it’s time in the market, not timing the market, that matters.

    The post Could fear of inflation mean ‘missing out on periods of strong share market returns’? appeared first on The Motley Fool Australia.

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    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 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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