The Coles Group Ltd (ASX: COL) dividend is among the most popular options on the Australian share market for income investors.

Thanks to its defensive qualities, positive outlook, and generous payout ratio, the supermarket giant’s shares are found in countless income portfolios up and down the country.

In light of its popularity, investors may be curious about what is expected from the Coles dividend in the coming years. Let’s take a look!

Where is the Coles dividend heading?

Firstly, let’s start with what has already been paid. In FY 2021, the company declared a fully franked 61 cents per share dividend.

According to a note out of Citi, its analysts expect a small year on year increase to 63 cents per share in FY 2022. Based on the current Coles share price of $18.79, this will mean a yield of 3.35% for investors.

The good news is that the broker is then expecting a big jump in both its earnings and its dividend in FY 2023. Citi is forecasting a 72 cents per share fully franked dividend for that financial year. At current levels, this will mean a yield of approximately 3.8% for investors.

Finally, another increase to the Coles dividend is expected in FY 2024. Citi is forecasting a fully franked 78 cents per share dividend. This will mean an attractive 4.15% dividend yield for investors that year.

Can its shares climb higher?

Citi sees only modest upside in the Coles share price following its recent gains.

The note reveals that its analysts currently have a buy rating and $19.30 price target on its shares.

Though, the broker concedes that it sees “upside risk to our forecasts if the [food inflation related shopping] volume response is muted.”

The post Here’s the Coles dividend forecast through to 2024 appeared first on The Motley Fool Australia.

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• Analysts name 2 ASX dividend shares with good yields to buy
• Why I think Coles shares are a compelling buy today
• Here are 2 ASX 200 dividend shares to buy according to experts
• Can the Coles share price beat the ASX 200 again in FY23?
• Brokers name 2 ASX dividend shares to buy now

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. 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 Pointsbet Holdings Ltd (ASX: PBH) share price is tumbling in morning trade, down 12.2% after opening 4% higher.

Pointsbet shares closed yesterday trading for $3.57 and are currently trading at $3.14.

This comes following this morning’s release of the S&P/ASX 200 Index (ASX: XJO) corporate bookmaker’s quarterly results for the three months ending 30 June (Q4 FY22).

Pointsbet share price falls despite improving win margins

• Total net win increased 41% year-on-year to $85.8 million, up from $60.8 million
• Sports betting net win increased 32% from Q4 FY21 to $78.5 million
• iGaming net win increased 400% from the prior corresponding period to $7.3 million
• Completed a $94.2 million strategic investment and partnership with SIG Sports Investment Corp for a 12.76% stake
• $472.7 million in total corporate cash and cash equivalents as at 30 June

What else happened during the quarter?

The Pointsbet share price also isn’t getting a boost today from the 32% year-on-year increase in turnover/handle the company reported. That’s the dollar amount wagered by clients before any winnings are paid out or losses incurred.

Turnover/handle hit $1.30 billion in Q4 FY22, up from $986 million in Q4 FY21.

The company also reported on its full 2022 financial year total net win, which leapt 48% from FY21, up to $309.4 million.

Pointsbet said its new partnership with SIG Sports, a member of the Susquehanna International Group of Companies, will help it grow and compete in the North American sports betting market.

During the quarter, Pointsbet’s European branch also entered an exploratory agreement with Nellie Analytics Limited, itself a member of the SIG Group.

According to the release, Nellie Analytics will provide exclusive sports analytical services to “complement and enhance the operational capabilities of PointsBet Europe and accelerate the company’s technology roadmap as it relates to highly sophisticated risk management and trading algorithms, with a focus on in-play in the North American market”.

Pointsbet share price snapshot

With today’s big slide factored in, the Pointsbet share price is down 54% in 2022. That compares to a year-to-date loss of 8% posted by the ASX 200.

The post Pointsbet share price tumbles 12% despite reported net-win improvements appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today
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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 positions in and has recommended Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings 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 Sezzle Inc (ASX: SZL) share price is on the move again on Friday following the release of the company’s second quarter update.

In morning trade, the buy now pay later (BNPL) provider’s shares are up 46% to $1.49.

Sezzle share price higher on modest Q2 growth

• Underlying Merchant Sales (UMS) increased 1.9% year on year to US$419.1 million
• Total Income grew 6.8% to US$29.3 million
• Percentage of UMS labelled as uncollectible accounts receivable declined to 1.9%
• Transaction expense as a percentage of UMS improved 20bps quarter on quarter to 2.4%.
• Active merchants rose 19% year on year to 47,900
• Active consumers up 18.2% year on year to 3.4 million

What happened during the quarter?

For the three months ended 30 June, Sezzle delivered a 1.9% increase in UMS to US$419.1 million. Management advised that this reflects softer consumer spending in the United States in April and May before a rebound in June.

Things were more positive for its total income, which grew 6.8% to US$29.3 million. This reflects the company’s recent initiatives on driving toward profitability, such as renegotiations with merchant partners and offboarding unprofitable merchants.

Speaking of profitability, Sezzle revealed that it has taken several actions representing over US$40 million in expected annualised revenue and cost savings to improve its free cash flow and accelerate its path to profitability.

As well as offboarding or renegotiating rates with merchants, it has improved its virtual card network revenue share, reduced its workforce, scaled back efforts in Europe and Brazil, ceased payment processing in India, reduced third-party spend, and launched its Sezzle Premium subscription product.

The latter provides consumers a number of additional features and benefits relative to the company’s core pay in four product. As of 27 July 2022, total subscriptions were over 47,000.

Management commentary

Commenting on its cost-saving action, Sezzle’s executive chairman and CEO, Charlie Youakim, said:

In the last few months, we have launched US$40.0 million worth of revenue and cost savings initiatives, as we move towards profitability and positive free cash flow generation, and we believe the results of those actions are starting to show.

We expect to see the full benefit of these initiatives on a run-rate basis by year end, and coupled with additional actions we are taking, we anticipate achieving positive monthly net operating income (excluding stock-based compensation and non-recurring charges) by year end. We recognize these initiatives may be at the expense of growth, but believe it is the prudent move for Sezzle at this time.

The post Sezzle share price jumps 46% on Q2 update 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 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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One fund manager has picked out an S&P/ASX 300 Index (ASX: XKO) share that could be a prime takeover target.

Fundies are always looking for opportunities. For most investment picks, investors are looking for ASX shares that could rise in value and/or pay attractive income to shareholders.

However, the smaller we look down the market capitalisation list, the easier it could be for an external party to buy the whole business.

For example, Sydney Airport was recently taken off the ASX boards in a multibillion-dollar takeover. Big deals can happen.

There have been plenty of other takeovers over the years, including MYOB, Australian Pharmaceutical Industries (API) and Crown.

It’s hard to say for sure if a business is going to become a takeover target, but if it has attractive assets which are not valued highly by the market, or has an attractive earnings profile, then other businesses, superannuation funds or private equity could want to buy that company.

Which ASX 300 share could be a takeover target?

The fund manager Tim Canham from investment outfit First Sentier has named a potential takeover target.

Talking to the Australian Financial Review, Canham was asked if he thinks there are any ASX small cap shares that make appealing takeover targets.

The fund manager named Dalrymple Bay Infrastructure Ltd (ASX: DBI) as that potential opportunity.   

What does it do?

The ASX 300 share describes itself as a “foundation asset”. The Dalrymple Bay Terminal (DBT) aims to provide “safe and efficient” port infrastructure and services for producers and consumers of “high-quality Australian coal exports”.

DBT is supposedly the world’s largest metallurgical coal export facility. It serves as the “global gateway” from the Bowen Basin in Queensland, and the business states it’s a “critical link” in the global steelmaking supply chain.

There are options for capacity expansions to meet “expected strong export demand”.

For shareholders, DBI wants to provide distributions, capital growth, and it will continue to invest.

Why could it be a takeover target?

Canham said, according to the AFR:

We have seen most quality infrastructure stocks picked up by private capital and what I would call “patient capital”. On an attractive yield and with take-or-pay revenues, it looks very defensive in this market environment. The potential for an uplift in its user charges also remains.

According to Morgans, Dalrymple Bay Infrastructure is going to pay a dividend yield of 8.9%.

Share price snapshot

The Dalrymple Bay Infrastructure share price is up around 2% since the start of 2022 and 5% over the past month. However, it is down 5% over the past year.

It closed flat on Thursday at $2.07, giving the ASX 300 share a market cap of $1.02 billion.

The post Fundie reveals under-the-radar ASX 300 share ripe for takeover 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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The AVZ Minerals Ltd (ASX: AVZ) share price was scheduled to return to trade on Friday after being suspended for over two and a half months.

But yet again, the lithium developer has requested that its shares remain out of action for a further two weeks.

What’s happening with the AVZ share price?

Back on 9 May, the AVZ share price was slammed into a trading halt while the company dealt with an ownership battle.

This relates to the ownership of the Dathcom Mining SA (Dathcom) business, which is the owner of the licence for the massive Manono Lithium Project in the Democratic Republic of the Congo.

While there is no dispute that AVZ is an owner of Dathcom, the issue is how much the company will ultimately own.

China’s Jin Cheng Mining Company claims to have snapped up a stake from La Congolaise D’Exploitation Miniere SA. And while AVZ has labelled this as a “meritless claim”, it hasn’t stopped Jin Cheng from taking the company to an arbitration.

The concern is that if things don’t go in the company’s favour, it could be left with a stake as little as 36%. This includes the proposed sale of a 24% interest to Suzhou CATH Energy Technologies.

What’s the latest?

It looks as though the AVZ share price will be out of action for at least three months in total.

This morning the company revealed that it hasn’t settled the aforementioned dispute and has requested that its suspension continue until the middle of August. It explained:

The Company advises that the subject of the initial trading halt request remains incomplete and requests a further extension to the voluntary suspension until the commencement of trade on 15 August 2022 or an earlier announcement to the market regarding its mining and exploration rights for the Manono Project.

The post Is the AVZ share price still suspended? appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Friday
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• Why did the AVZ share price thump the market in FY22?

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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S&P/ASX 200 Index (ASX: XJO) mining shares have struggled recently, and Iluka Resources Limited (ASX: ILU) hasn’t dodged its sector’s carnage.

The mineral sands producer’s stock is currently trading at $9.59. That’s 25% lower than the record high it reached in April. Meanwhile, the S&P/ASX 200 Materials Index (ASX: XMJ) is down 10% year to date.

But First Sentier senior portfolio manager Tim Canham appears bullish on the Iluka share price. The fundie reportedly believes the materials share is undervalued and ready to benefit from a lack of supply.

Let’s take a closer look at what the expert has tipped will drive the ASX 200 mining share higher.

ASX 200 mining share tipped to take off

Iluka is an ASX 200 mineral sands miner developing and operating projects across Australia. From its mineral sands, Iluka produces minerals such as zircon, titanium, and rare-earth elements.

Canham believes there’s plenty to be hopeful about when it comes to mineral sands. The fundie told the Australian Financial Review:

[T]here are headwinds from global recession fears and Chinese housing issues, but the fundamental lack of supply in mineral sands products is very real.

Canham also thinks Iluka’s push to construct a rare earth refinery in Western Australia is “misunderstood by the market and undervalued”, continuing:

As a manufacturing destination, [Western Australia] looks attractive with some of the lowest gas prices in the world.

Iluka has doubled down on its Australian business recently. It spun out its West African mineral sands leg into Sierra Rutile Holdings Limited (ASX: SRX) earlier this week.

And Canham isn’t the only expert expecting big things from the ASX 200 mining share.

Goldman Sachs has slapped Iluka shares with a $13.80 price target and a buy rating, my Fool colleague James reports. That implies a potential 44% upside.

The post ‘Misunderstood by the market’: Why this fundie says this ASX 200 mining share is undervalued right now appeared first on The Motley Fool Australia.

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• Here’s why experts say these are the ASX mining shares to buy now
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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended 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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The Sayona Mining Ltd (ASX: SYA) share price closed flat on Thursday at 20 cents. That extends its gains to around 25% over the past week.

Zooming out, and investors have bid the share almost 54% higher for the year to date, putting it well ahead of the majority of the ASX’s laggards. Seen below is its return for the past 12 months.

Is Sayona Mining profitable?

Here we’re talking about the company and not the share price. We’ll use Sayona Mining’s H1 FY22 results as it is yet to report its full-year earnings.

In order to answer this question, we have to dive deep into the notes of its financial statements and understand how it books income, its accounting policies, and so on.

Sayona Mining printed no revenue in H1 FY22, and recognised an operating loss of $8 million and a pre-tax loss of $13 million.

Hence it is unprofitable at the operating income level, and pre-tax margins are also negative.

Curiously, however, despite its loss on operating income, the company actually booked a net profit after tax (NPAT) of $98 million, up from a loss of $3.4 million the year prior.

One might look to this and argue that Sayona is, in fact, profitable – it did produce an NPAT, after all. However, as strange as it seems, net profit is not the best measure of profitability, at all.

Sayona was ‘technically’ profitable on a statutory basis based on current accounting standards. However, operationally, the company is yet to draw any revenues, meaning the company is unable to be considered ‘operationally’ profitable.

Various accounting policies mean that income is booked in various ways, and hence more analysis must be done to uncover the ‘true’ profitability of the company.

Let’s break it down

First, addressing the NPAT issue. A quick look at Sayona Mining’s half-yearly report shows that it recognised $108.5 million in “other income”, also known as non-recurring income.

In Note 4 to the statements, “significant transactions and events”, it recognised this from the “gain from a bargain purchase of A$108.4 million” of North American Lithium Inc. (NAL).

Basically, NAL had filed for bankruptcy protection in FY19, and it took until FY21 for Sayona’s bid to get approved.

As such, Sayona Mining notes that it has made a $108.4 million accounting gain on the acquisition of North American Lithium.

However, as noted, the income is booked under an accounting concept known as a bargain purchase.

Simply, when an acquiring company buys another company whose fair value is greater than what the acquirer paid for it, that is a bargain purchase. This often happens in distressed situations.

However, there is no cash flow/revenue attached to this ‘income’. It is simply an accounting factor that measures the difference between the fair value of an asset and the price paid, and then books this as income.

On the income statement, this line is situated below earnings before interest, taxes, depreciation and amortisation (EBITDA), operating income and other pre-tax earnings.

Hence why Sayona Mining booked a $93 million net profit after deducting all the costs associated with the bargain purchase. When backing this $108 million unrealised gain out of the equation, it printed a net loss of $15 million.

Additionally, there are more meaningful ways to measure profitability than just income. Its gross net margins are each negative as well, when making this necessary adjustment.

In addition, return on equity (ROE) is a minus 4.7% in H1 FY22, whereas the return on assets is a negative 3.4%. It also has yet to generate a positive return on invested capital.

Free cash flow – the lifeblood of corporate value – was also in the red at almost $12 million last half.

Hence, after analysing Sayona’s financial statements in greater detail, and making the necessary accounting adjustments, it shows that the company remains unprofitable by all measures.

The post Is ASX lithium company Sayona Mining profitable? appeared first on The Motley Fool Australia.

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• Why is the Sayona Mining share price up 35% this week?
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• Why did the Sayona Mining share price crash 32% in June?

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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The Tabcorp Holdings Limited (ASX: TAH) share price has recovered from its dramatic dive in May when it lost about 80% of its value in one day.

This happened after the gaming entertainment company announced that its lotteries and Keno business would be siphoned off into a new ASX-listed entity called Lottery Corporation Ltd (ASX: TLC).

The Tabcorp share price fell from $1.06 on 24 May to 91 cents on 1 June.

It has since recovered to trade as high as $1.08 over the past month.

‘Successful demerger’

In a recent update, analysts for the Airlie Australian Share Fund said the “early signs are encouraging for yet another successful demerger story”.

The fund said: “At the time of writing [30 June], the demerger trade has performed well. … we are now starting to see some value emerging in the remaining Tabcorp entity, where the wagering, media and gaming services businesses are held.”

Tabcorp is the second largest operator in Australia, wagering with more than $16 billion in turnover. It’s also the second largest digital player with more than $9 billion in turnover.

The market leader is Sportsbet.

Regulatory changes positive for Tabcorp

TAB holds the exclusive retail and totalisator licences for every Australian state and territory bar Western Australia. In order to have this exclusivity, Tabcorp pays higher taxes and product fees. This amounts to 66% of its revenue compared to 43% for Sportsbet.

The value of this exclusivity is now less as more gamblers bet online using fixed odds rather than the tote.

As Airlie noted:

While the introduction of the point of consumption tax (POCT) in 2019 has rectified some of this imbalance … in just the few weeks since the demerger, Tabcorp management has already made substantial progress in reducing this cost disadvantage.

As part of the settlement of Tabcorp’s dispute with Racing QLD, the Queensland Government has announced reforms to the State wagering tax, which will have the effect of levelling the playing field between Tabcorp and online bookmakers.

Airlie also pointed out that the NSW Government increased the POCT from 10% to 15% on 1 July.

… Tabcorp will receive transition payments over 18 months to ensure they are ‘no worse off’ under the POCT increase.

… we consider the impact on online bookmakers is likely to be far more severe, helping to reduce the margin differential.

More regulation may dissuade new market entrants

Airlie said changes to the POCT “have dramatically decreased the variable contribution margin for industry participants”.

From the perspective of a new entrant, this is a dramatic reduction in the percentage of turnover that can be spent on product development, marketing, and other expenses essential to gaining scale and creating a viable business.

This perhaps explains why the industry has undergone material consolidation over the last decade, shrinking from around 10 key players in 2009 to around just 6 today.

More people gambling

Airlie said the “industry economics remain attractive” and “scale operators exhibit healthy margins and strong returns on capital employed”.

Total market wagering turnover grew at a compound 6% per annum over the 10 years to 2019.

Airlie said:

Now that Tabcorp is its own separate entity, this could mean management can make more long-dated investments in product functionality and customer service. We consider that these steps should help to further stabilise market share moving forward.

The numbers look good

Tabcorp is trading on an earnings before interest and tax (EBIT) multiple of approximately 13 times.

Airlie said the balance sheet is “healthy with net debt of less than $100 million”. It also pointed out “very strong free cash flow generation”.

Airlie said despite “material hurdles for management to overcome”, buying Tabcorp on 13 times EBIT “looks like a solid bet”.

The post Why buying Tabcorp shares right now ‘looks like a solid bet’: fundie appeared first on The Motley Fool Australia.

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• Is the Tabcorp share price really trading on a 13% dividend yield right now?
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• 5 ASX dividend shares with the highest yields in FY22

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 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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Patient investors could reap nice long-term rewards out of an ASX share that just doubled its quarterly revenue on a year-on-year basis.

That’s according to Morgans associate analyst Steven Sassine, who admired the latest numbers coming out of campervan peer-to-peer sharing platform Camplify Holdings Ltd (ASX: CHL).

The revenue for the final quarter of the 2022 financial year was 104% up on a year earlier, which triggered the share price to leap more than 9% on Monday morning.

Gross transaction volumes (GTV) were up 83% from the prior comparable period.

“In our view, [the update] showed strong growth in key metrics and highlighted the underlying momentum in the business post lockdowns easing continued throughout the fourth quarter,” said Sassine on the Morgans blog.

“We remain comfortable with the growth trajectory of the business and the potential to further gain share in offshore geographies.”

Excellent growth all over the world

With more people getting out and about on trips in the post-lockdown era, all regions are showing promise for Camplify.

“The New Zealand market showed strong recovery post lockdowns easing, with a 146% GTV increase on pcp and has also seen future bookings increase significantly (1,146% on pcp),” said Sassine.

“Spain saw GTV growth of ~580% on pcp (off a low base). The UK appears to be tracking well and is now within its seasonal peak period, with management commentary indicating GTV growth for the quarter of 103% and revenue growth of 155% on pcp.”

Future bookings are “robust”, standing at about $14.8 million.

Camplify burned through about $2.2 million for the quarter, which left roughly $15 million in the kitty.

‘P​rodigious opportunity’ and ‘structural tailwinds’

Even though the Morgans team downgraded its topline revenue forecasts by 3% to 4%, that still leaves an impressive 67% three-year compound annual growth rate.

Sassine and his colleagues rate the growth stock as a buy.

“Camplify’s management team has shown an ability to build out a successful scalable platform, in our view,” he said.

“Whilst still in its infancy and not without risk, we believe structural tailwinds supporting Camplify and the prodigious opportunity offshore should provide longer-term growth potential for patient investors.”

The big risks to the ASX share, according to Sassine, would be natural disasters and new competition.

Wilson Asset Management senior investment analyst Shaun Weick last year compared Camplify to a now-ubiquitous global platform.

“Camplify is essentially the Airbnb Inc (NASDAQ: ABNB) of RVs and campervans,” he said.

“We see a really strong growth trajectory, particularly as… thankfully we all get out there and take some holidays for the first time in probably two years.”

The post ‘Strong growth’: Expert says buy this ASX company that just doubled revenue appeared first on The Motley Fool Australia.

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• Camplify share price leaps 6% as revenue more than doubles

Motley Fool contributor Tony Yoo has positions in Airbnb, Inc. and Camplify Holdings Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Airbnb, Inc. and Camplify Holdings Limited. 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 share market behaves pretty strangely sometimes.

For most of this year, growth stocks have been punished out of the fear of rising interest rates.

But now that Australia and the rest of the developed world are actually in the midst of a multi-month rate-hike cycle, growth shares are rocketing upward.

The global bellwether for growth stocks, the Nasdaq Composite (NASDAQ: .IXIC) index, has risen 7% over the past fortnight. It even rose 4% on Thursday morning after the US added another 75 basis points to its benchmark interest rate.

So what does this mean?

Investors are always told markets are forward-looking. Does this mean it has moved past bearishness for growth stocks? Is it recovery time now?

Wilsons head of investment strategy David Cassidy this week attempted to answer this conundrum.

‘Slower growth should favour the growth style’

With interest rates heading upwards around the globe, an economic downturn is sure to follow.

And, according to Cassidy, this is when growth shares shine.

“Slower growth should favour the growth style. The big proviso is that growth stocks need to deliver growth, which is not always assured given that the margin of safety in growth stock investing is typically slim,” he said in a memo to clients.

“The past six to nine months have seen some cracks appearing on the earnings front for the growth style, although earnings for the growth mega caps have still held together reasonably well.”

The US reporting season currently underway will provide many answers.

“The market will be weighing up earnings resilience versus latent cyclicality, that is, the ability to pass on cost pressures as well as the potential headwind from revenues pulled forward into the COVID earnings boom,” said Cassidy.

“So far, results look better than feared – which has sparked a fresh rally in growth stocks – even though it is still early days.”

A ‘quality growth revival’

While we might be witnessing the start of a new renaissance for growth shares, Cassidy’s team feels like the “highly speculative growth phase” seen over 2020 and 2021 is unlikely to repeat.

“In our view, if growth does reassert itself, it is likely to be a less dramatic, ‘quality growth’ revival.”

“We think it makes sense to invest in quality-focused portfolios that can weather a slower business cycle and cope with cost pressures.”

That means avoiding companies that are pre-revenue, have high debts or have poor cash flow.

In previous memos, Cassidy named CSL Limited (ASX: CSL) as a quality stock that’s suitable for the current climate.

“Recessions rarely disrupt the need for medical care or medications,” he said last month.

“CSL is the definition of a quality defensive — with resilient earnings, high ROE and the ability to positively surprise the market.”

The post Are growth shares back? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has positions in CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. 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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