Tag: Motley Fool

The Woolworths Group Ltd (ASX: WOW) share price is edging lower on Monday.

In morning trade, the retail giant’s shares are down 0.5% to $36.00

What’s going on with the Woolworth share price?

Investors have been selling the supermarket operator’s shares today in response to the release of a trading update.

According to the release, there are two significant items that will be recognised in its FY 2024 half-year results next month.

The significant items relate to the non-cash impairment of the carrying value of the New Zealand Food reporting segment and a change in accounting treatment for the company’s investment in Endeavour Group Ltd (ASX: EDV).

In respect to the former, Woolworths has made “significant progress” on its Woolworths New Zealand transformation agenda. This includes 34 Countdown stores rebranded to Woolworths and the relaunch of key price mechanics and in-store value communication.

However, this has not been enough to turn around the fortunes of the business. Management notes that “the trading performance in New Zealand Food has continued to be challenging.”

As a result, it expects the New Zealand food business to report half-year earnings before interest and tax (EBIT) of NZ$71 million (including transformation costs). This will be down 42% over the prior corresponding period.

In light of this and its weaker medium-term outlook, a non-cash impairment of NZ$1.6 billion (~A$1.5 billion) will be recorded as a significant item with its half-year results.

Woolworths Group CEO, Brad Banducci, said:

Our confidence in the potential of Woolworths New Zealand and our transformation plan remains unchanged. While the short-term performance has been impacted by a variety of factors and the speed of improvement remains uncertain, we are seeing early positive signs from our Kiwi customers as our transformation gathers momentum.

Woolworths’ second impairment relates to the accounting treatment of its holding in Dan Murphy’s owner Endeavour. It will derecognise its equity accounted investment and recognise it as a financial asset, which means a loss of $209 million.

Trading update

Potentially offering some relief for the Woolworths share price today was news that its Australian Food and Pet care businesses have performed positively during the first half.

As a result, Woolworths Group’s unaudited EBIT before significant items is expected to be $1,682 million to $1,699 million. This will be up 2.8% to 3.8% over the $1,637 million record a year ago.

The post Woolworths share price falls on $1.5b impairment news appeared first on The Motley Fool Australia.

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More reading

• The pros and cons of buying Woolworths shares right now
• 3 world-class ASX retirement shares to buy now
• At 20x earnings and a 4% yield, surely I can’t ignore this ASX 200 stock?
• Woolworths share price in the red as CEO denies trying to ‘cancel’ Australia Day
• Own Woolworths shares? Here’s a $15 billion piece of news

Motley Fool contributor James Mickleboro has positions in Endeavour Group. 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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IGO Ltd (ASX: IGO) shares are falling on Monday morning.

At the time of writing, the battery materials company’s shares are down 2.5% to $7.29.

Why are IGO shares falling?

Investors have been selling IGO shares this morning after the company released an update on its lithium operations.

The company notes that its 49% owned Tianqi Lithium Energy Australia (TLEA) business and Albemarle Corp (NYSE: ALB), the joint venture partners of the Windfield Joint Venture, have been considering spodumene concentrate offtake volumes and pricing arrangements from the Greenbushes Operation. This project is operated by Talison Lithium under the Windfield Joint Venture.

According to today’s update, the Windfield board has agreed to amend the pricing mechanism which will be applied to SC6.0 spodumene concentrate offtake volumes effective 1 January 2024.

Under the new mechanism, pricing will be reset monthly. It will be based on the average of the previous month, referencing the average of four price reporting agencies, less a 5% volume discount, FOB Australia.

In addition, IGO revealed that its joint venture partners have indicated their spodumene concentrate volumes for the second half of FY 2024 will be below forecast. As a result, it expects production at Greenbushes to be marginally reduced during this period to match inventory build with product logistics.

IGO expects that sales for the second half will be approximately 20% lower than production as inventories build at site.

Production guidance and cost update

In light of the above, IGO’s SC6.0 spodumene concentrate production guidance from Greenbushes for FY 2024 has been downgraded to between 1.3Mtpa to 1.4Mtpa (previously 1.4Mtpa – 1.5Mtpa).

And while its cost guidance remains the same at present, it expects to be at the very top end of its range.

IGO’s CEO, Ivan Vella, commented:

Despite the short-term weakness in the lithium market, the JV Partners at Greenbushes are strongly aligned on continuing to drive value from this world class operation. IGO is pleased with the new arrangements which balance near term market weakness whilst maintaining the leading position of this world class asset, including the commitment to CGP3 development. I am looking forward to continuing to build our relationship with two industry leaders and realise the full potential of our asset and its impact on this nascent industry.

IGO shares are down 55% over the last 12 months.

The post IGO shares drops on lithium update appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Here’s the lithium price forecast through to 2027
• Top brokers name 3 ASX shares to buy next week
• This ASX 200 lithium stock is a buy with ~30% upside and a ~5% dividend yield
• Leading brokers name 3 ASX shares to buy today

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

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I love the idea of investing in ASX shares for my child. I believe stocks will be able to deliver much stronger returns than cash and interest can do. There are many years until my child becomes an adult, which means many years of potential compounding.

ASX blue chips wouldn’t be a bad idea, and I do really like the look of BetaShares Global Sustainability Leaders ETF (ASX: ETHI).

But, I like the two names below for their underlying characteristics and the long-term potential growth.

Betashares Global Quality Leaders ETF (ASX: QLTY)

This exchange-traded fund (ETF) has a portfolio of global businesses from around the world. Its holdings include 150 companies, with around two-thirds of the portfolio currently allocated to US shares. Other countries with sizeable weightings include Japan (11.7%), the Netherlands (4%), France (3.4%), Denmark (2.6%), Switzerland (2.1%) and the United Kingdom (2%).

The ETF selects stocks that rank well on a combined four factors. They include return on equity (ROE), debt to capital, cash flow generation and earnings stability.

At the moment, the biggest positions in the portfolio are Nvidia, ASML, Meta Platforms, Applied Materials and Intuit. But, while the ETF may change holdings over the years, the portfolio’s characteristics will stay the same year after year. It’s very profitable for shareholders with stable earnings, low debt and good cash flow.

Over the past five years, the QLTY ETF has delivered an average return per annum of 15.4%. Past performance is no guarantee of future returns, but even compounding at 10% per annum would be useful for growing an investment for my child.

Frontier Digital Ventures Ltd (ASX: FDV)

This ASX small-cap share is much riskier than the QLTY ETF. Indeed, it’s likely to be more volatile than most S&P/ASX 200 Index (ASX: XJO) shares. However, in my mind, share price volatility and operational business risks are not the same thing. I’m happy to hold through volatility if the business has a compelling long-term future.

Not many Aussies may have heard of this business, but it has a very exciting thesis, in my opinion.

The company aims to become the world leader in online marketplace businesses in emerging markets, with a particular focus on property and automotive sectors, as well as general marketplace websites.

It looks for local partners and teams that have “integrity, unwavering self-belief in their online marketplace business and extraordinary passion to make it succeed”.

For example, it’s invested in Fincaraiz, the leading real estate marketplace in Colombia. It owns a stake in Infocasas, the leading property portfolio in Uruguay and Paraguay, and is a key player in Bolivia. The ASX share is also invested in Yapo, the leading general classifieds portal in Chile.

It’s invested in several other businesses, including Zameen and Pakwheels, the leading property portal and auto portal in Pakistan. Other investments give it the leading auto portal in the Philippines and Myanmar.

After digital infrastructure has been built, these companies can benefit from the growing number of users. Digital businesses can achieve a lot of operating leverage. The gross profit margin of these businesses is normally high, so revenue growth can deliver strong improvements for the earnings before interest, tax, depreciation and amortisation (EBITDA).

Frontier Digital Ventures is now starting to make positive EBITDA and positive cash flow. This significantly de-risks the business in my eyes. In five or ten years, I think this company could make much more operational profit if those emerging market businesses keep scaling.

The post 2 ASX shares I’d buy for my child for long-term growth appeared first on The Motley Fool Australia.

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More reading

• Here are 10 ASX shares I’d buy in 2024
• Want $1 million in retirement? 3 ASX shares I think could make it happen
• Which global ASX ETFs were the top performers for Aussie investors in 2023?

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 Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ASML, Applied Materials, Frontier Digital Ventures, Intuit, Meta Platforms, and Nvidia. The Motley Fool Australia has recommended ASML, Frontier Digital Ventures, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Rural Funds Group (ASX: RFF) is an excellent S&P/ASX 300 Index (ASX: XKO) agriculture stock that provides pleasing cash flow. It’s my favourite way to invest in Australian farmland.

Despite the huge amount of land dedicated to farming in Australia, there are few ways to get exposure to farmland on the ASX. Of the companies that do own farmland, many of them are producers, which comes with plenty of operational risks.

There are four main reasons why I like this real estate investment trust (REIT) rather than owning farms myself.

Diversification

If I invested $1 million in a farm, I’d end up with a singular asset in one location – not very diversified at all.

Instead, I could invest a lot less into this ASX 300 stock and get a lot more diversification.

Rural Funds invests in many different farms spread across five different sectors, being cattle, almonds, macadamias, vineyards and cropping.

The risks are spread across different types of farms, in different states and in different climactic conditions. Rural Funds also owns a large amount of water entitlements which can be leased to tenants to ensure they have enough water for their requirements.

I like the diversification that this listed investment gives us. It’s also very easy to buy and sell shares through an online broker, whereas buying and selling a farm requires more time, effort and transaction costs.

Passive investment

Owning a farm (and leasing it out) can take a lot of management, such as paying invoices, choosing tenants, sorting out debt financing and ensuring the farm is managed in a sustainable way for the long term.

There are probably plenty of other requirements, but I’m not a farmer or a farm manager. Indeed, that’s exactly why owning Rural Funds is so easy – the management takes care of everything. I just need to own the Rural Funds shares and enjoy the passive income rolling in, paid by the rental profits.

Strong yield from the ASX 300 stock

Rural Funds had a long-term weighted average lease expiry (WALE) of 13.9 years, which gives it plenty of income visibility for the years ahead. The strong rental income, combined with growth from a mix of lease indexation mechanisms and market rent reviews, enables the REIT to pay a pleasing distribution yield.

In FY24, the ASX 300 stock is expecting to pay a distribution per unit of 11.73 cents, translating into a forward distribution yield of 5.75% at the current Rural Funds share price.

Capital management

Due to its size, Rural Funds is able to get better financing terms than an individual can. It’s beneficial to have expertise in managing all the debt and choosing the right loan.

I particularly appreciate that Rural Funds tries to make its capital work as hard as it can by investing in farms to help grow their productivity, rental potential and capital value.

For example, it has invested in irrigation and water access at some locations. It’s also willing to change the farm to produce a different type of food if it means getting much more revenue from that farm. It’s currently working on major macadamia developments.

The post This ASX 300 stock is my favourite way to invest in Australian farmland appeared first on The Motley Fool Australia.

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More reading

• Buy Rio Tinto and these ASX dividend stocks
• 5 things to watch on the ASX 200 on Monday
• How long does it take to become a millionaire with ASX shares?
• Why I think Lovisa stock is an amazing ASX 200 buy for both dividends and growth
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Tristan Harrison has positions in Rural Funds Group. 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 Rural Funds Group. 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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ResMed Inc (ASX: RMD) shares have been on a strong run this month.

Since the start of January, the sleep treatment company’s shares have risen 10.5%.

A good portion of this gain came last week after ResMed impressed the market with its second quarter update.

Can ResMed shares keep rising?

The good news for investors is that the team at Goldman Sachs believes the company’s shares can still rise materially from current levels.

According to a note, the broker has responded to ResMed’s quarterly update by reiterating its buy rating and lifting its price target to $33.50.

Based on the current ResMed share price of $28.45, this implies potential upside of 18% for investors over the next 12 months.

Commenting on the quarter, Goldman said:

RMD reported solid +4-6% earnings beats at 2Q24 as US device growth recovered back to/above market growth, whilst the pace of gross margin recovery exceeded our expectations.

Goldman also addressed concerns over gross margins, competitive dynamics, and the impact of GLP-1s such as Ozempic. It said:

Taking a higher-level view beyond the quarter, the three primary debates that have dominated investor focus over the last 12+ months have been: 1) the potential impact of further GLP-1 adoption on CPAP demand/adherence; 2) the shape of GM recovery, and if/when RMD can return to pre-Covid profitability; and 3) competitive dynamics amongst incumbents, particularly the magnitude of impact if/when PHIA re-enters the US CPAP markets. On all three points we believe there is sufficient positivity to continue to see asymmetric upside risk at current valuations and, overall, we saw nothing today to change our fundamental views.

Overall, the broker sees ResMed as a top option for investors right now despite its strong gains this month.

The post Why it isn’t too late to buy ResMed shares appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Here’s how I’m targeting a generous ASX passive income in retirement!
• Here are the top 10 ASX 200 shares today
• Why Incitec Pivot, Mineral Resources, Patriot Battery Metals, and ResMed shares are racing higher
• ResMed share price jumps almost 7% on stellar quarterly performance

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

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Bonds are among the most important asset classes in the world. Bonds help fund government spending and can support businesses, too (usually in the form of capital expenditure).

But, as good as bonds are, I’m going to tell you why I prefer to invest in ASX shares.

First, how do bonds work?

If a company or a government wants $1 billion of funding for something, they’ll typically issue bonds to investors, and then investors will receive interest based on the terms and length of the bond. In other words, bonds are debt.

Bond prices do move around, but bondholders are fairly well protected because they are a form of creditor that needs to be repaid before shareholders if the business or venture goes into liquidation. That’s how the capital structure works with businesses.

With interest rates now much higher than two years ago, people can gain a better income return from bonds, making them more attractive. There may also be an opportunity to buy bonds at a slightly cheaper price compared to their face value.

I wouldn’t suggest investing in ‘risky’ bonds, where there can be a greater discount. I think they should be left to institutional investors.

Why I prefer investing in ASX shares over bonds

As we saw in 2022, bond prices can fall – even government bonds. I don’t think they’re quite as safe as some investors think. Just look at what has happened to the Vanguard Australian Government Bond Index ETF (ASX: VGB) in the chart below.

That’s why I prefer a savings account as the safest place to put my money.

For me, bonds have a limited upside, whereas ASX shares can produce a much stronger return, particularly when it comes to capital growth.

For example, I think the compounding potential of Wesfarmers Ltd (ASX: WES) is much stronger than bonds because of the business strength (including Bunnings and Kmart) and profit re-investing.

I believe Wesfarmers can grow for many years into the future while also paying dividends.

Bonds aren’t re-investing profit for more growth – they only pay interest. But, bond investors still face risk.

I think bonds do have a place, particularly in diversified funds such as ‘balanced’ superannuation accounts.

I’m not saying that every single ASX share is a better investment than every bond, but in general, I like the prospect of capital growth and dividends of ASX shares while investing at the right price.

I like to regularly write about names I’ve invested in my own portfolio, such as Johns Lyng Group Ltd (ASX: JLG), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Brickworks Limited (ASX: BKW).

The post Why I prefer buying ASX shares over bonds appeared first on The Motley Fool Australia.

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More reading

• Top brokers name 3 ASX shares to buy next week
• Why this broker just upgraded Wesfarmers shares to a buy rating
• 3 no-brainer ASX 300 shares I’d buy right now without hesitation
• Breaking: Wesfarmers share price hits new 52-week high
• I’m buying cheap ASX shares to build my wealth in 2024 and beyond

Motley Fool contributor Tristan Harrison has positions in Brickworks, Johns Lyng Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Johns Lyng Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Brickworks, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Johns Lyng Group. 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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Some All Ordinaries (ASX: XAO), or All Ords, ASX stocks look like compelling opportunities in the current economic conditions. While higher interest rates are currently a headwind for some businesses, they could turn into tailwinds if interest rates start being cut.

Not only can lower interest rates boost company valuation, but it can also mean an increase in earnings for some businesses if customers are interest rate-sensitive, particularly when it comes to discretionary spending and house-related spending.

Let’s get into the two ASX All Ords stocks I’m watching.

Beacon Lighting Group Ltd (ASX: BLX)

Beacon Lighting may be familiar to investors with its national Australian network of stores that sell lighting, fans and other related products for households. It also has a growing trade/commercial segment, e-commerce websites and a number of new businesses.

Those new businesses are exciting to me because they include US growth (lighting showrooms, e-commerce, wholesalers and big box retail), a property fund and growth in other markets like Hong Kong and Germany. Beacon is looking to grow its international sales and improve its margins and operational efficiencies for all international businesses.

The Beacon share price is still 27% lower than where it was in January 2022, so it’s a lot cheaper to invest in right now.

The ASX All Ords stock can grow profit in the next few years from growing its store count and (hopefully) benefiting from a recovery of spending.

According to Commsec, the Beacon Lighting share price is valued at under 14x FY26’s estimated earnings.

Nick Scali Limited (ASX: NCK)

Nick Scali sells furniture through Nick Scali stores and Plush stores.

Understandably, households aren’t buying as much furniture at the moment as they were in FY23.  In the three months to 30 September 2023, group written sales orders were down 5.4% year over year. Store traffic was down 10% to 15% in the first quarter. Nick Scali explained that store conversion rates had improved, driven by its “better value product offer” for both of its brands.

If interest rates start falling, it could lead to more houses being built and more people wanting to buy furniture from the ASX All Ords stock.

I think this business is a very impressive retailer, which usually has a much higher return on equity (ROE) than many other ASX retail shares.

It plans to open dozens of more stores across Australia and New Zealand. Expansion into a new country could also be a good help for earnings in the longer term.

According to Commsec, Nick Scali shares could be valued at 12x FY26’s estimated earnings and a possible grossed-up dividend yield of 7.4% for that year.

The post I think these ASX All Ords stocks could boom when interest rates are cut appeared first on The Motley Fool Australia.

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More reading

• Cheap and growing: The best bang for buck ASX shares I’d buy
• Aim to beat the ASX 200 with this cash-gushing dividend stock
• I’d buy these ASX shares before interest rates start falling

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 Nick Scali. 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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At the start of each 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:

• Pilbara Minerals Ltd (ASX: PLS) continues its long run as the most shorted ASX share even though its short interest eased slightly to 21.2%. Short sellers don’t seem to believe that lithium prices will improve any time soon.
• Syrah Resources Ltd (ASX: SYR) has short interest of 16.4%, which is up week on week again. This has been driven by weak graphite prices.
• Core Lithium Ltd (ASX: CXO) has short interest of 12.6%, which is down slightly week on week. Falling lithium prices mean that this miner has just announced plans to suspend production to conserve cash.
• Sayona Mining Ltd (ASX: SYA) has 11.4% of its shares held short, which is up week on week again. Last week the lithium miner announced the start of a strategic review of its operations in the face of weak prices.
• IDP Education Ltd (ASX: IEL) has 10.2% of its shares held short, which is flat week on week. This language testing and student placement company’s shares came under pressure last week after Canada announced limits to student visas.
• Genesis Minerals Ltd (ASX: GMD) has seen its short interest rise to 8.9%. Short sellers may believe the gold miner overpaid for recent acquisitions.
• Deep Yellow Limited (ASX: DYL) has seen its short interest fall again to 8.7%. While there are concerns that a capital raising is coming, strong uranium prices have helped drive its shares notably higher this month, much to the dismay of short sellers.
• Weebit Nano Ltd (ASX: WBT) has short interest of 8.5%, which is up week on week. Short sellers appear to believe this semiconductor company is another meme stock.
• Flight Centre Travel Group Ltd (ASX: FLT) has 8.4% of its shares held short, which is up slightly week on week. Short sellers may believe the market’s growth assumptions are too ambitious.
• Chalice Mining Ltd (ASX: CHN) has entered the top ten with short interest of 6.8%. This mineral exploration company’s shares have crashed 84% over the last 12 months. Short sellers appear to believe there’s further to fall.

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

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More reading

• Top brokers name 3 ASX shares to buy next week
• If I invested $10,000 into Pilbara Minerals shares 10 years ago, I would have…
• Here are the top 10 ASX 200 shares today
• Core Lithium shares dive 5% on exploration update
• Is now the time to buy Flight Centre shares for passive income?

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 Idp Education. The Motley Fool Australia has recommended Flight Centre Travel Group and Idp Education. 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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ASX growth shares took a pummelling in 2022, but many then saw a strong recovery in 2023. Is it time to focus on rapidly growing businesses?

Inflation and higher interest rates hurt ASX growth shares a lot. Why? We need to determine how much we think a company might be worth in three or five years and then discount that value to today.

The interest rate plays a large part in the discount rate investors use – the higher the interest rate, the bigger the discount rate used to get to today’s value.

Strong performance by growth funds

According to reporting by The Australian, performance tracking by Mercer showed that growth-focused funds made up all 10 top spots in its investment performance table for the 2023 calendar year.

The top-performing fund for the year was from Hyperion, which fell 25.4% in 2022 and rose 25.1% in 2023. Hyperion fund managers Mark Arnold and Jason Orthman think the change to artificial intelligence and machine learning is a “paradigm shift” that may have the potential “to create a rarely seen opportunity to increase equity values”.

Is this a good time to invest in ASX growth shares?

The second-best performing fund was from ECP Asset Management, with fund manager Manny Pohl acknowledging his fund faced “severe headwinds in the form of multiple compression as discount rates rose”. But, he also said that (discount) rates were more likely to be flat or down, which could mean the headwinds it faced “should become tailwinds for the portfolio”.

The largest positions in the ECP portfolio that did well last year were Block Inc (ASX: SQ2), Megaport Ltd (ASX: MP1) and GQG Partners Inc (ASX: GQG).

The Australian reported on comments from Dushko Bajic, First Sentier’s head of Australian equities growth, who looks for companies that can deliver strong growth of revenue, earnings, cash flow and make returns stronger than their cost of capital. He focuses on businesses where a change in the return on invested capital could be a potential share price catalyst.

Some of the best ASX growth share performers in the First Sentier portfolio included Pro Medicus Ltd (ASX: PME), WiseTech Global Ltd (ASX: WTC), Xero Limited (ASX: XRO) and REA Group Limited (ASX: REA).

Bajic said:

That sort of keeps you on your toes and also gives you a good reason to look at other parts of the market, because industry structure can change – competitive intensity can increase or decrease, as can capex requirements and that can fundamentally change rates within industries and companies.

So that gives us a good reason to look at all parts of the market.

You’ve always got to be careful what you pay for these wonderful attributes of earnings growth, cash flow generation and higher return on investment capital.

Interestingly, Bajic believes 2024 will be a “steadier year” without the “depressed base” there was before 2023.

The post Are ASX growth shares back? How these fundies delivered over 20% upside in 2023 appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Megaport, Pro Medicus, REA Group, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Block, WiseTech Global, and Xero. The Motley Fool Australia has recommended Megaport, Pro Medicus, and REA Group. 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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Woolworths Group Ltd (ASX: WOW) shares have done well for long-term shareholders. In the past five years, the Woolworths share price has lifted 45%, and it’s up 667% since January 1999.

As one of the biggest supermarket businesses in Australia, it’s one of the most defensive ASX shares around. It also owns quite a few different businesses, including Countdown in New Zealand, Big W, business-to-business food providers (including PFD), ‘retail platforms’ such as Primary Connect and Cartology, and other smaller businesses such as Milkrun.

What are the good points?

As I’ve mentioned, it’s a defensive business, making it a solid pick that could be resilient in recessions. People still need to eat when times are tough, so demand could stay consistent.

It’s the type of business that is very likely to benefit from Australia’s population growth.  

We learned in December 2023 from the ABS that Australia’s population had reached 26.6 million in June 2023, which represented an annual growth of 624,100 people and quarterly growth of 146,800. If there are more mouths to feed, there are more potential customers for Woolworths.

The business has an incredibly strong logistics network, and it continues to invest in advanced warehouses and other areas that keep it ahead of (nearly all) the competition.

I like the diversification that Woolworths has been making. Its latest move is to buy the business that owns Petstock, which is essentially a supermarket for pets. Woolworths’ expertise and scale could help it succeed in this business.

The company doesn’t have the world’s biggest dividend yield, but owning Woolworths shares has typically come with a decent amount of passive income. According to Commsec, the business could pay a grossed-up dividend yield of 4.4% in FY24 and 4.7% in FY25.

It has been a solid blue chip for most of the last two decades.

Negatives about Woolworths shares

It’s not exactly cheap when it comes to the price/earnings (P/E) ratio, which is mostly understandable considering the defensive nature of the company. Using the projection on Commsec, which may not be 100% spot on, the Woolworths share price is at 24x FY24’s estimated earnings. Is that a fair earnings multiple for a business that grew sales by 5.3% in the first quarter of FY24?

Woolworths is also getting a lot of heat about the price increases it has hit customers with amid this inflationary environment. If it cuts the shelf prices of products, Woolworths’ margins reduce, and it would obviously hurt the net profit after tax (NPAT) – though suffering households would benefit.

For me, there is a possible opportunity cost. I don’t think it’s going to grow profit strongly over the next few years, but there are other (smaller) ASX shares that could produce stronger returns.

The post The pros and cons of buying Woolworths shares right now appeared first on The Motley Fool Australia.

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More reading

• 3 world-class ASX retirement shares to buy now
• At 20x earnings and a 4% yield, surely I can’t ignore this ASX 200 stock?
• Woolworths share price in the red as CEO denies trying to ‘cancel’ Australia Day
• Own Woolworths shares? Here’s a $15 billion piece of news
• Goldman Sachs says these blue chip ASX 200 shares are top 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 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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