Among ASX shares, there’s been no sector devastated more than technology.

The S&P/ASX All Technology Index (ASX: XTX) has plummeted a hair-raising 19% this year so far. This compares to a 5.5% drop for the broader S&P/ASX 200 Index (ASX: XJO).

But rather than being a scary time, many experts espouse that there’s never been a better time to buy than right now.

Among this group is Tribeca portfolio manager Jun Bei Liu, who feels the market has overdone the punishment of growth stocks.

“I actually think, in general, tech has been sold off a lot,” she told Switzer TV Investing. 

“All these businesses are trading at probably the cheapest they’ve ever been.”

Liu reckons the current rotation away from growth and tech ASX shares will not last long.

“Very soon… investors will realise the world is still going to lack growth after the economy reopens,” she said.

“Cyclical companies will continue to struggle to find growth… Growth companies will still have a premium to the rest of the market.”

A rebound could come as soon as the current reporting season, as the market digests any positive earnings numbers. 

Liu thus nominated 3 ASX shares in the technology field that she thinks are excellent value for money right now:

This ASX tech trio will bounce back

Accounting software provider Xero Limited (ASX: XRO) has seen its shares tumble 21% this year and 28% since the start of November.

“It’s not going to report this reporting season because it’s out of cycle,” said Liu.

“But it’s global and the share price has come off a lot.”

The Xero share price finished Tuesday at $111.40. 

Liu is expecting a “good result” during the current reporting season out of jobseeker website Seek Limited (ASX: SEK).

“This employment market is incredibly strong.”

The Seek share price is indeed in bargain territory. It has fallen 16% this year, and more than 20% since mid-December.

Seek shares closed Tuesday at $27.66. 

Liu will also be keenly monitoring the earnings result this month for logistics software maker WiseTech Global Ltd (ASX: WTC).

Its shares have taken a painful 24% dive this year so far. The stock closed Tuesday at $44.53.

“The last result was just incredibly strong and we think they still have a bright future,” she said.

“They have de-rated and it’s a great buying opportunity.” 

Only 10 days ago, Burman Invest chief investment officer Julia Lee agreed with this assessment of WiseTech’s potential.

“I think that growth story is very much still intact,” she said.

“In the medium term, I think the outlook is good.”

While Wisetech would “struggle a little bit in the short term” because of low cargo volumes triggered by the COVID-19 Omicron variant, Lee likes that it consistently turns a profit.

“I much prefer the profitable ones at the moment.”

The post 3 ASX tech shares to pounce on NOW while they’re cheap appeared first on The Motley Fool Australia.

More reading

• The ASX 200 just hit 3-week highs. What’s next?
• Why 2 specific ASX share sectors are taking such a beating in 2022
• 5 things to watch on the ASX 200 on Wednesday
• Here are the top 10 ASX shares today
• Why are Sydney Airport (ASX:SYD) shares such hot property today?

Motley Fool contributor Tony Yoo owns Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended WiseTech Global and Xero. The Motley Fool Australia owns and has recommended WiseTech Global and Xero. The Motley Fool Australia has recommended SEEK 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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It was a solid session for the S&P/ASX 200 Index (ASX: XJO) yesterday.

The positive session saw several ASX 200 shares push to multi-week highs, with no one catalyst standing out more than the others. While it can be difficult to say exactly what drove these companies upwards, there are a number of potential explanations.

Here are some of the events that helped a handful of ASX 200 shares to bullish performances yesterday.

Positive response to earnings of ASX 200 companies

Another day of the February reporting season served up more numbers for investors to chew on. The big names included Macquarie Group Ltd (ASX: MQG) and Suncorp Group Ltd (ASX: SUN).

It appears both ASX 200 shares managed to exceed the market’s expectations, with their share prices rising 4.3% and 5.9% respectively.

The third quarter was a record-setter for Macquarie, although no specific figures were included with the update.

On the other hand, Suncorp reported steep declines across numerous financial and operational metrics. However, investors were forgiving.

Iron ore prices take the elevator over the stairs

ASX 200 mining companies with exposure to iron ore also performed well during Tuesday’s session. These included strong share price appreciations across the titans of the industry such as BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO).

The strength in these blue chip mining names comes amid a continued resurgence in iron ore prices. The rally placed iron ore futures above US$150 per tonne. A mere week ago, this figure was hovering around US$138. Meanwhile, if we backtrack to November last year, the price was approximately US$92 per tonne.

According to reports, strong fundamentals and a potential for a supply shock are providing upside pressure to the steelmaking commodity’s price.

ASX 200 travel shares take flight

Lastly, another standout sector that performed across the ASX 200 index on Tuesday was travel shares. Following Monday’s announcement of an international border reopening, travel companies have been gaining traction once more.

For example, Webjet Limited (ASX: WEB) and Flight Centre Travel Group Ltd (ASX: FLT) flew 7.4% and 6.7% higher respectively. The jump in share prices means both companies now have performance returns since the beginning of the year — erasing the damage of the January correction.

What’s next?

Heading into Wednesday, futures are indicating the ASX 200 is likely to open higher. This follows a positive performance on Wall Street overnight. For instance, the S&P500 gained 0.84% as many of the big tech companies moved to the upside.

It will be a busy day for investors, with a number of popular shares unleashing their financial reports today. ASX heavyweights such as Commonwealth Bank of Australia (ASX: CBA) and Mineral Resources Limited (ASX: MIN) are among them.

The post The ASX 200 just hit 3-week highs. What’s next? appeared first on The Motley Fool Australia.

More reading

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• Why 2 specific ASX share sectors are taking such a beating in 2022
• 5 things to watch on the ASX 200 on Wednesday
• On a roll. Why is ASX 200 travel share Webjet (ASX:WEB) skyrocketing?
• Here are the top 10 ASX shares today

Motley Fool contributor Mitchell Lawler owns Commonwealth Bank of Australia and Macquarie 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 Flight Centre Travel Group Limited, Macquarie 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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After the first COVID-19 cases were identified in Australia back in January 2020, the total confirmed number of cases (active and recovered) has crept up to nearly 2.4 million. The rate of infection currently stands at 3.9%, according to data compiled in yesterday’s Department of Health, States & Territories Report.

In the last week, more than 700,000 COVID-19 tests were conducted in Australia, bringing the total to almost 62 million since accurate testing began.

Now the testing regime is shifting, moving to a more ‘rapid’ testing agenda that will see patients get their results in a matter of minutes.

But how is this change set to impact the big COVID-19 diagnostics providers in 2022? Let’s take a look at what the experts think.

RATs! Have these shares missed the boat?

We might all be familiar by now that there are two methods of obtaining a COVID-19 test result – the polymerase chain reaction, or PCR test, and the rapid antigen self-tests, better known as RATs.

Those receiving a COVID-19 test within the last week would have received one of the two offerings, depending on a number of variables. Although, the availability of RATs appears to have picked up substantially in the last few weeks.

Specific data on RATs is sparse right now, given the form of testing has only just recently been accepted as a diagnostic tool for COVID-19.

However, several ASX healthcare shares profited immensely on the back of PCR COVID-19 testing over the course of 2020–21. But the rise of rapid testing may be a risk to sector earnings, according to the team at Credit Suisse.

The broker downgraded its outlook on ASX healthcare giants currently involved in COVID-19 diagnostics, noting that Sonic Healthcare Ltd (ASX: SHL) and Healius Ltd (ASX: HLS) are particularly exposed right now.

Sonic closed Tuesday’s session down less than 1% at $37.89, whereas Healius finished 1% in the green at $4.52.

Most analysts are constructive on Sonic and Healius given the pair are beneficiaries of the PCR testing regime.

However, as the team at Credit Suisse points out, there has been a significant shift towards rapid testing in recent months, reducing PCR test demand.

This is a risk to both Sonic and Healius’ earnings outlooks, the broker says – particularly in FY22 when the shift is taking place.

Shift to RATs an earnings risk to Sonic, Healius, broker says

Credit Suisse believes this change in test trends poses a risk to both Sonic and Healius’ sales growth in 2022. Both companies benefitted greatly over the 2 years from PCR test demand.

“We see risk to 2H consensus earnings with the recent fast shift to rapid antigen tests,” the broker said in a note to clients.

As such, it downgraded forecasts on Healius’ earnings per share (EPS) in FY22, reflecting the slowing COVID-19 tailwinds and lowering its valuation in the process.

“We lower our earnings on Healius by 11% in FY22, due to sharper fall in COVID earnings, and our price target decreases [by 10 cents] to $5.50,” the broker said.

With respect to Sonic, the broker reckons it’s all about the company’s financial health and how it intends to put the balance sheet to work in 2022. The broker said its “focus for Sonic will be on its strong balance sheet and potential for acquisitions”.

Goldman Sachs agrees on this point, noting that Sonic’s balance sheet has strengthened substantially over the pandemic.

As such, it reckons the healthcare giant “has more than $1.2 billion of firepower to deploy”, as quoted from a recent note to investors.

Healius just completed the acquisition of bioanalytical laboratory Agilex earlier this month. The company completed the transaction on a $301 million valuation.

In the last 12 months, the Healius share price has gained more than 9% but is down over 14% this year to date, whereas Sonic has lost more than 19% since January 1.

The post Why this top broker just downgraded these 2 ASX healthcare shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare 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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The Metals X Limited (ASX: MLX) share price has been on fire since Monday morning, recording a 15% gain.

At yesterday’s market close, the mining outfit’s shares finished 10.71% higher at 62 cents. Despite not making any market-sensitive announcements to the ASX this week, the company’s share price reached a multi-year high of 65.5 cents.

Let’s take a look at what could be driving investors to snap up Metal X shares lately.

Metals X shares resume their upwards trajectory

The Australian base metals company has continued to power ahead this week on the back of positive investor sentiment.

Late last month, Metals X released its quarterly activities report for the period ending 31 December 2021.

According to the update, the company reported 2,359 tonnes of tin concentrate production from the Renison tin operation. While less than the 2,471 tonnes achieved in the prior quarter, this was due to a planned major shutdown of the processing plant.

Regardless of the setback, Metals X said that it continued high tin production as a result of high mined and mill feed grades. For the December quarter, this was the third highest on record, with ore mined at 186,298 tonnes at a grade of 1.58%.

Tin sold in the three months amounted to 2,175 tonnes at an all-in sustaining cost (AISC) of $21,869 per tonne. In comparison, the quarter ending September recorded 2,381 tonnes of tin sold with an AISC of $21,088 per tonne.

Imputed earnings before interest, tax, depreciation and amortisation (EBITDA) came to $77.6 million, a 10.3% lift against the previous quarter.

In addition, imputed net cash flow stood at $60.9 million, a 12.7% increase over Q3 2021.

Metals X owns a 50% interest in Renison through its 50% stake in the Bluestone Mines Tasmania Joint Venture. It’s worth noting that all the above figures are related to the total output of Renison.

Looking ahead, the company noted that the market outlook for tin remains strong and is expected to continue for 2022.

Metals X declared a closing cash balance of $46.2 million, up from $21.6 million in the prior comparable period. This predominately derives from the sale and spin out of its nickel assets portfolio including the Wingellina Nickel-Cobalt project, and Claude Hills project.

Metals X share price snapshot

Over the past 12 months, the Metals X share price has rocketed by more than 260% for investors.

In 2022, its shares experienced a minor hiccup from a broader market sell-off before rebounding, up almost 8% to date.

Based on valuation grounds, Metals X commands a market capitalisation of roughly $562.5 million, with approximately 907.27 million shares on issue.

The post Why is the Metals X (ASX:MLX) share price going gangbusters this week? appeared first on The Motley Fool Australia.

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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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Shares in hydrocarbons giant Santos Ltd (ASX: STO) are now trading back near 52-week highs at the open on Tuesday after regaining strength over the last 2 months.

Santos shares have rallied since December in synch with underlying commodity prices that are now floating above their single-year highs.

The Brent crude oil contract – of which more than 90% of oil pricing in the market is based off – is now thrusting towards $93 per barrel, levels not seen since September 2014. It’s bounced from a low of $60 a barrel in February last year and is now up more than 53% in that time.

Hence, Santos is now in favour of the experts once more, with the prospects of record free cash flow yields and superior profit generation cemented on the horizon. Here’s what one portfolio manager thinks about the company.

A bullish backdrop

According to Bruce Williams, portfolio manager at Elston Asset Management, ASX energy shares like Santos look set to benefit from a sector rotation into energy and mining that’s been gradually occurring over the last two years.

Speaking to an episode of “Buy Hold Sell” on Livewire recently, Williams noted that energy shares have absorbed record high commodity prices and Australia’s soaring energy needs quite well in recent times.

“We think with the energy transition dominating headlines, there’s been a real focus on the reduction in long-term demand for your traditional energy companies”, the portfolio manager said.

The proof’s in the pudding too – the S&P/ASX 200 Energy index (ASX: XEJ) is up more than 14% this year to date, whereas the benchmark S&P/ASX 200 Index (ASX: XJO) is down 3% in the same time.

Although the more immediate issue in Williams’ eyes is the short-term lack of supply. Over the last 3–4 years, both capital and operating expenditures have lagged behind due to “very low prices”, he notes. However, this has changed in recent times, given the mismatch in demand and supply that’s stemmed from COVID-19 lockdowns.

“Basically, there is a supply shortfall given the energy needs of the country. We think they will be sensible going forward in terms of how they spend their money. We think they’ll run them very lean”.

What does this mean for Santos shares?

Given the sensitivity of Santos’ stock to fluctuations in the energy markets, the recent commodities rally has meant Williams has taken notice of the sector’s cash-generating power.

“The commodity price that drives them is very good, so excellent cash generation. And we think on undemanding multiples it’s a really good spot to be at the moment”, he said.

Regarding the company itself, Williams likes the runway Santos has over the coming periods, filled with “reasonably low-risk opportunities” in his eyes.

Nevertheless, Santos aligns with the portfolio manager’s current search for companies with robust balance sheets and generating sticky cash flow, giving the investor a healthy risk to reward calculus.

“Obviously, the underlying price for oil and gas is very supportive. Lots of free cash generation” he said, regarding Santos. “Post their merger with Oil Search, they’re looking at getting rid of non-core operations and also palming down some assets” he added.

“So the balance sheet is really strong as well. We think it’s a great place to be at the moment”.

Santos closed Tuesday at a price to earnings ratio (P/E) of almost 40x and a trailing earnings yield of roughly 2.6%.

Over the last 12 months, shares have held gains and are 8%, however are soaring this year to date and have gained 20% in that time.

The post ‘A lot of opportunities’: Why this broker is bullish on Santos (ASX:STO) shares appeared first on The Motley Fool Australia.

More reading

• Own ASX energy shares? Citi issues stark oil production warning
• Is now the time to rid your ASX share portfolio of COVID losers?
• ‘100 million tonnes’: Santos (ASX:STO) share price steady on world-first carbon storage deal
• These ASX 200 shares can beat inflation: expert
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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no positions in Santos 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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The ASX 200 is home to some high quality companies that have significant long term potential.

Two that have recently been rated as buys are listed below. Here’s why these ASX 200 shares could be in the buy zone:

CSL Limited (ASX: CSL)

The first ASX 200 share to look at is biotherapeutics giant CSL. Its CSL Behring and Seqirus businesses have a portfolio of life-saving and lucrative therapies and vaccines which are generating billions of dollars in sales each year.

But management never rests on its laurels. Each year it invests in the region of 10% to 11% of its sales back into research and development (R&D) activities. This means that CSL will be investing around US$1 billion into its R&D this year. This ensures that the company has pipeline of therapies under development that could drive its future growth.

In addition, CSL is in the process of acquiring Vifor Pharma for ~$17 billion. Management notes that the deal expands its leadership across an attractive portfolio focused on renal disease and iron deficiency. It also highlights that Vifor has a high quality pipeline and complements CSL’s existing therapeutic focus areas including Haematology, Thrombosis, Cardiovascular, and Transplant.

Citi is bullish on CSL and has a buy rating and $340.00 price target on its shares.

ResMed Inc. (ASX: RMD)

Another ASX 200 share to look at is ResMed. It is a leading sleep treatment-focused medical device company with a portfolio of products improving the lives of sufferers of conditions such as sleep apnoea.

ResMed has been growing at a solid rate for well over a decade and shows no signs of stopping any time soon. This is due to its leadership position in a market which continues to grow as education around sleep disorders improves.

In addition, with one of its key competitors continuing to work its way through a massive product recall, ResMed looks well-placed to win market share. This, combined with its patient-centric, connected-care digital platform, bodes well for its growth in the coming years.

Morgans is a big fan of the company and has an add rating and $40.46 price target on its shares.

The post 2 highly rated ASX 200 shares to buy immediately 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. owns and has recommended CSL Ltd. The Motley Fool Australia has recommended ResMed Inc. 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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There are a select group of ASX dividend shares that may be able to give investors steady payments during retirement.

During 2020, there were plenty of businesses that cut their dividend payouts to shareholders. However, there were others that did increase dividends to shareholders and have an intention to grow the dividend where possible. These two could be ones that can be reliable:

Wesfarmers Ltd (ASX: WES)

Wesfarmers is one of the oldest businesses on the ASX. It now resembles a quality retail business. The company has a number of businesses including Bunnings, Officeworks, Kmart and Catch.

During 2020 and the first half of 2021, the business experienced strong demand for DIY home project supplies, home office supplies and home entertainment products.

Wesfarmers’ total FY21 dividend increased by 17.1% to $1.78. The company is committed to providing investors with attractive returns.

The ASX dividend share is working on growing its earnings through diversification and acquisitions. Bunnings recently bought Beaumont Tiles. Wesfarmers is working on the lithium Mt Holland project, which could benefit from the rapid rise of the lithium price. It’s seemingly on track to win the battle to buy the Australian Pharmaceutical Industries Ltd (ASX: API) business which will be the start of a health division.

Bunnings continues to perform, though Kmart and Target sales are expected to be down around 10.3% in the half-year to 31 December 2021.

It’s currently rated as a buy by Morgans, with a price target of $60.80. For HY22, Wesfarmers is expecting to generate net profit after tax (NPAT) of $1.18 billion to $1.24 billion.

Charter Hall Long WALE REIT (ASX: CLW)

This is a real estate investment trust (REIT) that owns a diversified portfolio across a number of different property sectors. Some of those include: long WALE retail and hospitality, industrial and logistics, office, social infrastructure and agri-logistics,

The portfolio is now worth a total of $7 billion across 549 properties, with around 80% of that total on the eastern seaboard. This ASX dividend share has a weighted average lease expiry (WALE) of 12.2 years, providing long-term income security. The REIT says that this provides insulation from market shocks.

The ASX dividend share says that 99% of its tenants are either an Australian government entity, ASX-listed, multinational or national tenants. It calls these ‘blue chip’ tenants.

In the recent FY22 half-year result, the distribution was increased by 5.1% to 15.24 cents per unit, whilst the net tangible assets (NTA) per unit grew 12.8% from June 2021 to $5.22.

Before this week, the broker Macquarie rated it as a buy. It was expecting the FY22 distribution to translate into a yield of 6.1% at the current Charter Hall Long WALE REIT share price.

The post 2 ASX dividend shares that could provide steady income in retirement 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 owns and has recommended Wesfarmers 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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The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch this morning.

This follows the release of the banking giant’s half year results.

CBA share price on watch after outperforming expectations

• Statutory net profit after tax up 26% to $4,741 million
• Cash net profit after tax up 23% to $4,746 million
• Operating expenses down 0.1% to $5,591 million
• Fully franked interim dividend up 17% to $1.75 per share
• Net interest margin (NIM) down 14 basis points to 1.92%
• CET1 ratio of 11.8%
• On-market buyback of up to $2 billion

What happened during the half?

For the six months ended 31 December, Commonwealth Bank reported a 23% increase in cash profit after tax to $4,746 million. Management advised that its profits were supported by strong business outcomes, reduced remediation costs, and lower loan loss provisions due to an improved economic outlook.

One thing that did weigh on its profits was its NIM, which fell 14 basis points over the prior corresponding period to 1.92%. CBA’s NIM was impacted by increased switching to lower margin fixed home loans, the impact of the rising swap rates due to market expectations of higher interest rates, and continued pressure from home loan competition.

Nevertheless, this couldn’t stop Australia’s largest bank from delivering a half year profit ahead of the consensus estimate of approximately $4,500 million. This could bode well for the CBA share price today.

In light of this strong form, the CBA board declared a fully franked interim dividend of $1.75 per share. This was up 17% from the same period last year but slightly below the market consensus estimate of $1.813 per share.

But offsetting the slight dividend disappointment is news that CBA plans to follow up its $6 billion off-market share buyback with an additional $2 billion on-market buyback. The bank revealed that this reflects its strong capital position, which creates flexibility to support customers and manage ongoing uncertainties, while continuing to return surplus capital to shareholders. This buyback is expected to reduce CBA’s CET1 capital ratio by approximately 42 basis points to 11.4%.

Management commentary

CBA’s Chief Executive Officer, Matt Comyn, commented: “The Bank has delivered a strong financial result in a low rate environment. This has been achieved through continued customer focus and disciplined operational execution. Higher cash profits were a result of continued volume growth across the business in home lending, business lending and deposits, flat operating costs and significantly lower loan impairment expense due to the improving economic outlook.”

“A highlight of the result is our continued capital and balance sheet strength. Our disciplined and balanced approach to capital optimises growth, reinvestment and shareholder returns. This has allowed us to return excess capital to our shareholders and lower our share count while remaining strongly capitalised and provisioned. We retain flexibility to provide further support to our customers and communities,” he added.

While no guidance has been given for the second half, Mr Comyn appears cautiously optimistic on the future.

He said: “We expect the Australian economy to have a strong year in 2022 despite early challenges from the Omicron strain of COVID-19. Both the unemployment rate and the underemployment rate are at the lowest since 2008, with high participation rates.”

The post CBA (ASX:CBA) share price on watch after smashing first half estimates 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 Bruce Jackson.

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If you own ASX shares in the technology and healthcare sectors, your portfolio is likely looking green around the gills at the moment.

While the general S&P/ASX 200 Index (ASX: XJO) is down more than 6% this year, the S&P/ASX All Technology Index (ASX: XTX) has plunged a shocking 18% while the S&P/ASX 200 Health Care Index (ASX: XHJ) has lost 14%.

And to rub it in, the S&P/ASX 200 Resources Index (ASX: XJR) is actually 4% higher now than when 2022 started!

Now, we know that the brutal falls in January were triggered by fears that interest rates in the US and Australia would head up.

But why is the market picking on specific sectors? Wouldn’t interest rate rises be detrimental for everyone?

When money is more expensive, it’s harder to keep it locked up 

Shaw and Partners portfolio manager James Gerrish this week explained why tech and health have been hit so hard in the recent dip.

Because they are industries that heavily involve innovation, tech and health sectors tend to host growth stocks rather than the more conventional value shares.

And the worth of a growth stock is very much dependent on its future outlook.

“Because they are growing strongly, investors are prepared to pay a higher price for the earnings stream against a company that has solid earnings now but with little growth,” Gerrish told his Market Matters newsletter.

“With specific reference to high-value growth type stocks, the easiest way to think about it is that we are investing a dollar now on the expectation that earnings will grow strongly in the future.”

Therefore, when borrowing costs are low, the opportunity cost of having investors’ money locked up in a company for years is cheap.

“But when rates rise, the opportunity cost also goes up — making it less appealing.”

Snap up those bargains while they’re cheap though

Despite the recent hammering of growth shares, Montgomery Investment Management chief investment officer Roger Montgomery reminded investors that, over the longer term, rising rates have not historically prevented shares from trending upwards.

As an example, he referred to how the S&P 500 Index (SP: .INX) moved from 2015 and 2018.

“Short-term rates were lifted 9 times and yet the market rallied,” Montgomery said in his blog.

“Provided… you own companies that are high quality, growing and increasing their intrinsic value, then even rising rates won’t be enough to keep the share price from eventually reflecting its worth.”

This is all to say that he reckons it’s time to buy up bargain ASX shares, even though no one knows whether the carnage has finished.

Inflation would not be persistent, according to Montgomery.

“Wages will eventually be under pressure again,” he said.

“And given the very high levels of household debt, a few short and sharp rate hikes may be all that is necessary to put the inflation genie back in its bottle.”

The post Why 2 specific ASX share sectors are taking such a beating in 2022 appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has 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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There are some very compelling ASX shares to consider which have plenty of potential.

The ASX share market sell-off over the last several weeks has opened up the possibility to be able to jump on these companies at better value.

Businesses with significant plans for future operational growth give themselves a better chance of profit growth.

Here are two strong contenders:

Bubs Australia Ltd (ASX: BUB)

Bubs specialises as an infant formula business, particularly goat milk infant formula. It also offers goat milk products for adults and organic, grass-fed cow milk infant formula.

The ASX share said has said that it’s aiming to become the leading global family nutrition brand from Australia and it’s leading the return to growth for its category.

Bubs recently reported its quarter for the three months to 31 December 2021. Gross revenue of $19.9 million was up 56% year on year and 8% quarter on quarter. The half-year revenue to December 2021 was $38.5 million, up 73% year on year and 57% half-on-half.

The Bubs infant formula segment earns a much higher profit margin than the adult goat products. In the latest quarter, the Bubs infant formula revenue rose 83% year on year.

There were concerns about Chinese demand in 2021. But Chinese demand is now returning in a big way for the ASX share. Chinese gross revenue in the quarter was up 121% year on year and up 21% quarter on quarter.

The ASX share is steadily expanding its geographic reach and planting seeds for future growth. Bubs product sales to international markets outside of China were up 66% year on year and up 141% quarter on quarter. The Bubs family nutrition new product portfolio has been shipped to Africa, China, Singapore and ‘Pacific Islands’.

Another positive from the quarterly update was $2.4 million of operating cashflow.

It’s currently rated as a buy by Citi, with a price target of $0.68.

Accent Group Ltd (ASX: AX1)

Accent is a large shoe retailer in Australia. It owns some retailing brands, like Stylerunner, The Athlete’s Foot and Glue Store. It’s also the distributor for some international brands like VANS, Skechers, Dr Martens and Reebok.

The ASX share has a dual strategy of growing its online sales whilst also growing its store network.

Lockdowns and COVID-19 have impacted sales and profitability in the first half of FY22, but management were pleased with the gross profit margin improvement in December, which was stronger than expected.

Over the longer-term it’s expecting growth to be funded by various tactics including growing its owned brands, expanding with new businesses as well as its ‘exclusive distribution agreement’ brands.

In FY21 it opened 90 stores. During FY22 it’s expecting the store network to grow to more than 700 stores across Australia and New Zealand.

It’s currently rated as a buy by UBS, with a price target of $2.75. Looking at the FY23 projections, UBS thinks the Accent share price is valued at 13x FY23’s estimated earnings with a forecast grossed-up dividend yield of 9%.

The post Potential buys: 2 compelling ASX shares 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 recommended Accent Group and BUBS AUST FPO. 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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