The Rio Tinto Ltd (ASX: RIO) share price has dipped more than 10% since May 2024. It’s common to see volatility when it comes to ASX mining shares, so investors may be wondering whether this sell-off is a buy-the-dip opportunity.

In the shorter term, commodity-focused stocks are often heavily influenced by movements with their respective commodity prices.

Rio Tinto is one of the largest players in the world, and its key commodity is iron ore. However, the iron ore price has dropped recently, so let’s consider the situation there first.

Weakness in the iron ore price

According to Trading Economics, the iron ore price is under pressure amid inventories at Chinese ports recently hitting a two-year high, signalling “weaker demand from steel mills for metal production.”

Trading Economics reported that analysts point to “widening losses among steelmakers and signs of falling hot metal output as dragging demand.”  

The iron ore price has fallen to around US$110 per tonne, down from above US$140 per tonne at the start of the year and down from US$117 per tonne in May.

However, it’s possible that the reduction of both the Rio Tinto share price and the iron ore price could be a buy-the-dip situation, particularly if the iron ore price were to rebound sooner rather than later.

Promising signs?

A couple of positives could lead to a better iron ore price, though we shouldn’t base an investment decision on a possible short-term commodity movement.

Trading Economics reported that the latest data revealed that Chinese exports beat forecasts, with 8.6% growth in June. As an exporting and steel-heavy economy, good exports could mean more demand in the medium term for Australian iron ore.

According to Trading Economics, there is also hope that China will announce more financial stimulus at an important political gathering next week to boost the Chinese economy. Slowing inflation in the US may lead to a potential rate cut this year by the US Federal Reserve.

Is the Rio Tinto share price a buy?

The ASX mining share is currently rated as neutral by the broker UBS. The price target is $127, which implies a possible rise of 6% from today.

UBS notes that the copper mine Oyu Tolgoi’s underground ramp-up is on track, while the huge iron ore project in Africa called Simandou is also progressing “to plan”.

The broker said the ASX mining share has “improved operationally” and “should trade well if iron ore, copper and aluminium prices hold/move higher.”

UBS predicts Rio Tinto can generate net profit after tax (NPAT) of US$12.1 billion in FY24 and US$12.3 billion in FY25 while paying annual dividends per share of US$4.48 in FY24 and US$4.56 in FY25.

I think Rio Tinto is a compelling miner, and its growing exposure to copper is attractive. However, the valuation does not look like it’s at bargain levels to me. If the Rio Tinto share price fell under $110, or even under $100, that could be a better time to invest. That could happen if/when the iron ore price falls below US$100 per tonne.

The post Are Rio Tinto shares a buy on a pullback? appeared first on The Motley Fool Australia.

More reading

• Top 10 most traded ASX shares and US stocks in June
• Investing in ASX shares? Why CEO pay DOES matter when misaligned
• Is it time to dive back into ASX lithium shares?
• Own Rio Tinto shares? Here’s your Q2 preview
• Here’s what the iron ore price will be this time next year: Westpac

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

The Aussie Broadband Ltd (ASX: ABB) share price is taking a beating today.

Shares in the S&P/ASX 300 Index (ASX: XKO) telco closed on Friday trading for $3.57. In early morning trade on Monday, shares are swapping hands for $2.93 apiece, down 17.9%.

For some context, the ASX 300 is up 0.7% at this same time.

This comes as the company launches its new automated assistant and releases a trading update.

First, the AI rollout.

Aussie Broadband share price tanks on AI investment

Investors are pressuring the Aussie Broadband share price after the company announced the launch of Buddy Telco.

The new digital-first challenger brand is aimed at disrupting Australia’s NBN market. It’s targeting four million households out of a total addressable NBN market of some 8.3 million.

Users can employ Buddy to manage their connection, upgrades, outages and usage through the Buddy Telco app, website and Live Chat. The deep learning program is underpinned by Aussie Broadband’s extensive network with connection to all 121 NBN POIs and the Aussie Fibre backbone. It will be offered on a self-service basis only.

The company intends to invest around $10 million in FY 2025 for marketing, brand and set up related operating expenditure to support the Buddy launch. Buddy is expected to provide positive earnings before interest, taxes, depreciation and amortisation (EBITDA) contribution starting in FY 2027.

The AI-enhanced program is targeting 100,000 customers within three years.

Commenting on the new tech rollout that’s failed to lift the Aussie Broadband share price today, managing director Phillip Britt said, “Aussie is thrilled to launch Buddy Telco, a truly digital-first offering that provides value and ease of use to the consumer.”

Britt added:

Our strategic investment in Buddy allows the group to compete in both the premium and value-led broadband sectors, further diversifying the markets we operate in. We look forward to continuing to ‘Change The Game’ through Buddy’s success.

Which bring us to the trading update and guidance.

ASX 300 telco expects to achieve top end of guidance

The Aussie Broadband share price also has failed to catch any tailwinds from today’s trading update.

Based on preliminary, unaudited results, management expects the company’s FY 2024 EBITDA to be at the top end of its $116 million to $121 million guidance, which was previously upgraded on 23 February.

As for the FY 2025, the $10 million investment in Buddy is now reflected in that EBITDA guidance. Prior FY 2025 EBITDA guidance of $135 million to $145 million has been revised to the new range of $125 million to $135 million.

The Aussie Broadband share price will be one to watch on 26 August, when the telco releases its full-year audited results.

The post Aussie Broadband share price implodes 18% amid AI investment appeared first on The Motley Fool Australia.

More reading

• Are Rio Tinto shares a buy on a pullback?
• Would Warren Buffett buy Woodside shares?
• Here’s why BOQ shares could be on the verge of a turnaround
• Buy Coles and this quality blue chip ASX 200 share in July
• Zip shares fall despite return to ASX 200 index

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Aussie Broadband. The Motley Fool Australia has recommended Aussie Broadband. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

One of the world’s leading investors, Warren Buffett, likes all sorts of industries.

Buffett’s Berkshire Hathaway invests in everything from insurance, railways, jewellery and furniture to candy and many other businesses. Tech giant Apple may be the best-known company in the portfolio, but one stock that Buffett’s Berkshire Hathaway has been investing in recently is Occidental Petroleum Corp.

Now, Occidental Petroleum is not exactly the same as ASX oil and gas share Woodside Energy Group Ltd (ASX: WDS), but there are obvious similarities.

As a major presence on the ASX, it’s worth asking whether Woodside would make it into Buffett’s Berkshire Hathaway portfolio. Let’s take a look.

Would Warren Buffett buy Woodside shares?

Buffett likes quality businesses that are growing and at a good price.

I think we can call Woodside a quality business. It’s a leading operator in Australia. In the first quarter of 2024, the business produced 44.9 million barrels of oil equivalent (MMboe), and it achieved an average realised price of US$63 per barrel.

According to Commsec, Occidental Petroleum shares are currently valued at 14x FY24’s estimated earnings and 13x FY25’s estimated earnings.

Meanwhile, Woodside shares are priced at 14.6x FY24’s estimated earnings and 15x FY25’s estimated earnings.

The valuations are very similar, but we can see that Woodside’s valuation is slightly higher, and the earnings are predicted to reduce, while Occidental Petroleum’s earnings are predicted to grow. Even so, I think the valuation is close enough for Buffett to be interested.

Woodside has growth projects — including Scarborough, Sangomar, Trion, and H2OK — that could help increase its earnings in the coming financial years.

But as Woodside’s performance also depends on what happens with energy prices, time will tell how much the ASX oil share will be able to grow its earnings in the future,

The broker UBS has estimated that Woodside could generate US$2.34 billion of net profit after tax (NPAT) in 2024 and US$2.31 billion of net profit in FY28. This suggests that Woodside’s profit could be virtually the same in four years from now.

The Woodside share price has fallen 25% since August 2023, so it’s much cheaper now, as the chart below shows.

I’m not sure Buffett would be interested in adding Woodside shares to the Berkshire Hathaway portfolio, considering it already has exposure to the sector.

However, if he wanted to add more oil and gas exposure, then Woodside may be cheap enough to be attractive, but I wouldn’t say it’s quite at bargain levels yet.

The post Would Warren Buffett buy Woodside shares? appeared first on The Motley Fool Australia.

More reading

• Top 10 most traded ASX shares and US stocks in June
• 5 things to watch on the ASX 200 on Monday
• Top 4 reasons why more Aussies are managing their own superannuation
• ASX 200 re-writes history. Which companies are leading the charge?
• Woodside share price lifts amid 6 million tonne Taiwan gas deal

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 positions in and has recommended Apple and Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Occidental Petroleum. The Motley Fool Australia has recommended Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Bank of Queensland Ltd (ASX: BOQ) share price has fallen more than 30% in three years, as shown on the chart below. There hasn’t been a lot to be positive about in recent times.

The ASX bank share is facing a lot of competition in the banking sector, this is limiting the net interest margin (NIM) and the loan volumes as well.

Just think how many listed banks there are on the ASX, including Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Bendigo and Adelaide Bank Ltd (ASX: BEN) and AMP Ltd (ASX: AMP). Brokers and non-ASX businesses such as ING Groep also add margin headwind dynamics.

Potential turnaround on the cards?

No matter the industry, when a company’s net profit after tax (NPAT) is going down, it’s likely to lead to a falling share price, as we’ve seen with BOQ shares.

The BOQ FY24 first-half result saw the bank’s NIM fall 3 basis points to 1.55%, and the cash earnings after tax dropped by 33% to $172 million. The interim dividend was cut by 15% to 17 cents per share.

However, there are some positives to keep in mind. In the HY24 result, BOQ said its loan impairment expense is “expected to remain below long run averages”, and it has “prudent provision settings”.

It’s also expecting the revenue and margin pressures to “moderate” in the second half of 2024 and that its business banking growth can “increase”.

The broker UBS expects BOQ to generate a net profit of $294 million in FY24, which would represent a painful decline compared to FY22 and FY23. However, UBS is projecting that net profit could rise in each of the next few years to FY28.

Investors are much more likely to be willing to pay a higher price/earnings (P/E) ratio for a business growing profit than one where profit is declining.

In FY25, profit is projected to grow by 8.8% to $320 million. In FY26, the net profit could grow by 14.4% to $366 million. In FY27, BOQ’s net profit could rise another 2.5% to $375 million. Finally, in FY28, the broker projects BOQ could see net profit growth of 8.25% to $406 million.

Is the BOQ share price a buy?

I’m not calling BOQ a bargain buy, and I don’t think it’s the best S&P/ASX 200 Index (ASX: XJO) opportunity right now.

However, the prospect of BOQ’s profit decline being halted would be positive. If the company can grow its profit as predicted, it could lead to a recovery of both the BOQ share price and the dividend payout, which would be welcome news for long-suffering shareholders.

The post Here’s why BOQ shares could be on the verge of a turnaround appeared first on The Motley Fool Australia.

More reading

• Do ANZ shares offer the biggest dividend yield in the ASX bank sector?
• Is the fully franked 6.2% yield on Bank of Queensland shares for real right now?
• Can things get better for BOQ shares in FY25?
• ASX 200 bank shares ‘don’t appear overly expensive’ compared to global peers: UBS
• Which ASX shares to buy if interest rates rise (and which to avoid)

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 positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Bendigo And Adelaide Bank and Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

When you are attempting to build a strong portfolio, having a few blue chips in there can be a good thing.

That’s because blue chips are typically large companies that have been operating for many years. They tend to have stable cash flows, strong business models, and experienced management teams.

Combined, this can make them lower risk options and a good foundation to build a portfolio around.

But which blue chip ASX 200 shares could be buy this month? Here are two that are rated as buys:

Coles Group Ltd (ASX: COL)

Analysts at Morgans think that this supermarket giant could be a blue chip ASX 200 share to buy this month.

In fact, the broker has named the company as one of its best ideas again this month. It believes that share price weakness caused by regulatory concerns has created a buying opportunity for investors. It said:

In our view, the ongoing scrutiny on the supermarkets has affected short term sentiment in the sector, which we believe creates a good buying opportunity in COL. While Liquor sales remain soft, we expect the core Supermarkets division (~92% of earnings) to continue to be supported by further improvement in product availability, reduction in total loss, greater in-home consumption due to cost-of-living pressures, and population growth.

Morgans has an add rating and $18.95 price target on its shares.

Qantas Airways Limited (ASX: QAN)

Goldman Sachs thinks that this airline operator could be undervalued and a blue chip ASX 200 share to buy this month.

The broker notes that the company’s valuation is still lower than pre-COVID times. This is despite having structurally and sustainably stronger earnings.

In addition, its analysts point out that the Fly Kangaroo’s shares are trading at a discount to what investors are paying to own US airlines on Wall Street. The broker explains:

QAN is trading 4% below pre-COVID market capitalization with the enterprise value still 7% lower despite a structurally improved earnings capacity. Relative to regional/ US peers (median PE of 9.1x), QAN is trading on a 29% discount at 6.4x FY25 PE. This is more than 2x below the historical 5Y average discount of 14%. We expect this gap to narrow as QAN delivers earnings that are sustainably above pre-COVID levels and demonstrates ability/ willingness to distribute capital to shareholders while renewing the fleet.

Goldman has a conviction buy rating and $8.05 price target on its shares.

The post Buy Coles and this quality blue chip ASX 200 share in July appeared first on The Motley Fool Australia.

More reading

• Buy Coles and these ASX 200 dividend stocks in July
• Top brokers name 3 ASX shares to buy today
• 2 outstanding blue chip ASX 200 stocks to buy for FY25
• Why did ASIC take a look when Qantas shares fell last year?
• Here’s the earnings forecast through to 2028 for Coles shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Zip Co Ltd (ASX: ZIP) shares are falling on Monday morning.

At the time of writing, the buy now pay later provider’s shares are down 2% to $1.66.

What’s going on with Zip shares?

Investors have been selling the company’s shares this morning despite news that it will return to the benchmark ASX 200 index later this month.

After the market close on Friday, S&P Dow Jones Indices announced that it will remove Altium Limited (ASX: ALU) from the ASX 200 index when the electronic design software provider’s acquisition by Renesas Electronics Corporation completes.

Taking Altium’s place in the illustrious index next Monday on 22 July will be Zip.

This could be good news for Zip shares for a couple of reasons. One is that ASX 200 index funds will need to buy its shares to reflect the changes. This can add pressure to the buy side of the equation and propel its shares higher.

Another reason why it can be good news is that many fund managers have strict investment mandates. One common mandate is that they only invest in companies included in the ASX 200 index. This is to prevent the funds they manage from being invested in speculative stocks that could result in large losses.

So, if any of these fund managers have liked the look of Zip’s impressive performances in 2024, they will now be allowed to buy its shares.

Should you invest?

There’s no doubt that Zip’s transition to profitable growth has been remarkable.

At one stage, many in the market believed the company would never be able to reach this milestone. But it certainly has proven the doubters wrong in FY 2024 and appears well-placed to build on this in FY 2025.

However, Zip shares are up approximately 300% since this time year because of this transformation. So, is it now too late to invest?

Unfortunately, as things stand, the broker community thinks that its shares have rallied beyond fair value now. For example, Citi currently has a buy rating and $1.40 price target on its shares, and UBS has a buy rating and $1.55 price target on them.

Based on the latest Zip share price, this implies potential downside of 15.5% and 6.5%, respectively.

Though, it is possible that these recommendations could be updated in August if Zip outperforms expectations with its full year results. But until then, investors may want to approach this one with caution.

The post Zip shares fall despite return to ASX 200 index appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Are ASX small-cap shares back in vogue amid a big shift?
• Is it too late to buy Zip shares at their 2-year highs?
• 3 ASX small-cap shares that soared 250% to 675% in FY24
• Shares vs. property: Which stocks and suburbs delivered the best growth in FY24?

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium and Zip Co. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Liontown Resources Ltd (ASX: LTR) shares are rising on Monday morning.

At the time of writing, the lithium developer’s shares are up 2% to $1.02

Why are Liontown shares roaring?

The company’s shares are lifting this morning after investors responded positively to the release of an announcement.

According to the release, Liontown Resources has concluded negotiations with Beijing Sinomine International Trade (BSIT) and executed a full-form offtake agreement.

BSIT is operating in the lithium chemicals industry. It is active in both hardrock lithium mining and refining of spodumene concentrates into battery-grade lithium chemicals.

The offtake agreement is for the supply of spodumene concentrate from Liontown’s flagship 100%-owned Kathleen Valley Lithium Project in Western Australia.

The company notes that the short-term agreement is for the supply of up to 100,000 dry metric tonnes (dmt). This is over a 10-month period to commence by 30 September 2024. Pricing will be determined using a formula-based mechanism that references market prices for battery-grade lithium carbonate.

But don’t worry if you’re concerned about this interfering with its existing offtake agreements. Management points out that the agreement with BSIT is in addition to existing long-term offtake contracts with Tesla, LG Energy Solution and Ford.

These existing offtake agreement will be progressively brought into effect over the next 12 months as Liontown ramps-up the Kathleen Valley Lithium Project to full production.

Agreement ‘de-risks sales’

Liontown Resources’ managing director and CEO, Tony Ottaviano, was pleased with the agreement.

He sees it as a way to de-risk the company’s ramp up to nameplate capacity. Ottaviano commented:

Securing a near-term offtake with an established lithium refiner to sell initial volumes over the ramp-up period, de-risks sales during our ramp-up of the plant towards nameplate capacity. This complements our existing long-term offtakes, which we will progressively bring into effect over the next 12 months as we increase production towards nameplate to support our offtake commitments.

Should you invest?

Bell Potter is positive on Liontown shares and sees value in them at current levels.

And while the broker has not yet responded to this update, it currently has a speculative buy and $1.85 price target on its shares. This implies potential upside of 80% for (high risk) investors from current levels.

The broker thinks very highly of the Kathleen Valley lithium project. It explains:

LTR’s 100% owned Kathleen Valley lithium project remains highly strategic with initial production imminent, a long mine life and tier-one location. LTR has offtake contracts with top tier EV and battery OEMs (Ford, LG Energy Solution and Tesla). Under our modelled assumptions, we expect that LTR is fully funded to free cash flow.

The post Why are Liontown shares roaring higher on Monday? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Top 5 investment themes exciting ASX shares investors in FY25
• Here 3 ASX lithium shares to watch for FY25
• Are Liontown Resources shares a buy after surging 9% this week?
• Here are the top 10 ASX 200 shares today

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

The Vanguard Australian Shares Index ETF (ASX: VAS) is a popular exchange-traded fund (ETF), with many investors appreciating the level of passive income that it produces.

Term deposits can be equally appealing because they can deliver a solid, guaranteed interest rate while also protecting people’s capital.

Both investment options come with positives and negatives, so let’s consider some of those.

Passive income yield

Every month, Vanguard updates investors on the VAS ETF dividend yield. At the end of May 2024, the Vanguard Australian Shares Index ETF offered a yield of 3.7% which, together with its franking credits, takes the yield to just under 5%.

The VAS ETF’s yield is comparable to the term deposit rate offered by ASX financial shares like AMP Ltd (ASX: AMP) and Judo Capital Holdings Ltd (ASX: JDO).

While each financial institution offers a different interest rate, the yield for a term deposit is fixed and guaranteed. In contrast, the Vanguard fund payout has the potential to grow over the longer term, but it can also be reduced in the shorter term.

If its holdings grow their profits and dividends, the VAS ETF distribution could be materially larger in five years. The term deposit yield will be entirely dependent on the RBA interest rate at the time, which has been hard to predict over the last few years.

What about capital?

Term deposits are designed to protect investor capital, so investors don’t suffer capital loss during the course of the term deposit.

The VAS ETF invests in a portfolio of ASX shares, including BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Telstra Group Ltd (ASX: TLS), Coles Group Ltd (ASX: COL) and Macquarie Group Ltd (ASX: MQG).

Owning shares has the potential to deliver capital growth over the long term if those businesses can collectively perform. However, as everyone knows, volatility can quickly strike and cause a decline.

If you’re an investor thinking about a short-term investment, a term deposit may be a better choice because it removes the risk of capital loss while still offering decent cash returns.

However, for the longer term, we should keep in mind that ASX shares can provide inflation protection by growing their profits, dividends and share prices. The term deposit return is fixed with no growth potential unless someone reinvests their interest into the term deposit.

Investors can spend their VAS ETF distributions and still see larger distributions in the future because of underlying business growth.

Of course, there are other investments that people can consider to diversify a portfolio further, such as the ASX dividend share Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and an ETF like Vanguard MSCI Index International Shares ETF (ASX: VGS).

The post Should Aussies choose Vanguard Australian Shares Index ETF (VAS) or a term deposit for passive income? appeared first on The Motley Fool Australia.

More reading

• Buying shares and 5 other ways investors intend to spend tax cuts: report
• The 5 most popular ASX shares bought by investors
• Should I buy ASX shares now or wait? See what Lazard says
• How did the Vanguard Australian Shares Index ETF (VAS) perform in FY24?
• Buy and hold these ASX ETFs for 10 years+

Motley Fool contributor Tristan Harrison has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Coles Group, Macquarie Group, Telstra Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

AGL Energy Ltd (ASX: AGL) and Pilbara Minerals Ltd (ASX: PLS) shares are both interesting potential investments to think about because of the exposure they can provide to the growth of energy-related demand.

These businesses are constituents of the S&P/ASX 200 Index (ASX: XJO), but that doesn’t mean they’re immune to volatility. As the chart below shows, their share prices have declined significantly over the past few years.

In the last five years, the AGL share price has fallen around 50%, while the Pilbara Minerals share price has dropped 42% since August 2023. Of course, a lower share price doesn’t necessarily mean they excellent buys. But it’s still worth analysing and comparing both shares.

Energy prices are key

It can be quite difficult to predict what’s going to happen next with lithium prices or electricity prices.

AGL is an energy generator and retailer, so it benefits when energy prices go up. Pilbara Minerals is a major lithium miner, so it will benefit if lithium prices rise amid the rise of electric vehicles.

The broker UBS recently noted that near-term wholesale prices have increased. UBS also increased its expectation for wholesale electricity prices to $90MW per hour (up $10MW per hour), reflecting “a slower build out of renewable and transmission capacity, higher levelised cost of energy (LCOE) for new generation and an updated forecast of thermal generation and storage utilisation.”

The energy retailer’s net profit after tax (NPAT) is expected to grow at a compound annual growth rate (CAGR) of 9% between FY26 and FY29.

Sadly, lithium prices are not looking as positive. UBS said it sees a spot price for lithium spodumene of between US$1,050 to US$1,075 as a “fair reflection of a well-supplied market.”

UBS suggested that “continued downside risk remains while supply out of Africa is strong and demand for PHEV [plug-in hybrid electric vehicle] stagnates.”

The broker is wary of Pilbara Minerals’ recent announcement to expand the Pilgangoora operations with its P2000 project. Taking the production to 2mt per annum would reportedly see it rival Greenbushes as the world’s largest spodumene mine. However, “project announcements like this and Manono will likely push out a return to incentive based prices and keep prices near current marginal cost support levels.”

If electric car demand were to recover to a satisfactory level of growth, it could lead to higher lithium prices. AGL can benefit from increasing energy demand from areas like data centres, AI, electric vehicles and a growing population.

My verdict on AGL and Pilbara Minerals shares

Pilbara Minerals doesn’t seem to be doing itself or the lithium price any favours by aiming for such large annual production.

I don’t think it’s clear that the lithium price will recover to previous strong levels, particularly if supply keeps increasing.

AGL can benefit from rising energy prices, investments in energy storage, and growing demand from data centres.

If AGL can grow its profit and dividend in the coming years, I think the business could be a materially undervalued opportunity at today’s prices. That’s why I recently decided to invest in the ASX share, and it would be my pick today.

According to the UBS estimates, the AGL share price is valued at 10x FY25’s estimated earnings.

The post Are AGL or Pilbara Minerals shares a better buy? appeared first on The Motley Fool Australia.

More reading

• Top 10 most traded ASX shares and US stocks in June
• These are the 10 most shorted ASX shares
• Buying shares and 5 other ways investors intend to spend tax cuts: report
• Is it time to dive back into ASX lithium shares?
• Buy this ASX lithium stock and sell this one

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