Tag: Fool

A new month is upon us, so what better time to look at making some new additions to your portfolio.

If you are interested in exchange-traded funds (ETFs), then it could be worth checking out the four in this article.

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

BetaShares Global Cybersecurity ETF (ASX: HACK)

The first ASX ETF for investors to look at is the BetaShares Global Cybersecurity ETF. This strong-performing ETF provides investors with exposure to the cybersecurity sector. which is forecast to grow very strongly over the coming decades. This is being driven by rising levels of cybercrime and more infrastructure shifting to the cloud. This bodes well for the companies included in the fund, such as Accenture and Palo Alto Networks.

Betashares Global Uranium ETF (ASX: URNM)

A second ASX ETF for investors to look at in July is the Betashares Global Uranium ETF. This fund aims to track the performance of an index that provides investors with exposure to the leading companies in the global uranium industry. This has been a great place to be over the last 12 months thanks to rising uranium prices. This has been driven by strong forecast demand for use in nuclear power and weak supply of the chemical element. Among its holdings are locally listed uranium stocks Boss Energy Ltd (ASX: BOE) and Paladin Energy Ltd (ASX: PDN).

Betashares Global Quality Leaders ETF (ASX: QLTY)

A third ASX ETF for investors to consider buying is the Betashares Global Quality Leaders ETF. It was recommended by Betashares’ chief economist, David Bassanese, last year. And it isn’t hard to see why. This fund allows investors to buy many of the highest quality companies that the world has to offer. At present, there are approximately 150 companies included in the ETF. These companies rank highly on four key metrics: return on equity, debt-to-capital, cash flow generation, and earnings stability.

BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC)

A final ASX ETF for investors to look at is the BetaShares S&P/ASX Australian Technology ETF. It could be a great option if you are lacking any meaningful technology exposure in your portfolio. That’s because it provides investors with access to the leading companies in a range of tech-related market segments. This includes information technology, consumer electronics, online retail and medical technology. This ETF was also recently highlighted as one to buy by the team at Betashares. The fund manager commented: “With the nascent adoption of AI, cloud computing, big data, automation, and the internet of things, there’s a good chance that the next decade’s major winners will come from the tech sector.”

The post 4 of the best ASX ETFs to buy in July appeared first on The Motley Fool Australia.

More reading

• The smartest ASX ETF to buy with $1,000 right now
• 1 top ASX ETF to buy now as the global uranium race heats up
• 5 excellent ASX ETFs to grow your wealth
• 2 top ASX ETFs that offer excellent diversification
• 4 of the best ASX ETFs to buy and hold for a decade

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 Accenture Plc, BetaShares Global Cybersecurity ETF, and Palo Alto Networks. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool Australia has positions in and has recommended BetaShares Global Cybersecurity ETF. The Motley Fool Australia has recommended Betashares Global Uranium Etf. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Superannuation is a funny thing. Almost all of us know it’s there, thanks to the now-11% (soon to be 11.5%) of our paycheque that is diverted into our super funds every pay cycle.

Yet if you ask most Australians who are more than 10 or 15 years away from retirement age, you’ll probably find a disturbing lack of knowledge or awareness over the state of their super fund.

Perhaps that’s understandable. For one thing, super is one of the drier subjects that one can discuss around the proverbial water cooler. And for another, most Australians aren’t currently on track for an adequately-funded, comfortable retirement that can be built on superannuation alone. So why discuss it?

But exactly how much does one need at a particular age to be considered ‘on track’ for a comfortable retirement? That’s what we’ll be going through today.

Superannuation and a comfortable retirement

How much super one needs for retirement is quite a subjective topic. For one, some people want to retire as soon as they can. While others envisage keeping busy and productive for as long as they are able. Further, some people might be happy with a modest retirement. Others might seek to fill their golden years with travel and luxury.

As a starting point, the Federal Government’s Moneysmart website tells us that “if you own your home, the rule of thumb is that you’ll need two-thirds (67%) of your current income each year to maintain the same standard of living”.

Luckily, super fund provider Australian Retirement Trust has run numbers on what it sees as the balance you should be aiming for if you wish to be on track for a comfortable retirement.

To start off, it estimates that the super balance a 25-year-old should aim for for a comfortable retirement is $18,500.

For a 30-year-old? It’s $59,000.

This rises to $101,500 for someone aged 35 and again to $156,000 for 40-year-olds.

Jumping to 50 years, and the estimated ideal balance is $281,000.

That rises again to $361,000 for a 55-year-old and up to $453,000 for someone aged 60.

For a 65-year-old who is two years away from the retirement age of 67, one should be aiming for a superannuation balance of $549,000.

This is all built on assumptions made by the Association of Superannuation Funds of Australia (ASFA). These assumptions made provisions for what would constitute a ‘comfortable retirement’ over a ‘modest’ one. It also factors in eligibility for both the part and full Age Pension.

So, hopefully, these figures will give you some useful context and help you understand whether your financial circumstances put you on track for the retirement you wish for.

The post Is my superannuation balance on track for my age? appeared first on The Motley Fool Australia.

More reading

• $20,000 invested in NextDC and these ASX shares 10 years ago is worth how much?
• These were the best performing ASX 200 shares in June
• Brokers name 3 ASX dividend stocks to buy
• $7,000 in savings? Here’s how I’d try to turn that into a $2,500 monthly passive income
• Is it too late to buy Macquarie shares at a two-year high?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has 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.

I’m a fan of buy and hold investing and believe it is one of the best ways to grow your wealth.

To demonstrate just how successful this investment strategy can be with ASX 200 shares, I often like to see how much a single $20,000 investment in certain ASX 200 shares 10 years ago would be worth today.

Let’s see how investments in these shares have fared during the past decade:

Jumbo Interactive Ltd (ASX: JIN)

The first ASX share that we are going to look at is Jumbo Interactive. It is the online lottery ticket seller behind the Oz Lotteries platform. It also has a growing Powered by Jumbo software as a service platform. This side of the business is aiming to disrupt the global lottery market by making the shift online easier for lottery operators. Combined, these businesses have underpinned strong earnings growth over the last decade and even stronger returns for investors. In respect to the later, Jumbo’s shares have provided investors with an average total return of 32% per annum since 2014. This would have turned a $20,000 investment in its shares 10 years ago into a mouth-watering ~$320,000 today.

Macquarie Group Ltd (ASX: MQG)

Another ASX share that has beaten the market over the last decade is investment bank Macquarie. Thanks to the quality and diversity of its operations and its strong position in investment banking, Macquarie has delivered strong profit growth over the 10 years. This has led to its shares outperforming both the market and the big four banks by some distance. For example, since 2014, the bank’s shares have recorded an average total return of 15.5% per annum. This would have turned a $20,000 investment in Macquarie’s shares a decade ago into ~$85,000 today.

NextDC Ltd (ASX: NXT)

Finally, a third ASX share that has been a market-beater over the last 10 years has been data centre operator NextDC. Thanks to strong demand for capacity in its world-class centres due to the structural shift to the cloud (and now the artificial intelligence megatrend), NextDC’s revenue and operating earnings have been growing at a rapid rate. This has put a rocket under the company’s shares and underpinned some very strong returns since 2014. For example, over the last decade, NextDC’s shares have generated an average return of 26.5% per annum. This means that a $20,000 investment in the data centre operator’s shares 10 years ago would have grown to be worth ~$210,000 today.

The post $20,000 invested in NextDC and these ASX shares 10 years ago is worth how much? appeared first on The Motley Fool Australia.

More reading

• Is it too late to buy Macquarie shares at a two-year high?
• 9 ASX 200 shares finishing FY24 on a 52-week high
• Here’s when CBA and these ASX 200 bank stocks are paying their dividends
• Where to invest your Westpac dividends
• 3 ASX shares that could create lasting generational wealth

Motley Fool contributor James Mickleboro has positions in Nextdc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Jumbo Interactive and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Jumbo Interactive. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The S&P/ASX 200 Index (ASX: XJO) had a relatively decent time in June. During the month, the benchmark index rose by 0.85% to end the period at 7,767.5 points.

While that was positive, a number of ASX 200 shares were able to smash the market with significantly stronger returns.

Here are the best performing ASX 200 shares in June:

Strike Energy Ltd (ASX: STX)

The Strike Energy share price was far and away the best performer on the benchmark index with a 40% gain. This was driven partly by the release of an update on the Walyering-7 (W7) well within the Perth Basin. According to the release, W7 has intersected a high-quality conventional gas accumulation to the north-east of the currently producing Walyering gas field. In addition, the company announced plans to re-shape its South Erregulla project to a peaking power facility to firm renewable capacity in the Western Australian electricity market.

Bapcor Ltd (ASX: BAP)

The Bapcor share price was the next best performer with a gain of 21% in June. This was driven by news that the auto parts retailer received an unsolicited, indicative, conditional and non-binding takeover proposal from Bain Capital. Bapcor shareholders would receive $5.40 cash per share from the private equity giant. As things stand, the Bapcor board is still considering the offer. It has warned that “there is no guarantee that the Indicative Proposal put forward by Bain Capital will result in a binding offer or that any transaction will eventuate.”

Pro Medicus Limited (ASX: PME)

The Pro Medicus share price was on form again and rose 19.3% over the month. Investors have been buying this health imaging company’s shares since the announcement of five new contracts with a combined minimum contract value of $45 million at the end of May. Management advised that the contracts will be fully cloud deployed and are expected to be completed within the next six months. Goldman Sachs responded positively to the news. Its analysts reiterated their buy rating and lifted their price target on Pro Medicus’ shares to $136.00. Its shares have now surpassed this, hitting a record high of $144.34 on the final trading day of June.

Healius Ltd (ASX: HLS)

The Healius share price had a strong month and rose 18% over the period. Interestingly, this was despite the pathology services company downgrading its earnings guidance for FY 2024. It now expects underlying FY 2024 EBITDA of between $345 million to $350 million. Underlying EBIT is expected to be between $60 million and $65 million. However, it did report improving pathology volumes for the half year to date. This may have given sentiment a boost.

The post These were the best performing ASX 200 shares in June appeared first on The Motley Fool Australia.

More reading

• $7,000 in savings? Here’s how I’d try to turn that into a $2,500 monthly passive income
• Here are the top 10 ASX 200 shares today
• 9 ASX 200 shares finishing FY24 on a 52-week high
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in Pro Medicus. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Pro Medicus. The Motley Fool Australia has recommended Bapcor and Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

With so many ASX dividend stocks to choose from, it can be hard to decide which ones to buy.

The good news is that brokers have been busy doing the hard work for you and have picked out three stocks they rate as buys.

Here’s what you need to know:

Eagers Automotive Ltd (ASX: APE)

The first ASX dividend stock that brokers have given the thumbs up to is Eagers Automotive. It is one of the largest automotive retail groups in the Australia and New Zealand region.

Its shares have been hammered in 2024 and are down 27% year to date. While this is disappointing, analysts at Bell Potter think that patient investors should be snapping them up while they are down.

The broker currently has a buy rating and $13.35 price target on its shares. This implies potential upside of 27% for investors over the next 12 months.

In addition, Bell Potter is forecasting fully franked dividends of 64.5 cents per share in FY 2024 and then 73 cents per share in FY 2025. Based on its current share price of $10.52, this represents attractive dividend yields of 6.1% and 6.9%, respectively.

Inghams Group Ltd (ASX: ING)

Over at Morgans, its analysts think that Inghams could be a top ASX dividend stock to buy. It is Australia’s leading poultry producer and supplier.

Much like Eagers Automotive, its shares have been underperforming in 2024 and are down 8% year to date. Morgans thinks this has created a buying opportunity and has described Inghams’ shares as “undervalued” at current levels. It has an add rating and $4.40 price target on its shares, which suggests that 22% upside is possible.

Morgans is also expecting some great dividend yields in the near term. It is forecasting fully franked dividends of 22 cents per share in FY 2024 and then 23 cents per share in FY 2025. Based on the current Inghams share price of $3.62, this equates to dividend yields of 6.1% and 6.35%, respectively.

Universal Store Holdings Ltd (ASX: UNI)

A final ASX dividend stock that brokers think could be a buy for income investors is youth fashion retailer Universal Store.

Last month, Bell Potter put a buy rating and $6.15 price target on its shares. This implies potential upside of 24% from current levels.

As for income, the broker is forecasting fully franked dividends per share of 24 cents in FY 2024 and then 31 cents in FY 2025. Based on its current share price of $4.97, this will mean yields of 4.8% and 6.2%, respectively.

The post Brokers name 3 ASX dividend stocks to buy appeared first on The Motley Fool Australia.

More reading

• Brokers name 3 ASX shares to buy now
• Here are the top 10 ASX 200 shares today
• Buy these ASX dividend shares with ~5% to 8% yields
• 3 ASX dividend shares to buy with 6%+ yields
• Overinvested in Westpac shares? Here are two alternative ASX dividend stocks

Motley Fool contributor James Mickleboro has positions in Universal Store. 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 Eagers Automotive Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The share market is a great place to generate a passive income.

That’s because most ASX 200 stocks will share a portion of their profits with their loyal shareholders twice a year in the form of dividends.

This means you can sit back with your feet and let these companies do the hard work for you, while pocketing your share of the profits every six months.

In light of this, if I had $7,000 in a savings account and no plans for these funds, I would consider putting them to work in the share market.

However, much like a bank account, you are not going to start generating material passive income immediately with this investment. But if you are patient, your savings could compound into something larger and turn the share market into your own personal ATM.

Generating passive income from ASX 200 stocks

Historically, share markets have generated an average return of 10% per annum. Some years are stronger, some years are weaker. But on average, 10% is what it has delivered.

And while past performance is not a guarantee of future returns, I think it is reasonable to base our assumptions on the share market performing in line with historical averages.

With that in mind, let’s see what that $7,000 could turn into with ASX 200 stocks.

Long term returns

If you only wish to invest that $7,000 into the share market and make no further contributions, then you would be looking at growing your portfolio to the following (based on a 10% annual return):

• 10 years: $18,000
• 20 years: $47,000
• 30 years: $122,00
• 40 years: $315,000

What about passive income? I hear you ask. Well, if you are able to build a portfolio that averages a 6% dividend yield, the amounts above would generate the following in annual dividend income:

• 10 years: $1,080
• 20 years: $2,820
• 30 years: $7,320
• 40 years: $18,900

Clearly, to really make meaningful passive income you’re going to have to leave your $7,000 to compound for a substantial amount of time. By the 40-year mark, you would be pulling in the equivalent of approximately $1,500 in monthly passive income.

Building a time machine

If we had a time machine and could jump forward in time, we would be able to scoop up all that passive income.

But until they are invented, investors may have to do the next best thing. If you can contribute to your investment each year, then you could build your wealth quicker and grow your passive income.

Here’s what would happen to a $7,000 investment into ASX 200 stocks each year instead of just once with a 10% per annum return:

• 10 years: $141,000
• 20 years: $488,000
• 30 years: $1.39 million
• 40 years: $3.7 million

Now let’s see what annual passive income a portfolio that averages a 6% dividend yield would generate from these amounts:

• 10 years: $8,460
• 20 years: $29,280
• 30 years: $83,000
• 40 years: $222,000

Based on the above, it is conceivable that you could have around $2,500 of monthly passive income from your ASX 200 stocks in 20 years if you are able to invest $7,000 into the market each year.

Food for thought.

The post $7,000 in savings? Here’s how I’d try to turn that into a $2,500 monthly passive income appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• 9 ASX 200 shares finishing FY24 on a 52-week high
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Should ASX 200 investors brace for another RBA interest rate hike?

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.

Macquarie Group Ltd (ASX: MQG) shares closed the week 0.43% higher at $204.69 apiece on Friday after touching a high of $207.57 in early trade.

This marks a two-year high for the banking giant, which has rallied in a two-wave move off November 2023 lows of $158 per share.

But is it too late to invest? Here’s what the experts are saying about Macquarie shares.

Macquarie shares show potential for growth

Despite a recent dip in operating profits, Macquarie’s diversified business model continues to impress analysts.

Morgan Stanley, for instance, sees a promising outlook for Macquarie shares, noting the bank’s involvement in high-growth sectors like mergers and acquisitions, alternative assets, and private credit.

Analyst Andrei Stadnik predicts 22% earnings growth for FY 2025, driven by a robust market for capital raising and diversified revenue streams.

At its full-year FY 2024 results in May, Macquarie reported a 32% year-over-year decline in earnings per share (EPS) to $9.17. However, the bank still achieved a 13% return on equity (ROE), outperforming the industry’s five-year average of 11%, and distributed a dividend of $6.40 per share.

With a projected EPS of $11.18 for FY 2025, Morgan Stanley has set a buy rating on Macquarie shares, setting a price target of $215, a potential $10 per share upside from the current price.

Despite this, the consensus view on Macquarie shares is a hold, according to CommSec. Six analysts rate it a buy, versus six hold and two sell ratings.

Competitive advantage could drive Macquarie shares

Macquarie differentiates itself from other Australian banks through its extensive services in investment, asset management, commodities, and infrastructure.

As I’ve noted in the past, this broad exposure could provide more recession-proof earnings compared to banks that rely solely on net interest margins (NIMs) and insurance.

The bank’s price-to-earnings (P/E) ratio stands at 22 times, suggesting that investors are paying $22 for every $1 of earnings, which excludes dividends.

In return for that price, investors receive a 4.5% earnings yield and 3.15% dividend yield at the time of writing, for a total shareholder yield of 7.65% in owning Macquarie shares today.

Macquarie’s strategic investments

Macquarie’s real estate arm is also capitalising on the booming land lease sector in Australia, investing in a new platform to develop, own, and operate land lease housing communities.

This move is part of the $2.85 billion raised for its second opportunistic real estate fund, targeting sectors benefiting from demographic trends such as housing shortages and an ageing population.

The bank “will be setting up [its] own platform and is comfortable with the development risk”, its head of asset management real estate in Australia told The Australian Financial Review. There’s no saying what this means for Macquarie shares just yet, but I think it is worth taking note of.

The broader ASX 200 bank shares context

Macquarie shares aren’t the only ASX 200 bank stocks in focus, as many have experienced significant growth over the past six months. For instance, Commonwealth Bank of Australia (ASX: CBA) also recently hit a record high, while National Australia Bank Ltd (ASX: NAB) and Bendigo and Adelaide Bank Ltd (ASX: BEN) reached multi-year peaks.

Despite this, according to my colleague Bron, Goldman Sachs notes that ASX 200 bank shares’ valuations are “skewed to the downside” due to compressed NIMs and reduced non-interest income.

Foolish takeaway

The outlook on Macquarie shares remains optimistic. Many experts are positive, given its market position, diversified revenue streams, and strategic investments.

With a potential 10% upside and a strong earnings growth forecast from Morgan Stanley, it may not be too late to invest in Macquarie shares at their current high.

However, past performance is no guarantee of future results, and analyst opinions are just that — opinions. As always, it’s wise to conduct your own due diligence.

The post Is it too late to buy Macquarie shares at a two-year high? appeared first on The Motley Fool Australia.

More reading

• 9 ASX 200 shares finishing FY24 on a 52-week high
• Here’s when CBA and these ASX 200 bank stocks are paying their dividends
• Can the good times keep rolling for ASX 200 bank shares in FY25?
• 2 ASX 200 bank shares smashing new multi-year highs today
• Macquarie shares have 10% upside: Morgan Stanley

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

A new survey reveals the typical actions taken by Australians prior to commencing their retirement.

According to a survey conducted by life insurer TAL, topping up superannuation was the most popular action (33% of respondents) among pre-retirees.

Last week was the final opportunity for workers to add extra funds to their superannuation before the 2024 financial year ends.

Making personal contributions to your super over and above the Superannuation Guarantee payments made by your employer usually delivers a handsome tax deduction if you keep under the cap.

As we recently reported, superannuation growth funds are on track to deliver a 9% return in FY24.

From Monday, the Superannuation Guarantee will rise from 11% to 11.5%, giving the average Australian wage earner about $370 extra per year.

What other actions did Aussies take in the lead-up to retirement?

The second most popular action taken prior to retirement was reducing working hours (20% of respondents).

Separate research by Colonial First State (CFS) found that less than one-third of Australians plan to stop working completely at their retirement age, which is 67 years.

CFS Superannuation CEO Kelly Power said:

It is … clear that attitudes towards retirement are shifting.

The traditional idea of retirement as a point in time or a specific date when we stop working is becoming less prevalent.

Next on the action list was topping up non-superannuation savings or investments (19% of respondents).

Financial advisory Findex recently published a study showing 85% of Australians are actively investing outside their super.

The most popular investments are bank savings (64%), property (38%), cash (35%), shares (34%), exchange-traded funds (ETFs) (17%), cryptocurrency (17%), and bonds (6%).

The TAL survey also showed that 16% of pre-retirees sold their family homes and downsized before beginning their retirement.

The Federal Government incentivises older Australians to downsize to free up larger homes for young families.

The Downsizer Super Contributions scheme allows homeowners aged 55 years or over who sell a home they’ve owned for 10 years or more to contribute up to $300,000 from the sale proceeds to super.

The TAL survey also found that 8% of respondents sold other assets, 5% sold shares, 3% changed to a job that they felt they could work in for longer, and 1% changed to a higher-paying job.

What about actions taken after retirement?

The TAL research also showed that upon retiring and gaining access to their superannuation funds, retirees typically took one of five actions.

The most popular action was converting super into a regular income stream via a pension account (34%).

A further 27% left their money in their existing super account. About 15% took a lump sum, and 18% moved some or all of their money into a lifetime retirement income stream, such as an annuity.

The TAL research also revealed a key retirement regret held by 1 in 4 retired Aussies.

The post What actions are Aussies taking in the lead-up to retirement? appeared first on The Motley Fool Australia.

More reading

• Here’s when Westpac says the RBA will cut interest rates after last week’s inflation data
• Is it ‘a long road from here’ for Guzman Y Gomez shares on the ASX?
• Here are the top 10 ASX 200 shares today
• Want the latest Vanguard Australian Shares Index ETF dividend? Here’s what to do
• Own the VanEck Wide Moat ETF? Get ready for a monster ASX dividend

Motley Fool contributor Bronwyn Allen 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 Westpac Banking Corp (ASX: WBC) economics team has been one of the most accurate interest rate predictors in recent times.

In light of this, it can pay to listen to what Australia’s oldest bank says about rates. Especially in the current uncertain environment.

As I covered here last week, the bank was predicting that the Reserve Bank of Australia would still cut interest rates before the end of the year. It then expected a series of cuts in 2025, much to the delight of borrowers.

But with Australian inflation coming in hotter than expected last week, has Westpac changed its tune on interest rates?

Let’s take a look and see what its economics team is saying about last week’s bombshell economic data.

Westpac on interest rates

Westpac’s chief economist, Luci Ellis, notes that last week’s inflation reading was not a surprise to her team. She said:

This week’s inflation data were not a surprise to the Westpac Economics team and so did not change our view of the outlook for interest rates. As our Westpac Economics colleague Justin Smirk previewed last week, we had expected that base effects would lead the monthly indicator to print at 4% over the year to May. Clearly, the disinflation journey is becoming more difficult, and the RBA is becoming more nervous that its strategy may not work as planned. And as our colleague Pat Bustamante also highlighted recently, some recent state government budgets are not helping.

But while Westpac was not surprised, the big question is whether the RBA was surprised by the data. Ellis adds:

The real question is not whether we were surprised by the May inflation data but whether the RBA was. We can assume that the staff know how to account for one-off factors like changes in electricity rebates, or noise factors such as fruit and vegetable prices. Given their above-market forecast for June quarter headline CPI in the May Statement on Monetary Policy, we suspect that this week’s data were no surprise to the RBA, either.

In light of this, Westpac is holding firm with its prediction for an interest rate cut at the November meeting. However, it does acknowledge that this is based on available data. Should data get ugly, Ellis isn’t ruling out an interest rate hike. She said:

An ugly June quarter CPI release together with strong labour market data could tip the balance and force a rate hike, but this is not our base case and is not supported by currently available information.

As things stand, Westpac is forecasting the following from the RBA for interest rates from 4.35% today:

• November 2024: 4.1%
• March 2025: 3.85%
• June 2025: 3.6%
• September 2025: 3.35%
• December 2025: 3.1%

Hopefully Westpac is on the money with its forecasts and relief is on the way for homeowners.

The post Here’s when Westpac says the RBA will cut interest rates after last week’s inflation data appeared first on The Motley Fool Australia.

More reading

• Which ASX shares to buy if interest rates rise (and which to avoid)
• Here’s when CBA and these ASX 200 bank stocks are paying their dividends
• Where to invest your Westpac dividends
• Overinvested in Westpac shares? Here are two alternative ASX dividend stocks
• Here’s when Westpac says the RBA will now cut interest rates

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. 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 Guzman Y Gomez (ASX: GYG) share price dropped more than 7% on Friday as the market continued to digest the GYG valuation. Some investors are not convinced the Mexican food business is good value.

Earlier this week we learned that there was material short interest in the business, which implies some hedge funds believe the GYG share price is going to fall.

The believers of the business point to the company’s growth ambitions for both Australia and overseas. In Australia alone, it wants to reach 1,000 Guzman Y Gomez locations over the next 20 (or more) years.

Some investors think the valuation is too expensive.

Caution is advised

According to reporting by the Australian Financial Review, Richard Hemming from Under the Report said the successful initial public offering (IPO) of Guzman Y Gomez was a win for the Australian investment banking and stockbroking community.

But, there’s more to GYG being successful from here than just the IPO day. Hemming said:

The fact is that they’ve been lining up to IPO for years. It’s in everyone’s interest for them to generate a 30 per cent pop on the first day, which is what they’ve done,

But it’s a long road from here at higher interest rates, which is why caution is required, certainly at current prices. The question is how much expansion you’re paying for today.

If you’re pricing it or valuing it expanding beyond Australia, there’s a lot of competition and it will be compared against more mature and longer-lasting concepts. It might be that Mexican in Australia was a low-hanging avocado. One thing is for certain, after this IPO drought and with the amount of takeover activity, the bankers and private equity will need more floats.

Cyan Investment Management’s Dean Fergie similarly questioned the valuation that investors were giving GYG. Fergie said:

I feel the bottom-line earnings numbers, even taking into account potential growth going forward, just don’t stack up from a valuation perspective – I’m a fundamental bottom-line investor rather than a hype and excitement kind of guy.

What growth is Guzman Y Gomez expecting?

Those experts may not be a fan, but the business is expecting growth.

The business saw $759 million of global network sales in FY23 and GYG has forecast growth to $954.4 million in FY24 and $1.14 billion in FY25.

It made $3.7 million of underlying earnings before interest and tax (EBIT) in FY23, with expectations this can grow to $12 million in FY24 and $19.7 million in FY25.

In Australia, it had 171 restaurants in FY23, and the company expects this to grow to 195 restaurants in FY24 and 225 in FY25.

The business is expecting the earnings before interest, tax, depreciation and amortisation (EBITDA) to global network sales to improve in FY24 and FY25, reaching 5.3% in the 2025 financial year.

GYG has growing restaurant numbers, rising revenue and improving margins, which helps support the Guzman Y Gomez share price being at a higher level than a slow-growth business. However, time will tell whether the company can justify the high price tag it currently has.

The post Is it ‘a long road from here’ for Guzman Y Gomez shares on the ASX? appeared first on The Motley Fool Australia.

More reading

• What percentage of GYG shares are owned by the company founders?
• Why are Guzman Y Gomez shares being shorted?
• Should I buy Guzman Y Gomez shares on the ASX?
• Over $100 million of GYG shares sold by insiders on day one. Should investors be worried?
• How rich are the Guzman Y Gomez founders following the company’s IPO?

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.