Tag: Motley Fool

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Bitcoin (CRYPTO: BTC) continued its long slide in June 2022. The largest cryptocurrency fell 36.7%, according to data from S&P Global Market Intelligence, dragging many related stocks down with it. For example, software company and Bitcoin investor MicroStrategy (NASDAQ: MSTR) lost 37.9% while Bitcoin investment fund Grayscale Bitcoin Trust (OTC: GBTC) dropped 41.3% lower and Bitcoin miner Riot Blockchain (NASDAQ: RIOT) fell 41.7%. 

The crypto market faced the same risk-averse investor behavior as in recent months, fueled by grim inflation reports and economic uncertainty on a global level. Moreover, lawmakers took some steps toward cryptocurrency regulation in June, but the bureaucratic wheels turn slowly, and nobody knows what the long-term legal framework will look like.

So what

If Bitcoin prices continue to fall much further, we’ll probably see some consolidation in the cryptocurrency industry. Companies with weak balance sheets and shaky business plans may have to close shop, file for bankruptcy, and sell their assets to stronger rivals. For example, the crypto-focused hedge fund Three Arrows Capital has filed for bankruptcy and liquidation, and crypto-lending specialist Celsius Network has frozen trades, withdrawals, and balance transfers due to “extreme market conditions. 

The crypto stocks mentioned earlier are in no immediate danger of bankruptcy, though.

Riot Blockchain is selling some of its Bitcoins in order to pay the bills, but it generated more tokens than it sold in June. The company is also actively investing in its Bitcoin mining infrastructure, adding more mining rigs and improving the performance of older gear through the use of immersion cooling systems.

Grayscale is fighting to convert its Bitcoin trust fund into an exchange-traded fund (ETF) directly tied to Bitcoin’s latest spot prices. Investors are reluctant to use a fund that settles transactions only at the end of each trading day. With the intraday pricing of ETF shares, investors can react much faster to changes in this volatile market, so the Bitcoin trust comes with a risk-based discount. In its current form, the Grayscale Bitcoin Trust carries 0.000922 Bitcoins per share, which works out to $18 at current crypto prices. Share prices stand 32% lower at $12.25. The fund managers are currently suing the Securities and Exchange Commission (SEC) to overturn the agency’s recent decision to deny a requested transformation from fund to ETF.

MicroStrategy is still buying more Bitcoin, arguing that the digital currency is a great investment at these low prices. The company boosted its Bitcoin holdings by 0.4% in the last two months and now holds roughly 129,700 tokens. The business intelligence company also holds some loans relying on Bitcoin holdings as collateral, raising concerns about the financial impact of plunging Bitcoin prices. However, CEO Michael Saylor claims that the loans don’t face any margin calls until Bitcoin prices fall below $3,562 per token, and even then, MicroStrategy could add other types of collateral. Since Bitcoin prices are hovering around the $20,000 mark these days, MicroStrategy appears to stand on solid financial ground at the moment.

Now what

Bitcoin prices have fallen 59% so far in 2022, and all three of the crypto-reliant stocks mentioned above are taking even deeper price cuts. Investors in this sector are nervous, and arguably for good reason. The crypto market is packed with uncertainty, and many investors don’t have a firm grasp on what blockchain ledgers can do or what they should be worth.

That being said, this is not the first massive drawdown in cryptocurrency history, and it won’t be the last. Cryptocurrencies are evolving and adapting to ever-changing market conditions. As a result, all the investments mentioned above are incredibly risky, and you should be prepared for bumpy roads ahead.

Some of these stocks may be good plays on the crypto market, and their current prices are certainly more attractive than the much higher peaks of last fall. However, it would be wise to keep your cryptocurrency investments relatively small, as the speculative sector separates the chaff from the wheat in this difficult era. Even the reasonably high-quality stocks we talked about here aren’t immune to market risks. You must weigh the promise of skyrocketing share prices against the very real risk of going to zero in a bankruptcy or liquidation.

As for Bitcoin itself, I think that this established powerhouse is going places in the long run — but even then, there are no guarantees that prices will rise again. Be careful out there, dear reader. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Bitcoin stocks crashed (again) last month appeared first on The Motley Fool Australia.

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More reading

• How did the price of crypto assets perform in June?
• Here’s what will impact the Bitcoin price in July: expert
• What did the SEC just say about Bitcoin?
• How crypto miners are squeezing the Bitcoin price
• The Bitcoin price is struggling. When will cryptos see a bottom?

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Bubs Australia Ltd (ASX: BUB) share price won’t be going anywhere on Tuesday.

This morning the junior infant formula company’s shares were placed into a trading halt.

What’s going on with the Bubs share price?

This morning the Bubs share price was slammed into a trading halt at the company’s request.

According to the release, rather predictably after the release of no less than eight market sensitive announcements in the space of five weeks hyping up its US activities, this trading halt has been requested so the company can launch another equity raising.

While no details have been released to the market, the AFR reports that Bubs is seeking to raise $63 million from investors. This will reportedly comprise a $32.4 million placement and $30.6 million rights issue, based on a 1 for 10.4 basis.

The company is aiming to raise these funds at 52 cents per new share, which represents a huge discount of 18.75% to the latest Bubs share price.

Why is it raising funds?

Bubs is understood to be raising the funds for working capital purposes in relation to the immediate scaling up of its activities.

These activities are aiming to increase inventory and to expand its canning capability.

The Bubs share price is expected to return to trade at the commencement of trade on Wednesday.

The post Why is the Bubs share price in a trading halt? appeared first on The Motley Fool Australia.

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• Why is the Bubs share price taking off today?
• Best ASX shares to buy in July 2022
• Bubs share price drops despite new Target deal
• Where to find value in growth? Here are 2 ASX shares I’d buy in July
• Why ANZ, Block, Bubs, and PayGroup shares are pushing 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 recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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With interest rates rising fast, the housing market has started to wobble and the REA Group Limited (ASX: REA) share price has come under pressure.

So much so, the property listings company’s shares are down 34% since the start of the year.

Is the REA share price weakness a buying opportunity?

Analysts at Goldman Sachs sees a lot of value in the REA share price at the current level.

A recent note reveals that its analysts have a buy rating and $167.00 price target on the realestate.com.au operator’s shares.

Based on the current REA share price of $113.61, this suggests that there is potential upside of 47% for investors over the next 12 months.

Why is Goldman so bullish?

Goldman Sachs remains bullish on REA due to its belief that the company can continue to grow at a solid rate despite the likely downturn in the housing market as rates rise.

In fact, the broker is forecasting 10% annual sales growth between FY 2022 and FY 2024. This will see its revenue go from $927.8 million in FY 2021 to an estimated $1,393.2 million in FY 2024.

At the same time, the broker is expecting positive jaws (sales growing quicker than costs), resulting in strong earnings growth over the same period. This is expected to be underpinned by stronger ad yields.

Goldman is forecasting earnings per share to go from $2.48 in FY 2021 to $3.93 in FY 2024.

The broker commented:

The commitment to >10% yield, is a clear positive in our view, with the willingness to pull the pricing lever particularly constructive (ahead of +8%/+6% contracted in FY22/23), driven by upside to current levels of monetisation in residential advertising (42% revenue share vs. c.75% audience share).

While depth growth is expected to be supported by adoption of the Premiere+ tier and vendor leads (charged on a subscription basis, monetised from FY24). Overall, we believe these commitments illustrate the pricing power of REA, pipeline of value-add products, and its ability to offset any potential macro weakness, and now forecast FY22-24E Sales growth of 10% despite challenging volume listings.

The post Why this broker sees huge upside for REA share price despite housing market downturn appeared first on The Motley Fool Australia.

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More reading

• Here are 2 blue chip ASX shares analysts rate as buys
• Here’s why ASX 200 tech shares are taking a beating on Wednesday
• Top brokers name 3 ASX shares to buy next week
• Here are the top 10 ASX shares today
• Here’s why I think the REA Group share price is a buy right now

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

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The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price has been having a tough time in 2022.

On Monday, the pizza chain operator’s shares ended the day at $69.21. This is almost 60% lower than their 52-week high of $167.15.

Where next for the Domino’s share price?

The good news for shareholders is that one leading broker is tipping the Domino’s share price to rebound.

According to a recent note out of Citi, its analysts have put a buy rating and $100.95 price target on the company’s shares.

Based on the current Domino’s share price, this implies potential upside of approximately 45% for investors.

What did the broker say?

Citi acknowledges that Domino’s is facing a very difficult period. This is being driven by lower traffic, inflationary pressures, and labour shortages.

Nevertheless, it appears to feel that this is already understood by the market and priced in following recent share price weakness.

In light of this, the broker believes that now could be a buying opportunity for investors. Particularly given that its long term growth remains very positive.

Our analysis of high frequency data suggests Domino’s website traffic in key markets (Europe and Japan) is under increasing pressure. These headwinds are likely further exacerbated by inflationary pressures and labour shortages.

However, we reiterate our Buy rating as we see upside from potential M&A activity and expect sales momentum to rebound later in CY22 once the business has cycled through the abnormal comps. While downside risk remains to the company’s short- to medium-term rollout, the long-term rollout opportunity does not appear to have changed.

The post Broker says Domino’s share price now has 45% upside after recent weakness appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX shares today
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• Here are the top 10 ASX shares today
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• Own Domino’s shares? Here’s how the company plans to grow through tough times

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 Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The price of the BetaShares Nasdaq 100 ETF (ASX: NDQ) went down in FY22. But amid the volatility, it may have done better than some readers expected.

Firstly, let’s acknowledge that the NDQ ETF did fall by around 20% in the 2022 financial year. That’s a pretty big drop in most people’s books.

However, that decline may not have been as much as people were expecting. Why?

Since the beginning of 2022, the BetaShares Nasdaq 100 ETF has actually fallen by close to 30%. That’s quite a bit worse than the drop for FY22.

The reason for the difference is that in the first six months of FY22, the NDQ ETF rose 16%. This resulted from investors pushing many of the large companies on the NASDAQ higher.

So, at the end of December 2021, NDQ had a higher starting valuation point to fall from than at the start of July 2021.

What drives the BetaShares Nasdaq 100 ETF?

The performance of any exchange-traded fund (ETF) is dictated by how the underlying holdings perform.

NDQ ETF owns shares in 100 of the largest businesses on the NASDAQ. Some of the biggest positions include Apple, Microsoft, Amazon.com, Tesla, Alphabet, Meta Platforms, Nvidia, PepsiCo, and Costco.

The businesses with the biggest weightings have the strongest influence. For example, at 1 July 2022, Apple had a 12.6% allocation and Microsoft had a 10.9% allocation in the NDQ ETF.

Why did the NDQ ETF fall?

The ETF itself simply tracks the share prices of the underlying holdings. So, the BetaShares Nasdaq 100 ETF dropped because the 100 businesses collectively declined in value.

Investors have been heavily focusing on inflation and what this may mean for interest rates and central bank decisions.

Various factors may have pushed up inflation, such as supply chain problems, financial support for economies during COVID-19, and soaring energy prices amid the Russian invasion of Ukraine.

Central bankers want to try to keep inflation within a target range, at a much lower rate than where it is now. One of their main tools to do this is to increase interest rates. The US Federal Reserve increased its interest rate by 75 basis points, or 0.75%, last month alone.

Why do interest rates matter for shares? Warren Buffett once said this:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature …its intrinsic valuation is 100% sensitive to interest rates.

However, despite the declines seen by the ETF, it is still up by over 100% over the past five years.

The post Why the BetaShares Nasdaq 100 ETF may have done better in FY22 than you thought appeared first on The Motley Fool Australia.

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• Here’s how June treated the NDQ ETF
• Why I think these 2 ASX shares are ideal for growth investors
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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 Alphabet (A shares), Alphabet (C shares), Amazon, Apple, BETANASDAQ ETF UNITS, Costco Wholesale, Microsoft, Nvidia, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking to boost your income portfolio in July, then you may want to look at the shares listed below.

Here’s why these ASX dividend shares could be worth considering right now:

Bank of Queensland Limited (ASX: BOQ)

The first ASX 200 dividend share that could be a top option for income investors is regional bank Bank of Queensland.

It has been tipped as a buy by analysts at Citi with a $9.25 price target. Its analysts see a lot of value in its shares at the current level and also expect them to provide investors with big dividends in the coming years.

The broker is forecasting fully franked dividends per share of 49 cents in FY 2022 and then 56 cents per share in FY 2023. Based on the current Bank of Queensland share price of $6.77, this will mean yields of 7.2% and 8.3%, respectively.

South32 Ltd (ASX: S32)

Another ASX 200 dividend share to look at is South32. It is diversified mining and metals company producing a range of commodities. These include alumina, aluminium, bauxite, coal, copper, manganese, nickel, and silver.

Morgans is a big fan of the company. It currently has an add rating and $6.10 price target on the miner’s shares. The broker believes the company’s shares are trading at an attractive level. It commented:

We see attractive long-term value potential in S32 from de-risking of its growth portfolio, the potential for further portfolio changes, and an earnings-linked dividend policy.

As for dividends, the broker is forecasting fully franked dividends per share of 26 cents in FY 2022 and 36 cents in FY 2023. Based on the current South32 share price of $3.89, this will mean yields of 6.7% and 9.25%, respectively.

The post Experts name these ASX 200 dividend shares with big yields as buys appeared first on The Motley Fool Australia.

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More reading

• 3 more of Morgans’ best ASX share ideas for July
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Leading brokers name 3 ASX shares to buy today
• South32 crashes into bear market in June as recession fears bite
• June was a terrible month for ASX 200 bank shares. Here’s why

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.

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The Fortescue Metals Group Limited (ASX: FMG) share price had a rough time during the 2022 financial year.

Shares in the iron ore mining giant fell by almost 30% over FY22.

Fortescue isn’t the only ASX resource share to experience significant volatility over the past year. However, it fell further than the biggest of the bunch, BHP Group Ltd (ASX: BHP).

As a price-taker, Fortescue has to accept whatever price it can get for the commodities it produces.

As a pure-play iron ore producer, it’s the iron ore price that has a very large and direct influence on Fortescue revenue, net profit after tax (NPAT), cash flow and dividends. Not to mention the Fortescue share price.

Iron ore rollercoaster drags Fortescue share price down

Fortescue has seen its fortunes rise and fall with the iron ore price over FY22.

At the start of FY22, the iron ore price was elevated. It was above US$210 per tonne.

Since then, it has dropped down to around US$115 per tonne. While that’s nowhere near as low as it was during November 2021, it’s still a big fall.

So, with the iron ore price not too far off halving over the year, it’s not surprising that the Fortescue share price has fallen heavily.

The company expects its FY22 iron ore shipments to be between 185mt and 188mt.

Leadership change

One of the biggest items of news out of the company during FY22 was the announcement that Andrew Forrest would be returning to a more active role. He will become the executive chair of the company in August.

Current CEO Elizabeth Gaines will remain on the Fortescue board as a non-executive director. She will take up the role of global brand ambassador for Fortescue Future Industries (FFI).

Dr Mark Hutchison will become the CEO of FFI by the end of 2022.

Green progress

Fortescue’s green division, FFI, has made a number of announcements over the last 12 months showing how much progress it has made.

Early on in the financial year, it said that it was going to build a ‘global green energy manufacturing centre’ in Gladstone, Queensland. The first stage of development is an electrolyser factory with an initial capacity of two gigawatts.

FFI has a vision of making green hydrogen the most globally-traded seaborne commodity in the world. It could have a larger influence on the Fortescue share price as time goes on.

It has already secured customers for a large amount of its planned production. By 2030, FFI wants to grow its production to 15 million tonnes per year.

In November 2021, two UK companies signed a multi-billion-pound deal to purchase 10% of FFI’s global green hydrogen production.

FFI also signed a deal with German energy network operator, E.ON to supply up to five million tonnes per annum of green hydrogen, equating to a third of the planned total.

Fortescue also rapidly advanced its green ambitions by acquiring the UK-based Williams Advanced Engineering (WAE) for around US$223 million.

The company is described as a leading provider of high-performance battery and electrification technologies.

Fortescue will use WAE to help develop battery-electric solutions for Fortescue’s vehicles and equipment and also grow WAE’s green tech and engineering business.

The post Why did the Fortescue share price sink in FY22? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• 5 things to watch on the ASX 200 on Monday
• Should investors dig the Fortescue share price in July?
• How did the Fortescue share price perform in June?
• These ASX 200 mining shares are digging a deeper hole on Friday

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

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National Australia Bank Ltd (ASX: NAB) shareholders will become a little richer today.

After the bank’s shares tumbled more than 10% in the past month, the company is paying out its latest interim dividend.

At Monday’s market close, the NAB share price finished 0.84% higher to $27.74.

For context, the S&P/ASX 200 Index (ASX: XJO) also rose yesterday by 1.11% to 6,612.6 points.

Let’s take a look at the details regarding the company’s dividend.

The details of NAB’s latest dividend

In early May, NAB reported growth across key metrics in its half-year results for the 2022 financial year.

In summary, revenue improved by 4.6% to $9,071 million over the prior corresponding period. The robust performance was underpinned by an increase in lending and deposits, which lifted by 10% and 12% respectively.

This led to the bank achieving a 4.1% boost in cash earnings to $3,480 million.

Management noted that the key driver was the bank’s business banking operations.

The board elected to increase NAB’s interim dividend by 22% to 73 cents per share.

The dividend is fully franked which means those who receive it will get some form of tax credits.

Based on yesterday’s closing price, NAB has a dividend yield of 5.09%. That sits in the mid-range of the big four.

NAB share price snapshot

Over the past 12 months, the NAB share price has moved in circles to register a return of around 5%.

Its shares hit a 52-week high of $33.75 on 21 April before erasing those gains in the following months.

NAB has a price-to-earnings (P/E) ratio of 13.74 and commands a market capitalisation of roughly $87.78 billion.

The post The NAB dividend is being paid today. Here’s what you need to know appeared first on The Motley Fool Australia.

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More reading

• June was a terrible month for ASX 200 bank shares. Here’s why
• Why this fundie favours NAB and Westpac shares out of the big four
• 2 excellent ASX dividend shares that analysts rate as buys in July
• Can investors bank on the NAB share price in July?
• Volt gets packing as ASX 200 bank shares prove to be a formidable force

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

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Regular readers of The Motley Fool will already know it has been a tough year for technology stocks.

Sentiment turned against growth shares late last year, and there is no industry so dominated by expansionist businesses as the biotechnology sector.

In fact, the S&P/ASX All Technology Index (ASX: XTX) has tumbled more than 40% since mid-November.

Yikes.

But amid the carnage, there is one flower still standing and thriving.

How did a tech stock rise 63% in the last 12 months?

Over the 2022 financial year, US-based artificial intelligence chip maker Brainchip Holdings Ltd (ASX: BRN) took its share price from 49 cents to 80 cents.

That’s an impressive 63% gain during a time when its peers saw their valuations collapse.

So how did it achieve such a feat?

Although still in a pre-revenue stage, the business seems to be impressing the market with incremental deals that suggest its technology might actually have a future.

These include partnerships with space agency NASA and car maker Mercedes Benz Group AG (FRA: DAII).

“The Akida chip is designed to think like a human brain and it can be used for a variety of purposes worldwide,” reported The Motley Fool colleague Aaron Teboneras.

“These include in the manufacture of smart cars such as the Mercedes EQXX concept car as well as in-home automation, unmanned aircraft, medical instruments, cybersecurity, and more.”

To top off this journey to legitimacy, the ballooning share price meant Brainchip shares were welcomed into the S&P/ASX 200 Index (ASX: XJO) last month.

This inclusion forced many institutional investors to buy into the stock for funds that are tied to the composition of the flagship Australian index.

Meme stock no more?

It’s a long way from 2020 when Brainchip shares were derided as a meme stock, months before anyone had heard of GameStop Corp (NYSW: GME).

Its share price skyrocketed from eight cents to 97 cents in a matter of weeks after amateur traders on internet forums bid the price upward. 

Back then, the company had not shown enough for the public to even judge whether its products existed.

But two years since then, while the business is still not making meaningful revenues, partnerships with established companies seem to be giving investors more confidence.

The Motley Fool’s Teboneras picked it as a stock to buy last month.

“Valued at $1.95 billion, BrainChip is still a relatively emerging, pre-revenue company that is looking to dominate the AI market,” he said.

“Should BrainChip be able to deliver on its potential, I think its share price is extremely attractive at its current price.”

The post How Brainchip shares gained 63% in a year when tech stocks nosedived appeared first on The Motley Fool Australia.

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More reading

• Why did the BrainChip share price crash 30% in June?
• Why is the BrainChip share price sliding 4% today?
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Motley Fool contributor Tony Yoo has positions in Brainchip Holdings Ltd. 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.

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No doubt share investors are sick of hearing it by now, but higher costs for everything and rising interests will dominate market fortunes for the foreseeable future.

According to T Rowe Price Group Inc (NASDAQ: TROW) head of Australian equities Randal Jenneke, the current situation bears similarities to the 1970s “stagflation” era.

“Headlines feature daily around the rising cost of fuel, electricity and commodity prices,” he said.

“At the same time, a tight labour market sparks worries of a wage-price spiral and broader fears of a hot and embedded inflation that will be difficult to cool.”

Thankfully, though, there are some differences. For example, the energy shortage is much more acute in Europe this time, as the US is a net exporter — not an importer as it was back in the 1970s.

“Consumer and corporate balance sheets are also stronger… The lessons from the stagflation period are still very real in the minds of central bankers and they are likely to do whatever possible to ensure we do not repeat history,” said Jenneke.

“With this in mind, we view a stagflation replay as only a 15% to 20% chance.”

Regardless, investors still need to be careful. 

Jenneke suggested buyers of ASX shares need to move their focus from revenue growth to margin sustainability.

“A repeat of the 70s stagflation era is not our base case. However, the parallels continue to grow.”

Nothing beats setting your own prices

So which businesses can protect their margins in times of rising input costs and cooling consumer sentiment?

“Those that can better manage through this period will likely be companies with strong pricing power,” said Jenneke.

“To pass on costs effectively to buyers requires a good industry structure, differentiated products and defensive volumes.”

The T Rowe Price team reckons the healthcare industry fulfils many of those criteria.

Jenneke singled out one name in particular.

“Resmed CDI (ASX: RMD), for example, has a large underpenetrated market,” he said.

“And despite various input and logistics cost pressures, has been able to pass through price increases given their dominant market share and current lack of reputable competition.”

Infrastructure also has the pricing power that Jenneke’s analysts are currently seeking.

“Transurban Group (ASX: TCL), for example, has built-in price increases for its contracts. The nature of its cost structure brings high EBIT margins and margin stability,” he said.

“Anecdotally, you know the cost of tolls are rising when every second taxi driver makes a point or two about it.”

One important note about these ASX shares is that Jenneke very much likes the businesses independent of the economic headwinds.

“Another lesson from the 1970s is that the global macro picture does not trump company fundamentals,” he said.

“For example, both the US and UK faced a similar stagflation narrative. However, UK banks performed terribly amid a severe property price crunch, while their US peers outperformed.”

The post Pricing power: 2 ASX shares that can fight stagflation appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has positions in ResMed Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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