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The A2 Milk Company Ltd (ASX: A2M) share price has been a very poor performer over the last 12 months.

Since this time last year, the struggling infant formula company’s shares have lost 40% of their value.

This means the A2 Milk share price is now down by over 70% since the middle of 2020.

Is the weakness in the A2 Milk share price a buying opportunity?

Opinion remains largely divided on the A2 Milk share price. However, one broker that is brave enough to recommend the embattled company as a buy is Bell Potter.

According to a recent note, the broker has a buy rating and $7.70 price target on the company’s shares.

Based on the current A2 Milk share price of $5.38, this implies potential upside of 43% for investors over the next 12 months.

What did the broker say?

Bell Potter saw enough positives in A2 Milk’s half year results last month to remain positive on the company.

It commented: “Our Buy rating remains unchanged. We saw plenty to like in this result: (1) growth in stage 1 market share in the MBS [mother and baby store] channel from 2.1% to 2.5% (indicative of new customer recruitment); (2) a beat in China direct channels sales in 1H22 and a closer alignment of sell-in and sell-out levels in 2Q22; (3) reinvestment of outperformance into marketing, to support FY23-24e revenue growth; and (4) progress on articulating a margin capture strategy at MVM.”

Importantly, Bell Potter has not made any material changes to its earnings estimates following its results. It continues to expect the company’s underlying net profit to be double FY 2021’s levels in FY 2024.

Based on this, the broker estimates that the A2 Milk share price currently trades at approximately 28x FY 2024 earnings. While this is not conventionally cheap, Bell Potter appears to believe it deserves to trade at this level.

The post Why this broker sees 40% upside for the A2 Milk (ASX:A2M) share price appeared first on The Motley Fool Australia.

More reading

• Hot or cold? Here’s how the A2 Milk (ASX:A2M) share price performed in February
• A2 Milk (ASX:A2M) share price slips amid ‘long-term implications’ of flooding
• Why this top broker rates these ASX shares as buys in March
• What’s next for the A2 Milk (ASX:A2M) share price?
• Why the A2 Milk (ASX:A2M) share price can climb 40%: broker

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 A2 Milk. 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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If you’re looking for dividends shares with big yields, then you may want to look at the ones listed below.

Here’s why analysts at Morgans rate these high yield dividend shares as buys:

Adairs Ltd (ASX: ADH)

The first high yield ASX dividend share for investors to consider is Adairs. It is the leading furniture and homewares retailer behind the online-only Mocka brand, the recently acquired Focus on Furniture brand, and the eponymous Adairs brand.

These brands give Adairs a strong position in a category which is benefitting from the shift online and structurally higher spending on the home relative to pre-COVID levels.

And while FY 2022 will be a tough year because of COVID headwinds, the team at Morgans expect a swift rebound in FY 2023.

It commented: “In FY23, we expect Focus to have bedded down and to have started a strategy of improving store economics while expanding its footprint. We expect the NDC [national distribution centre} to be up and running and delivering efficiencies. We expect Mocka to be making its first steps towards an omni-channel strategy. These factors underpin an expectation of positive earnings growth in FY23 and FY24, which we do not think are reflected in the multiple. ADD.”

Morgans currently has an add rating and $3.50 price target on its shares. As for dividends, its analysts are forecasting fully franked dividends of 19 cents per share in FY 2022 and 26 cents per share in FY 2023.

Based on the current Adairs share price of $2.76, this will mean yields of 6.9% and 9.4%, respectively, over the next couple of years.

Westpac Banking Corp (ASX: WBC)

Another high yield ASX dividend share to consider buying is Westpac. This banking giant’s shares have come under pressure recently due to margin weakness and cost cutting doubts.

The team at Morgans is also positive on Australia’s oldest bank and see the recent share price weakness as a buying opportunity.

Earlier this week it said: “WBC is our preferred major bank. We believe WBC offers the most compelling valuation of the major banks. In terms of quality of overall risk profile, we believe WBC is a close second to CBA. On credit risk, we believe WBC is positioned relatively defensively due to its loan book being more skewed to Australian home lending.”

Morgans currently has an add rating and $29.50 price target on the bank’s shares.

In respect to dividends, the broker has pencilled in fully franked dividends per share of $1.19 in FY 2022 and then $1.60 in FY 2023. Based on the current Westpac share price of $21.96, this will mean yields of 5.4% and 7.3%, respectively.

The post Broker names 2 high yield ASX dividend shares to buy right now appeared first on The Motley Fool Australia.

More reading

• 3 blue chip ASX 200 shares analysts are tipping as buys
• Is this still the dawning of the age of ASX commodity shares?
• Record $36bn in dividends could help ASX share market recovery
• 3 under-the-radar commodity prices soaring since the Ukraine crisis
• Here’s why the BHP (ASX:BHP) boss is still optimistic about China

Motley Fool contributor James Mickleboro owns 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 current Wesfarmers Ltd (ASX: WES) share price may offer a grossed-up dividend yield of 5% in FY22. Does this make it good enough to consider?

Since the start of the year, the Wesfarmers share price has fallen by 18.5%.

Not only are the shares cheaper than they were before, but it also means that the prospective dividend yield is bigger.

Wesfarmers is committed to achieving good shareholder returns. Its dividend is a sizeable part of that overall effort. That dividend is funded by the earnings of several businesses including Bunnings, Kmart, Officeworks and Target.

How big will the Wesfarmers dividend be in FY22?

Only the Wesfarmers board can decide how big the dividend payments will be. The board members may not have decided yet on the final dividend payment for the 2022 financial year.

However, analysts do like to try to estimate how large they think the dividend is going to be.

Commsec numbers suggest an estimated annual dividend of $1.66. At the last Wesfarmers share price, that represents a grossed-up dividend yield of FY22.

In the FY22 half-year result, the business decided to reduce the interim dividend by 9.1% to $0.80 per share. That came after a 12.7% reduction in net profit after tax (NPAT) and a 29.8% decline in the operating cash flow.

Why did the profitability drop?

Management said that the first six months of FY22 represented the most disrupted period for its businesses since the start of COVID-19 with extended store closes and trading restrictions.

However, the company pointed to continued resilience by Bunnings with its operating model and ability to meet its customers’ needs in a difficult operating environment, delivering sales growth for the half, despite cycling very strong demand in the prior year.

The company also continues to invest in its data and digital ecosystem, including the investment in the shared data asset and scalable customer data architecture as well advanced analytics, specialist technical expertise and robust data governance.

Is the Wesfarmers share price a buy for dividends?

The FY22 dividend isn’t the only dividend to think about. Commsec numbers say that in FY23 Wesfarmers is expected to pay a dividend of $1.81 per share and in FY24 it will pay an annual dividend of $1.93 per share. That translates into a grossed-up dividend yield of 5.3% in FY23 and 5.6% in FY24.

The broker Morgans currently rates it as a buy, with a price target of $58.50. Whilst the company is suffering from a number of COVID impacts, such as supply chain effects and more inventory, it thinks that Wesfarmers will come back stronger when these issues subside.

On Morgans’ numbers, the Wesfarmers share price is valued at 25x FY22’s estimated earnings.

The post Is the Wesfarmers (ASX:WES) share price a buy for the 5% dividend yield? appeared first on The Motley Fool Australia.

More reading

• 3 blue chip ASX 200 shares analysts are tipping as buys
• What’s the difference between lithium hydroxide and spodumene and which ASX shares are involved with each one?
• Broker names 3 of the best ASX 200 shares to buy in March
• Could Wesfarmers (ASX:WES) be gearing up for an electrifying investment?
• 2 ASX 50 shares Morgans rates as buys

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 owns and has recommended Wesfarmers 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 S&P/ASX 300 Index (ASX: XKO) will welcome 14 ASX shares to the family this month.

While its sister S&P/ASX 200 Index (ASX: XJO) is the flagship index for gauging how the Australian share market is going, the ASX 300 still plays an important role.

Any business that enters the ASX 300 can proudly declare it has “made it” to the big time, according to QVG portfolio manager Chris Prunty.

“The 300 is the benchmark that index funds such as the $9.6 billion Vanguard Australian Shares Index ETF (ASX: VAS) seek to replicate,” he posted on Livewire.

“It’s also the pool that many quantitative and institutional managers tend to use as a cut-off for their potential investable universe.”

Not all index entrants are quality

Prunty, however, is disturbed at the latest cohort of ASX shares to be admitted.

“The most interesting thing about the most recent set of 300 entries is the lack of quality,” he said.

“Just 4 of the 14 companies going into the 300 are profitable.”

He took $2.8 billion index entrant AVZ Minerals Ltd (ASX: AVZ) as an example of how climbing market capitalisation doesn’t equate to a good investment.

“AVZ Minerals is a lithium developer operating in the Democratic Republic of the Congo,” he said.

“To AVZ’s credit they have a monster deposit but our enthusiasm is tempered by the fact the DRC ranks 175 out of 189 countries on the 2020 Human Development Index and is one of the most difficult mining jurisdictions in the world.”

The adverse operating environment and “no meaningful cash flow” until financial year 2024, also puts off Prunty’s team.

The good, the bad and the ugly

The QVG team calculated that these 4 ASX shares are the only entrants to the ASX 300 that are turning a profit:

• Aussie Broadband Ltd (ASX: ABB)
• APM Human Services International Ltd (ASX: APM)
• MA Financial Group Ltd (ASX: MAF)
• PWR Holdings Ltd (ASX: PWH)

Considering this is such a small minority of the stocks joining the index, Prunty warns investors to be mindful when considering buying any of the entrants.

“Be aware there are technical factors such as index inclusions that can drive share prices well above fair value. Don’t get caught up in thematic mania, or if you can’t help yourself, keep your bets small,” he said.

“If you buy an index product, be aware you’re buying the good, the bad and the ugly.”

The post Warning: Only 4 ASX shares just added to ASX 300 are profitable appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Record $36bn in dividends could help ASX share market recovery
• Here are the top 10 ASX shares today
• Here are the 3 most heavily traded ASX 200 shares this Wednesday
• Aussie Broadband (ASX:ABB) share price advances amid directors offloading shares

Motley Fool contributor Tony Yoo owns Aussie Broadband Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Aussie Broadband Limited and PWR Holdings Limited. The Motley Fool Australia has recommended Aussie Broadband Limited and PWR Holdings 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 S&P/ASX 200 Index (ASX: XJO) closed well into the green yesterday, up 1%.

Still the ASX 200 remains down more than 7% since the opening bell on 4 January.

The initial slide was largely fuelled by investor fears over fast rising inflation. That came with the realisation that Reserve Bank of Australia (RBA) could be lifting the official cash rate from the historic low 0.10% a lot sooner than the central bank had forecast at the end of 2021.

Higher interest rates can put pressure on share markets, as the cost of money essentially goes up.

This saw the ASX 200 fall 8.2% in January.

Tech shares were particularly hard hit. Many tech shares are priced with distant future earnings in mind. Hence the 17.1% decline in the S&P/ASX All Technology Index (ASX: XTX) in January.

Things briefly began to tick higher from there.

Until, as you’re aware, Russia first massed its troops around Ukraine and then invaded in an all-out assault.

Atop the horrific human toll, Russia’s invasion has sent commodity prices soaring, with many trading at all-time highs. Brent crude oil topped US$130 per barrel overnight.

And that could accelerate the pace at which ASX investors can expect the first RBA rate rise from governor Philip Lowe.

Can ASX investors expect higher rates this year?

Speaking at The Australian Financial Review Business Summit in Sydney, Lowe pointed out that inflation in Australia remains well below that witnessed in the United States and many other developed nations.

The RBA governor appeared in no hurry to increase the cash rate, noting that moving too soon could impact the strongly rebounding labour market. And he’s not yet convinced that inflation will sustainably run ahead of the RBA’s 2–3% target range.

According to Lowe (quoted by the AFR):

The Reserve Bank will respond as needed and do what is necessary to maintain low and stable inflation in Australia… Australia has the opportunity to secure a lower rate of unemployment than has been the case for some decades. Moving too early could put this at risk. The recent lift in inflation has brought us closer to the point where inflation is sustainably in the target range. So, too, have recent global developments. But we are not yet at that point.

Lowe said that while the RBA believes headline inflation will run higher than 4%, it remained unclear how long that might last. “We can afford to look through a period of temporarily high inflation because of higher oil prices and commodity price shocks if we think that they will eventually wash through,” he said.

“There is a risk if these higher inflation rates are sustained as a result of a sequence of negative supply shocks, that wages growth picks up more quickly than forecast as workers seek compensation for the higher inflation,” Lowe added.

In his formal remarks, Lowe left open the door for a higher cash rate in 2022:

In this uncertain environment – and with the starting points for wages growth and underlying inflation in Australia – we can take the time to assess the incoming information and review how the uncertainties are resolved. Given the outlook, though, it is plausible that the cash rate will be increased later this year.

What the economists are saying

While Lowe sounded a somewhat dovish tone, many leading economists are forecasting ASX shares could be impacted (some negatively, others positively) by rising rates as early as June. With more rate rises likely to follow in 2022 alone.

Among them, Commonwealth Bank of Australia (ASX: CBA) head of Australian economics, Gareth Aird and his team are expecting the RBA to make its first rate lift in June.

Last month, before Russia launched its war in Ukraine, Aird said:

We are very comfortable with our expectation that the Q1 2022 underlying inflation data will be a lot stronger than the RBA’s forecast. If the Q1 2022 CPI prints in line with our forecast, the RBA will not need an additional CPI to conclude that inflation is ‘sustainably within the target range’. The RBA will simply need to be satisfied that wages growth is moving towards the desired levels.

On the outlook for inflation down under, AMP Capital Markets economist, Diana Mousina said:

In Australia, the total inflation impact from the Russia/Ukraine war and the floods will add 0.5 percentage points to March quarter headline inflation and 0.2 percentage points in the June quarter from lingering high commodity prices. This means that we expect annual headline inflation growth of just over 5% in June and around 4.5% over the year to December.

Now all this doesn’t mean it’s time to panic.

ASX shares have weathered rising rates before. And over the long-term most of them have come out just fine. As have their shareholders.

But with rising rates looming on the horizon, ASX investors may wish to run the slide rule over their specific holdings.

The post Should ASX investors brace for higher interest rates in 2022? appeared first on The Motley Fool Australia.

More reading

• Warning: Only 4 ASX shares just added to ASX 300 are profitable
• Is the Nickel Mines (ASX:NIC) share price chaos a buying opportunity?
• 5 things to watch on the ASX 200 on Thursday
• 3 blue chip ASX 200 shares analysts are tipping as buys
• Is this still the dawning of the age of ASX commodity shares?

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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It was a wild day for the Nickel Mines Ltd (ASX: NIC) share price on Wednesday.

As I mentioned here at lunch yesterday, the nickel producer’s shares were sold down by almost 23% amid concerns over one of its largest customers and shareholders, Xiang Guangda of steel maker Tsingshan, getting caught up in a massive short squeeze after the nickel price rocketed to US$100,000 a tonne.

This sparked fears over the solvency of Tsingshan and the impact this could have on agreements and its shareholdings.

Better late than never, Nickel Mines eventually came out with an announcement in the afternoon advising that the company has spoken to Tsingshan. It revealed that it was business as usual and its largest shareholder had no plans to sell shares.

This led to the Nickel Mines share price paring the majority of its decline to end the day 4.5% lower at $1.41.

Is the Nickel Mines share price chaos a buying opportunity?

According to a notes out of Bell Potter, its analysts believe investors should you this recent volatility to their advantage.

This morning the broker has reiterated its buy rating and $1.76 price target on the company’s shares.

Based on the current Nickel Mines share price, this implies potential upside of almost 25% over the next 12 months and over 29% if you include its 4.3% dividend yield.

What did the broker say?

Bell Potter gave its take on recent developments.

It said: “NIC entered and subsequently exited a Trading Halt on Wednesday 9 March, following a 23% drop in its share price in morning trade on the ASX. This resulted from speculation around the possible implications for Tsingshan Holding Group (a private company), the world’s largest stainless steel producer and parent company of Shanghai Decent Investment (SDI). SDI is NIC’s largest shareholder (17.9%) and partner in the Indonesian Morowali Industrial Park (IMIP) and Indonesia Weda Bay Industrial Park (IWIP), where NIC’s Nickel Pig Iron (NPI) operations are hosted.”

“According to reports, Tsingshan held a 200kt nickel short position, struck at US$21,000/t. Following the suspension and cancellation of LME nickel trades for Tuesday 8th March, the mark-to-market valuation of the position, calculated on Monday’s cash closing price of US$48,200/t, was ~US$7.4 billion. Market concerns related to the solvency of Tsingshan, the status of operations and development at the IWIP and IWIP and the potential forced sale of SDI’s shareholding in NIC,” the broker added.

But Bell Potter isn’t concerned by any of the above. In fact, it believes it is likely to that “Tsingshan (annual revenues US$56 billion and regarded as the world’s lowest cost stainless steel producer) will close out its short position, supported by physical delivery, without compromising its long-term financial viability.”

All in all, the broker believes this is an opportunity for investors to buy a nickel producer with strong earnings growth potential in the near term.

It concludes: “We view NIC’s steep price drop as an acquisition opportunity. We continue to forecast aggressive EPS growth of 82% and 85% for FY22 and FY23 and we retain our Buy recommendation.”

The post Is the Nickel Mines (ASX:NIC) share price chaos a buying opportunity? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Is this still the dawning of the age of ASX commodity shares?
• What happened to the Nickel Mines (ASX:NIC) share price today?
• 3 under-the-radar commodity prices soaring since the Ukraine crisis
• Here are the 3 most heavily traded ASX 200 shares this Wednesday

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 Bruce Jackson.

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On Wednesday, the S&P/ASX 200 Index (ASX: XJO) had a strong day and stormed higher. The benchmark index rose 1% to 7,053 points.

Will the market be able to build on this on Thursday? Here are five things to watch:

ASX 200 expected to rise

The Australian share market looks set to rise again on Thursday following a stunning night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 16 points or 0.2% higher this morning. In late trade on Wall Street, the Dow Jones is up 2%, the S&P 500 is up 2.6%, and the Nasdaq has risen 3.4%. Falling oil prices have boosted equities.

Rio Tinto shares go ex-dividend

The Rio Tinto Limited (ASX: RIO) share price is likely to trade sharply lower today. This is because the mining giant’s shares are trading ex-dividend this morning for its enormous $6.63 per share fully franked final dividend. Eligible shareholders can then look forward to receiving this payout next month on 21 April. South32 Ltd (ASX: S32) shares may also trade lower for the same reason.

Oil prices sink

It could be a very difficult day for energy shares including Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) after oil prices sank overnight. According to Bloomberg, the WTI crude oil price is down 12.8% to US$107.64 a barrel and the Brent crude oil price is down 14.2% to US$109.83 a barrel. This follows indications that the US is making progress in encouraging more oil production from other sources, such as Iraq and UAE.

Nickel Mines rated as a buy

The Nickel Mines Ltd (ASX: NIC) share price could be great value according to the team at Bell Potter. Its analysts believe recent weakness has created an opportunity for investors and has reiterated its buy rating and $1.76 price target. This follows confirmation that agreements and the shareholding of major customer and shareholder, Tsingshan, will not be impacted by the nickel short squeeze. Bell Potter estimates that Tsingshan could be down by as much as US$7.4 billion on its trade.

Gold price tumbles

It could be a difficult day for gold miners Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) after the gold price tumbled. According to CNBC, the spot gold price is down 2.7% to US$1,987.7 an ounce. The precious metal came under pressure after investors moved back into risk assets.

The post 5 things to watch on the ASX 200 on Thursday appeared first on The Motley Fool Australia.

More reading

• Is this still the dawning of the age of ASX commodity shares?
• Record $36bn in dividends could help ASX share market recovery
• What happened to the Nickel Mines (ASX:NIC) share price today?
• Here are the top 10 ASX shares today
• 3 under-the-radar commodity prices soaring since the Ukraine crisis

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 Bruce Jackson.

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Investors that are looking for some new shares to buy might want to look at the blue chips listed below.

These three blue chip ASX 200 shares have been tipped to climb notably higher from where they trade today. Here’s what you have to know about them:

Goodman Group (ASX: GMG)

The first blue chip ASX 200 share that could be in the buy zone is Goodman. It is a global integrated commercial and industrial property company with a world class property portfolio. These properties have exposure to key growth markets such as ecommerce and logistics and are in high demand from tenants such as Amazon and DHL. Thanks to this strong demand and its huge development pipeline, Goodman has been tipped to continue its strong growth long into the future. Citi is one of many brokers that is positive on its future. Its analysts currently have a buy rating and $29.50 price target on its shares.

Wesfarmers Ltd (ASX: WES)

Another blue chip ASX 200 share to consider is Wesfarmers. It is the conglomerate behind brands such as Bunnings, Kmart, and Officeworks. In addition, the company owns a collection of industrial businesses and is in the process of acquiring Priceline pharmacy chain operator Australian Pharmaceutical Industries Ltd (ASX: API). While trading conditions are on the tough side in FY 2022, analysts at Morgans believe it is worth sticking with the company due to its positive long term outlook. The broker currently has an add rating and $58.50 price target on Wesfarmers’ shares.

Westpac Banking Corp (ASX: WBC)

A final blue chip ASX 200 share that could be in the buy zone is Westpac. This banking giant’s shares have fallen heavily over the last six months amid concerns over its margins and the viability of its cost cutting plans. The team at Morgans aren’t concerned by either. The broker believes the challenges facing Westpac are not unsurmountable. As a result, it feels the recent share price weakness is a buying opportunity for investors and has put an add rating and $29.50 price target on its shares.

The post 3 blue chip ASX 200 shares analysts are tipping as buys appeared first on The Motley Fool Australia.

More reading

• What’s the difference between lithium hydroxide and spodumene and which ASX shares are involved with each one?
• ANZ has the largest ASX big four bank dividend yield right now. What?
• Broker names 3 of the best ASX 200 shares to buy in March
• Is the Westpac (ASX:WBC) share price the best bank idea for dividends?
• WAM boss urges cashed-up ASX 200 companies to buy, invest or pay dividends

Motley Fool contributor James Mickleboro owns 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 owns and has recommended Wesfarmers Limited. 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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As conflict in Europe takes another unsuspecting turn, the outlook for commodities continues to shine – much to the dismay of consumers in the end-market.

Talks of a ban on Russian oil exports are being taken very seriously amongst market pundits, such that Brent Crude futures nudged past US$130 barrel this week, their highest in more than a decade.

Ukrainian wheat, which is sold on the black sea supply route, has also faltered amid the tension, sending global wheat prices skyrocketing to US$11.40 per bushel after hitting US$12.52/bushel yesterday in response to the disruption.

Nickel futures soared “to infinity” yesterday according to one trader such that the London Metals Exchange (LME) suspended trading of the metal to prevent an all-out disaster. Russia is the world’s largest nickel producer.

Gold, the traditional safe-haven asset in times of inflation, spiking interest rates, and geopolitical tension, has also surged to its all-time high and now trades at US$2,055 per troy ounce.

In fact, the Bloomberg Commodities Index (BCOM), a proxy for the performance of a global basket of commodities used by investors worldwide, is at its highest level in over 10 years as well.

It has slowly risen from the depths of 2020, when COVID-19 first reared its ugly head onto the scene. Lockdowns resulted in massive supply shock in both raw materials and commodities, compounded by huge backlogs in supply chains around the world. People had the money, but ‘drivers’ simply couldn’t deliver the goods, due to the lockdowns.

The latest conflict only adds a petrol can to the fire and has sent the global commodity sector into a blaze such that the BCOM has shot up vertically north in February/March.

Is this the time of ASX commodity shares?

By all accounts, a surge in commodities like gold, nickel, wheat – any product for that matter – is usually a net positive for the producers and miners.

However, miners, explorers, refiners and every player along the value chain realises the impulse effect from a massive jump in the price of base commodities. It’s not always a gain though – costs to increase for some unfortunate companies.

Where ASX commodity players realise the biggest benefit is to revenue, operating cash flow and free cash flow.

Each of these stem from gross profit and net profit respectively. The surge in commodity prices helps miners and producers at the margin, by feeding more cash down through the income statement for operations and then after everything has been paid.

If fundamentals are anything to go by, then it’s a good chance investors might look favourably on these metrics, particularly as free cash flow, margins and revenue growth are key metrics analysts use to value shares.

Not only that – but bigger profits and free cash flow means the prospect for bigger dividends, something we’ve seen abundantly clear on the ASX these past 2 years.

However, it’s the market’s opinion that matters most. Even as nickel surged to unfathomed heights of US$100,000 per tonne yesterday night, shares in BHP Group Ltd (ASX: BHP) – one of the world’s largest nickel players – finished in the red today.

Not only that but nickel pig iron specialist Nickel Mines Ltd (AX: NIC) saw its equity value evaporate by over 20% before entering into a trading pause early in the session. It fell 5% by the close of trade today as well.

You see, it’s not all that clear at face value. Sure, higher commodity prices mean better revenues for those involved, generally speaking.

But there is a whole other side to that equation, one that involves costs being passed down the line, as BHP recently alluded to.

The mining giant had recently warned of the “spillover effect” from this surge in commodities to things like inflation and global growth.

Moreover, Nickel Mines share price tanked today amid concerns of its ties to Chinese nickel giant Tsingshan and its affiliate Shanghai Decent.

Tsingshan and the affiliate were recently caught out holding an enormous short position on nickel futures which has obviously backfired spectacularly in the last few days. There are reports that coverage of this short position is what may have helped propel nickel so high.

Even though Nickel Mines reassured its deal covenants remain well intact, the market was still weary and offloaded shares with authority today.

What else to consider?

But let’s not also forget that this commodities rally, has – according to strategists – been driven in part by a set of extenuating circumstances that most certainly aren’t the ‘norm’.

The combination of COVID-19 and unprecedented monetary and fiscal policy already staged the perfect storm for the sector to stage a rally. Whereas Russia’s invasion of Ukraine and the US Federal Reserve fighting inflation are the two ‘sparks’ for 2022, according to Bloomberg commodity strategist Mike McGlone.

So much so that McGlone even postulates that crude oil could even trade places with bitcoin as the preferred risk asset of choice for investors going forward.

“When the history of 2022 is written, crude oil at the top of our performance scorecard to Feb. 28 appears at elevated risk of trading places with Bitcoin at the bottom”, he said in a recent note.

However, it could be agricultural commodity producers that benefit the most in 2022 according to McGlone, if the current trends keep at pace.

“If prices sustain near end-of-February levels, it should be a boon for energy and agriculture producers”, the strategist said.

As the tension continues to garner steam in Europe, it remains to be seen what direction the global commodities basket will head next.

Nonetheless, as a group, ASX commodity shares are outstripping the broader market. Each of the Betashares Australian Resources Sector ETF (ASX: QRE) and the VanEck Australian Resources ETF (ASX: MVR) that track Aussie commodity players are soaring in the past month and have broken away from Australian large caps in the S&P/ASX 200 index (ASX: XJO).

As with any market situation, it appears to be a case of investors separating those companies deemed to produce the highest forward return potential based on a combination of fundamental and market factors.

The post Is this still the dawning of the age of ASX commodity shares? appeared first on The Motley Fool Australia.

More reading

• Record $36bn in dividends could help ASX share market recovery
• What happened to the Nickel Mines (ASX:NIC) share price today?
• 3 under-the-radar commodity prices soaring since the Ukraine crisis
• Here are the 3 most heavily traded ASX 200 shares this Wednesday
• Here’s why the BHP (ASX:BHP) boss is still optimistic about China

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 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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It was a good trading day for ASX nickel shares today, with most finishing ahead off the back of surging nickel prices in global markets.

Four ASX nickel shares that finished in the green include Mincor Resources NL (ASX: MCR), Panoramic Resources Ltd (ASX: PAN), IGO Ltd (ASX: IGO) and Western Areas Ltd (ASX: WSA).

Let’s take a closer look at their performance today.

Nickel buying frenzy shoots price to record highs

ASX nickel shares jumped today after nickel prices continued to explode in international markets overnight.

By the close of trade on Wednesday, Mincor shares had climbed 2.93%, Panoramic shares were up 3.23%, the IGO share price jumped 2.19% and Western Areas finished 1.73% higher.

Nickel prices hit record highs above US$100,000 a tonne overnight. The metal surged 400% compared to Friday’s close, according to a report on NAB trade.

In response to these unprecedented prices, the London Metal Exchange suspended nickel trading until at least Friday.

Nickel prices have rocketed 104.49% in a month and 200.57% in a year, trading economics data reveals.

In a report from Thomson Reuters cited by NAB, ING analysts said Nickel is clearly trading in crisis mode.

Fundamentals, though supportive of stronger prices, do not justify this frenzy. The market has long faced structural issues.

Nickel is a crucial component in electric batteries. In a company presentation reported to the market yesterday, Mincor noted electric vehicle sales could hit 20 million by 2025 and more than 70 million by 2040. The company added:

High nickel content batteries are the key to longer range, more efficient electric vehicles.

One ASX nickel share that wasn’t so lucky today was Nickel Mines Ltd (ASX: NIC). As my Foolish colleagues reported, the company’s share price plummeted today, sinking 23% before recovering to finish 4.75% in the red at market close.

ASX nickel share recap

Despite some experts calling it out today as a market frenzy, it’s been a big 12 months for ASX nickel shares. Mincor shares have rocketed 115% in the past year, Panoramic is up a whopping 146%, the IGO share price has seen gains of 108% and Western Areas shares surged 50% in this period.

In comparison, the S&P/ASX 200 Index (ASX: XJO) has returned around 4.16% in the past year.

The post Four ASX nickel shares are in the green today. Here’s why appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Up 17% this month, why the IGO (ASX:IGO) share price can keep gaining: broker
• The price of nickel is soaring and these ASX mining shares are cashing in
• Why IGO, Lake Resources, Talga, and Whitehaven Coal shares are charging higher
• ASX 200 (ASX:XJO) midday update: Corp Travel Management’s ACCC boost, Zip downgraded

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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