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Unlike most other technology stocks, Brainchip Holdings Ltd (ASX: BRN) investors have enjoyed a nice share price rise over the past 12 months.

But their smile might become even wider this month as the stock is set to receive a tidy external boost.

After market close on Friday, S&P Dow Jones Indices announced that Brainchip would be added to the prestigious S&P/ASX 200 Index (ASX: XJO) on 20 June.

Brainchip’s promotion will take place as part of the index’s quarterly refresh, which sees three other companies added and five removed.

So why is this a big deal?

As well as the qualitative glory, membership to the ASX 200 can boost the share price.

This is because passive funds that follow the index will be forced to buy the stock.

The short-term rise in demand may lead to the price spiking, but the fund managers will still be obliged to buy Brainchip shares.

Pre-revenue hype for Brainchip

Brainchip is a pre-revenue developer of artificial intelligence computer chips. Its flagship technology is the Akida chip. 

Back in 2020, the shares ballooned after it became a local “meme stock”. After the excitement died down it settled in the 30 to 60 cents range for about a year.

But over the last six months, investors have again flocked to the stock after a series of favourable business deals to have it trading at $1.06 to start Monday.

During a time when tech shares have fallen out of favour, the Brainchip stock price has risen 127% since November.

That’s despite a 50% drop since mid-January.

The Motley Fool colleague Aaron Teboneras wrote last week that Brainchip’s current share price is “extremely attractive” if the business can “deliver on its potential”.

“The Akida chip is designed to think like a human brain and it can be used for a variety of purposes worldwide,” he said.

“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.”

The post Brainchip shares could get a massive boost this month: here’s how appeared first on The Motley Fool Australia.

More reading

• 2 ASX shares just had a shocker but are awesome long-term buys: fund
• 5 things to watch on the ASX 200 on Monday
• These were the worst performing ASX 200 shares last week
• These were the best performing ASX 200 shares last week
• Here are the top 10 ASX shares today

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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The Commonwealth Bank of Australia (ASX: CBA) share price has been on the mend after a volatile month on the ASX.

Despite finishing 0.23% lower to $105.20 at Friday’s market close, shares in Australia’s largest bank have soared 12.5% since March.

What’s driving CBA shares higher?

Investors have been bidding up the CBA share price regardless of the current macroenvironmental headwinds in the global economy.

High inflation levels, along with concerns about a potential recession, have led to strong declines across international markets.

However, the banking giant has remained relatively resilient with a few brokers weighing in on CBA shares.

Morgan Stanley has a sell rating on Commonwealth Bank shares but if interest rates climb, this could be beneficial to the major bank.

As such, the broker cut its 12-month price target by 1.1% to $91.00 on CBA shares. This represents a decline of roughly 13% from where they trade today.

In addition, Goldman Sachs has a similar price point, lifting its 12-month outlook by 1.7% to $89.86 a share.

The company reported impressive half-year results in February, underpinned by favourable business outcomes.

It’s worth noting that the Commonwealth Bank is conducting a $2 billion off-market share buyback to reduce surplus capital and increase shareholder value. The capital management program is expected to reduce its CET1 ratio to 11.4% once completed.

Basically, this means that when CBA buys back its shares, the number of shares on its registry will decrease. With a lesser amount, this effectively increases the value of each share as the revenue and profits remain the same.

Traditionally, when this occurs, a company’s share price tends to rise over time.

CBA shares are just 4.5% off their all-time high of $110.19 reached in November 2021.

How much is CBA paying in dividends?

According to Goldman Sachs, CBA could pay a fully-franked final dividend of $2.00 per share for FY22.

Coupled with the interim dividend of $1.75, the full-year dividend would come to $3.75 per share. This reflects a 7.1% increase on FY21’s dividend. The targeted full-year payout ratio is between 70% to 80% on the bank’s cash earnings.

When factoring in the current CBA share price along with its full-year dividend, CBA’s dividend yield rises to 3.56%.

About the CBA share price

In 2022, the CBA share price is up around 4% after a bumpy ride at the start of the year.

On valuation grounds, CBA is the second largest company on the ASX with a market capitalisation of approximately $179.5 billion.

The post The CBA share price is now trading on a 3.5% fully-franked dividend yield appeared first on The Motley Fool Australia.

More reading

• What’s dragging on ASX 200 bank shares like NAB on Thursday?
• What’s the outlook for the CBA share price in June?
• Iron ore price to fall 27% by end of 2022: CBA
• Why the CBA share price is beating the market in May
• The ANZ share price is ‘trading at its largest discount to its peers in 15 years’: Is this justified?

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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The CSL Limited (ASX: CSL) share price has sensationally been dumped amid a broader market sell-off by investors.

Year to date, the global biotech’s shares have fallen by around 7.5%. By comparison, the S&P/ASX 200 Index (ASX: XJO) has lost 2.7% in the same timeframe.

Looking at Friday’s market close, CSL shares edged 0.14% higher to $269 apiece.

What’s weighing down CSL shares?

A couple of factors have negatively impacted the CSL share price, compelling investors to hit the sell button.

First and foremost, the S&P/ASX 200 Health Care Index (ASX: XHJ) has been in reverse throughout 2022, down 11%.

Investors appear to have focused their efforts on other performing sectors such as the S&P/ASX 300 Metals & Mining (ASX: XMM) index. This consists of the top 300 ASX companies involved in gold, steel and precious metals.

For context, the Metals & Mining sector has soared 5.78% from this time last Monday and is up 11% in 2022.

And it is no surprise, given the war in Ukraine and inflationary movements, that commodity prices have skyrocketed.

Market psychology can be a powerful force when crowd behaviour chases market rallies or sells off during downturns.

Another factor that has led CSL shares to fall is the delay in completing the acquisition of Vifor Pharma.

Originally, the deal was due to be wrapped up this month. However, receiving regulatory approvals is taking a little longer.

CSL now expects to finalise the takeover next few months.

What do the brokers think?

Before COVID-19, CSL shares were known for their high-growth and defensive qualities. The company’s share price had a healthy track record of outperforming the benchmark index, which attracted investors.

In February 2020, CSL shares hit an all-time high of $342.75 before losing more than 20% within a month.

Fast forward to today, a number of brokers have weighed in on the CSL share price.

Earlier this year, the team at Morgans cut its 12-month price target by 2.1% to $327.60 for CSL shares. Based on the current share price, this implies an upside of about 21.7% for investors.

Despite slashing its outlook by 1.5%, analysts at Citi had a more bullish price on the company’s shares at $335.00. From where CSL trades as of Friday, this represents an uplift of 24.5% over the next 12 months.

Even though both brokers reduced their price targets, they believe that the CSL share price is attractive at current levels.

A recap on the CSL share price

No doubt it has been a frustrating time for CSL shareholders. Traditionally, its shares outperform the broader market. However, this has not been the case since the start of the year.

On valuation grounds, CSL is the third largest company on the ASX with a market capitalisation of roughly $129.58 billion.

The post The CSL share price has at least 20% upside: top brokers appeared first on The Motley Fool Australia.

More reading

• 3 ASX shares to buy now (and one bonus): fund manager
• Brokers name 3 ASX shares to buy today
• 3 ASX 200 shares swimming in billions, besides banks and miners
• What’s in store for the CSL share price in June?
• Analysts name 3 ASX 200 shares that could generate strong returns

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 positions in and has recommended CSL Ltd. 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 Rio Tinto Limited (ASX: RIO) share price has gone on a bit of a rollercoaster in 2022. Could the ASX mining share now be an opportunity?

Commodity business share prices can change quite rapidly according to price changes in their underlying resources.

Rio Tinto is involved with a number of different commodities though iron ore generates the lion’s share of net profit.

The ASX mining share has been rising in recent weeks. Since 10 May 2022, it’s up by more than 12%.

After the recent gains, we check whether the mining giant good value or not.

Broker ratings on the Rio Tinto share price

While it’s impossible to know what a share price will do in any given month, brokers have ratings on whether they think a miner is good value.

The broker UBS currently has a neutral rating on the miner, with a price target of $104. That implies a possible decline of around 10% over the next year. The broker doesn’t think the iron ore price will be as strong in the longer term so the mining giant’s growth could come from other commodities, such as copper and lithium.

According to UBS, BHP Group Ltd (ASX: BHP) would be a better choice.

Macquarie is more optimistic about Rio Tinto. It has a buy rating on the business with a price target of $135. That suggests a possible rise of 16% in the next year. The broker likes the copper opportunity for Rio Tinto with the Oyu Tolgoi project.

Ord Minnett rates Rio Tinto as a hold with a price target of $116. Part of the reason for the pessimism is the labour shortage facing the mining sector. Ord Minnett doesn’t think that Rio Tinto is going to stick to its guidance of shipments, with possible underperformance.

How big is the Rio Tinto dividend going to be?

Rio Tinto is known for paying big dividends, particularly when commodity prices are high. Resource businesses are renowned for their lower price/earnings (p/e) ratios, which have the effect of boosting their dividend yields.

UBS thinks that Rio Tinto is going to pay a grossed-up dividend yield of 13.2% in FY22 and 10.2% in FY23.

Macquarie is expecting even bigger dividends from Rio Tinto. At the current Rio Tinto share price, the broker thinks the FY22 grossed-up dividend yield could be 15.75% and 10.9% in FY23.

Ord Minnett thinks that Rio Tinto’s grossed-up dividend yield is going to be 14.8% in FY22 and 11.4% in FY23.

In the next two financial years, all of the brokers are expected double-digit yields from the ASX mining share.

Rio Tinto share price snapshot

Since the start of 2022, the Rio Tinto share price has gone up by 16%.

The post What are brokers predicting for the Rio Tinto share price in June? appeared first on The Motley Fool Australia.

More reading

• What happened to the Rio Tinto share price in May?
• Why are the ASX 200 iron ore giants outperforming on Friday?
• How might ‘green premiums’ impact the value of ASX mining shares?
• The Rio Tinto share price has leapt 11% in 3 weeks. Is there more to come?
• Why is the Rio Tinto share price having such a strong end to the week?

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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 recommended Macquarie 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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Once a week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Flight Centre Travel Group Ltd (ASX: FLT) takes the crown as the most shorted ASX share for another week. This is despite its short interest reducing meaningfully week on week to 16.2%. Short sellers appear to believe the travel market recovery won’t be smooth sailing.
• Betmakers Technology Group Ltd (ASX: BET) has seen its short interest edge higher to 13.6%. This betting technology company appears to have been targeted due to its lofty valuation and cash burn in an unforgiving investment environment.
• Nanosonics Ltd (ASX: NAN) has short interest of 12.3%, which is down slightly week on week. This short interest appears to relate to concerns over potential disruption and higher costs caused by this medical device company’s sales model transition in the United States.
• Polynovo Ltd (ASX: PNV) has seen its short interest ease to rise to 10.4%. This medical device company’s shares have just been dumped from the ASX 200 index.
• Webjet Limited (ASX: WEB) has short interest of 9.4%, which is down week on week. Short sellers continue to target this online travel agent despite management forecasting a big improvement in its performance in FY 2023.
• Appen Ltd (ASX: APX) has seen its short interest fall to 9.4%. It has been an eventful couple of weeks for this artificial intelligence data services company. Developments include a takeover collapse, a very poor trading update, and news that it has been booted out of the ASX 200 index.
• AMA Group Ltd (ASX: AMA) has 8.8% of its shares held short, which is down slightly week on week. There are concerns that this crash repair company’s balance sheet is in a precarious position and could require a recapitalisation.
• Block Inc (ASX: SQ2) has entered the top ten with short interest of 8.7%. This is largely in line with the short interest levels of its US listed shares.
• Kogan.com Ltd (ASX: KGN) has seen its short interest reduce to 8.7%. This ecommerce company has been targeted due to its poor inventory management, weakening margins, and rising competition from Amazon and others.
• Regis Resources Limited (ASX: RRL) has short interest of 8.6%, which is down week on week. Concerns over labour shortages, cost pressures, and lower grades have been weighing on its shares.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Could the current Webjet share price offer a 25% upside?
• 3 ASX 200 shares swimming in billions, besides banks and miners
• Why are ASX 200 tech shares having such a cracking Friday?
• Silver lining for Appen shares following takeover turmoil

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 Appen Ltd, Betmakers Technology Group Ltd, Block, Inc., Kogan.com ltd, Nanosonics Limited, and POLYNOVO FPO. The Motley Fool Australia has positions in and has recommended Block, Inc., Kogan.com ltd, and Nanosonics Limited. The Motley Fool Australia has recommended Betmakers Technology Group Ltd, Flight Centre Travel Group Limited, and Webjet Ltd. 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 Telstra Corporation Ltd (ASX: TLS) share price went backwards by 4% in May 2022. But are things looking any better for the telco in June?

Telstra has been busy over the last 12 months with acquisitions, a new T25 strategy, and a regional telco agreement with TPG Telecom Ltd (ASX: TPG).

While it’s impossible to know what the Telstra share price is going to do in any given month, or year, there are brokers that give ratings on whether they think a business is a buy, hold, or sell.

Let’s have a look at some of those ratings.

Broker views on the Telstra share price

The broker Ord Minnett has a buy rating on the business.

A price target is where the broker thinks that the share price could be in 12 months. Ord Minnett’s price target on Telstra is $4.85.

The broker thinks that Telstra will be able to succeed with its growth goals outlined in its T25 strategy.

Telstra’s customers face increasing prices for their mobile plans, as reported by various media organisations. This is expected to help Telstra’s mobile earnings. The telco reportedly said that “plan pricing will include an annual review and may increase annually” as it increases prices in line with the Consumer Price Index.

In its T25 strategy, Telstra is targeting a mid-single digit compound annual growth rate (CAGR) of underlying earnings before interest, tax, depreciation and amortisation (EBITDA).

The broker Morgan Stanley also thinks the Telstra share price is a buy, with a price target of $4.60.

Fellow broker Morgans also rates Telstra as a buy, with a price target of $4.56.

Initiatives to grow profit

Aside from increasing prices, Telstra has been doing other things to try to grow future profit.

It acquired Digicel Pacific which gives it a strong market presence in several Pacific countries.

Telstra has also acquired MedicalDirector which increases the scope and size of Telstra Health.

The telco also surprisingly announced that it would be working with TPG. A multi-operator core network commercial agreement is expected to provide “significant” value to Telstra’s wholesale mobile revenue. Telstra will also gain access to TPG Telecom’s spectrum across 4G and 5G which, in turn, will allow it to grow its network and increase capacity.

Telstra will share its radio access network for 4G and, subsequently, 5G services in the defined coverage zone across regional and urban fringe areas.

The non-exclusive agreement includes the option for TPG Telecom to request two contract extensions of five years each.

Telstra dividend

The telco has committed to try to grow its dividend in the future when cash flow and profit allow.

However, it’s going to keep paying its 16 cent per share annual dividend. At the current Telstra share price, that equates to a grossed-up dividend yield of 5.8%.

The post What’s the outlook for the Telstra share price in June? appeared first on The Motley Fool Australia.

More reading

• Is the Telstra share price in the buy zone after the telco giant’s mobile plan increases?
• Here are the top 10 ASX shares today
• 3 ASX 200 shares smashing the market today
• Why Bailador, Fortescue, Nufarm, and Telstra shares are rising
• Why is the Telstra share price dialling higher today?

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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 positions in and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended TPG Telecom 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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You’ll find plenty of big-cap ASX shares involved in gold, iron ore, or coal.

But most of the ASX shares exploring for and producing cobalt are on the microcap and small-cap end of the spectrum.

We look at three of the larger companies below.

But first…

What is cobalt?

A hard, shiny, greyish metal, cobalt is a highly conductive metal. It has numerous uses, including adding colour to glass and ceramics.

But we suspect its cobalt’s use in aircraft engine parts and its prevalence in lithium-ion batteries, computers and mobile phones that has seen the Australian government list the metal as a critical mineral.

The government reports that Australia has high geological potential for cobalt, with a 2020 economic demonstrated resource of 1.5 million tonnes. In 2020, Australian miners produced 5,600 tonnes of cobalt, out of a total global production of 135,000 tonnes.

Only Russia and the Democratic Republic of Congo, which mines some 70% of total global cobalt, produced more.

With that said, which ASX shares are digging for cobalt?

Three ASX shares cashing in on cobalt

First up we have Jervois Global Ltd (ASX: JRV).

With a market cap of $1.2 billion, it’s the biggest of the ASX shares with a strong focus on cobalt.

The company is on track to start production at its Idaho Cobalt Operations, the only cobalt mine in the United States. It’s also a specialty cobalt chemicals producer at Jervois Finland.

And the Jervois share price has been riding high amid booming demand for battery metals, with shares up 29% year-to-date.

Next up we have Ardea Resources Ltd (ASX: ARL), with a market cap of $206 million.

Ardea Resources’ Kalgoorlie Nickel Project, located in Western Australia, is the largest nickel-cobalt resource in the developed world. It’s been awarded ‘major project status’ by the Australian government.

The company is another beneficiary of the booming demand for battery metals, helping send its share up a whopping 171% so far in 2022.

This brings us to our third ASX share focused on cobalt, the aptly named Cobalt Blue Holdings Ltd (ASX: COB).

Cobalt Blue has a market cap of $253 million.

The ASX share reports that it’s poised to become one of the world’s largest cobalt producers on the back of its Broken Hill Cobalt Deposit, in New South Wales. According to the company website, “If Broken Hill were a country, it would rank number 5 for cobalt production”.

The Cobalt Blue share price is another stellar performer this year, up 62% since the opening bell on 4 January.

The post Mineral Monday: What you need to know about cobalt and which ASX shares are cashing in on it appeared first on The Motley Fool Australia.

More reading

• Is the party drawing to a close for the Cobalt Blue shares?
• Why did the Cobalt Blue share price leap 5% this morning?
• 3 critical minerals you might not have heard of (and the ASX shares that have surged because of them)

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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As many investors would be aware, it’s been a particularly hard year for ASX tech shares. Since the start of the year, the S&P/ASX All Technology Index (ASX: XTX) has lost almost a third of its value.

But this tech slump isn’t just confined to the ASX boards. US tech shares have been especially hard hit too. We can see this in the performance of the BetaShares Nasdaq 100 ETF (ASX: NDQ).

NDQ is an ASX-listed exchange-traded fund (ETF) that tracks the NASDAQ-100 Index (INDEXNASDAQ: NDX). It is the only ASX-listed ETF to do so. The Nasdaq is one of the two US stock exchanges. It is best known for being the exchange of choice for most US tech companies.

You’ll find everything from Apple Inc, Tesla Inc, Microsoft Corporation and Amazon.com Inc to Meta Platforms Inc, Alphabet Inc, PayPal Holdings Inc, and Netflix Inc on the NASDAQ. And thus, in NDQ.

Even though some of the top holdings in the BetaShares Nasdaq 100 ETF are some of the most well-known and profitable companies on the planet, it hasn’t saved the ETF from some nasty share price falls this year. Since the start of 2022, NDQ units have lost more than 22% of their value.

These falls have come as many of the underlying tech shares that underpin this ETF have struggled this year. Take Amazon shares. Amazon has fallen more than 26% in 2022 so far. Tesla has lost 35% of its value year to date. And Meta (formerly Facebook) shares are down more than 41%.

So is the NDQ ETF a buy today?

Could these share price falls herald a buying opportunity for the Nasdaq 100 ETF?

In my opinion, yes.

Firstly, the Nasdaq 100 is an index. This means that the top-performing shares rise to the top over time, while the losses drop off the perch. This means NDQ, like any other index ETF, can be used as a passive investment.

Secondly, the Nasdaq is essentially a bet on the future of the US tech sector, given most tech companies call it home. The US tech sector has dominated the world for decades now, and there is little reason to think it isn’t set up to continue to do so. Companies like Apple, Amazon, Netflix, and Alphabet’s Google seem to only grow more entrenched in our lives every year and are still growing at healthy clips.

Thirdly, NDQ is an ETF that has some impressive runs on the board. Although its performance has been disappointing this year, consider this. NDQ has still averaged an impressive performance of 19.76% per annum over the past five years. Past performance is no guarantee of future gains. But it does give us an idea of the potential that is there.

So all in all, this recent pullback for the BetaShares Nasdaq 100 ETF could well be a compelling buying opportunity going forward.

The post Here’s why the BetaShares Nasdaq 100 ETF could be a buy today appeared first on The Motley Fool Australia.

More reading

• 2 great ETFs I’d buy in June 2022
• Three trillion reasons why young investors need to be taken seriously
• 3 high quality ETFs for ASX investors to buy now
• Here’s why the Betashares Nasdaq 100 ETF (NDQ) is sinking today
• Are these 2 sold-off ASX growth shares now cheap bargains?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Alphabet (A shares), Amazon, Apple, Meta Platforms, Inc., Microsoft, Netflix, PayPal and Tesla. 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, Meta Platforms, Inc., Microsoft, Netflix, PayPal Holdings, 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, Meta Platforms, Inc., Netflix, and PayPal Holdings. 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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May was a pretty awful month for ASX shares, as we watched the S&P/ASX 200 Index (ASX: XJO) plunge 3%.

In such distressing times, it’s interesting to see which stocks the professional investors stick with despite watching their valuations shrink.

QVG Capital explained its thesis for two such examples in a recent memo to clients.

‘Double-digit earnings growth for many years to come’

The analysts at QVG Capital were upfront about its performance last month.

“May performance was poor,” read the memo.

“The fund tracked the market lower with underperformance (minus 4%) largely attributed to our meaningful holding in insurance builder Johns Lyng Group Ltd (ASX: JLG), which finished the month down 33%.”

The team blamed a reaffirmation of its earnings outlook that fell short of investor expectations, and two directors selling their shares.

But Johns Lyng remains the fund’s second-largest holding.

“We remain confident in the durability and longevity of the Johns Lyng story with several ‘irons in the fire’, both organic and inorganic, to drive double-digit earnings growth for many years to come.”

QVG Capital noted that the insurance builder and repairer is well placed financially.

“JLG is capital-light, has a long runway for growth and has no debt,” read the memo.

“High levels of insider ownership, a unique culture and solid track record of execution give us confidence May’s performance will only be a hiccup.”

It seems other professionals agree, with six out of seven analysts surveyed on CMC Markets rating Johns Lyng shares as a strong buy.

Even after a shocking May, Johns Lyng shares have risen a handsome 45.3% over the past 12 months.

‘Long runway for growth’

Dental centre operator Pacific Smiles Group Ltd (ASX: PSQ) was another big detractor in May for QVG Capital, also dropping a painful 33%.

“Omicron and a bad flu season have seen patients stay away from healthcare settings (pathology, IVF and radiology volumes are also down) this half,” read the memo.

“Unlike the very strong return to trading Pacific Smiles saw [after Delta] in October and November last year, patient volumes have been slow to recover this calendar year.”

However, the stock is still a long-term holding for QVG Capital.

“We continue to like Pacific Smiles due to its high returns on incremental capital and long runway for growth.”

The horrible run in May merely extended already heavy losses in 2022. The Pacific Smiles share price has almost halved since the start of the year.

According to the QVG team, the heavily discounted share price makes it a “compelling” buy right now.

“For example, if Pacific Smiles were to never open another centre and just let their existing 125 practices mature (centres ramp up over several years) it would trade on more than a 10% free cash flow yield.”

Other analysts are slightly less certain, with only two out of four surveyed on CMC Markets rating Pacific Smiles as a strong buy. One other fund manager voted it a moderate buy.

The post 2 ASX shares just had a shocker but are awesome long-term buys: fund appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• These were the worst performing ASX 200 shares last week
• These were the best performing ASX 200 shares last week
• Here are the top 10 ASX shares today
• Here are the 3 most traded ASX 200 shares on Friday

Motley Fool contributor Tony Yoo has positions in Johns Lyng Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group Limited. The Motley Fool Australia has recommended Johns Lyng 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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Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Tribeca Investment Partners portfolio manager Jun Bei Liu picks three stocks that are discount buys right now and why she suspects growth could come back into vogue pretty soon.

Investment style

The Motley Fool: How would you describe your fund to a potential client?

Jun Bei Liu: ​​I run the Tribeca Alpha Plus Fund. It’s probably one of the longest-running long-short funds here in Australia and probably one of the largest, just over $1 billion. 

We specialise in Australian equities. We’re a very active investor. Long-short means we take advantage of rising and falling share prices. And we’re finding the current market environment providing lots of opportunities. 

Myself, Jun Bei, I’ve been an investor, a fundamental investor for almost 20 years. And my career spanned across Australian equities and also had some exposure to international equities. 

Hottest ASX shares

MF: What are the three best stock buys right now?

JBL: I think on a risk-adjusted basis, we actually think things like CSL Limited (ASX: CSL) is an amazing buy at current levels. Share price has been depressed as investors [have been] selling that whole growth basket. And unfortunately, CSL got bundled into it. 

This is a company that’s going to deliver double-digit earnings growth for the next few years, regardless of economic outlook. And this company will also be a beneficiary of [the] reopening economy as well because the blood collection used for plasma production has been very weak because of the COVID disruption and now has really picked up. 

So, the earnings growth, it’s very, very defensive. It’s not dependent on economic outlook. And the share price is a very reasonable level. So I think that’s a really strong buy.

The next one in my mind is Xero Limited (ASX: XRO). We love this company because, for many years, it’s demonstrated its execution in dislodging incumbents and growing its share and became a dominant player across the New Zealand, Australian markets. And now it’s gone to the UK. It’s demonstrated it’s gaining [market] share really well. 

Share price, again, [is] being punished because of people rotating out of growth stocks into others. And I think the current share price is [at] very reasonable levels. It’s not something you buy for next month’s earnings. It is something you buy for the bottom drawer, for the longer term, for the next five years. 

So we love Xero.

MF: Earlier this year Xero shares were punished because the company decided to reinvest money back into the business rather than try to make it more profitable in this environment. What do you think about that dilemma they have?

JBL: Yeah. Look, to be honest, I always believe for businesses that have such huge addressable markets, it is actually important for them to continue to invest. 

If you look at some of the market leaders, things like TechnologyOne Ltd (ASX: TNE) — that’s another one of our picks as well — they’re just continually executing on growth and continually to expand on the existing product suite, but they’re constantly expanding on the R&D so that they will stay ahead of the competition. That’s why they’re so dominant in a category. 

So I think that for tech companies, they do need to do that, particularly if you can demonstrate that your return on capital is significantly higher than what can be otherwise generated. To me, that’s the right thing to do. 

I don’t buy this company for near-term earnings. To be quite frank, I didn’t think the disappointment was all that large. It was just investors still very skittish with growth companies, just because they’re unsure of the growth premium, what they want to pay for the growth premium. That’s why the opportunity exists.

MF: Speaking of how the market’s turned against growth shares, how fast do you think that sentiment can turn around again?

JBL: I think as long as, which we saw last week, you start seeing the stabilisation in bond yields, essentially the expectations of interest rate, then you will begin to see interest moving back into those growth or long-duration stocks. 

Also you need the market sentiment to improve, not a “risk-off” kind of environment. 

Essentially, three or four components to be in place. One is that peak in inflation expectations. So, last two weeks you probably heard… all the inflation stats are looking horrendous at the moment. But there are some indications that some of those supply chain disruption things are improving and the inflation may be peaking. 

Secondly, the interest rate expectation peaking. So, the market was expecting an enormous interest rate increase just before the slightly mixed message out of the [US Federal Reserve] last week. Now that you see interest rate expectations started coming back because now you started getting mixed messages out of the Fed. Some actually started saying, “Oh, maybe in September, they may pause to see how they go.” 

And then the next one is the valuation de-rate. So we see certainly across the growth sector, some of the names that really come off. Then, we need the outcome of the Ukraine-Russia war, [which] is still a little bit uncertain. 

So I think, with all these core components, certainly seems like hard to call market bottom [yet], but it does feel like it’s looking a lot better from here on.

That bodes pretty well for some of those growth names.

MF: And the third stock that you like?

JBL: Given my thesis on growth, I would pick Seek Limited (ASX: SEK). The company’s very leveraged to the employment market. The company’s done well over the years in terms of growing from a small classifieds business into a dominant player. And then went to other markets, managed to replicate some of its business. 

Now it’s well on its path to capitalise on its base. Essentially like what REA Group Limited (ASX: REA) did many years ago, to start increasing output on every spend, every account. Seek just started doing so, and it’s very early stage with that monetisation process. 

So we see this company will have a multi-year double-digit earnings profile, and share price being sold off because, again, it’s growth. Also, people suddenly worry about the economic outlook, even though our employment market is incredibly strong. Our inflation is nowhere near the way it’s expected in the US. 

That to me is a good buy. I think you’ll do well in the [next] 12 months.

MF: It has a very dominant position in Australia, doesn’t it? It doesn’t really have a close competitor these days.

JBL: Yeah, it’s very dominant. 

Over the years we have had a lot of new [competitors] that threatened to dislodge that position, but they come and go, right? They’re never really proven, and [don’t] really gain a meaningful market share. 

You’ve got the likes of Indeed. Remember when they come in? Back then there was My Career and then so many different businesses. They were going to be the next big thing. But none of them did. 

In any tech space, first-mover advantage is huge. Secondly, the company’s management never really stopped investing, and they’ve constantly reinvested and then essentially provide value to their customers. So that’s why they’ve got a very sticky base. They’ve done well.

The post 3 ASX shares to buy now (and one bonus): fund manager appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has positions in CSL Ltd. and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended REA Group Limited, SEEK Limited, and TechnologyOne 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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