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Investing in the small side of the share market carries more risk than other areas. However, if your risk tolerance allows for it, small caps could be a good thing for a balanced portfolio given the potential returns on offer.

With that in mind, here are two small cap ASX shares that could be worth watching closely:

Elmo Software Ltd (ASX: ELO)

The first small cap to watch is ELMO. It is a cloud-based human resources and payroll software company that provides a unified platform to streamline processes. This includes processes such as employee administration, recruitment, on-boarding, learning, performance, remuneration, compliance training and payroll.

Elmo has been a strong performer in recent years and continued this trend during the first half of FY 2022. For the six months ended 31 December, Elmo grew its annualised recurring revenue (ARR) by 35% since the end of June to $98.3 million. Management advised that this reflects strong trading conditions due to the increased adoption of cloud-software solutions by businesses to manage remote or hybrid workforces.

This result went down well with the team at Morgan Stanley. In response, the broker put an overweight rating and $7.80 price target on its shares.

Serko Ltd (ASX: SKO)

Another small cap to watch is Serko. It is an online travel booking and expense management provider behind the Zeno Travel and Zeno Expense platforms.

Serko’s Zeno Travel platform provides AI-powered end-to-end travel itineraries, cost control, and travel policy compliance to corporate customers. Whereas Zeno Expense allows businesses to automate and streamline their expense administration function, identify out-of-policy expense claims, and prevent fraud.

Thanks to travel markets rebounding strongly from COVID and a major deal with travel giant Booking.com commencing last year, Serko reported an 81% jump in operating revenue to NZ$9.2 million during the first half of FY 2022.

The team at Ord Minnett appear to believe this strong form can continue long into the future. Last month the broker put a buy rating and $7.93 price target on Serko’s shares.

The post 2 exciting small cap ASX shares for your watchlist appeared first on The Motley Fool Australia.

More reading

• 3 small cap ASX shares analysts are tipping for big things
• Bargain basement? 2 ASX tech shares slumping to 52-week lows today
• Buy these 2 impressive ASX shares in March 2022: experts

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. owns and has recommended Elmo Software and Serko Ltd. The Motley Fool Australia owns and has recommended Elmo Software. The Motley Fool Australia has recommended Serko Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The BHP Group Ltd (ASX: BHP) share price has dropped around 7% in just two weeks.

It has been a volatile time for many ASX shares. Yet, over the last two weeks, the S&P/ASX 200 Index (ASX: XJO) has actually risen by more than 3%. That implies an underperformance compared to the index of around 10%.

Commodity volatility

At the moment, there are quite a few commodities in the BHP portfolio, including copper, iron ore, petroleum and nickel.

However, BHP is planning to divest its petroleum business to Woodside Petroleum Limited (ASX: WPL). At that time, BHP shareholders will receive Woodside shares. In fact, 52% of Woodside shareholders will own the expanded Woodside, while BHP shareholders will own the remaining 48%. But for now, BHP still owns the whole business.

After a rapid climb of the oil price amid the Russian invasion of Ukraine, it has dropped back to under US$110 per barrel.

What’s next for the BHP share price?

The company is scheduled to pay its interim dividend next week.

It recently completed the unification of its UK and Australian businesses, under the Australian company. According to BHP, this will make corporate action easier, such as divestments or acquisitions.

BHP is expecting to continue to benefit from the power of scale and compound growth.

The resources business says population growth, decarbonisation and rising living standards will drive demand for energy, metals and fertilisers for decades. The urban population is expected to grow from 4.3 billion to around 7 billion in 2050. Furthermore, predictions are that the global GDP will grow from US$87 trillion to US$400 trillion by 2050.

Management is looking to increase its exposure to future-facing commodities, with copper, nickel and potash.

The post Why has the BHP share price dropped 7% in 2 weeks? appeared first on The Motley Fool Australia.

More reading

• Is it too late to jump on surging ASX 200 mining shares in 2022?
• Are 2021’s monster dividends from ASX 200 mining shares sustainable in 2022?
• BHP shareholders set for $30 billion windfall: Macquarie
• 5 things to watch on the ASX 200 on Monday
• Brokers name 3 ASX shares to buy 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 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 Bruce Jackson.

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The Pilbara Minerals Ltd (ASX: PLS) share price has been accelerating despite the company keeping quiet this month.

In fact, in the last 4 days, the ASX-listed lithium player shares have powered ahead by 12%.

At the time of writing, Pilbara Minerals shares are up 2.86% to $2.88.

Why is Pilbara Minerals heavily being traded?

As the largest ASX-listed lithium player, it appears investors have been taking advantage of the hype surrounding the lithium revolution.

On most days, the company’s shares are swapping hands anywhere between 20 million and 35 million shares. However, on 18 March, Pilbara Minerals saw more than 58.4 million shares being exchanged.

With no company announcements, a lot of attention has turned to the incredible rise in the spot price for lithium. Over the past year alone, lithium carbonate has rocketed almost 600% in value.

The battery-making ingredient is expected to be adopted across a number of industries, notably the global transition to electric vehicles.

Furthermore, Pilbara Minerals released its half-year results on 23 February, highlighting a significant increase in shipments of spodumene concentrate. This was underpinned by improved market conditions and robust operational performance at its Pilgangoora Lithium-Tantalum Operations.

A couple of brokers weighed in on the company’s share price following its interim financial scorecard.

Analysts at Macquarie slashed its 12-month price target by 5% to $3.50 for Pilbara Minerals shares. 

Citi also reduced its rating by 5.4% to $3.50.

Based on the current share price, this implies an upside of around 22% for investors.

About the Pilbara Minerals share price

Pilbara Minerals shares have raced 170% higher since this time last year.

The company’s share price reached an all-time high of $3.89 in mid-January before treading lower.

Pilbara Minerals presides a market capitalisation of roughly $8.56 billion and has approximately 2.98 billion shares on its books.

The post The Pilbara Minerals (ASX:PLS) share price has leapt 12% in 4 days. What’s happening? appeared first on The Motley Fool Australia.

More reading

• These ASX 200 shares are topping the volume charts on Friday
• These 3 ASX 200 shares are topping the volume charts on Wednesday
• Here are the 3 most heavily traded ASX 200 shares this Tuesday
• Why are ASX 200 mining shares having such a dire day?
• Down 14% in a month, why the Pilbara Minerals (ASX:PLS) share price is attractive right now: analyst

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 Bruce Jackson.

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The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price has travelled sideways over the course of the last few years.

This has led investors to believe that the banking giant is now fully valued, trading at the same levels pre-COVID-19.

Below, we calculate if the dividends have been worth the wait if a shareholder made an investment 3 years ago

What if you had invested $10,000 in ANZ shares 3 years ago?

If you had invested $10,000 in ANZ shares on this day 3 years ago, you would have bought them for around $26.52 each. This would have given you approximately 377 shares without factoring in any dividend reinvestments over the years.

Fast-forward to today, the current ANZ share price is $27.58. This means those 377 shares would now be worth around $10,397.66. When considering percentage terms, this implies a gain of just 3.9%, or an average return of 0.39% per year. This is considerably less than what the standard inflation rate is, which means your money would be worth less than this time 3 years ago.

In contrast, the ASX 200 has returned a yearly average of 5.62% to shareholders in the past 3 years.

And the dividends?

Over the course of the last 3 years, ANZ has made a total of 6 bi-annual dividend payments from July 2019 to December 2021.

Adding those 6 dividends payments gives us an amount of $3.62 per share. Calculating the number of shares owned against the total dividend payment gives us a figure of $1,364.74.

When putting both the initial investment gains and dividend distribution, an investor would have made roughly $11,762.40.

In comparison, investing the same amount in the ASX 200 would have netted you a total figure of $11,844.11.

As you can see, investing in the ASX 200 would have given you a slightly better return than parking your money in ANZ. And that’s even including the dividend payments.

No doubt, it pays off to research a company’s products/services, financial statements, projections, competitive moat and market trends before investing.

ANZ share price snapshot

Over the past 12 months, the ANZ share price has shed around 2% driven by tough trading conditions.

Its shares hit a 52-week low of $24.65 on 8 March, before quickly rebounding to the mid $27 mark.

Based on the current share price, ANZ commands a market capitalisation of around $77.32 billion.

The post The ANZ share price has gained under 4% in 3 years. Have the dividends been worth the wait? appeared first on The Motley Fool Australia.

More reading

• Fundie tells why two-thirds of all dividends come from just 7 ASX shares. Guess which ones?
• Top broker says the ANZ share price is excellent value for investors
• 5 things to watch on the ASX 200 on Wednesday
• Here’s how ANZ plans to keep ‘decision making fair’
• Why ASX 200 bank shares are storming higher today

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 Bruce Jackson.

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Shares in Insurance Australia Group Ltd (ASX: IAG) are trading down today and are currently around 1% in the red at $4.56 apiece.

Whilst other sectors have struggled this year to date, financial stocks like IAG have out-crept most peers, with the insurance giant gaining 7% in 2022 so far.

After a choppy year last year, IAG shareholders will surely be hoping the future holds a better outcome than the volatility of 2021.

One broker is cautious, but bullish on IAG shares

Analysts at JP Morgan are overweight on IAG shares and reckon the stock has room to grow on grounds of valuation and earnings.

After IAG provided its most recent claims update following the east coast flooding events, the broker was satisfied the insurer has most of its bases covered but still thinks reinsurance costs and perils allowances will increase.

“We think that there will be increases in both reinsurance costs for IAG’s aggregate due to renew in July 2022, and some increase in perils allowances for FY22 to reflect the experience likely being around $335 million worse than the $765 million originally guided,” it said.

“We think this could be worth perhaps a $90 million headwind to underlying insurance profit in FY22; equal to 1.1% of NEP in the absence of the government cyclone and related flood damage pool”.

JP Morgan also said there’s “no doubt” direct pricing on home premiums will rise, but there might be a lag effect considering the outplay of similar events in the past, it reckons.

Offsetting these pressures, the broker says, “will be strong upward pressures evident in commercial insurance pricing.”

Even with these points in mind, its analysts are bullish on the stock, valuing the company at $5.50 on a blend of its discounted cash flow model and forward earnings multiples.

However, despite its enthusiasm on valuation, the broker is treading carefully and cautioned its investors on the uncertainties moving forward.

“We maintain an element of caution in setting our price target, reflecting uncertainty as to how personal lines insurers may trade coming as economies emerge from COVID-19 induced lockdowns, and mobility increases,” JP Morgan said.

IAG share price snapshot

In the last 12 months, the IAG share price has fallen more than 6% into the red but it is up 7% this year to date.

During the past month, the IAG share price slid again and is 4% down.

The post Why is this broker ‘cautiously bullish’ on IAG (ASX:IAG) shares? appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to sell next week
• Why expert says this supermarket ASX share is a better bet than Woolworths (ASX:WOW)
• Top brokers name 3 ASX shares to sell today
• Is it time to sell IAG (ASX:IAG) shares following the recent flood events?
• Why is the IAG (ASX:IAG) share price edging higher today?

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 no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The National Australia Bank Ltd (ASX: NAB) share price dropped into the red, along with the sector, despite a valuation upgrade by a leading broker.

The NAB share price surrendered its morning gains to trade 0.85% lower at $30.94 in late afternoon trading on Monday.

It isn’t the only bank share that’s slipped. The Commonwealth Bank of Australia (ASX: CBA) share price is 0.26% lower while Westpac Banking Corp (ASX: WBC) shares are 0.42% in the red.

Only the Australia and New Zealand Banking GrpLtd (ASX: ANZ) is treading water at $27.62, up 0.16% at the time of writing.

It’s marginally ahead of the S&P/ASX 200 Index (ASX: XJO)’s small gain of 0.05%.

NAB share price gives up gains

The ASX big banks are retreating as US share futures fell and the oil price jumped. The anticipated weak start on Wall Street and rising cost pressures are weighing on market sentiment.

The NAB share price lost ground even after Morgan Stanley reported ASX banks could enjoy a larger benefit from rising interest rates, according to The Australian.

“With about $800bn of capital and rate insensitive deposits in Australia, we estimate that every 25bp (basis points) increase in the RBA cash rates adds about 3bp to the major banks’ margins,” said the broker.

“All else equal, our new forecasts assume an average margin benefit from rate hikes of +20bp by the end of FY24E, versus +11bp previously.”

ASX bank valuation increase offset by headwinds

But the margin benefit may be partly eroded by a few headwinds. These include higher funding costs, fiercer mortgage competition, and modestly higher loan losses.

The risk of higher loan losses will force the NAB and its peers to increase impairment charges by around 15% in FY24, warned Morgan Stanley.

Nonetheless, earnings per share (EPS) for the ASX big four are tipped to increase by 1% to 3% in FY23 and FY24.

Price target increases for NAB share price and its peers

That in turn sees the broker’s 12-month price target on the NAB share price rise by $0.50 to $31.50 a share.

The other big banks also get an uplift. The CBA price target increases to $92 from $91, the ANZ Bank share price lifts to $30.30 from $30, and Westpac gets a $0.40 boost to $22.40 a share.

But investors shouldn’t be too upset with the underperformance of ASX bank shares today. Citigroup noted that our banks have outpaced their global peers over the last five weeks.

ASX banks beating other global banks

“The Russia/Ukraine conflict has ushered in sharply rising commodities prices and accelerating inflation,” said Citi.

“Spooked investors have shifted to a risk-off position, selling down the global banks sharply. The Australian banks have surprisingly bucked this trend.

“We believe this is due to Australia’s commodities-dependent economy, an accelerating inflation & rates story as well as a strong capital adequacy & NPL combination.”

However, given Citi’s view that revenue growth will be hard to find in this environment, the only bank the broker thinks is worth buying is Westpac.

The post The National Australia Bank (ASX:NAB) share price target upgraded by a top broker appeared first on The Motley Fool Australia.

More reading

• These 3 ASX 200 shares are topping the volume charts this Monday
• Cha-ching! The NAB share price just hit a multi-year high
• Rollercoaster! Zip share price pops then drops
• The ASX quarterly rebalance takes effect today. Here’s what you need to know
• ASX 200 (ASX:XJO) midday update: Hamish Douglass resigns from Magellan, Block jumps

Motley Fool contributor Brendon Lau owns Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The CSL Limited (ASX: CSL) share price has been a bit of a disappointing investment in 2022 thus far. As it stands today, CSL shares are currently down 9.42% year to date. That includes the rather nasty 1.05% haircut we’ve seen so far today, which currently puts CSL at $268.12. 

What might be even more disappointing for CSL investors though is the cool off we’ve seen since the ASX 200 healthcare giant reported its half-year earnings back in February. CSL dropped its numbers on 16 February. These were exceedingly well received at the time, evidenced by the CSL share price’s 14% rise between 15 and 17 February.

However, investor sentiment has cooled since then. At today’s share pricing, CSL is now more than 3% off of those highs reached on 17 February.

So what’s possibly gone awry at CSL that has caused this seeming share price malaise? 

Why can’t the CSL share price get out of neutral?

Well, unfortunately, we can’t say for sure. The company hasn’t really given investors any major news since its earnings report, apart from a minor update to its ongoing quest to acquire the Swiss biotech company Vifor Pharma. But that doesn’t seem to have had much of an impact on CSL shares then or since.

But what we do know is that one expert ASX investor is eyeing off what she sees as a bargain. Writing in the Australian Financial Review (AFR) today, Jun Bei Liu of Tribeca Investment Partners, calls CSL a quality company that investors have still chosen to sell off. She noted how the CSL share price “outperformed expectations by over 10 per cent” at its earnings, so questions why its shares have fallen since then. That’s despite what she describes as an “exceptionally defensive global growth profile”.

Ms Liu estimates that CSL will “deliver in excess of 20 per cent returns” this year, here’s why:

As we move through the market uncertainty and geopolitical conflicts, confidence will return, and quality names will be the first to close the valuation gap.

At the current CSL share price, this ASX 200 health care share has a market capitalisation of $130.52 billion. 

The post The company outperformed when it last reported, so why has the CSL share price been languishing? appeared first on The Motley Fool Australia.

More reading

• 3 buy-rated blue chip ASX 200 shares according to experts
• Why expert says this supermarket ASX share is a better bet than Woolworths (ASX:WOW)
• Do ASX biotech shares offer ‘good buying’ after the sell-off? Experts weigh in
• Is the CSL share price heading back over $300 in 2022?
• 3 quality blue chip ASX 200 shares analysts are tipping as buys

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

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The S&P/ASX 200 Index (ASX: XJO) is having a very odd day indeed to kick off the trading week in style. At the time of writing, the ASX 200 is up by 0.13% at just over 7,300 points after many stints above and below the breakeven line today. 

But let’s dig a little deeper into these curious market moves and have a look at the ASX 200 shares that are currently at the top of the market’s volume charts, according to investing.com.

The 3 most traded ASX 200 shares by volume on Monday

Nickel Mines Ltd (ASX: NIC)

Nickel Mines is our first share up for discussion this Monday. So far today, a hefty 15.96 million Nickel Mines shares have swapped hands. This move seems to have been sparked by some bouncing around. Nickel Miens shares opened higher this morning at $1.28 each and rose as high as $1.32 soon after.

But the company has been falling back to earth ever since. It’s still in the green, but only just, going for $1.27 a share right now, up 0.16%. It’s this volatility that is probably the smoking gun behind this elevated volume we are seeing.

Liontown Resources Limited (ASX: LTR)

Another miner in Liontown is our next ASX 200 share to check out. A sizeable 17.61 million Liontown shares have changed homes today as it currently stands. This might have been caused by the announcement the miner released this morning. 

Liontown revealed that it has now received the results from a drilling campaign at its Buldania Lithium Project in Western Australia, which look to be promising. As a result, the Liontown share price is currently up a healthy 6.75% or so at $1.77 a share. It’s this combination that has probably elicited the high trading volumes we are witnessing.

AVZ Minerals Ltd (ASX: AVZ)

ASX 200 newcomer AVZ is our final share to check out today. This lithium hopeful had experienced 36.53 million of its shares trading on the markets today. This doesn’t seem to be the result of anything out of the company itself.

But looking at the AVZ share price, we see some immense volatility that might be the cause of this volume. AVZ shares are currently up 4.4% at 95 cents each. The company spiked at open this morning, before falling into negative territory, and subsequently rising to its current pricing. What a day! 

The post These 3 ASX 200 shares are topping the volume charts this Monday appeared first on The Motley Fool Australia.

More reading

• Why Block, Core Lithium, Liontown, and Qube shares are rising
• Rollercoaster! Zip share price pops then drops
• The ASX quarterly rebalance takes effect today. Here’s what you need to know
• ‘Exciting’ results: Here’s why the Liontown (ASX:LTR) share price is climbing 6% today
• ASX 200 (ASX:XJO) midday update: Hamish Douglass resigns from Magellan, Block jumps

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

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The Flight Centre share price has declined in a difficult COVID-19 operating environment, but could there be room for upside?

Flight Centre shares are currently swapping hands at $18.82, down 0.48%. By comparison, the S&P/ASX 200 Index (ASX: XJO) is up 0.12% at the time of writing.

Let’s take a look at what analysts are predicting for the Flight Centre share price.

Could the Flight Centre share price go higher?

Analysts at Goldman Sachs believe the Flight Centre share price could lift beyond its current level.

Goldman has a $19.50 price target on the travel company and a neutral rating. That’s around 3.6% more than the current share price.

Commenting on the outlook for Flight Centre, the broker said:

We remain positive on the longer-term outlook for corporate recovery being ahead of pre-COVID levels driven by new contract wins, but more conservative on the leisure outlook. 

The stock remains fairly valued vs. global travel peers.

In other travel shares, the Webjet Ltd (ASX: WEB) share price is down 0.88% at the time of writing while Qantas Airways Ltd (ASX: QAN) is 0.78% in the red. The Corporate Travel Management Ltd (ASX: CTD) share price is down 1.42% at the time of writing.

Since market close on 5 October, Flight Centre’s shares have slid nearly 23%.

Flight Centre also continues to be one of the top shorted shares on the ASX, as my Foolish colleague James reported today. James noted it appears short sellers are not confident with the company’s valuation or travel market recovery.

Flight Centre CEO Graham ‘Skroo’ Turner recently predicted the corporate travel recovery from COVID-19 could take a few years. He said:

Within a couple of years, business travel globally will get somewhere close to 80 per cent or 90 per cent. It won’t get back to pre-COVID levels straight away in the next few years.

In other company news, Flight Centre recently revealed a new investment in a Dubai-based travel technology business. The investment is aimed at lowering costs, improving margin, and providing new revenue schemes.

Flight Centre share price summary

The Flight Centre share price has dropped nearly 3% in the last year but has jumped nearly 7% year to date.

For perspective, the benchmark ASX index has returned almost 9% over the past year.

In the past month, Flight Centre shares have dropped more than 8% although they’ve clawed back almost 2% in the past week.

The company has a market capitalisation of about $3.8 billion.

The post The Flight Centre share has tumbled 23% in less than 6 months. Is it now cheap? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Goldman Sachs tips Webjet (ASX:WEB) share price to rise over 20%
• Why is the Flight Centre share price lifting off today?
• Why are ASX travel shares taking off today?
• ASX 200 (ASX:XJO) midday update: Magellan jumps on buyback news, travel shares take off

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 Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It’s no secret ASX 200 mining shares have been the star performers of the new trading year since play resumed in January.

The S&P/ASX 300 Metals & Mining Index (ASX: XMM) has jumped almost 6% this year to date. That’s after trucking it up north from its low points in November 2021. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has fallen around 2%.

The fierce rally the commodities sector is staging in 2022 is underscoring much of the upside. Many commodity baskets now sit well within a supercycle, surpassing previous highs and setting new records.

Leading the charge are underlying markets in energy, precious metals and industrials. And many of these are under pressure due to the conflict in Ukraine.

However, the sector is starting to cool off as market pundits finish digesting the news.

So, is it too late to jump on board? Take a look.

Is the party over for ASX 200 mining shares?

The question isn’t if the party is over for some Aussie mining stocks, but rather if the hangover has started. Many markets are starting to equalise, but volatility can dampen the mood fairly quickly.

Underlining the most recent spike in global commodity baskets was the tension in Ukraine. Of course, Russia is one of the largest exporters of metals in the world.

Many of the pricing strengths are transposing into earnings upgrades on ASX 200 mining shares. This includes BHP Group Ltd (ASX: BHP), Santos Ltd (ASX: STO) and Rio Tinto Limited (ASX: RIO), whose shares are up 12%, 21% and 11% YTD respectively.

However, these gains are paltry in size compared to the gains on some of the commodities these giants produce. We’re talking here of steel, iron ore, oil and nickel, for instance.

Or is the party just getting started?

The lag of ASX commodity producers to the underlying assets could be an opportunity for the sector to stage a further rally, according to Ben Cleary of the Tribeca Natural Resources Fund.

Cleary noted this gap plus the dislocation in company pricing versus market-forward pricing in what ASX producers are estimating in 2022, speaking to the Australian Financial Review (AFR).

“If you look at oil producers, Santos and Woodside are only pricing in about $US65 a barrel crude at their current share prices, which is way below spot price,” he said.

Given the widespread growth, Cleary reckons there could be “material earnings upgrades in the sector”. He thinks energy could be potentially undervalued.

“We like energy because it is very undervalued, particularly in Australia,” Cleary said.

Romano Sala Tenna of Katana Asset Management said coal could be one specific energy pick.

“If you picked out one in particular, it would be coal because met coal prices are over $US600 a tonne, which is off the scales,” portfolio manager Sala Tenna said, also speaking to the AFR.

Levelling off

However, the run may soon be starting to level off in some corners of the sector. That’s according to ANZ senior commodity strategist Daniel Hynes.

Speaking to Bloomberg Media today, Hynes was asked where he sees equilibrium in commodities moving forward, after he noted oil markets have already started to cool.

“You have to look at some of the markets that haven’t had the supply risk premium built into their price, and you could look at some of the smaller metals outside of nickel and aluminium… and those prices haven’t moved as much and we’re starting to see them stabilise as well,” he said.

Hynes was prompted on his view regarding the impact of a recent surge in COVID-19 cases out of China. He responded that the Shenzen lockdown might push demand for key metals higher.

“The metals exposed to the construction sector will probably see some sort of downside,” Hynes said. “We’ve already heard of construction activity in several areas being impacted.”

“That’s why we’ve seen prices [in these markets] weighed down particularly as those fears of supply shock have eased in recent times,” he added

“I would certainly expect to see further downside over the coming days or weeks on the metals side considering their exposure to China.”

Where to next for ASX 200 mining shares?

But taking a long-term view, many portfolio and fund managers have tilted their positioning to commodity baskets. They are taking into account themes like ‘energy transition’ and ‘resources boom’.

“Over 50 per cent of [our] portfolio is invested in companies exposed to copper, nickel, lithium and uranium,” David Franklyn, chief investment officer at Argonaut Funds Management told the AFR.

Whereas investment bank Merrill Lynch just released its FAANG 2.0 analysis. Merrill Lynch has assigned its own FAANG group to represent fuels, aerospace, agriculture, nuclear/renewables and gold/metals/minerals. (Instead of the original acronym representing Facebook, Amazon, Apple, Netflix, and, what was then, Google.)

Each of these experts points to a bullish stance on the long-term outlook of particular commodities, most notably energy. And this makes an interesting case for ASX 200 commodity players.

The post Is it too late to jump on surging ASX 200 mining shares in 2022? appeared first on The Motley Fool Australia.

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• Are 2021’s monster dividends from ASX 200 mining shares sustainable in 2022?
• What’s impacting the Santos (ASX:STO) share price on Monday?
• BHP shareholders set for $30 billion windfall: Macquarie
• 2 ASX 200 dividend shares analysts are urging income investors to buy

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, 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. 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. Motley Fool contributor Zach Bristow owns Alphabet (A shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Amazon, Apple, Meta Platforms, Inc., and Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and 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 recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc., and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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