ASX tech shares may have the potential to deliver long-term growth. The world is becoming more technological, which can provide a tailwind.

Some businesses are looking to tap into the growth of this technological trend.

Here are two businesses expecting to become much bigger in the coming years:

Nextdc Ltd (ASX: NXT)

NextDC describes itself as an innovative data centre-as-a-service provider. It says that it’s building the infrastructure platform for the digital economy, delivering the critical power, security and connectivity for global cloud computing providers, enterprise and government.

The business continues to grow. In the first half of FY22, its data centre services revenue increased by 19% to $144.5 million, while underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 29% to $85 million.

The ASX tech share is working on a number of developments including the S3 data centre in Sydney and the M2 and M3 data centres in Melbourne. In December 2021, it acquired its first edge data centre on the Sunshine Coast. New sites have been secured for D1 in Darwin and A1 in Adelaide.

NextDC says that its expansion potential continues to grow, with a total planned capacity of over 400MW, before S4, new regions in Darwin and Adelaide, as well as future planned ‘edge’ locations.

The NextDC CEO Craig Scroggie said:

With liquidity over $2 billion, combined with record operating cash flow, NextDC is in an outstanding position to take advantage of current and future customer opportunities and to press its advantage into new regions and edge locations.

Altium Limited (ASX: ALU)

Altium is a global electronic PCB software provider. The ASX tech share also has other offerings, including Octopart, which is a search engine for electrical parts. The company says that it’s pursuing dominance and transformation.

The company has a goal of reaching US$500 million in revenue and 100,000 Altium Designer subscribers by 2025. It also wants 95% of its revenue to be recurring, excluding China.

Altium says that printed circuit boards are central to the design and realisation of electronics and smart connected products. Management said that Altium 365 and Nexar are connecting electronic design to manufacturing and the wider engineering software ecosystem. Nexar is a cloud-based integration platform, while Altium 365 is Altium’s cloud offering connecting the ‘fragmented’ value chain.

The ASX tech share is planning to build strategic partnerships for the benefit of customers who are highly motivated to pursue digital transformation but who have low organisational capability to implement enterprise software for electronics.

It has a number of leading clients including Tesla, Space X, NASA, Boeing, Google, Siemens, Honeywell, Microsoft, HP, Lenovo, Amazon, Disney, Apple, Fitbit, Broadcom, Qualcomm, Bosch and iRobot.

The post 2 ASX tech shares expecting a lot of long-term growth appeared first on The Motley Fool Australia.

More reading

• 2 excellent ASX growth shares brokers rate as buys
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• Why this top broker tips 30% upside for the NextDC (ASX:NXT) share price
• The Altium (ASX:ALU) share price has leapt 7% in 2 weeks. Could it be heading higher?
• 3 beaten-down technology ASX shares to buy right now: expert

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison owns Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Altium, Amazon, Apple, Microsoft, Qualcomm, Tesla, and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and has recommended the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2024 $155 calls on Walt Disney, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) materially outperformed the S&P 500 Index (SP: .INX) in the three months to March 2022.

In the first quarter of 2022, the ASX 200 rose by 0.7%. The S&P 500 fell by around 5%. That means the ASX 200 outperformed by almost 6% over the three months.

Why is the ASX 200 outperforming?

The performance of an index is dictated by the underlying holdings.

Not only are the names in the portfolios different, but the sector weights are also markedly different.

The ASX 200 is dominated by banks and resource businesses including BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG).

Resource companies have helped deliver outperformance in the first period of 2022.

The Australian Financial Review reported comments from co-head of mining research at UBS Lachlan Shaw explaining why ASX 200 shares are doing well:

Commodities are seen traditionally as a bit of an inflation hedge, and commodity prices are certainly doing their part right now. For now, they are getting a lot of interest from investors in terms of the inflation hedge, in terms of what’s showing up in the headline price.

But if I weigh that against where prices are, the potential windfall cash flow for names like BHP is astonishing. Even if they’re having to give some of that windfall cash back in cost inflation, it’s still an environment where there are strong results and very strong dividends.

BHP is trading on a dividend yield of 11%. That’s exceptionally strong in its own right, but exceptionally strong relative to other parts of the market and other assets in general.

It is also believed that higher interest rates can help bank margins which, in turn, can help ASX 200 bank shares.

Interest rates are expected to increase in both the US and Australia this year.

Why are potential higher interest rates hurting the S&P 500?

The legendary investor Warren Buffett said at the 1994 Berkshire Hathaway annual general meeting:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.

The S&P 500 is dominated by global tech names like Amazon, Apple, and Microsoft, which have higher price/earnings ratios (P/E ratios) and more growth expectations built into the valuation. A higher interest rate can mean some investors increase the discount rate they apply to growth shares.

The post Here’s why the performance of ASX 200 shares is smashing the S&P 500 appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns Fortescue Metals Group 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 recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Rio Tinto Limited (ASX: RIO) share price edged 1% higher last month after struggling to gain form early on.

In comparison, the S&P/ASX 200 Index (ASX: XJO) surged more than 6% following a rebound across the broader market.

Let’s take a look below at what’s the latest with the mining giant’s shares over the past month.

What happened to Rio Tinto shares in March?

Investors appeared mixed on Rio Tinto shares last month despite the company announcing the completion of the Rincon lithium project.

Rio Tinto acquired the project from Rincon Mining for $825 million, following approval from Australia’s foreign investment review board (FIRB).

Rincon is a large undeveloped lithium brine project located in the heart of the lithium triangle in the Salta Province of Argentina.

With the lithium revolution continuing to keep pace, Rio Tinto is looking to get in on the action.

In addition, the company’s largest commodity, iron ore rose 11% in March after a bumpy ride earlier on.

It seems that markets are expecting demand to pick up again in China when COVID-19 restrictions are lifted.

Nonetheless a couple of brokers weighed in on Rio Tinto’s shares with varying price points at the end of March.

Analysts at Morgan Stanley raised its price target by 7% to $130.50 for the Rio Tinto share price. Based on Friday’s closing price of $120.34, this implies an upside of roughly 8.4% for investors.

The team at UBS also changed it assessment, upgrading its rating to “neutral” from “sell”. Although the price target was lifted by 15% to $104 apiece, this represents a downside of around 15%.

Rio Tinto share price snapshot

Since the beginning of 2022, the Rio Tinto share price has gained 20% and is up around 7% for the last 12 months.

The company’s shares reached a 52-week low of $87.28 in November, before zipping 38% higher to Friday’s closing price.

Rio Tino has a price-to-earnings (P/E) ratio of 15.35 and commands a market capitalisation of roughly $44.67 billion.

The post What happened to the Rio Tinto share price throughout March? appeared first on The Motley Fool Australia.

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• Here’s how top brokers think the Rio Tinto share price will perform in April
• The ASX 200 just had its longest winning streak since 2017. What’s doing?
• Are these ASX 200 mining shares in trouble?

Motley Fool contributor Aaron Teboneras 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 Bruce Jackson.

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Airtasker Ltd (ASX: ART) has now been on the ASX for just over a year. How have the first 12 months been for the business?

For readers that haven’t heard of this company before, it provides a platform to connect households and businesses who need work done to people willing to do that work (for a fee).

IPO with a bang

Just over a year ago, Airtasker went through the initial public offering (IPO) process.

It listed with a price of 65 cents. But on the day of listing, it jumped 78% to $1.16. It went even higher in March, rising to $1.43. But it hasn’t been that high since.

Airtasker share price declines

By late July, Airtasker shares had fallen below $1.

At the end of 2021, they had fallen to 85 cents.

But, wait for it, the Airtasker share price has fallen another 27% in 2022.

Over the last year, the Airtasker share price has fallen by around 55%.

Why have Airtasker shares fallen so much?

The company has been hitting its guidance.

In fact, the FY21 result was ahead of guidance. In FY21, its revenue of $26.6 million was ahead of the prospectus forecast of $24.5 million and up 38% year on year. Gross marketplace volume (GMV) of $153.1 million beat the prospectus forecast of $143.7 million and was up 35% year on year.

The company suffered during the COVID-19 lockdowns for most of the first quarter of FY22. This led to FY22 first quarter GMV only increasing 6.2% year on year.

However, there has also been a broad sell-off with many ASX growth shares.

For example, since the start of 2022, the Zip Co Ltd (ASX: Z1P) share price has fallen by 66%, the Xero Limited (ASX: XRO) share price has dropped 31%, the Nanosonics Ltd (ASX: NAN) share price has declined 40% and the REA Group Limited (ASX: REA) share price has fallen 24%.

There has been a lot of talk about interest rates and inflation in recent months. Central banks are lining up interest rate increases to try to dampen inflation.

Warren Buffett has previously spoken about why interest rates can affect asset valuations:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature… its intrinsic valuation is 100% sensitive to interest rates.

How has Airtasker been performing recently?

It was not long ago that Airtasker reported its FY22 half-year result. Airtasker revealed a recovery of volume in the second quarter as lockdowns ended.

The bounce-back saw second-quarter GMV increase 39% quarter on quarter to $48.6 million and achieve a record weekly GMV run rate of $4.5 million in December 2021. This led to the second half GMV guidance being increased to a range of $107 million to $110 million, up from $105 million.

Airtasker is seeing rapid growth internationally. In the second quarter, its United States marketplace saw task growth of 71% quarter on quarter. United Kingdom GMV was up 121% year on year in the second quarter.

The company is investing significantly in marketing channels for core organic growth.

Based on the current share price, Airtasker has a market capitalisation of $258 million.

The post Airtasker (ASX:ART) has been listed for a year. Has it been up to the task? 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. owns and has recommended Nanosonics Limited, Xero, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Airtasker Limited. The Motley Fool Australia owns and has recommended Nanosonics Limited and Xero. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Once a week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Flight Centre Travel Group Ltd (ASX: FLT) remains the most shorted ASX share with its short interest rising to 17.7%. While the outlook for the travel market is improving, short sellers appear to believe investors are too optimistic.
• Betmakers Technology Group Ltd (ASX: BET) has seen its short interest rise slightly to 12.9%. Concerns over rising cash burn in the sports betting industry and tech valuations appear to be weighing on sentiment.
• Nanosonics Ltd (ASX: NAN) has short interest of 11.8%, which is down slightly week on week. Short sellers have been targeting this infection prevention company’s shares after it made a big (and risky) change to its sales model in the United States. It remains unclear if the change was forced by its long term distributor in the market.
• Webjet Limited (ASX: WEB) has short interest of 10.3%, which is down slightly week on week. Concerns over the travel market recovery continue to weigh on sentiment.
• EML Payments Ltd (ASX: EML) has seen its short interest rise to 9.5%. Short sellers may have concerns over regulatory risks and its valuation as rates rise.
• Polynovo Ltd (ASX: PNV) has seen its short interest rise again to 9.5%. This medical device company’s mixed performance and dwindling cash balance appear to have got investors worried.
• Zip Co Ltd (ASX: Z1P) has seen its short interest jump to 8.9%. Rising competition, increased marketing costs, and significant cash burn have been weighing on investor sentiment.
• Kogan.com Ltd (ASX: KGN) has seen its short interest ease to 8.8%. Short sellers may be targeting this online retailer due to its weakening sales and changes to Apple’s privacy settings. The latter has made it harder to advertise effectively to consumers, which has led to increased marketing costs in the industry.
• AMA Group Ltd (ASX: AMA) has 8.3% of its shares held short, which is up slightly week on week. Short sellers have been going after this crash repair company since it reported a half year loss of $46.3 million.
• Omni Bridgeway Ltd (ASX: OBL) has seen its short interest ease to 8.2%. Short sellers could be targeting this litigation funder’s shares due to the Government wanting to overhaul class action laws.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to buy next week
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• Zip share price backtracks ahead of share purchase plan closure
• Why is the Betmakers (ASX:BET) share price having such a lousy week?
• Discounted bargain? The Kogan (ASX:KGN) share price is down 3%

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. owns and has recommended Betmakers Technology Group Ltd, EML Payments, Kogan.com ltd, Nanosonics Limited, POLYNOVO FPO, and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended EML Payments, Kogan.com ltd, and Nanosonics Limited. The Motley Fool Australia has recommended Betmakers Technology Group Ltd, Flight Centre Travel Group Limited, and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Atlas Funds Management chief investment officer Hugh Dive explains why the ASX shares that are his two biggest holdings are so fantastic.

Investment style

The Motley Fool: How would you describe your fund to a potential client?

Hugh Dive: I’m Hugh Dive from Atlas Funds Management, here to talk to you about the Atlas High Income Property Fund. This is an income-related property fund. We’re owning a bunch of real assets and are executing a covered-call strategy over the assets that we hold. So this allows us to collect dividends. 

We’ve chosen real assets, namely listed infrastructure and listed property, in that their distributions aren’t particularly volatile, and so they’re much easier to write calls over. Unlike, for example, the banks or miners, where the distributions can be very volatile. [Real estate ASX shares] don’t move around that much. That’s a great thing for us. 

Secondly, we’re selling a covered call strategy over this, allowing us to harvest extra income for our investors. Systematically, we’d see that investors overestimate the blue sky, and that results in close to 80% of our calls that we sell expiring worthless, and that’s a good source of income for our investors. This allows us to pay investors 7%, or 1.75%, every quarter. 

The fund has been running since early 2017. It’s listed on the ASX under code AFM01. 

It’s a growing one that’s doing quite well at the moment, in that real assets are viewed as quite popular, and the covered-call strategy is working well.

Biggest convictions

MF: What are your two biggest holdings?

HD: The two biggest holdings are Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) and Arena REIT No 1 (ASX: ARF). 

SCA Property Group is a group that owns 91 shopping centres, and these are not the glitzy Westfield centres you see in the centre of the city, but generally a Woolworths Group Ltd (ASX: WOW) or Coles Group Ltd (ASX: COL) with a Dan Murphy’s or a BWS right next to it. So, very consumer staples sort of retailing. 

[It had] done very well during [COVID-19]. People still had to eat. People still enjoy drinking alcohol. 

The 91 shopping centres are worth around $4.4 billion, and the part we like about it is they’re very long lease terms. The average lease term is close to 10 years, and it’s all linked to inflation. So, this would be a beneficiary of further inflation, particularly food inflation, in that the landlords of shopping centres, like SCA, have base rent plus a turnover rent component, so they get a bit of extra when more money’s going through. So, food inflation is a very good thing for this company.

The second-biggest holding we have in the portfolio is a company called Arena REIT. That is a company that owns 256 childcare and healthcare centres across Australia. Again, a very long lease term. We like long lease terms. The lease term there is even greater, at 20 years — all linked to inflation. 

We saw during March 2020, Arena REIT fell very heavily, thinking that people weren’t going to go to childcare centres. Then the government stepped in. Despite the fact it was down close to 40% in March, [there was] absolutely no change to their earnings. All tracking along. It’s all linked to inflation. 

One of the great parts about Arena REIT is their lease structure’s quite different to most property trusts in that they’re triple lease backed. That means the person renting the centre has to pay maintenance costs, any ongoing taxes, and any improvement costs into it. So it means there’s a very clean pass-through, whereas the likes of Dexus Property Group (ASX: DXS) or Scentre Group (ASX: SCG) actually have to pay to upgrade their assets. 

So very stable, very high visibility on earnings, and very long-running earnings. They’re two companies that are our two biggest holdings, and we’re very, very happy with how they’ve been going. 

MF: Is the fact that Arena’s agreement with its tenants a little bit different, is that a consequence of the childcare industry, is it? 

HD: Correct. There’s often quirks in the different sectors. For example, one of the quirks in the office property trust area is tenants get offered incentives, and that incentive moves around from 10% [to] 30% of the lease, and that’s generally structured in terms of fit-outs or even just straight out cashback. So, you pay a headline rate of $1000 a square metre, but you really might only be paying $700. 

MF: I see the Arena share price has done really well. It’s now well above its pre-COVID high? 

HD: Yeah. It was quite a wild time during COVID for a lot of these property trusts, where the market viewed that anything to do with a real asset or real estate was suddenly worthless and it was all going to go down. 

But what’s shown over the last couple of years is that that is not to be true. 

There was a view that toll roads were going to be stranded assets. No one’s ever going to use a toll road. Certainly, no one’s going to an office again. Shopping centres were going to be cavernous, empty houses filled with pigeons, and childcare centres and medical centres weren’t going to get used. 

And it’s all proved to be false. 

One of the benefits of experience and having done this a long while is that these extreme situations rarely play out, and you have to attach a low probability to fundamental changes in human behaviour. 

When I look at disasters for real estate, in 480 BC, the Persian king Xerxes sacked the agora in Athens, and that impacted Athenian retail sales, as shoppers were put to the sword and the city was burnt. But a mere 10 years later, it was all rebuilt, and Athenian retail sales continued to increase. And indeed, I was actually at this several-thousand-year-old shopping centre about a year or two ago and bought some items there. 

Human beings will bounce back. It didn’t turn out to be that human beings would permanently sit in their caves and never come out again because that’s just against human nature. We like to dine out. We like to buy things. And in offices, we like to congregate together in order to increase productivity. 

MF: Even caves are real assets, so someone’s got to rent those. 

HD: Ha ha ha, yeah.

The post Humans don’t change: Expert names 2 ASX shares that exploit our urges 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 owns and has recommended COLESGROUP DEF SET and Shopping Centres Australasia Property Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Shares in Fortescue Metals Group Limited (ASX: FMG) spiked on Friday to finish trading 1.94% higher at $21.06.

It’s been a bumper year so far in 2022 for the iron ore giant, with its share price climbing 10% since January.

It is now up 15% in the past month and another 11% this week of trading, as investors rally behind the company again. Despite this, it trades the benchmark S&P/ASX 200 Index (ASX: XJO) on a longer-term basis.

What’s the outlook for Fortescue shares?

According to analyst sentiment, it could be a flat period in April for the company, unless Fortescue Future Industries (FFI) comes through with the goods.

What that means, JP Morgan says, is that “FFI [is] still the elephant in the room” and that “the company still hasn’t disclosed details of its pipeline of projects”.

“FMG continues to operate its iron ore business like a well-oiled machine,” the broker said in a recent note.

“We note reliable production, cost control, and predictable earnings. However, the stock trades above our NPV, and offers a lower FCF yield than peers,” it added.

“We look for more clarity on FFI and/or a cheaper entry point for the stock to get more constructive”.

That may have happened with FFI just this week, with the company signing a new deal. As The Motley Fool reported at the time:

Fortescue Future Industries has entered a deal with German energy giant E.ON that will see it supply Europe with up to 5 million tonnes of green hydrogen each year.

That’s enough to replace around one third of the calorific energy Germany imports from Russia, reducing Germany’s reliance on the energy-producing nation

Regardless, the broker remains neutral on Fortescue, alongside 55% of other brokers, according to Bloomberg data. It remains to be seen if this update will result in analyst upgrades or not.

In fact, Fortescue has no buy calls right now per this list, with the remaining 45% of coverage urging clients to sell Fortescue shares.

The consensus price target is $17 per share, currently 19% behind the current Fortescue share price.

Curiously, whilst commodity markets have surged in the last 12 months, the number of brokers advocating to buy Fortescue has crept down substantially to zero, per Bloomberg data.

The post What’s the outlook for the Fortescue (ASX:FMG) share price in April? appeared first on The Motley Fool Australia.

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For years, Montgomery Investment Management chief financial officer Roger Montgomery sat on television or radio panels and rolled his eyes as other experts declared that easy gains on the stock market were now over.

But now he finally agrees with those cynics.

“In recent years investors have made substantial gains from equities, but a close look at the driving force behind those gains is likely to reveal investors won because the tide was rising,” he said on the Montgomery blog.

“Sure, many companies grew their earnings too but there were a huge number of companies whose share prices went parabolic despite the absence of earnings.”

Once central banks do indeed raise interest rates multiple times this year, as expected, the party will be well and truly officially over.

“A rising tide does indeed lift all boats, but don’t mistake a rising tide for genius, or so the axiom goes,” said Montgomery.

“Investors can kiss goodbye the easy wins resulting from shares simply becoming more popular, and that rising popularity being reflected in ever-expanding price-to-earnings multiples.”

Not everyone has woken up yet

Montgomery is disturbed that not all investors seem to have realised yet that ASX shares are right now in a transition to an era of lower PE ratios.

“Rates are rising. And while I think rates will rise by less than the most bearish forecasts, the impact on PEs is already underway,” he said.

“Plenty of investors haven’t yet worked that out and this can be seen in the steep gains for almost all equities amid the hope and talk of peace in Ukraine.”

Indeed, the S&P/ASX 200 Index (ASX: XJO) rose 6.4% in March despite all the inflation and geopolitical worries.

High quality growth shares

So what type of ASX shares should investors target for this new era?

Montgomery recommended seeking exposure to “high quality growth”.

This is because if market-wide PE ratios are deflating, the only way to maintain or raise the share price is to grow earnings significantly.

“If a company, with earnings of $10 per share, sees its PE of 35 times fall to 25 times, the share price will decline 28%, from $350 down to $250,” said Montgomery.

“Plenty of high-quality growth companies have experienced this, and worse. And that represents a new opportunity.”

However, if this hypothetical company can grow its earnings 40% to $14 per share, the stock price will be maintained at $350.

“The work investors need to undertake now is to uncover those companies able to grow,” said Montgomery.

“One place to look is among those companies enjoying structural or megatrend tailwinds.  And if among those companies you also find a capital light and highly profitable business with net cash on the balance sheet, more power to you.”

One great example is a business that enjoys “inelastic demand”, namely Microsoft Corporation (NASDAQ: MSFT).

“​Nobody is going to cut their subscription to Microsoft Office just because Jerome Powell said interest rates are going up, or because Putin decides to invade Ukraine,” Montgomery said.

“Inelastic services like Microsoft Office are entrenched in the daily systems of hundreds of millions of businesses and individuals. That durability provides Microsoft low cyclicality, higher profitability, stable, recurring and growing cash flows and little or no need for debt.”

The ASX shares to avoid are businesses that are capital-intensive, low growth, mature, cyclical, or geared. 

Other warning signs are companies with “lumpy contract-type revenues” and those relying on discretionary spending.

“Avoid… those companies playing in the revolving door of capital – paying out cash they need later as dividends today and subsequently raising dilutive capital to replace it.”

Icing on the cake

If the rise in interest rates has the desired effect of suppressing inflation, those investors holding quality growth will be cheering even more.

“What follows is disinflation — and in a disinflationary environment, when the economy is still growing, PEs expand again,” said Montgomery.

“That would be icing on the cake for investors who heed the suggestion to invest in quality growth after share prices have been slammed by contracting PEs.”

The post The best type of ASX shares to buy right now: expert appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo owns Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Microsoft. 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 Bruce Jackson.

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Are you looking for dividend shares to buy in April? If you are, then you might want to look at the ASX shares listed below.

Here’s why analysts think these ASX dividend shares could be worth considering right now:

Baby Bunting Group Ltd (ASX: BBN)

The first ASX dividend share to consider is Baby Bunting. It is a leading baby products retailer with a strong and growing presence through its national superstores and online business.

Citi is a fan of the retailer and currently has a buy rating and $6.22 price target on its shares. It is positive on Baby Bunting due to its clear leadership position in a less discretionary category which benefits from around 300,000 births a year in Australia.

The broker commented: “[W]e forecast a FY21 to FY24 EPS CAGR of 17%, and see growth being driven by i) rollout, ii) ramp up of new stores, iii) margin expansion and iv) penetrating existing categories with low presence. Further, the stocks growth prospects are in some respects less risky than other high multiple retailers who are relying more on new markets and acquisitions.”

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 $4.96, this will mean yields of 3.2% and 3.8%, respectively.

Telstra Corporation Ltd (ASX: TLS)

Another ASX dividend share that could be a buy is Telstra. This is due to the telco giant’s increasingly positive outlook after almost a decade of struggles.

This positive outlook is being underpinned by the highly successful execution of its transformative T22 strategy and the impending growth-orientated T25 strategy.

The team at Morgans is positive on Telstra. It currently has an add rating and $4.55 price target on the company’s shares. The broker feels the market is undervaluing its shares on a sum of the parts basis and notes that “[s]ector dynamics look positive and value realisation is possible.”

In respect to dividends, Morgans continues to expect fully franked dividends per share of 16 cents for FY 2022 and FY 2023. Based on the current Telstra share price of $3.93, this implies yields of 4.1%.

The post 2 ASX dividend shares analysts have named as buys appeared first on The Motley Fool Australia.

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• ASX 200 (ASX:XJO) midday update: Telstra CEO steps down, Fortescue confirms E.ON deal

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 owns and has recommended Telstra Corporation Limited. 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 Bruce Jackson.

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On Friday, the S&P/ASX 200 Index (ASX: XJO) finished the week in a subdued fashion. The benchmark index edged slightly lower to 7,493.8 points.

Will the market be able to bounce back from this on Monday? Here are five things to watch:

ASX 200 expected to rebound

The Australian share market looks set to start the week on a positive note following a solid finish on Wall Street on Friday. According to the latest SPI futures, the ASX 200 is expected to open the day 19 points or 0.25% higher this morning. On Wall Street, the Dow Jones rose 0.4%, the S&P 500 climbed 0.35%, and the Nasdaq pushed 0.3% higher.

Oil prices fall again

Energy producers Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could have a subdued start to the week after oil prices dropped again. According to Bloomberg, the WTI crude oil price fell 1% to US$99.27 a barrel and the Brent crude oil price dropped 0.3% to US$104.39 a barrel. US stockpile releases led to oil prices having their worst week since 2020.

Domain shares given neutral rating

The team at Goldman Sachs believes the acquisition of Realbase by Domain Holdings Australia Ltd (ASX: DHG) will be a positive for the property listings company. It feels the acquisition of Realbase would both deepen and expand Domain’s agent relations, which would present significant opportunities to cross sell incremental services. However, despite this and having a price target of $5.10, implying 27% upside, Goldman retains its neutral rating. Domain could return from its trading halt today.

Gold price falls

Gold miners Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) could have a poor start to the week after the gold price weakened again on Friday night. According to CNBC, the spot gold price fell 1.6% to US$1,923.7 an ounce. The gold price dipped after strong US jobs data boosted the US dollar.

ANZ shares given hold rating

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price could be close to being fully valued according to Bell Potter. This morning the broker retained its hold rating but lifted its price target to $29.00. Due to weaker margins, Bell Potter expects ANZ to report a decline in cash earnings next month. It is expects half year cash earnings of $2.84 billion, down from $3.21 billion during the second half of FY 2021 and $2.99 billion from the prior corresponding period.

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

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• What boosted the Whitehaven Coal (ASX:WHC) share price on Friday?
• Here’s how the ANZ share price performed in March

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. owns 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 Bruce Jackson.

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