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There are ways to invest in the property market beyond traditional real estate without incurring a significant amount of debt. One approach is to invest in ASX real estate investment trusts (REITs), which can provide exposure to various areas, including retail, office, logistics and distribution, manufacturing, storage units, childcare centres, healthcare and more.

ASX REITs have recently experienced significant challenges due to higher interest rates. However, it appears that interest rates may now be at or near their peak.

Hence, a fund manager has shared their perspective on whether this is the right time to invest in REITs. Funds management business Janus Henderson has discussed where it sees structural growth and if this is a turning point.

Is it time to invest in REITs?

Janus Henderson notes the commercial real estate sector has been through difficulties over the last two years as central banks tried to tame inflation.

The fund manager suggests a stabilisation of interest rates, with potential interest rate cuts, “should be good news” for ASX REITs.

Janus Henderson suggests the REIT market may be entering “the early innings of a potentially significant recovery”. If so, the cost of and access to capital, particularly debt financing, should “increasingly play a part in differentiating” between businesses and investors in this space.

Janus Henderson’s Guy Barnard, co-head of global property equities, said:

We are hitting an inflection point in underlying commercial real estate markets, where you will see people rebuilding their allocations as it becomes clearer that underlying real estate markets have bottomed.

Where to buy

The fund manager points out that the real estate market is evolving rapidly due to the growth in e-commerce, which has created “significant headwinds” in retail, while a shift to working from home is “creating challenges” in the office sector.

Barnard said:

We are trying to tap into those areas of structural demand from tenants, rather than trying to ride an economic cycle. We see the growth of digitisation as a great tailwind for tech real estate, including areas like data centres and cell towers.

While the fund manager didn’t name any particular stocks, I’ll point out a few. REITs with exposure to warehouses, logistics and distribution include Centuria Industrial REIT (ASX: CIP), Goodman Group (ASX: GMG) and Dexus Industria REIT (ASX: DXI).

Goodman is also rapidly growing its investments in data centres. While Nextdc Ltd (ASX: NXT) is not an ASX REIT, it is a way to play that theme on the ASX of building and owning data centres and generating revenue from them.

Janus Henderson also sees opportunities in demographics where baby boomers enter retirement and require underlying senior housing accommodation. Healthco Healthcare and Wellness REIT (ASX: HCW) can provide some of that exposure, though it has a diversified portfolio. Meanwhile, Ingenia Communities Group (ASX: INA) is a business that owns retirement communities.

The post Are ASX REITs a good investment right now? appeared first on The Motley Fool Australia.

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• Analysts name 3 high yield ASX dividend stocks to buy
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• Top ASX AI stocks to buy in June 2024
• Here are the top 10 ASX 200 shares today

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

It has been a tough start to the week for the Winsome Resources Ltd (ASX: WR1) share price.

The ASX lithium stock has returned from a trading halt this morning and crashed deep into the red.

At the time of writing, the lithium developer’s shares are down 16% to 81.5 cents.

Why is this ASX lithium stock crashing?

The catalyst for this weakness has been the completion of the company’s equity raising this morning.

According to the release, firm commitments have been received for a $25 million equity raise at a weighted average price of approximately $1.00 per share.

Winsome Resources notes that it is taking advantage of Canadian flow through provisions with this equity raising before rules change next week. This essentially allows an exploration company to raise funds at a higher price thanks to favourable tax credits.

So much so, the ASX lithium stock was able to raise $13.2 million at $1.275 per new share. This represents a sizeable 32% premium to Winsome Resources’ last traded price.

However, there are some shares changing hands for a big discount. A share placement has been undertaken alongside the Canadian flow through financing to raise a further $11.8 million at a discount of 85 cents per share.

Why is it raising funds?

Management notes that the funds will be used to advance key project initiatives.

This includes the Adina Lithium and Renard project studies, which are on track for completion in the third quarter of 2024, and exploration and resource growth drilling to expand the current mineral resource estimate of 77.9Mt @ 1.15%.

It also notes that the equity raising means that the ASX lithium stock is in a strong financial position to continue its transition from lithium explorer to project developer.

Winsome Resources’ managing director, Chris Evans, said:

Winsome Resources is firmly committed to developing the Adina Lithium Project and is pleased to see the high level of interest from high conviction investors who believe in Winsome’s vision of integrating into the North American EV supply chain.

The flow through financing provisions under Canadian tax law mean we are again able to raise funds at a significant premium to the current share price and therefore at a lower cost of capital. The additional funds put Winsome in an enviable position, with one of the largest and growing lithium deposits in North America, an exclusive option to acquire the billion-dollar Renard operation and associated infrastructure and a clearly defined pathway to production.

Following today’s decline, this ASX lithium stock is down more than 50% over the last 12 months.

The post Why is this ASX lithium stock crashing 16% today? appeared first on The Motley Fool Australia.

More reading

• Why Playside Studios, Pro Medicus, Strike Energy, and Winsome shares are charging higher

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 All Ordinaries Index (ASX: XAO) is down 0.5% on Monday morning, but this ASX All Ords share isn’t making any moves just yet.

Shares in the New Zealand based company infrastructure investment company entered a trading halt before the opening bell this morning at the company’s request.

This came on the heels of a major AI related capital raise announcement earlier this morning.

Any guesses?

If you said Infratil Ltd (ASX: IFT), go to the head of the virtual class.

Here’s what’s happening.

ASX All Ords share tips hat for $1.1 billion

Infratil said it intends to raise NZ$1.15 billion (approximately AU$1.1 billion) to fund data centre operator CDC’s accelerating growth. The new funds will also be used to provide more flexibility for growth across the ASX All Ords shares’ global portfolio.

The equity raising comprises an underwritten1 NZ$1.0 billion placement of new IFT shares and a NZ$150 million non-underwritten retail offer of new IFT shares.

New shares will be issued for NZ$10.15 apiece. That’s 6.8% below Friday’s closing price.

“CDC continues to see a surge in demand for data centre capacity,” Infratil CEO Jason Boyes said. “Demand continues to accelerate on the back of cloud adoption and significant investments in generative AI.”

He noted that CDC has been one of Infratil’s top investments. The ASX All Ords share’s stake in CDC is valued at NZ$4.42 billion. That’s 10 times what the company first invested in 2016.

According to Boyes:

This rapid increase in demand has seen CDC enter advanced negotiations with customers for over 400MW of capacity at multiple sites across the CDC footprint with this capacity expected to come online over the next four to five years.

CDC expects at least 200MW of capacity to commence construction over the next 12 months. And Infratil said it expects to commit equity funding of around AU$600 million to the data centre developer over the next two years.

“CDC’s growth has accelerated considerably recently, driven by rapid growth in AI-driven data demand,” Boyes said.

CDC CEO Greg Boorer added:

We are seeing an unprecedented increase in the number of customer discussions, many of which are tied to AI-related workloads. CDC has been AI-ready for more than 15 years and is well positioned to capture strong share of AI-driven demand.

Infratil said there was no change to its FY 2025 guidance.

Infratril share price snapshot

If you look back at the chart up top, you’ll notice a remarkably stable long-term uptrend in the Infratil share price.

Over the past 12 months, the ASX All Ords share has gained 14.3%.

The post Guess which ASX All Ords share is raising $1.1 billion to back generative AI appeared first on The Motley Fool Australia.

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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 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 market may be edging lower on Monday but that hasn’t stopped one ASX All Ords stock from rocketing.

In morning trade, the Capitol Health Ltd (ASX: CAJ) share price is up 20% to 29.5 cents.

Why is this ASX All Ords stock rocketing?

Investors have been scrambling to buy the diagnostic imaging modalities provider’s shares this morning after it accepted a merger offer from rival Integral Diagnostics Ltd (ASX: IDX).

According to the release, the two parties have entered into a process and exclusivity deed that will see Integral Diagnostics acquire 100% of Capitol Health via a scheme of arrangement.

The offer that was tabled was an implied exchange ratio of 0.12849 Integral Diagnostics shares for every Capitol Health share. Based on Friday’s close prices, this equates to an offer of 32.6 cents per share, which represents a 33% premium.

Capitol Health’s chair, Andrew Demetriou, commented:

The Indicative Proposal reflects attractive value for Capitol shareholders and the Board has determined that it is in the best interests of shareholders to engage with Integral.

Capitol Health advised that that each director intends to recommend shareholders to vote in favour of the proposed transaction. This is subject to entry into the implementation deed, the absence of a superior proposal, and the independent expert’s report.

Not the first offer

The release notes that this indicative proposal was not the first. It follows an unsolicited approach from Integral Diagnostics in late March regarding a potential combination.

However, while that was not accepted, the ASX All Ords stock’s board decided that it was in the best interests of shareholders to engage with Integral Diagnostics and provide non-public information on a confidential and non-exclusive basis to conduct a two-way value based due diligence process.

Following the conclusion of the process, Integral Diagnostics submitted the improved indicative proposal, which has now been accepted.

The ASX All Ords stock’s managing director, Justin Walter, commented:

Today’s proposed merger announcement with Integral, represents an exciting opportunity for all our valued radiologists, technicians, and staff to be part of Australia’s largest pure-play publicly listed imaging company.

This opportunity is a result of their dedicated hard work, particularly over the last five years. The merger will create further value for our shareholders by realising significant benefits through scale, enhanced internal capability, and organic growth.

All underpinned by market leading clinical standards and service to our referrers and their patients.

As things stand, Capitol Health shareholders do not need to take any action regarding the proposal. However, the company warned that it cannot be certain that the proposal will result in a binding transaction.

The post This ASX All Ords stock is rocketing 20% after accepting a takeover offer appeared first on The Motley Fool Australia.

More reading

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

BHP Group Ltd (ASX: BHP) shares and Wesfarmers Ltd (ASX: WES) shares are some of the most well-known and widely-held stocks on the ASX. They are two of Australia’s leading ASX blue-chip shares.

They are known for their strong market positions in the respective sectors of mining and retail.

Wesfarmers owns the retailers Bunnings, Kmart, Officeworks, Target, Priceline and Catch. It also has a chemicals, energy and fertiliser business called WesCEF, a healthcare division (including Clear Skincare Clinics and Silk Laser Australia), and an industrial division (Blackwoods, Coregas and Workwear).

BHP is a huge iron ore miner, produces copper and metallurgical coal, and owns projects related to potash and nickel.

I’m going to compare the businesses on some of the main factors that would help me decide between the two.

Dividend yield

Dividends aren’t everything but can make up a sizeable part of the return from an ASX blue-chip share.

Large businesses tend to have a more generous dividend payout ratio because there are fewer places for them to invest, so they can send more of the profit generated to shareholders.

The estimate on Commsec suggests that owners of BHP shares could get an annual dividend per share of $2.27 in FY24 and $2.13 in FY26, translating into forward grossed-up dividend yields of 7.5% and 7%, respectively.

The forecast on Commsec suggests owners of Wesfarmers shares could receive an annual dividend per share of $1.95 in FY24 and $2.35 In FY26, translating into forward grossed-up dividend yields of 4.1% and 5%, respectively.

BHP’s yield looks more appealing in the shorter term, but Wesfarmers’ dividend is growing in the right direction.

Growth prospects

Wesfarmers has several impressive businesses that have steadily grown their profits over the years. Kmart and Bunnings are well situated to succeed in the current environment because they can provide customers with a strong value offering.

The retail giant is making good moves to expand its presence in long-term growth industries such as healthcare, a sector where Wesfarmers can utilise its scale and capabilities in numerous ways.

According to Commsec, Wesfarmers is expected to generate earnings per share (EPS) of $2.23 in FY24, which could grow by 21% to $2.70 in FY26.

BHP is working on growing its iron ore production with improved efficiency and infrastructure in Australia. In recent times, the business has endeavoured to grow its exposure to copper, first with the acquisition of Oz Minerals and then the recent failed attempt at Anglo American. It’s clear the business wants to increase its exposure to future-facing commodities.

BHP’s potash project in Canada, Jansen, could also be a compelling earnings generator once operational.

The forecast for BHP EPS is $4.19 in FY24 and $3.82 in FY26, a reduction of 9%.

Is this a good time to invest?

Of the two businesses, I prefer Wesfarmers because of its track record of compounding earnings and its underlying value over time.

With miners, I think it’s better to invest when there’s a cyclical opportunity to do so. With the iron ore price above US$105 per tonne, I don’t think it’s in ‘weak’ territory yet.

I believe Wesfarmers is more likely to be able to keep growing its earnings over the rest of the decade – it does not rely on a positive commodity price change.

Wesfarmers shares are not cheap either, but I like its long-term prospects, particularly as it invests in long-term growth industries.

The post Are BHP or Wesfarmers shares a better buy? appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to buy next week
• Here’s how the ASX 200 market sectors stacked up last week
• Tax-busters: 5 fully-franked ASX dividend shares I’d buy for FY25
• Where Aussies are spending their money, and the ASX shares that could benefit
• 2 outstanding ASX 200 shares to buy and hold for a decade

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

Tabcorp Holdings Ltd (ASX: TAH) shares are on the slide on Monday.

In morning trade, the gambling company’s shares are down 4% to 63 cents.

Why are Tabcorp shares falling?

Investors have been selling the company’s shares on Monday after appearing to respond negatively to the announcement of its new leader.

According to the release, Tabcorp has appointed ex-AFL boss Gillon McLachlan as its new managing director and CEO.

McLachlan will join Tabcorp on 5 August and assume the role upon receipt of all necessary regulatory approvals. In the interim, he will act in an observer capacity with Bruce Akhurst continuing to act as executive chairman.

The company appears optimistic that McLachlan could repeat his AFL success with Tabcorp.

The release notes that during his decade leading the AFL, McLachlan more than doubled revenues from $502 million in 2013 to $1,063 million in 2023. This includes securing the largest sports broadcasting rights deal in Australian history.

Tabcorp also highlights that its new CEO has proven success in managing complex stakeholder environments and working productively with all levels of government. He also has extensive racing knowledge as a thoroughbred owner and breeder.

‘One of Australia’s leading CEOs’

Commenting on the appointment, Tabcorp’s executive chair said:

Gill needs no introduction – he is recognised as one of Australia’s leading CEOs and securing Gill is a great vote of confidence for Tabcorp’s future. We’ve laid strong foundations and Gill brings a growth mindset and the capability to capitalise on the opportunities ahead of us.

Gill has a deep understanding of sport, racing and wagering, combined with significant commercial acumen which was highlighted in the substantial growth of AFL revenues under his leadership.

Importantly for us, Gill brings an added dimension of having been responsible for some of the most significant media rights deals in Australian sports history and we’re excited about the potential growth opportunities for our wagering and media business under his leadership.

The company’s incoming CEO revealed that he would be focused on accelerating the growth of Tabcorp:

Tabcorp is a wagering, broadcast and integrity services business and the challenges of growing it are appealing. It’s about creating entertainment for our customers in a safe way and providing a unique customer omni-channel entertainment offering across digital, retail and the media business.

There are enormous opportunities ahead and I’m looking forward to driving the sport category among other things. Tabcorp is part way through its transformation journey and I’m looking forward to working with the leadership team to accelerate and deliver on the growth opportunities.

Tabcorp shares are down approximately 25% in 2024.

The post Tabcorp shares tumble 4% after naming ex-AFL boss as new CEO appeared first on The Motley Fool Australia.

More reading

• Here’s how the ASX 200 market sectors stacked up last week
• Here are the top 10 ASX 200 shares today
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

If you’re on the hunt for a top-notch ASX healthcare stock, thinking long-term is the right strategy.

Australia is home to some wonderful health and medical companies – many with terrific prospects over decades to come.

One ASX healthcare company that analysts are bullish on long-term is ResMed Inc (ASX: RMD). Its stock has increased a hefty $10.33 per share since October 22 last year and opens the session today at $31.93. That’s a 47% gain.

Analysts believe it has even more potential. According to CommSec, 19 brokers rate it a buy, six hold, and one sell. Here’s what the experts say.

Why ResMed is a top ASX healthcare stock

ResMed has been a standout performer in the ASX healthcare sector this year. Its share price has surged 25% this year to date.

Lachlan Hughes, a portfolio manager at Swell Asset Management, reckons ResMed is a well-run business with significant growth potential.

He highlights its vast market presence with around 22.5 million customers in a market of 1 billion people. Hughes believes ResMed has “decades of growth ahead as the penetration is low and it’s the number one player in its market”, according to the Australian Financial Review.

The price is off as people said the GLP-1 (weight loss) drugs will negatively impact demand, but we take the opposite view and believe demand for these devices continues to thrive.

The sleep disorder treatment market, where ResMed operates, also presents a massive growth opportunity, according to analysts at Bell Potter. The broker recently noted that more than a billion people worldwide suffered from obstructive sleep apnoea (OSA), with many remaining undiagnosed. This could be bullish for ResMed, it says.

Bell Potter rates ResMed a buy with a price target of $36.00, also citing the ongoing recall of competitor Philips’ respiratory devices as a tailwind.

Moreover, ECP Asset Management finds ResMed’s valuation “very appealing,” despite market concerns about the impact of GLP-1 weight loss drugs.

Regarding the ASX healthcare stock’s selloff from $33.99 in July 2023 to $21.44 per share by September, the broker said that ResMed was “derated due to the frenzy” around these drugs but could still be undervalued.

ResMed’s market position

Investment firm Wilsons’ analysis further supports ResMed’s strong market position. According to my colleague James, Wilsons recently noted that, despite a “solid earnings-driven share price recovery”, ResMed trades at a significant discount to its historical price-to-earnings (P/E) multiples.

It expects the ASX healthcare stock to rise as concerns about GLP-1 weight loss drugs ease, which could allow the market to focus on ResMed’s fundamentals instead.

“We expect RMD’s valuation to re-rate higher as GLP-1 concerns progressively abate and the market shifts its focus to the strong fundamental outlook of the business”, Wilsons said.

In its Q3 FY 2024 update, the company booked a 7% growth in revenues to US $1.2 billion and a 2.6% increase in gross margins to 58%. Growth was underscored by performance in all regions, including an 8% year-over-year increase in sales for its software-as-a-service business.

Management remains “laser-focused” on continuing its innovative solutions in respiratory medicine going forward.

Foolish takeaway

According to many experts, ResMed could be a compelling investment in the ASX healthcare sector.

The ResMed share price has lifted more than 25% this year to date but is flat over the past year.

The post Buy the ASX 200 healthcare stock with ‘decades of growth ahead’ appeared first on The Motley Fool Australia.

More reading

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• Bell Potter names more of the best ASX 200 stocks to buy in June
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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Australia’s rental market is in a frenzy, with skyrocketing prices and tight supply leaving many scrambling for solutions. As housing affordability issues continue to plague the housing market, the rental crisis has become a significant concern for tenants.

But for savvy investors, this crisis may present a golden opportunity.

Aspen Group Limited (ASX: APZ) is one ASX small-cap stock that might benefit from the ongoing housing crisis. Let’s explore.

Focus on affordable housing sector

Aspen Group specialises in affordable housing and accommodation solutions. The company owns more than 5,000 approved dwellings and land sites across Australia.

It offers affordable living options such as rental properties, retirement villages, and holiday parks, making housing accessible to a wide range of people. The company explains its business model:

Our core customer base is the approximate 40% of Australian households that can afford to pay no more than about $400 per week to rent or $400,000 to purchase their housing needs.

The shortage of accommodation at our end of the market has become even more acute over recent years with the proportion of rentals offered nationally at less than $400 per week collapsing from 42% in 2020 to only 16% in 2023.

Aspen Group generates revenue from two main sources: rental income and property development and sales. Its underlying net operating income (NOI) from these sources grew significantly, increasing from $5 million in FY19 to $21 million in the last 12 months to December 2023.

These NOI figures are different to the statutory net profits after tax (NPAT), which reached $50.8 million in the last 12 months. The higher NPAT is primarily due to revaluation gains on properties, estimated at around $47 million, reflecting the market value increase of these properties, which can vary each year.

According to Aspen’s 1H FY24 report, the rental market remains strong. Aspen’s total portfolio rent rose 13% year-over-year to $314 per week per dwelling. Notably, residential rent jumped 18% to $342 per week per dwelling, surpassing the market average growth of 16%.

Another important axis of growth is strategic acquisitions. The company continuously looks for acquisition opportunities to expand its portfolio and enhance its revenue potential. By acquiring properties that fit its affordable housing model, Aspen can scale its business and increase market reach.

Most recently, Aspen Group tried to acquire Eureka Group Holdings Ltd (ASX: EGH). Although its takeover offer wasn’t successful, Aspen still owns a strategic stake of 36% in Eureka Group. The value of this stake represents approximately 8% of Aspen’s total assets.

FY25 profit guidance upgrade

Aspen remains upbeat about the future.

Recently, the company increased its underlying earnings forecast for FY24 to 13.5 cents per security (cps), the upper limit of its previous guidance. Additionally, it issued profit guidance for FY25, projecting underlying earnings to be between 14.5 cps and 15 cps, representing a 9% growth from FY24 at the midpoint.

The residential market is in short supply, especially for affordable housing, which management expects to continue. The company noted:

Aspen’s residential and lifestyle portfolios are essentially full and 3-month forward bookings for our parks portfolio are 18% ahead of the same time last year.

Rents are growing strongly yet remain affordable and competitive at an average of about $365 per week for residential dwellings and $190 per week for lifestyle land sites. We enjoy a high-quality tenant base and negligible arrears.

How cheap are Aspen Group shares compared to peers?

Aspen Group shares are trading at 12 times FY25’s estimated earnings. Comparing Aspen Group to other similar companies in the real estate sector based on earnings estimates provided by S&P Capital IQ:

• Ingenia Communities Group (ASX: INA) share price is valued at 19x FY25 estimated earnings
• Lifestyle Communities Ltd (ASX: LIC) share price is valued at 16x FY25 estimated earnings
• Eureka Group share price is valued at 16x FY25 estimated earnings

Aspen Group shares offer a distribution yield of 4.7% based on trailing 12 months’ payments. The company anticipates paying out 9.5 cps as distribution in FY25, representing a 5.3% yield at the current security price.

Foolish takeaway

I think Aspen Group shares offer an interesting opportunity to benefit from rental shortages in Australia.

At $1.79, the Aspen Group share price has moved sideways, trading 0.5% lower than it was 12 months ago but up 6.5% in the year to date.

The post 1 ASX small-cap stock that could benefit from the rental crisis appeared first on The Motley Fool Australia.

More reading

• Why is this ASX lithium stock crashing 16% today?
• Guess which ASX All Ords share is raising $1.1 billion to back generative AI
• This ASX All Ords stock is rocketing 20% after accepting a takeover offer
• Are BHP or Wesfarmers shares a better buy?
• Tabcorp shares tumble 4% after naming ex-AFL boss as new CEO

Motley Fool contributor Kate Lee 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 Aspen Group. The Motley Fool Australia has recommended Aspen Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

I think Warren Buffett is one of the world’s leading investors. He has identified the right times to invest via his Berkshire Hathaway business during bear markets. His advice is very useful for finding compelling ASX shares.

Good investing is usually about choosing good assets at attractive prices. We’re generally presented with the best prices when there’s a lot of uncertainty.

Warren Buffett once shared one of the most simple yet valuable pieces of advice:

Be fearful when others are greedy and greedy when others are fearful.

In other words, invest eagerly when most investors are cautious and be careful when the market looks bubbly and too excited.

With that in mind, I believe the two ASX shares below tick the boxes.

Johns Lyng Group Ltd (ASX: JLG)

The Johns Lyng share price has dropped close to 20% since 26 February 2024, as shown in the chart below.

The company specialises in building and restoring various properties and contents after damage caused by insured events such as weather, fire, and impact.

Clients include major insurance companies, commercial enterprises, local and state governments, body corporates/owners’ corporations and regular households.

Johns Lyng is effectively growing its market share in Australia and the United States. It was recently appointed to the Allstate emergency response and mitigation panel. Allstate is one of the largest insurance companies in the US.

The company’s catastrophe earnings can be pretty volatile – catastrophes are not consistent. However, the underlying core business is growing at a pleasing pace. In the FY24 first-half result, Johns Lyng reported that its normalised business-as-usual net profit after tax (NPAT) increased 15.8% to $25 million.

The estimate on Commsec suggests the business could generate earnings per share (EPS) of 20.5 cents in FY24 and reach 25 cents in FY26. This translates into a forward price/earnings (P/E) ratio for FY26 of 24, which I think is appealing for a business with a long growth runway that’s growing underlying earnings by double digits.

That’s why I believe Warren Buffett would be attracted to this growing industrial ASX share.

Collins Foods Ltd (ASX: CKF)

The chart below shows that the Collins Foods share price has dropped around 25% since January 2024, presenting an opportunity to buy into this fast-growing business.

Collins Foods operates an extensive network of KFCs in Australia and a growing KFC network in Europe. It also operates a small number of Taco Bells in Australia.

When it comes to businesses that operate through physical locations, like retailers or food places, we want to see that those existing locations are performing well. This can be measured through the same-store sales (SSS) metric.

In the FY24 first half result, Collins Foods revealed KFC Australia SSS growth of 6.6% and KFC Europe SSS growth of 8.8%. It’s also steadily adding more KFC outlets in Australia and Europe, improving its scale benefits.

That HY24 result saw the company’s revenue rise 14.3% to $696.5 million and underlying NPAT increase 28.7%.

Europe has a much bigger population than Australia, so I believe there’s scope for a significant increase in the number of stores in the region over the next decade.

According to Commsec, Collins Foods’ EPS is expected to rise by approximately 50% between FY24 and FY26, which would put the business at just 12x FY26’s estimated earnings. I believe Warren Buffett would be attracted to this sort of growth potential.

The post I’d use the Warren Buffett method and buy these 2 ASX shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Collins Foods and Johns Lyng Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group. The Motley Fool Australia has recommended Collins Foods and Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Pilbara Minerals Ltd (ASX: PLS) share price has seen significant volatility in the last couple of years. Just look at the chart below — in the last month alone, it has sunk around 20%.

Can profit generated in future years translate into a recovery for the lithium miner?

ASX mining shares are heavily exposed to commodity price movement regarding profit-making and investor confidence.

Mining costs typically don’t change much from month to month or even year to year. Therefore, changes on the revenue side can significantly increase or reduce profitability.

The lithium price has sunk over the past 18 months. In the quarterly update for the three months to 31 March 2024, the ASX lithium share revealed the realised price for its commodity had sunk 28% since the quarter ending 31 December 2023.

With the lithium price sinking and staying low, what has this done to the profit estimates for the next few years? Let’s examine what one broker thinks.

FY24 projection

The 2024 financial year is nearly over, with only a couple of weeks left in June. However, until the reporting season arrives in August, we won’t see the company’s reported financials for several more weeks.

Broker UBS thinks Pilbara Minerals will generate $353 million of net profit after tax (NPAT) in FY24, which could represent a $2 billion reduction year over year.

UBS has forecast the company’s net cash balance could drop to $936 million as it invests in its P680 and P1000 projects.

UBS thinks the lithium price has stabilised at levels largely consistent with Pilbara Minerals’ BMX auction result of US$1,106 per tonne.

At the current Pilbara Minerals share price, it’s valued at 27x FY24’s estimated earnings.

How about FY25?

According to UBS, the weak conditions are expected to continue into the 2025 financial year.

The broker expects the ASX lithium share to generate $366 million of net profit in FY25, $13 million more than in FY24.

UBS expects Pilbara Minerals to allocate another A$680 million in capital expenditures in FY25 to grow P1000.

The broker forecasts the ASX share’s cash balance will be A$1.25 billion at the end of FY25, with a net cash balance of A$708 million.

Expectations for FY26

The 2026 financial year could see the ASX lithium share’s revenue increase by around A$300 million, which could also help the earnings before interest and tax (EBIT) increase by approximately A$300 million to $826 million.

Pilbara Minerals is projected to generate a net profit of $543 million in FY26, which would represent a 48% year-over-year increase or $177 million in dollar terms.

The increased profit and winding down of P1000 capital spending could see the net cash balance jump to $1.2 billion.

UBS has also pencilled in a dividend payment of 5 cents per share with earnings per share (EPS) generation of 18 cents.

Finally, here’s the FY27 forecast

According to this series of forecasts, the 2027 financial year could be the best year.

Its revenue is forecast to increase again to almost $2 billion, which could unlock $1 billion of EBIT.

UBS has predicted that Pilbara Minerals could make a net profit after tax of $690 million in FY27, which would represent an increase of 27% year over year. If that happens, the broker predicts the company could declare an annual dividend per share of 9 cents.  

The post Here’s the earnings forecast out to 2027 for Pilbara Minerals shares appeared first on The Motley Fool Australia.

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