Here at The Motley Fool we believe shares are a smart way to build wealth for the future.

Many Australians have agreed with this sentiment in the past year, and have joined the market for the first time in droves.

It’s excellent that they have dipped their toes into what can be a daunting experience. Getting started is the hard bit.

But once they’re in the market, novice investors need to be aware of deep-seated psychological biases that could wreck their decision-making. These are human urges that not even professionals can sometimes resist.

Falling prey to these unconscious habits could see you make big losses when buying and selling shares.

Here are 4 of the most common ones that shareholders fall victim to:

Dunning-Kruger effect

The Dunning-Kruger effect describes the way humans overestimate their own abilities.

A classic example is how most people think they are a good driver — even though by definition not everyone can be “good”.

In the share market, this is often seen in the hubris of “I can beat the market”.

The reality is that even professional fund managers find it difficult to constantly outperform indices. So how would a beginner or an amateur do better (without fluking it)?

“They try to make a lot of money quickly – that’s how movies like Wall Street make investing seem,” Stockspot founder Chris Brycki told Yahoo last year.

“But truthfully, it’s very difficult to beat the market and consistently be a winner overall.”

Escalation of commitment

This is classic behaviour from many novice investors. 

A stock you own has plunged in value. Then you buy even more shares — not because you think the company has a great future, but because you want to recover your losses.

If you had x dollars to invest, why would you deliberately put it into a company that’s in trouble? Wouldn’t it be better to invest it in something else that you have more faith in?

There is nothing wrong with buying low, but it has to be for the right reasons.

Anchoring

Anchoring is a psychological phenomenon seen in every person on a daily basis — not just in the investing world.

It describes the way humans use the first-known data as a yardstick to compare everything else that comes after it.

A perfect example is in shopping. If you first see a particular television on sale for $2,000, then seeing it sell for $1,500 at another store will seem like a fantastic deal.

But the $2,000 anchor is a random valuation, unrelated to the worth of the actual product.

A third shop may be selling at $1,200, which is the true value of the television. But a buyer that fell victim to anchoring would have already snapped it up for $1,500.

In the share market, setting arbitrary selling or buying points is a way of setting anchor.

An Afterpay Ltd (ASX: APT) shareholder who sold for $20 last year after seeing it sink to $8 in March is an example of this. (It’s now more than $110)

Stock investors must always tell themselves to ignore earlier numbers and judge each selling and buying opportunity purely on merit.

Illusion of control

Our The Motley Fool colleagues in the US describe this best:

If you’ve ever made money day trading and patted yourself on the back for a job well done, you’re probably a victim of the illusion of control.

Related to the Dunning-Kruger effect, this is when an investor thinks their own skill led to a favourable outcome — even though it was mostly luck.

This psychological bias is often seen in punters who indulge in short-term trading.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 2 exciting ASX tech shares to buy today
• Will the ASX see a share market bubble in 2021?
• Big brokers still love the Afterpay (ASX:APT) share price
• Why Afterpay, Altium, Mesoblast, & PolyNovo shares are dropping lower

Motley Fool contributor Tony Yoo owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of AFTERPAY T 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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The Premier Investments Limited (ASX: PMV) share price was on fire on Wednesday following the release of a trading update.

The retail conglomerate’s shares ended the day 13% higher at $25.35.

At one stage, the Premier Investments share price was up almost 19% to a record high of $26.70.

How is Premier Investments performing?

Premier Investments’ update revealed that its Retail business has been performing exceptionally well during the first half of FY 2021.

As a result, the company is expecting this side of the business to deliver earnings before interest and tax (EBIT) of $221 million to $233 million for the 27 weeks ending 30 January.

This will be up between 75% and 85% on the EBIT of $126.1 million it achieved during the 26 weeks ended 25 January 2020.

Management advised that this has been driven by strong like for like sales, a significant lift in higher margin online sales, and cost savings largely from rental reductions.

Is it too late invest?

One broker that believes it is too late to invest is Goldman Sachs.

According to a note out of the broker this morning, its analysts have retained their sell rating but lifted their price target slightly to $20.80. This price target implies potential downside of 18% from yesterday’s close price.

The broker doesn’t appear to believe that this strong form will last beyond FY 2021 and is forecasting a decline in earnings in FY 2022.

The broker is forecasting earnings per share of $1.40 in FY 2021 but then just $1.03 in FY 2022 and $1.09 in FY 2023. In light of this, it feels its shares are expensive compared to peers.

Goldman explained: “While the higher margin online sales is likely to be an ongoing structural benefit for PMV, the unique conditions driving the strong sales environment are, in our view, going to be difficult to sustain beyond FY21 as will be the reductions to operating costs. We estimate that GM expansion, operating leverage and the cost mitigating factors have all been material to this profit outcome.”

“PMV looks reasonably priced on FY21E P/E of 18x compared to its 5-year average of 19.9x. However, on a sustainable profit basis, PMV continues to screen expensive vs. its peers, currently trading at 24.7x on a reported P/E basis and 22.1x when adjusted for the market value of its ownership of Breville Group (BRG: ASX) and Myer (MYR: ASX),” it concluded.

More reading

• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises 0.1%
• The Accent Group (ASX:AX1) share price just got hit by a broker downgrade
• Goldman Sachs says sell Premier Investments (ASX:PMV) shares into today’s big rally
• ASX 200 down 0.3%: Altium sinks, Premier Investments rockets, energy shares rise

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments 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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Are you looking to boost your portfolio with some income options?

Then you might want to take a look at the ASX dividend shares listed below. Here’s what you need to know about them:

Charter Hall Social Infrastructure REIT (ASX: CQE)

Charter Hall Social Infrastructure REIT is the largest ASX-listed real estate investment trust investing in social infrastructure properties.

The company targets ongoing capital growth through its focus on high quality assets in strategic locations with specialist use, limited competition, low substitution risk. These assets include childcare centres and government properties. Management believes this focus will drive high tenant retention rates over the long term.

One broker that is a fan of Charter Hall Social Infrastructure REIT is Goldman Sachs. It has a conviction buy rating and $3.35 price target on its shares. The broker is forecasting a 15 cents per share dividend in FY 2021. Based on the current Charter Hall Social Infrastructure REIT share price, this represents a 4.9% yield.

Telstra Corporation Ltd (ASX: TLS)

Over the last few years, this telco giant has been forced to reduce its dividend on a number of occasions due to the negative impact that the NBN rollout was having on its earnings.

The good news is that the dividend cuts now appear to be over and brokers are forecasting a stable 16 cents per share fully franked dividend for the foreseeable future.

This is being underpinned by the success of its T22 strategy, which is reducing costs and simplifying its business. In addition to this, the arrival of 5G internet is expected to give its average mobile revenue per user metric a boost in the coming years.

One broker that is positive on the company is UBS. It has a buy rating and $3.70 price target on its shares and is forecasting a 16 cents per share dividend. This equates to a 5.2% dividend yield.

More reading

• 2 little-known small cap ASX shares rated as buys by fundie
• Interest rates could be at ultra low levels for years, so buy this ASX dividend share
• 2 quality ASX dividend shares to buy
• Infinite games: 3 ASX shares with long-term visions
• These were the best-performing ASX IPOs in 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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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On Wednesday the S&P/ASX 200 Index (ASX: XJO) ended its losing streak and recorded a small gain. The benchmark index rose 0.1% to 6,686.6 points.

Will the market be able to build on this on Thursday? Here are five things to watch:

ASX 200 expected to edge higher.

The Australian share market looks set to edge higher again on Thursday. According to the latest SPI futures, the ASX 200 is expected to open the day 13 points or 0.2% higher this morning. This follows a positive night of trade on Wall Street, which in late trade sees the Dow Jones up 0.25%, the S&P 500 up 0.5%, and the Nasdaq 0.7% higher.

Tech shares on watch.

The tech sector has been underperforming so far in 2021, but things could be better today for the likes of Afterpay Ltd (ASX: APT) and Altium Limited (ASX: ALU). This follows a strong night of trade on the technology-focused Nasdaq index overnight. The local tech sector has a tendency to follow its lead.

Oil prices fall.

Energy producers Beach Energy Limited (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) were on form on Wednesday and recorded strong gains. They could give back some of those gains today after oil prices softened overnight due to demand concerns. According to Bloomberg, the WTI crude oil price is down 0.3% to US$53.07 a barrel and the Brent crude oil price has fallen 0.7% to US$56.18 a barrel.

Gold price higher.

It could be a good day for gold miners such as Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) after the gold price pushed higher. According to CNBC, the gold futures price is up 0.5% to US$1,854.10 an ounce. The gold price was given a boost by stimulus hopes in the US.

Premier Investments given sell rating.

After jumping 13% on Wednesday, one leading broker feels the Premier Investments Limited (ASX: PMV) share price is overvalued now. According to a note out of Goldman Sachs, its analysts have put a sell rating and $20.80 price target on the retail conglomerate’s shares. While it was impressed with its update, it doesn’t see value in its shares at this level.

More reading

• ASX 200 rises 0.1%
• Iluka (ASX:ILU) share price surged higher on a potential $1bn+ valuation uplift
• ASX energy shares exploded today. Too late to buy?
• 2 exciting ASX tech shares to buy today
• Top brokers name 3 ASX shares to buy today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of AFTERPAY T 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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With the pandemic accelerating the shift to online shopping by as much as five years, ecommerce companies appear very well-placed for growth in the coming years.

But how should investors gain exposure to this trend? Two ecommerce companies that are rated as buys are listed below:

Kogan.com Ltd (ASX: KGN)

One of Australia’s fastest growing ecommerce companies is Kogan. After a stellar performance in FY 2020, Kogan’s strong form has continued in the current financial year. 

During the first four months of FY 2021, Kogan’s sales were up 99.8% on the prior corresponding period. Things were even better for its earnings thanks to margin improvements. The company’s operating earnings grew a massive 268.8% over the same period last year.

Since then, the company has bolstered its growth through the value accretive acquisition of fellow ecommerce company Mighty Ape for $122 million. Mighty Ape operates online stores in New Zealand and Australia and has a focus on gaming, toys, and other entertainment categories. It has more than 690,000 unique customers and more than 895,000 subscribers.

For the 12 months ended 30 September, Mighty Ape generated revenue of A$120.1 million, gross profit of A$37.8 million, and EBITDA of A$9.9 million.

One broker that was a fan of the acquisition was Canaccord Genuity. It has a buy rating and $25.00 price target on Kogan’s shares. It sees the potential for significant revenue and cost synergies from the deal.

MyDeal.com.au Limited (ASX: MYD)

Another ecommerce company growing quickly is MyDeal.com.au. It is an online retail marketplace provider with a focus on furniture, homewares, appliances, technology, baby products, and hardware.

As with Kogan, MyDeal has been a very strong performer over the last 12 months and this has continued in FY 2021. During the first quarter, the company delivered a 317% increase in gross sales to $56.67 million. This was underpinned by a 268% increase in active customers to 669,897.

RBC Capital Markets is very positive on the company. The broker has a buy rating and $1.60 price target on its shares. It believes MyDeal is at an inflection point as annualised gross transaction value exceeds $200 million and customer numbers close in on 700,000.

More reading

• 3 highly rated ASX growth shares to buy now
• 2 of the best ASX shares to buy this month
• Brokers name 3 ASX shares to buy right now
• 2 high quality ASX growth shares to buy today
• How to invest in ASX shares in a post-COVID world 

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com 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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Big brokers have come off their holiday breaks this week with updates on a number of ASX 200 shares. Here are the broker downgrades from 12 January 2021 to watch out for. 

AGL Energy Limited (ASX: AGL) 

The AGL share price has fallen more than 40% in the last 12 months, despite a market leading 7.80% dividend yield. 

The energy company recently slashed its FY21 guidance, now expecting underlying profit after tax to be between $500 million and $580 million, down from the previous guidance range of $560 million to $660 million.

As a result, Credit Suisse lowered its AGL share price target from $12.60 to $11.00 with an underperform rating. This represents a downside of 9% to its share price of $12.07 at close of trade today. 

ASX Ltd (ASX: ASX) 

The ASX share price has struggled to deliver shareholder return in 2020,  slumping 10% over the year. The most notable event for ASX last year was on 16 November, where a software glitched caused an embarrassing all-day outage. 

Credit Suisse lowered its ASX share price target from $73.00 to $71.00 with an underperform rating. This follows a similar logic to that of Goldman Sachs, which maintained a sell rating for ASX shares on 20 December 2020.

Goldman described the company at the time as “expensive given headwinds” after the company’s mixed performance, with weaker derivatives and over-the-counter (OTC) markets but solid performances across its listings and issuer services, trading services and equity post-trade services. 

Magellan Financial Group Ltd (ASX: MFG) 

Goldman Sachs remains sell rated on Magellan with a price target of $50.70. The broker’s commentary highlights Magellan’s funds under management falling 1.6% from $103.0 billion to $1.1.4 billion during December.

The key drivers of Goldman’s stance was the fund’s underperformance. Relative performance was soft in December, with the Global Fund underperforming the benchmark by -2.7%, following an -8.8% underperformance in November. The broker believes that Magellan is most negatively exposed to the recent US senate run-off elections which could result in lower performance fees and funds under management.  

Citi also lowered its Magellan share price target from $60.00 to $56.50 with a neutral rating. While Credit Suisse lowered its price target from $58.50 to $55.00. 

More reading

• The AGL (ASX:AGL) share price just hit a 12-year low
• Leading brokers name 3 ASX shares to sell today
• ASX 200 drops 0.9%
• What’s been happening with the Magellan (ASX:MFG) share price?
• Top brokers name 3 ASX shares to sell next week

Motley Fool contributor Lina Lim 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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The S&P/ASX 200 Index (ASX: XJO) went up by 0.1% today to 6,687 points.

Here are some of the highlights from the ASX:

Premier Investments Limited (ASX: PMV)

The Premier Investments share price was the best performer in the ASX 200 today, rising by 12.7%. The company gave a trading and profit update for the first half of FY21.

The company gave a trading update for the first 24 weeks of its FY21 first half. Based on that, it’s expecting its retail division to generate underlying earnings before interest and tax (EBIT) in a range of $221 million to $233 million, up between 75% to 85% compared to the prior corresponding period.

During the half to date, online sales continued to rise. For the first 24 weeks, it made $146.2 million of online sales, which was up $54.8 million, or up 60% in percentage terms compared to the same period last year. Online sales equated to 20.4% of total group sales. The ASX 200 retail business reminded investors that online sales deliver a significantly higher EBIT margin than the EBIT margin of the retail store network.

Total global retail sales for the 24 weeks rose 5% to $716.9 million, with global like for like sales growth of 18%. Australian like for like sales growth was 18%.

Premier said it achieved strong cost controls, including reaching agreements with key landlords on COVID-19 rent abatements.

The company confirmed it wasn’t eligible to receive the second stage of jobkeeper support, however it kept its balance sheet in a strong position.

Audinate Group Ltd (ASX: AD8)

The Audinate share price went up 0.6% after the company gave a trading update.

It said that it made US$11.1 million of revenue for the half-year ending 31 December 2020. This was the same as the prior corresponding period, though it was an increase from US$9.3 million in the second half of FY20.

Aidan Williams, the Audinate CEO, said: “Our first half revenue result is pleasing, yet we remain cautious of the near-term economic uncertainty associated with the ongoing impacts of COVID-19 around the world. However, our strong balance sheet has enabled us to remain focused on our medium-term strategic priorities.”

The company then informed investors that it has hired 11 employees in Cambridge in the UK to form a video development team. Management see video as important part of its future growth. However, this is expected to cost AU$1.3 million to AU$1.5 million in additional expenditure in FY21.

Big movers in the ASX 200

Some of the biggest risers in the ASX 200 today were resource businesses. Coal miner Whitehaven Coal Ltd (ASX: WHC) saw its share price go up 9.4%.

Oil businesses were also among the top performers today. The Oil Search Limited (ASX: OSH) share price grew 6.2% and the Woodside Petroleum Limited (ASX: WPL) share price went up 5.4%.

However, at the red end of the ASX were: the Polynovo Ltd (ASX: PNV) share price fell 9.2%, the Altium Limited (ASX: ALU) share price dropped 6.2%, the Mesoblast Limited (ASX: MSB) share price fell 6%, the Nextdc Ltd (ASX: NXT) share price fell 4% and the ARB Corporation Limited (ASX: ARB) share price dropped 3.2%.

More reading

• Iluka (ASX:ILU) share price surged higher on a potential $1bn+ valuation uplift
• ASX energy shares exploded today. Too late to buy?
• Top brokers name 3 ASX shares to buy today
• The Accent Group (ASX:AX1) share price just got hit by a broker downgrade
• 5 reasons inflation might bite ASX investors in 2021

Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO and POLYNOVO FPO. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia has recommended ARB Limited and AUDINATEGL 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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There are some ASX dividend shares that have small market capitalisations but large dividend yields.

These are businesses that are already paying shareholders some of the profit each year, but they are earlier on in their expansion plans.

Here are those small dividend-paying businesses:

Propel Funeral Partners Ltd (ASX: PFP)

Propel has a trailing grossed-up dividend yield of 4.8%. According to the ASX, it has a market capitalisation of $295 million.

It’s the second largest funeral operator in Australia and New Zealand. Propel’s core business is regional funeral businesses, though it’s also looking to expand into metropolitan areas as well. For example, it recently acquired the Dils Group which operates primarily on the North Shore of Auckland in New Zealand.

In FY20 the ASX dividend share grew revenue by 16.5% to $110.8 million, volumes grew by 17.6% to 13,300 and the average revenue per funeral increased by 1.6% to $5,672. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) went up 36.4% to $32.4 million and operating net profit after tax (NPAT) grew by 6.5% to $14.2 million.

In the first quarter of FY21 it reported 18% growth of operating EBITDA of $10.5 million, with average revenue per funeral growth within the target range of 2% to 4%. It also reported total funeral volume and strong cash flow conversion.

For FY21 and beyond it’s expecting a growing and ageing population, with acquisitions likely to help earnings too. Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

Pacific Current Group Ltd (ASX: PAC)

Pacific has a trailing grossed-up dividend yield of 8%. According to the ASX, it has a market capitalisation of $320 million.

It’s a business that invests in other fund managers that it thinks have good growth potential. Pacific Current helps fund managers grow with both its expertise and capital. 

One of the investments that the ASX dividend share previously made, GQG, is currently delivering most of the growth of funds under management (FUM) at the moment. In FY20 FUM grew by 62% to $93 billion, which helped underlying earnings per share (EPS) rise 18% to $0.51. This in turn supported a 40% increase of the dividend per share to $0.35.

In the quarter ending 30 September 2020, Pacific Current saw FUM rise by another 14% to $106.4 billion.

Dean Fremder of Perpetual Limited (ASX: PPT) said when Pacific Current shares were a bit lower: “The stock’s really cheap. It is on nine times earnings. It’s growing earnings at double digits, so more than 10% a year. It’s paying a 6.5% fully franked yield. And most excitingly, we think they can pay out a much larger portion of their earnings as dividends. We see no reason, given the surplus franking credits they have on the balance sheet, they can’t be paying a 10 or 11% fully franked yield in the next 12 months. So, really excited about that one.”

Pengana Capital Group Ltd (ASX: PCG)

Pengana has a trailing grossed-up dividend yield of 6.8%. According to the ASX, it has a market capitalisation of $170 million.

This ASX dividend share is a business that aims to service retail investors. At the end of November 2020, it had $3.5 billion of FUM.

It runs a variety of investment strategies – Australian multi-caps, Australian small caps, global multi-caps, global small caps and global private equity.

Pengana says that it has a sticky and loyal client base of financial advisors, retail and high net worth individuals with more than 20% of FUM in listed vehicles, which provides a stable pool of FUM.

One of the ways that Pengana plans to grow is overseas expansion. It bought two thirds of Lizard Investors in the US, and plans to help it increase its FUM whilst also transforming Lizard into a platform for managing other strategies.

Lizard intends to launch at least two more strategies over the next year. Management believe there is potential to build this business over the longer term so that it rivals the scale of Pengana’s Australian business.

More reading

• 3 ASX dividend shares with yields above 5%
• 2 compelling ASX shares to buy in January
• Got money to invest for income? Here are 3 ASX dividend shares
• Top ASX shares to buy in January 2021
• 2 ASX dividend shares to buy for 2021

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Propel Funeral Partners 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 Cedar Woods Properties Limited (ASX: CWP) share price closed relatively flat today, up just 0.47% to $6.40 per share. This is despite Cedar Woods announcing earlier today that it has acquired a 21 hectare site in Melbourne’s north.

So what does this mean for the company? And how has the Cedar Woods share price performed recently?

Expanding an existing project

The 21.7 hectare site acquired by Cedar Woods is adjacent to the company’s Mason Quarter project in Wollert. Combined, the new parcel and existing project accommodate a master planned community of approximately 800 lots plus two school sites.

Discussing his opinions about this developing community, Cedar Woods managing director Nathan Blackburne said: “We’ve seized the opportunity to acquire a neighbouring site to leverage the Mason Quarter brand and the amenity we will establish within the Wollert community.”

How has Cedar Woods performed recently?

Over the past 12 months, the Cedar Woods share price has taken a roughly 23% dive. 

In its financial year 2020 annual report published in September 2020, Cedar Woods reported a revenue of $260,660,000 which was 30.5% lower than the prior year. The company’s net profit after tax also crashed 57% lower coming in at $20,899,000.

In the annual report, Cedar Woods goes on to highlight that the company’s overarching strategy is “to grow and develop our national project portfolio, diversified by geography, product type, and price point, so that it continues to hold broad customer appeal and perform well in a range of market conditions.”

During the 2020 financial year, Cedar Woods had settlements for 24 projects. To date, this number had grown to 30.

2021 financial year so far

Cedar Woods reported an 11% increase in its pre-sales business in the company’s first quarter 2021 financial year update. This increased the pre-sales business from $409 million in 2020 to $454 million in 2021. The company advised that 60% of this business is expected to settle in the 2021 financial year, with the remaining balance contributing to earnings during financial years of 2022 and 2023.

Regardless of stunted economic conditions brought on by COVID-19, Cedar Woods believes that the company is well-positioned due to its “strong balance sheet, low debt, and over $110 million in undrawn finance facilities at quarter end, available to fund operations and acquisitions.” 

More reading

• Iluka (ASX:ILU) share price surged higher on a potential $1bn+ valuation uplift
• The AGL (ASX:AGL) share price just hit a 12-year low
• ASX energy shares exploded today. Too late to buy?
• Fund managers are buying Domino’s (ASX:DMP) and this ASX share
• The BHP (ASX:BHP) share price is Goldman Sach’s top pick for iron ore

Motley Fool contributor Gretchen Kennedy 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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The Iluka Resources Limited (ASX: ILU) share price is outperforming its peers on Wednesday on talk that that it could unlock $1 billion in extra value.

The Iluka share price surged 4.7% to $6.91 when the S&P/ASX 200 Index (Index:^AXJO) struggled to finish in the black.

The rally in the mineral sands miner also eclipsing other ASX miners. The Rio Tinto Limited (ASX: RIO) share price fell 0.6% to $120.74, Lynas Rare Earths Ltd (ASX: LYC) share price dipped 0.2% to $4.37 and OZ Minerals Limited (ASX: OZL) share price increased 1.2% to $20.46.

Unlocking value in the Iluka share price

The rally in the ILU share price coincided with a note by Goldman Sachs, which quantified the possible upside if Iluka moved ahead to build a processing plant.

The miner recently confirmed that it was looking at constructing a rare earth refinery at Eneabba in Western Australia.

The move downstream will allow Iluka to capture more of the value chain, which should give a boost to its revenue and profit margins.

Target price upgrade on the ILU share price

“Notwithstanding the permitting and technical challenges, our analysis shows that if ILU were to expand into downstream refining of monazite into a rare earth oxides, this could increase the value of the Eneabba &Wimmera projects to c. A$1.2bn,” said Goldman Sachs.

That equates to a $2.70 a share uplift to the Iluka share price and the broker has upgraded its 2025 earnings per share (EPS) forecast on the stock by 45%.

This in turn prompted Goldman to up its price target on the Iluka share price by 22% to $7.20 a share.

Growing bigger

Iluka is the world’s largest producer of zircon with a around a 30% share of the market. It’s also a significant producer of high-grade titanium dioxide (TiO2) feedstock.

The miner now has the potential to be a significant producer of rare earths as it plans to increase sales of rare earths to 9,000 tonnes a year from the second half of 2021. This will be done via the ramp-up of the Eneabba Phase 2 project,

The development of the Wimmera project could then take Iluka to 15,000 tonnes a year, or around 10% of the global market share, by 2025 or 2026.

Other reasons to buy the Iluka share price

This isn’t the only reason why Goldman is urging investors to buy the ASX stock today. It believes Iluka’s zircon and TiO2 sales will bounce by 20% this year with improving global demand for ceramics and pigment.

The broker also believes that there will be a supply deficit of zircon this year due to falling global supply.

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Motley Fool contributor Brendon Lau owns shares of Iluka Resources Ltd., Lynas Limited, OZ Minerals Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

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.

The post Iluka (ASX:ILU) share price surged higher on a potential $1bn+ valuation uplift appeared first on The Motley Fool Australia.

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