Interested in investing in the ASX share market? It can be tricky for beginners to know which ASX shares to buy first when starting an investment portfolio.

The idea of being able to own a small part of a business like Telstra Corporation Ltd (ASX: TLS) or Domino’s Pizza Enterprises Ltd (ASX: DMP) sounds intriguing. Some people like to start their investing journey by investing in the businesses they are familiar with.

But there are more potential investments out there than just the most well-known brands.

It can also be important to keep the concept of diversification in mind. By building a well-balanced portfolio that includes a range of companies in different sectors, you can spread the risk between them, safeguarding against wipe-out if one or two investments fail to fly.

However, it can take a while to build a suitably diversified portfolio. One answer for rapid diversification might be to pick an exchange-traded fund (ETF) for your first investment.

An ETF can represent an entire portfolio of dozens, hundreds or even thousands of shares, depending on the ETF. It can provide instant diversification.

There are plenty of ASX companies and ETFs to invest in should you choose.

Some ETFs track a broad index, such as the S&P/ASX 300 Index (ASX: XKO). That’s 300 of the biggest businesses on the ASX. The ETF that tracks this is the Vanguard Australian Shares Index ETF (ASX: VAS).

There are also ETFs that give investors exposure to specific industries such as the VanEck Video Gaming and Esports ETF (ASX: ESPO).

However, for those Aussies looking for an investment option that has a climate change or ethical slant to it, I think the ETF I’m about to outline ticks all the boxes.

BetaShares Global Sustainability Leaders ETF (ASX: ETHI)

This ETF is invested in 200 businesses across the globe, so it ticks the diversification box.

The companies are from many different countries including the United States, Japan, the United Kindom, Switzerland, the Netherlands, France, Hong Kong, Germany, Denmark and other countries.

The fund is quite a unique investment because of the process it follows to pick its holdings.

The selection process starts with the global large-cap share market. The list is whittled down to companies that are in the top one-third of performers in terms of carbon efficiency in their industry, or are involved in helping reduce carbon use in other industries.

Next, the ETF excludes a range of businesses that aren’t deemed to be socially or environmentally “acceptable”. This way of selection/exclusion is known as ESG investing.

It excludes businesses that are involved in producing fossil fuels. No companies are allowed in the portfolio that are significantly engaged in weapons, gambling, alcohol or junk foods.

Other exclusions are companies with human rights or supply chain issues, and companies that lack gender diversity on the board.

In terms of what the ETHI ETF actually owns, these are some of the biggest positions: Visa, Home Depot, Apple, Mastercard, Nvidia and Toyota.

Foolish takeaway

I think that this ETF is a good option for beginner investors who want diversification and to be invested in companies that appear to be doing the ‘right’ thing.

Past performance is not a reliable indicator of future performance, particularly in the current volatile environment, but over the three years to April 2022, the ETHI ETF has returned an average of 17% per year despite the volatility.

And in my opinion, the BetaShares Global Sustainability Leaders ETF looks to be better value to buy after dropping almost 20% in 2022 so far.

The post One ASX share price opportunity I couldn’t pass up if I started investing today appeared first on The Motley Fool Australia.

More reading

• 2 popular ETFs that could be buys for ASX investors
• 2 ETFs I’d buy in June 2022
• 2 great ETFs I’d buy for my portfolio

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 positions in and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited, REA Group Limited, and VanEck Vectors ETF Trust – VanEck Vectors Video Gaming and eSports ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Sonic Healthcare Ltd (ASX: SHL) share price has seen plenty of volatility over the last two and a half years.

Adding its 20% decline in 2022 to the equation, I believe that the company’s beaten-down share price now offers compelling value.

Sonic Healthcare has medical diagnostic operations in several countries including Australia, the United States, Germany, the United Kingdom, Switzerland, Belgium and New Zealand. It also has clinical services and a growing radiology division.

A pathology business may sound a little boring, but I think there’s plenty to be excited about. Here are three reasons why I think Sonic Healthcare is an attractive long-term opportunity.

1. Acquisitions

The company has made a number of acquisitions in recent times, which I think will unlock longer-term growth for the ASX healthcare share.

In the FY22 first half, Sonic Healthcare put $585 million into acquisitions and investments.

That includes the ProPath acquisition in Dallas, Texas, which added US$110 million of revenue. The Canberra Imaging Group deal added A$60 million of revenue to the business.

It also invested in Harrison.ai for a 20% stake and established a pathology joint venture.

Sonic says that artificial intelligence has significant potential to enhance diagnostic accuracy, reproducibility and efficiency in pathology and radiology.

The company added that its deep clinical expertise, combined with Harrison.ai’s proven AI methodologies, were set to create a “powerful force” in healthcare AI.

2. Ongoing core revenue growth

In my opinion, one of the more important things that a business needs to be able to deliver good investment returns is decent revenue growth. It’s hard to grow profit if revenue isn’t rising.

Sonic Healthcare has benefited from high volumes of COVID-19 testing. But base revenue in the FY22 first half also rose by 4.3% year on year. Management is expecting ongoing growth of the base business, with “strong” underlying drivers, including a catch-up of testing postponed because of the COVID-19 pandemic.

Growth of the base business will help the core net profit after tax (NPAT) rise over time.

Sonic Healthcare has used its COVID testing cash windfall to make acquisitions and launch a share buy-back.

However, the ASX share is also expecting a sustainable level of COVID testing in the future including “routine COVID-19 testing, screening programs, variant testing, whole-genome sequencing, [and] antibody tests”.

There are still many thousands of PCR tests being done in Australia, although Sonic is not responsible for all of them. For example, New South Wales reported that 30,006 PCR tests were conducted in the 24 hours prior to 4pm on 1 June 2022.

3. Dividends

While Sonic Healthcare’s dividend yield is not exactly huge, its progressive dividend policy means that the dividend is steadily growing.

The trailing dividend yield is 2.6% at the current Sonic Healthcare share price, excluding the effect of franking credits.

In my opinion, an ASX share that pays dividends can usually offer a handy boost for returns for shareholders.

The post Why I think the Sonic Healthcare share price is a buy appeared first on The Motley Fool Australia.

More reading

• I’d invest $5,000 into these excellent ASX shares for the long term
• Is it reasonable to expect share price growth AND reliable dividends from ASX shares?
• 2 strong ASX dividend shares hiding in plain sight
• Broker names 3 more ‘champion’ ASX 200 shares to buy and hold

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

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If you’re an income investor searching for new dividend shares to buy, it could be worth checking out the two listed below.

Here’s why they are rated as buys right now:

Adairs Ltd (ASX: ADH)

The first ASX dividend share that could be a buy is Adairs. It is the leading furniture and homewares retailer behind the Focus on Furniture, Mocka, and eponymous Adairs brands.

While trading conditions are tough right now, the team at Morgans remains upbeat and has an add rating and $3.50 price target on its shares.

Its analysts are expecting Adairs to bounce back strongly in FY 2023 thanks to the recent acquisition of Focus on Furniture and the launch of its new national distribution centre.

Morgans is also expecting some very big dividends in the near term. It is forecasting fully franked dividends of 19 cents per share in FY 2022 and 26 cents per share in FY 2023. Based on the current Adairs share price of $2.42, this will mean yields of 7.9% and 10.7%, respectively.

Mineral Resources Limited (ASX: MIN)

Another dividend share to look at is Mineral Resources. This mining and mining services company could be a top option for income investors that aren’t averse to investing in the resources sector.

This is because Mineral Resources has exposure to two of the hottest commodities in town right now – iron ore and lithium.

Goldman Sachs is very positive on the company and has a buy rating and $73.80 price target. Its analysts are forecasting the “more than doubling of group EBITDA to over A$2bn in FY23 driven by higher lithium and low grade iron ore prices, and a 5% increase to mining services volumes to ~300Mt.”

As for dividends, Goldman is forecasting fully franked dividends of 64 cents per share in FY 2022 and then 244 cents per share in FY 2023. Based on the latest Mineral Resources share price of $60.35, this will mean yields of 1% and 4%, respectively.

The post 2 ASX dividend shares that experts are tipping as buys right now appeared first on The Motley Fool Australia.

More reading

• One broker’s outlook for lithium supply and demand and what it could mean for ASX lithium shares
• Why was May such a shocker for the Adairs share price?
• 3 high-quality ASX 300 shares trading at 52-week lows today
• Mineral Resources share price dips despite new lithium partnership
• Why did the Mineral Resources share price slide today?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ADAIRS FPO. The Motley Fool Australia has positions in and has recommended ADAIRS 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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Exchange traded funds (ETFs) can be a fantastic way to balance out your portfolio. This is because ETFs provide investors with easy access to a large and diverse group of shares.

With that in mind, I have picked out two ETFs that are popular with investors right now. Here’s what you need to know about them:

Betashares Global Sustainability Leaders ETF (ASX: ETHI)

The first ETF for ASX investors to take a look at is the Betashares Global Sustainability Leaders ETF.

It could be a good option for investors looking for ethical options. That is because the ETF gives investors exposure to large global stocks that have been passed strict ESG screens and been identified as climate leaders. Among the shares included in the fund are the likes of Adobe, Apple, Home Depot, Nvidia, Toyota, and Visa.

Shaw and Partners’ Felicity Thomas recently rated the ETF as a buy. She told Livewire: “This is one of my favourites, so it’s definitely a buy for me. I really like that they do positive carbon screening. They also pay a 5.7% distribution yield, which is great.”

VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)

Another ETF that could be a top option is the VanEck Vectors Video Gaming and eSports ETF.

As its name implies, this ETF gives investors exposure to a portfolio of the largest companies involved in the video game industry. This includes video game developers and hardware providers.

VanEck highlights that these companies are in a position to benefit from the increasing popularity of video games and eSports. It notes that there are 2.7 billion active gamers worldwide, which is more than iPhone users and Netflix users combined.

Among the ETF’s major holdings are graphics processing units giant Nvidia and games developers Take-Two Interactive (GTA, Red Dead), Electronic Arts (FIFA, Sims, Apex Legends), and Roblox.

The post 2 popular ETFs that could be buys for ASX investors appeared first on The Motley Fool Australia.

More reading

• 2 ETFs I’d buy in June 2022
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• 3 high quality ETFs for ASX investors to buy now
• 2 great ETFs I’d buy for my portfolio
• Here are 2 quality ETFs that are now a lot cheaper

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 VanEck Vectors ETF Trust – VanEck Vectors Video Gaming and eSports ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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May 2022 saw the Wesfarmers Ltd (ASX: WES) share price go backwards. Could June 2022 be better for the business?

Wesfarmers is one of the biggest businesses in Australia. It operates a number of well-recognised Australian retailers including Bunnings, Officeworks, Kmart, Catch and Target.

The latest we’ve heard from the business was from a strategy briefing day.

Investor day

Wesfarmers re-iterated to investors that its primary objective is to provide a satisfactory return to shareholders. There are a number of areas that it’s focusing on to make those returns happen.

One of those factors is “anticipating the needs of our customers and delivering competitive goods and services.” Another is “looking after our team members and providing a safe, fulfilling work environment.” A third one was “taking care of the environment”.

Wesfarmers is currently working on its data and digital ecosystem. It established ‘OneDigital’ in the second half of FY22 and extended the benefits of the OnePass membership program to Kmart and Target.

It has strengthened its e-commerce capabilities, while Bunnings and Officeworks have partnered with Flybuys.

The company also said that it’s developing platforms for long-term growth.

It’s putting money into developing the Mt Holland lithium project.

Wesfarmers has established a health division after acquiring Australian Pharmaceutical Industries.

It is exploring capacity expansion and adjacent industry opportunities within WesCEF (chemicals, energy and fertilisers). Those opportunities it’s looking at include ammonia and sodium cyanide plants, as well as clean energy projects.

Management is also working on the continued development of Bunnings, including Tool Kit Depot and Beaumont Tiles. Bunnings is a large contributor to the Wesfarmers profit and therefore the Wesfarmers share price.

Improving operations

The ASX share also noted that it’s looking to accelerate the pace of its continuous improvement.

Areas of focus include improving supply chain capabilities, increasing resilience and operational agility, optimising store networks, focusing on sustainability and supporting team members and the community.

Outlook

Investors like to focus on the potential outlook, so investors may be taking that into account with the Wesfarmers share price.

The company noted that market conditions remain uncertain and “challenging”. There have been continued COVID-related disruptions to the global supply chain and labour availability in some states. It also noted inflationary impacts, though the business wants to be a price leader for customers.

Wesfarmers says that it’s focused on building market share and integrating sustainable practices to ensure long-term profitability.

Expert ratings on the Wesfarmers share price

Opinions are quite mixed on the business.

On the one hand, there is a broker like Morgans with a buy rating on Wesfarmers and a price target of $58.40. That suggests a possible rise of more than 20% over the next 12 months.

Then there’s Citi which rates Wesfarmers as a sell, with a price target of just $42. One of the reasons for the cautiousness is that Bunnings could face earnings difficulties as house prices decline.

However, while these ratings are opposite, the profit estimates are quite similar. Citi thinks the Wesfarmers share price is valued at 24 times FY22’s estimated earnings with a projected grossed-up dividend yield of 5.4%.

The post What’s in store for the Wesfarmers share price in June? appeared first on The Motley Fool Australia.

More reading

• 2 more of this broker’s best ASX share ideas for June
• 5 things to watch on the ASX 200 on Friday
• ASX 200 midday update: Pilbara Minerals names new CEO, Wesfarmers’ strategy update
• Why is the Wesfarmers share price slipping today?
• Top brokers name 3 ASX shares to buy today

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 positions in and has recommended Wesfarmers 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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Looking for dividends shares to buy for your income portfolio? If you are, you may want to check out the two listed below.

Here’s what you need to know about these ASX dividend shares:

Baby Bunting Group Ltd (ASX: BBN)

The first ASX dividend share that could be in the buy zone is Baby Bunting. It is a leading baby products retailer with a network of superstores across Australia.

While the retail sector is a tough place to be right now due to rising inflation, the team at Citi remains very positive on the company. Last month, the broker retained its buy rating and $6.22 price target on its shares.

Citi is particularly positive on Baby Bunting due to its private label opportunity, which it believes has a significant runway for growth. It also highlights that it has a strong position in a less discretionary category. It expects this to support strong sales and earnings growth in the coming years.

As for dividends, Citi has pencilled in fully franked dividends per share of 16 cents in FY 2022 and 19 cents in FY 2023. Based on the current Baby Bunting share price of $4.35, this will mean yields of 3.7% and 4.4%, respectively.

HomeCo Daily Needs REIT (ASX: HDN)

Another ASX dividend share that has been rated as a buy is HomeCo Daily Needs REIT. It is a property company with a focus on neighbourhood retail, health and services, and large format retail. The latter include retail parks that were owned by Aventus before the two companies merged.

Goldman Sachs is a big fan of HomeCo Daily Needs and has a buy rating and $1.70 price target on its shares.

Its analysts believe the company is well positioned to benefit from the shift to omni channel retailing. Goldman also highlights that the company has additional external growth opportunities to drive earnings growth over the medium-term. This includes development and asset optimisation opportunities.

As for dividends, the broker is forecasting dividends per share of 8 cents in FY 2022 and 9 cents in FY 2023. Based on the current HomeCo Daily Needs share price of $1.33, this will mean dividend yields of 6% and 6.75%, respectively.

The post Here are 2 excellent ASX dividend shares rated as buys appeared first on The Motley Fool Australia.

More reading

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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 Baby Bunting. 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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Investors have sold off shares of Macquarie Telecom Group Ltd (ASX: MAQ) in recent weeks, pushing prices 11% lower this past month of trade.

At the time of writing, the MAQ share price is also down 13% this year to date, fetching $63.37 apiece at the close on Friday.

Despite the downward pressure, market pundits still see value in the stock, sliding against the market’s view on the company.

Beaten down, but not beaten

When asked about resilient stocks on his radar recently, Gary Rollo from Montgomery Investment Management was straight to the point in naming Macquarie Telecom.

The data centre player has “got major clients like the cloud hyper-scalers as clients… growing their business pretty strongly and also the Aussie government,” he noted when speaking to Livewire’s Buy, Hold, Sell. 

“They’re basically digitalising more rapidly than the market probably expects.”

Rollo added the strength of Macquarie Telecom’s balance sheet and that he saw “great numbers in the second half” from the company.

In the group’s latest earnings results, revenue saw a 4% uptick to $149 million whereas pre-tax earnings came in 11% higher at $40.5 million.

From this amount, operating cash flows were reported at $37.6 million, a year-on-year gain of more than $10 million. Rollo added:

[With] Macquarie Telecom, you’re not going to go wrong and it’s got lots of value left on the table. We think it’s worth somewhere between $80 and a hundred bucks, even in a higher interest rate environment.

Macquarie Telecom bounced from a 3-month low of $56.37 on 26 May in a relief rally that extended to $64.40 per share.

Prices have levelled off but Rollo appears to be a buyer at these levels keeping a long term, fundamental framework in mind.

Despite the volatility this year, the Macquarie Telecom share price has clipped a 27% gain in the past 12 months.

The post Why ‘you’re not going to go wrong’ with the Macquarie Telecom share price: fundie appeared first on The Motley Fool Australia.

More reading

• Here are 2 excellent ASX dividend shares rated as buys
• These were the worst performing ASX 200 shares last week
• Why has the Nearmap share price dumped 20% since the end of March?
• Energy crisis: Which is the better buy, AGL vs Origin?
• These were the best performing ASX 200 shares last week

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 S&P/ASX 200 Index (ASX: XJO) was on form again last week and recorded its third successive weekly gain. The benchmark index rose 0.8% over the period to end it at 7,238.8 points.

Unfortunately, not all shares climbed with the market. Here’s why these were the worst performers on the ASX 200 last week:

Pilbara Minerals Ltd (ASX: PLS)

The Pilbara Minerals share price was the worst performer on the ASX 200 last week with a 16.5% decline. Investors were selling lithium shares amid concerns over the outlook for lithium prices. This followed a bearish note out of Goldman Sachs, which reiterated its belief that lithium prices will fall heavily in the coming years, and news that Chinese electric vehicle company BYD is looking to buy six lithium mines in African. BYD expects the mines to produce 1 million tonnes of lithium carbonate each year. That would be enough to build at least 27.78 million electric vehicles, which covers the automaker’s expected demand for the next decade.

Allkem Ltd (ASX: AKE)

The Allkem share price wasn’t far behind with a weekly decline of 15.4%. This was driven by the same news above. In addition, analysts at Credit Suisse downgraded its shares from an outperform rating to a neutral rating and cut the price target on them to $14.70. Credit Suisse expects lithium supply to meet demand in the next couple of years before falling into a surplus in 2025.

Healius Ltd (ASX: HLS)

The Healius share price was out of form and dropped 10.6% last week. The majority of this decline came on Friday following the release of the healthcare company’s trading update. That update revealed that trading conditions have been tough in the second half. As a result, during the first five months of the half, Healius has generated just under $100 million of EBIT. This brought its year-to-date EBIT to $473 million. As a comparison, Goldman Sachs has been forecasting EBIT of $563.3 million in FY 2022. Healius looks unlikely to achieve this.

Imugene Limited (ASX: IMU)

The Imugene share price continued its slide last week and dropped 10.5% over the period. This means that the biotech company’s shares are now down 60% since the start of the year. Valuation concerns continue to weigh on its shares.

The post These were the worst performing ASX 200 shares last week appeared first on The Motley Fool Australia.

More reading

• These were the best performing ASX 200 shares last week
• Here are the top 10 ASX shares today
• Here are the 3 most traded ASX 200 shares on Friday
• One broker’s outlook for lithium supply and demand and what it could mean for ASX lithium shares
• Why Ansell, Domino’s, Firefinch, and Healius shares are dropping

Motley Fool contributor James Mickleboro has positions in Allkem Limited. 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 past two months or so haven’t exactly been a happy time for ASX shares. Since the end of March, the All Ordinaries Index (ASX: XAO) has lost around 4.2% of its value. But it’s been a far harder time for the Nearmap Ltd (ASX: NEA) share price.

Nearmap, an aerial mapping company, has seen its shares fall from more than $1.50 each in late March to today’s price of $1.175 at the close of trade on Friday. That represents a fall of more than 20% in just two months or so.

So why have Nearmap shares been suffering so severely over the past two months?

Why has the Nearmap share price tanked?

Well, it’s not entirely clear what’s happened to the Nearmap share price.

It’s very possible that these falls could have been sparked by the flood of cash we have seen fleeing the tech sector over the past few months. Tech shares of all shapes and sizes have been experiencing some heavy volatility over the year to date.

Since late March, the S&P/ASX All Technology Index (ASX: XTX) has lost close to 20% of its value. We’ve seen this play out in other ASX tech shares like Block Inc (ASX: SQ2), Zip Co Ltd (ASX: ZIP) and Xero Limited (ASX: XRO).

All of these companies have lost more than 20% of their value since the end of March. Block is down almost 40%, Zip almost 50%. So in the context of these moves, the Nearmap share price’s experience doesn’t seem too peculiar.

According to an expert…

But Nearmap has also been suffering from some coolness towards its shares from ASX brokers. Back in April, my Fool colleague covered how broker Macquarie downgraded Nearmap shares to a neutral rating, with a 12-month share price target of $1.34. This may have helped Nearmap shares slump 3.5% at the time. Not exactly a ringing endorsement.

So it’s probably a combination of these factors that have led Nearmap shares to such a dismal performance of late. No doubt investors will be hoping the next two months are more fruitful than the last two.

At the current Nearmap share price, this ASX tech share has a market capitalisation of $581.56 million.

The post Why has the Nearmap share price dumped 20% since the end of March? appeared first on The Motley Fool Australia.

More reading

• Nearmap share price jumps 9% on Friday
• How much further can ASX 200 tech shares tumble? Macquarie weighs in

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 positions in and has recommended Block, Inc., Nearmap Ltd., and Xero. The Motley Fool Australia has positions in and has recommended Block, Inc., Nearmap Ltd., and Xero. 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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Energy costs are skyrocketing, so much so that it’s taking up the front pages of newspapers.

Russia’s invasion of Ukraine has triggered an international shortage that has reached all the way to the other side of the planet, with gas and electricity providers hiking prices.

The energy crisis is so bad that one electricity retailer this week urged customers to switch to another provider before their bill doubles.

So does this mean ASX-listed companies like Origin Energy Ltd (ASX: ORG) and AGL Energy Limited (ASX: AGL) are wise buys right now?

Morgans analyst Max Vickerson took a look at the situation and picked which one he would back:

Energy retail market in crisis

The crisis is starting to have a snowball effect. Smaller retailers urging their own customers to leave will reduce competition in the medium term.

But this is good news for bigger power providers.

“Retailers like AGL that can cover most of the higher wholesale prices with fixed fuel contracts should see margins expand,” Vickerson said on the Morgans blog.

He explained that spot prices for power are remaining “stubbornly and consistently high”, indicating it’s not short-term demand surges that are causing the cost spike.

“In that kind of environment baseload generation is the most effective and fuel efficient method to cover spot market exposures.”

Baseload futures indicate spot prices will remain high well into the 2025 financial year.

AGL vs Origin: The verdict

So is Origin or AGL the better buy at the moment?

Origin this week announced a significant downgrade to its outlook, which saw its share price tumble 15% in one day.

But it’s not like AGL hasn’t had its problems. Technology entrepreneur Mike Cannon-Brookes led a shareholder campaign that forced the company to drop demerger plans and saw its chair and CEO depart last week.

Despite the governance issues, Vickerson feels like AGL is in a better position to navigate through the current energy crisis.

“AGL’s fixed price NSW coal contracts, better logistics and its integrated mining operation in Victoria will insulate it from the worst of the forces that have driven Origin to withdraw its FY23 energy markets guidance.”

He expects AGL will fix its boardroom issues soon enough, and rates the stock as a buy.

“AGL Energy’s standing has suffered because of the wrangling over the long term direction of the company, but the generation assets support stronger margins as consumer prices increase.”

Meanwhile, Vickerson is “wary” of buying into Origin shares, despite the current discount.

“By withdrawing guidance, management has highlighted the risks that can get amplified while spot electricity markets are so unruly,” he said.

“We retain our hold rating and will wait to see how the wholesale market fares during the coming peak winter season.”

The Origin share price is up 13.25% year to date, notwithstanding this week’s plunge. AGL shares have risen a tidy 38.35% since the start of the year.

Both pay reasonable dividends. AGL has a current yield of 5.7% and Origin 3.3%.

The post Energy crisis: Which is the better buy, AGL vs Origin? appeared first on The Motley Fool Australia.

More reading

• In the dark: ASX energy shares facing a perfect storm
• Why Allkem, Origin, PointsBet, and Zip shares are sinking today
• AGL share price unscathed by scrapped demerger. What’s going on?
• ASX 200 midday update: NAB completes acquisition, lithium miners sink, Origin tumbles
• Why is the Origin share price tumbling 15% today?

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 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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