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The big four ASX 200 bank shares are in the green today, along with the S&P/ASX 200 Index (ASX: XJO).

But top broker Morgan Stanley isn’t too confident about the short-term trajectory of bank shares. 

As reported in The Australian, the broker has cut its 12-month price target on all of the big four ASX 200 bank shares, and downgraded its rating on two of them.

Let’s find out why. 

Broker pessimistic about ASX 200 bank shares  

Morgan Stanley has cut its rating on National Australia Bank Ltd (ASX: NAB) shares to underweight.

It has also cut Westpac Banking Corp (ASX: WBC) shares to equal weight.

At the same time, the broker has slashed its 12-month price targets on the big four ASX 200 bank shares.

It cut its price target on NAB shares by 9% to $25.30 and cut the target on Westpac shares by 8% to $21. 

Morgan Stanley also reduced its price target on ANZ Group Holdings Ltd (ASX: ANZ) shares by 2% to $25.20 and on Commonwealth Bank of Australia (ASX: CBA) shares by 4% to $82.

Morgan Stanley has made the changes because it thinks the outlook on margins is too optimistic, particularly for NAB and Westpac.

Analyst Richard Wiles says: 

The benefit of large rate hikes and highly favourable deposit pricing comfortably offset mortgage head-winds and drove average margin expansion of +19bp for the major banks in late 2022.

However, we expect margins to fall by an average of 15bp over the next 18 months as entrenched mortgage discounting, emerging deposit competition and mix shift, and higher wholesale funding costs offset the ongoing tailwind from replicating portfolios.

How are the banks performing in 2023? 

As we reported recently, rising interest rates present both pros and cons for bank shares. 

On top of that, rumblings in the global banking sector have dampened investors’ enthusiasm. 

Here’s what has happened to the share prices of the big four banks so far in 2023. 

• The ANZ share price has ascended 4%
• The Commonwealth Bank share price has slipped 1.5%
• The Westpac share price has fallen 6.7%
• The NAB share price has tumbled 9.3%.

The Reserve Bank has raised interest rates 11 times since May 2022. The cash rate is currently 3.85%.

The post <strong>Which ASX 200 bank shares were just downgraded by Morgan Stanley?</strong> appeared first on The Motley Fool Australia.

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More reading

• Here’s how I’d start earning passive income by investing $5 a day in ASX shares
• The NAB dividend forecast has grabbed my attention!
• CBA shares are in ‘uncharted valuation territory’ and could crash: broker
• ‘Attractive value & dividend’: 2 alluring ASX 200 shares to buy now
• 5 things to watch on the ASX 200 on Tuesday

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bronwyn Allen has positions in Commonwealth Bank of Australia, Westpac Banking Corporation, and ANZ Group Holdings Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase. 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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If you’re keen to invest in ASX dividend shares to begin earning some handy passive income alongside potential share price gains, you don’t need a whole heap of cash to begin.

In fact, you can start building your regular passive income stream with just $5 a day.

Here’s how I’d go about it.

You don’t need a fortune to begin earning a passive income

First, I’d set aside that $5 each day to invest in fully franked S&P/ASX 200 Index (ASX: XJO) dividend shares.

I’d stick with ASX 200 stocks for a few reasons. Namely, they tend to be less volatile, there’s more readily available research on their performance and outlook, and many have a long track record of making two dividend payouts each year.

All good boxes to tick for that reliable passive income I’m after.

I’d also stick with the fully franked ASX dividend stocks. That’s because I want the 30% tax credit from what the companies have already paid on their profits when it comes my time to give the ATO their pound of flesh.

And the reason I’m setting aside $5 each day rather than immediately investing it into ASX dividend shares mostly boils down to brokerage fees.

On the online trading account I use, I pay $10 for every transaction less than $1,000.

So, to keep those fees from eating into the passive income I’m after, I’d wait at least 60 days between making new investments, so I could buy at least $300 worth of shares at a time.

Which ASX 200 dividend shares to target?

There are a large number of ASX 200 dividend shares paying juicy, fully franked trailing yields.

Do be aware, though, that those trailing yields are derived from the past 12 months of payouts. Future yields may be higher or lower, depending on a range of company-specific and wider macroeconomic factors.

With that said, I’d begin to build my passive income portfolio by spreading my investments across at least three stocks operating in three different sectors.

As my portfolio grows in value I’d look to expand both the number of stocks and the sectors they operate in. That greater diversity will help reduce my overall risk they all turn down together.

So, up first we have JB Hi-Fi Ltd (ASX: JBH).

The ASX 200 consumer discretionary share paid out a record interim dividend of $1.97 per share on 3 October. Together with the final dividend of $1.53, paid on September 9, that works out to a full-year payout of $3.50 per share.

At the current JB Hi-Fi share price of $45.13, that equates to a trailing yield of 7.8%.

Next, I’d look to Woodside Energy Group Ltd (ASX: WDS) to bulk up that passive income stream.

The ASX 200 oil and gas stock delivered a record $2.154 final dividend, paid on 5 April. Together with the interim dividend of $1.60, that equates to a full-year payout of $3.754 per share.

At the current Woodside share price of $35.14 per share, that works out to a trailing yield of 10.7%.

And the third stock I’d target for passive income with my $5 a day is Australia and New Zealand Banking Group Ltd (ASX: ANZ).

The ASX 200 bank stock paid a final dividend of 74 cents per share on 15 December and declared an interim dividend of 81 cents per share. ANZ shares traded ex-dividend last Monday, 15 May. Eligible shareholders will see the interim dividend land in their bank accounts on 3 July.

With a total 12-month payout of $1.55 and currently trading for $23.76 per share, ANZ trades on a fully franked trailing yield of 6.5%.

By investing just $5 a day I’ll have invested $1,825 by the end of the first year (minus some modest brokerage fees).

If I split that evenly between these three stocks I’d earn a yield of 8.33%.

Or a handy $152 in annual passive income from my daily $5 investments, with potential tax benefits.

And, of course, I’ve also aimed to choose stocks that will see their share prices go higher atop those juicy dividend returns.

The post Here’s how I’d start earning passive income by investing $5 a day in ASX shares appeared first on The Motley Fool Australia.

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More reading

• Which ASX 200 bank shares were just downgraded by Morgan Stanley?
• ASX 200 energy shares charging higher as G7 nations stress ‘important role’ of gas
• Woodside share price lifts as Germany flags need for ‘new gas power stations’
• Here’s what ANZ’s iron ore forecast could mean for the BHP share price in 2023
• Are Woodside shares the greatest dividend buy of the ASX 200?

Bernd Struben 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 Jb Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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With so many blue chip ASX 200 shares for investors to choose from, it can be hard to decide which ones to buy.

To help narrow things down, I have picked out two that analysts at Citi rate as buys right now. They are as follows:

CSL Limited (ASX: CSL)

When it comes to blue chip ASX 200 shares, there are few that can compare to CSL.

It is one of the world’s leading biotechnology companies, comprising the CSL Behring, CSL Vifor, and Seqirus businesses. These are leaders in their field and collectively generate strong revenue and earnings whatever is happening in the economy.

This could make CSL a particularly good option in the current uncertain economic environment.

Citi certainly believes this is the case. It currently has a buy rating and $350.00 price target on its shares. Its analysts note that this price target “implies CSL should trade on an FY25 PE of ~28x, in line with the 10-year average.”

Goodman Group (ASX: GMG)

Another high-quality blue chip ASX 200 share that could be a buy is Goodman Group.

It is a leading integrated commercial and industrial property company that has $80.7 billion of total assets under management and a work in progress (WIP) pipeline valued at $13 billion. The company notes that the latter has high pre-commitment with its WIP 64% committed and completions for the 9 months 99% leased.

This shouldn’t come as a big surprise, though. Management also highlights that demand remains very strong thanks to the “scarcity of assets and the complex planning and delivery environment for new space.”

It is partly for this reason that analysts at Citi “see potential for GMG to generate consistent high-single to low-double digit earnings growth over the medium term.”

The broker currently has a buy rating and $24.30 price target on Goodman’s shares.

The post Here’s why analysts rate CSL and this top blue chip ASX 200 share as buys appeared first on The Motley Fool Australia.

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More reading

• 5 ASX 200 shares to buy according to brokers
• What’s the forecast for the CSL share price in the second half of 2023?
• Buy these excellent ASX 50 shares now: broker
• Why Citi is raving about this amazing ASX 200 stock
• 2 ASX 200 blue chip shares that brokers love

Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended Goodman 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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ASX All Ords tech share Weebit Nano Ltd (ASX: WBT) is trading 1.83% higher today at $5.57 per share.

The S&P/ASX All Ordinaries Index (ASX: XAO) is also up 0.12%.

Weebit Nano is a developer of advanced semiconductor memory technology.

The head of its research and development activities is Dr Yoav Nissan-Cohen, who is an executive director on the board. 

According to a notice lodged with the ASX, Dr Nissan-Cohen has sold 300,000 Weebit Nano shares after converting 300,000 unlisted options. 

Let’s take a look at the details. 

$2 million payday ASX All Ords tech director 

The off-market trade took place on 16 May and netted just over $1.97 million.

The sale price of the Weebit shares was $6.57. 

The timing was fortuitous, given the ASX All Ords tech share has fallen 17% since the day of the trade. 

As the chart below shows, Weebit shares hit a new 52-week high of $9.03 on 10 March. 

Then came the catastrophic fall to just $4.56 by 27 March. Yikes! 

The ASX All Ords share was smashed after the company announced a heavily discounted fully underwritten institutional placement to raise $45 million and a non-underwritten share purchase plan (SPP) to raise up to an additional $10 million on 23 March. 

The likely bugbear that investors had with this plan was the offer price of $5 per share.  

The ASX tech stock went on to recover by 73% over April and May to hit a high of $7.89 on 11 May before starting to drift down again. 

Nissan-Cohen acquired the 300,000 shares on 10 May by converting 300,000 unlisted options into ordinary shares. 

He converted 230,000 unlisted options at 54 cents per share and 70,000 unlisted options at 82.3 cents per share. 

Options are a common form of remuneration for key executives in listed organisations. They are typically granted alongside a base salary and performance rights. 

Nissan-Cohen retains 670,000 unlisted options and 80,000 performance rights in the ASX All Ords tech company.

The post <strong>Why did this ASX All Ords director just offload $2 million in shares?</strong> appeared first on The Motley Fool Australia.

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More reading

• Tyro share price plummets 18% as suitor abandons takeover talks
• Why Dusk, Impedimed, Nufarm, and Weebit Nano shares are falling
• Why has the Weebit Nano share price crashed 21% this week?
• Why Appen, Best & Less, Incitec Pivot, and Weebit Nano shares are falling
• Why Elders, Northern Star, Pointsbet, and Weebit Nano shares are sinking

Motley Fool contributor Bronwyn Allen 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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Mineral Resources Ltd (ASX: MIN) is an S&P/ASX 200 Index (ASX: XJO) mining stock that could be about to generate a lot more profit if a fund manager is correct about the ASX mining share’s outlook.

Minerals Resources is involved in a few different areas of the resources sector – iron ore, lithium, mining services and gas exploration.

The fund manager in question is Romano Sala Tenna, portfolio manager of Katana Asset Management’s Australian equity fund, who was talking to the Australian Financial Review about the share market and potential opportunities.

Fund manager views on the ASX 200 mining stock

The fund manager’s model is indicating that “at least three of the four divisions will double earnings before interest, tax, depreciation and amortisation (EBITDA) over the next two years.”

How could this affect the company’s bottom line net profit?

The fund manager said the EBITDA growth will “generate earnings per share (EPS) in excess of $10 and a resultant price/earnings (P/E) ratio of less than seven times”.

When asked which share is the most undervalued by the market, Romano Sala Tenna said that it was the ASX 200 mining stock that is the “most undervalued” even though it’s up 75% since mid-July 2023 and up 250% since May 2020.

The fund manager said:

But if Mineral Resources delivers on its growth pipeline, then that is what it will be – the most undervalued stock in the portfolio.

The resources sector can be a tricky one to navigate, particularly because of the difficult nature of mining and because they have little control over the price. When asked about what makes a good investment in the mining sector, Romano Sala Tenna said:

It’s all about the rocks! Geology is the key ingredient, but it is not as simple as grade.

While grade – or resource per vertical metre to be more precise – is critical, there are a host of factors that will determine whether the resource can be extracted commercially.

Metallurgy is critical, including an understanding of grind size to extract the minerals, ore hardness, processing pathways, impurities and recovery rates. Mine life and to a lesser degree exploration upside are also key determinants of whether the project is viable.

Management, needless to say, is pivotal. We have seen some management teams make big dollars from tough assets, yet others have failed to capitalise on seemingly easier deposits.

Foolish takeaway

If Mineral Resources shares are trading on a future earnings multiple of seven, then it would have a much cheaper P/E ratio than others like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

BHP shares are currently valued at 11 times FY25’s estimated earnings and Rio Tinto shares are valued at 12 times FY25’s estimated earnings.

The post ‘Undervalued’ ASX 200 mining stock ‘will generate earnings per share in excess of $10’ over the next 2 years appeared first on The Motley Fool Australia.

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More reading

• Which ASX lithium shares could be next to appear on the takeover radar?
• Could another lithium price boom be around the corner? Experts weigh in
• Boost your passive income with these ASX dividend shares: Morgans
• Here are the top 10 ASX 200 shares today
• Where will ASX lithium shares go in 2023?

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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ASX 300 share OFX Group Ltd (ASX: OFX) is skyrocketing after the foreign exchange services provider released its full-year FY23 results. 

OFX shares are up 19.94% at the time of writing to $1.847 apiece.

Formerly known as OzForex Group, OFX provides foreign exchange services and online international payment services. Its brands include OFX, CanadianForex, NZForex, Tranzfers, and ClearFX. 

ASX investors are thrilled with today’s news, so let’s dig into those numbers. 

OFX shares take off on record EBITDA 

The highlights for the 12 months ended 31 March 2023 are: 

• Turnover of $39.1 billion, up 17.9% on the prior corresponding period (pcp) 
• Revenue $225 million, up 42.4% pcp 
• Net operating income $214.1 million, up 45.6% pcp 
• Underlying operating expenses $151.7 million, up 47.9% pcp 
• Underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) $62.4 million, up 40.3% pcp 
• Statutory EBT $37.5 million, up 14.8% pcp 
• Statutory net profit after tax (NPAT) $31.4 million, up 25.6% pcp
• Net cash held $93.8 million, up 11.3% pcp. 

Share buyback

The company also announced it will reinstate its share buyback program with the aim of acquiring up to 10% of OFX shares over the next 12 months. 

OFX shares have dropped in value by 21% in the year to date, which is partly why the company wants to employ this strategy. 

According to a statement: 

The Board considers that at the prevailing share price this is an efficient way of returning capital to shareholders while maintaining the flexibility to pursue accretive M&A [merger and acquisition] opportunities that may arise. 

Acquisition to enhance corporate services 

OFX also announced it will acquire Sydney-based business-to-business payments company Paytron to enhance its offering to corporate clients.  

It will pay $6 million for the business in the first year, and fund the rest of the purchase through dynamic cash funding based on revenue milestones,

The consideration includes up to 11.25 million deferred performance securities subject to development and revenue vesting conditions. 

OFX expects to complete the purchase by 1 July.

OFX wants to buy Paytron for its platform, which offers multi-currency card accounts.

According to a statement: 

This is in line with OFX’s focus on expanding its services for B2B clients to generate revenue beyond spot FX and accelerates its current investment program. 

What did management say? 

OFX CEO and managing director Skander Malcolm said: 

I am delighted to report a record result for OFX, which demonstrates our successful pivot to B2B, and our ability to grow value from our loyal client base. 

Our recurring revenues are now 84%, driven by our strong Corporate segment, and it was pleasing to see signs of recovery in our High Value Consumer segment towards the end of the period as interest rate rises begin to stabilise. 

Outlook and FY24 guidance 

Excluding the Paytron acquisition, OFX expects to grow its net operating income to between $225 million and $243 million and its underlying EBITDA to between $63 million and $74 million. 

If Paytron is included, the expectation for net operating income is between $226 million and $244 million and EBITDA between $59 million to $70 million.  

Malcolm said:

FY24 assumes continued growth in our Corporate segment and our other segments to perform in line with FY23. 

We are also excited to invest in new and valuable products and services for our Corporate clients through Paytron, which we are confident will deliver meaningful returns over time. 

Recent history of OFX shares 

OFX shares are down 28% over the past 12 months.

By comparison, the S&P/ASX 300 Index (ASX: XKO) is up 1%. 

The post <strong>Why did ASX 300 share OFX just rocket 20%?</strong> appeared first on The Motley Fool Australia.

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More reading

• Why Catapult, OFX, TechnologyOne, and Zip shares are charging higher

Motley Fool contributor Bronwyn Allen has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended OFX Group. The Motley Fool Australia has recommended OFX 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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Rio Tinto Limited (ASX: RIO) shares are known for paying large dividends to investors. Could it be one of the most rewarding S&P/ASX 200 Index (ASX: XJO) shares in 2024?

One of the main advantages of ASX mining shares for income-seekers is that they trade on a relatively low price/earnings (p/e) ratio. The lower the p/e ratio, the higher the dividend yield is, assuming the dividend per share and dividend payout ratio don’t change.

Firstly, let’s have a look at what dividend yield Rio Tinto shares may be paying in FY24.

Projected Rio Tinto dividend yield

When the share price falls, it boosts the prospective dividend yield, so the 11% fall for Rio Tinto shares (that we can see on the chart below) is helpful for potential investors that want a good payout.

With the iron ore price now at around US$105 per tonne, down from US$130 per tonne earlier this year, Rio Tinto’s monthly profitability may be lower over the rest of the year and in 2024.

Even so, the ASX mining share is predicated (according to Commsec) to pay a solid grossed-up dividend yield of 8.9% in FY24 after paying a grossed-up dividend yield of 9.7% in FY23. By most measures, that’d be a really rewarding annual payment by the business.

How does it compare to some of the other ASX 200 dividend shares – is it better?

ASX 200 share comparisons

Rio Tinto’s dividend yield is expected to be larger than some of the well-known blue chips like Telstra Corporation Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW) and Commonwealth Bank of Australia (ASX: CBA).

In FY24, these could be the following grossed-up dividend yields from the ones I just named, according to projections on Commsec:

Telstra could pay a grossed-up dividend yield of 5.9%.

Wesfarmers might pay a grossed-up dividend yield of 5.4%.

Woolworths is projected to pay a grossed-up dividend yield of 4.3%.

CBA could pay a grossed-up dividend yield of 6.4%.

Clearly, Rio Tinto is going to pay a bigger dividend yield than the above ASX 200 shares. But, the other large ASX iron ore shares and several ASX 200 bank shares could be on course to pay a larger dividend yield in 2024. Commsec numbers suggest that for FY24:

BHP Group Ltd (ASX: BHP) could pay a grossed-up dividend yield of 8.9%.

Fortescue Metals Group Ltd (ASX: FMG) might pay a grossed-up dividend yield of 8.9%.

It might be unsurprising that the three major iron ore miners all face similar valuation changes and dividend payout movements as the iron ore price fluctuates. Now let’s look at some banks.

Westpac Banking Corp (ASX: WBC) may pay a grossed-up dividend yield of 9.8%.

ANZ Group Holding Ltd (ASX: ANZ) could pay a grossed-up dividend yield of 9.7%.

National Australia Bank Ltd (ASX: NAB) might pay a grossed-up dividend yield of 8.9%.

Bendigo and Adelaide Bank Ltd (ASX: BEN) is projected to pay a grossed-up dividend yield of 10.1%.

Foolish takeaway

Rio Tinto could be one of the stronger-yielding ASX 200 shares in 2024, though some banks could pay even higher yields.

The ASX mining shares don’t have much control over what commodity prices do, so it’s just a guess at this stage. Rio Tinto’s profit next year could be stronger, or weaker, than what investors are expecting.

But the long-term future for the company looks promising as it invests in copper and lithium.

The post Are Rio Tinto shares a strong ASX 200 option for dividends in 2024? appeared first on The Motley Fool Australia.

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More reading

• Goldman Sachs says these ASX 200 mining giants are buys
• Experts say these 2 ASX 200 dividend stocks are buys for passive income
• What’s going on with Rio Tinto shares and lithium?
• Bought $5,000 worth of Rio Tinto shares last February? Guess how much passive income you’ve already grabbed?
• How does the Fortescue dividend stack up against BHP and Rio?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals 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 Bendigo And Adelaide Bank, Telstra Group, and Wesfarmers. 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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There has been a lot of mergers and acquisitions (M&A) activity happening in the lithium industry of late.

This includes Liontown Resources Ltd (ASX: LTR) rejecting the advances of Albemarle Corp (NYSE: ALB) and Allkem Ltd (ASX: AKE) announcing plans to merge with Livent Corp (NYSE: LTHM).

Chances are, this won’t be where M&A activity stops. But which ASX lithium shares could be next in line to receive an offer?

Which ASX lithium share will next receive a takeover approach?

While there has been a lot of talk of Core Lithium Ltd (ASX: CXO) being a potential target, this seems unlikely due to its valuation.

M&A activity is designed to unlock value, but Core Lithium’s valuation is well and truly unlocked… and some more.

Last month, Goldman Sachs highlighted that Core Lithium shares trade at ~1.4x net asset value (NAV) compared to a peer average of ~1.1x NAV. That’s despite “also having the lowest average operating FCF/t LCE.”

Its shares have risen 8% since then, making the premium even greater and (probably) ruling out a takeover approach.

What else?

So, what else is left? Well, one ASX lithium share that appears to be in the M&A crosshairs right now is Delta Lithium Ltd (ASX: DLI).

The lithium developer, recently known as Red Dirt Metals, is rumoured to be attracting interest from Mineral Resources Ltd (ASX: MIN) and Gina Rinehart’s Hancock Prospecting.

On Monday, Bell Potter commented:

Reportedly, DLI has been under accumulation by potential strategic investors, Hancock Prospecting Pty Ltd and Mineral Resources Limited (MIN, Buy, TP$95/sh).

DLI has several characteristics in common with other lithium developers that have been the subject of strategic investment. Mt Ida is a relatively near-term producer, given that it’s situated on a granted mining lease, with a submitted mining proposal. Early Yinnetharra exploration results (and DLI commentary) point to the potential of the project to host a Tier1 Resource and operation. And DLI is, so-far, unencumbered by a significant shareholding by a strategic investor.

Watch this space!

Incidentally, Bell Potter has a speculative buy rating and $1.05 price target on the ASX lithium share.

The post Which ASX lithium shares could be next to appear on the takeover radar? appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 200 lithium stocks just downgraded by a top broker
• Up 125% in 2023, would I be mad to buy Liontown shares at today’s prices?
• Is it time to be a bull or a bear on Core Lithium shares?
• Core Lithium share price could be a long-term winner as critical metals steal the spotlight at G7 summit
• ASX 200 lithium shares could be winners as Biden calls critical clean energy metals the ‘third pillar of the Australia-US alliance’

James Mickleboro owns Allkem 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 Scott Phillips.

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The Xero Limited (ASX: XRO) share price has done exceptionally well in 2023, rising by 58.53%. The S&P/ASX 200 Index (ASX: XJO) has only gone up by 3.38% in the year to date.

I’ve been confident about Xero’s recovery for a while now. It has gone up a long way since my optimistic call in March on the ASX growth share, but I believe the business can keep performing from here.

I’m going to explain why I believe it can beat the ASX 200 over the rest of this year and hopefully outperform up until 2030 as well.

Strong subscriber metrics

One of the main things that is helping drive Xero forwards is its growth of subscriber numbers. Those subscribers are paying the ASX tech share a monthly subscription fee, providing predictable cash flow.

The technology company is seeing a number of positive metrics with its subscribers, which I expect will continue in the first half of FY24, which can help drive the Xero share price.

The FY23 result saw total subscribers rise by 14% over the year to 3.74 million. It’s achieving strong organic growth with the average revenue per user (ARPU) increasing by 10% to $34.61.

Xero’s subscriber churn in FY23 was very low at just 0.90%, meaning its subscribers are very loyal (which allows the company to increase its subscription prices with little negative effect).

All of the above elements combined led to the total lifetime value of subscribers increasing by 23% to $13.4 billion.

Good revenue and gross profit margin

Businesses that are growing revenue at a good pace are growing their scale and that can help the business spend more on other activities like market, research and development, which is a very positive cycle.

Xero’s revenue is growing very quickly – in FY23 it saw 28% growth thanks to more subscribers and a higher ARPU.

The company has one of the highest gross profit margins on the ASX, which means that a lot of the new revenue also turns into gross profit, which can then be utilised by the business to spend more and/or become more profitable. In FY23, Xero’s gross profit margin was 87.3%.

I’m expecting Xero’s gross profit to keep climbing strongly in the coming years thanks to the subscriber growth.

Expectations of stronger profits in the coming years

One of the most exciting things to me about the potential for the Xero share price is that the company is planning to become much more profitable.

Increasing the size of the business usually comes with scale benefits, but management is now deliberately choosing for the business to become more profitable. The company is targeting an operating expense to operating revenue ratio in FY24 of around 75%.

The operating expense ratio to operating revenue ratio was 80.7% in FY23, so the next year could show a big improvement in profitability.

As the business continues to become bigger, I think the expense to revenue ratio can continue to improve, which will show the market how profitable the underlying operations truly are, which could impress the market and send the Xero share price even higher, in my opinion.

Foolish takeaway

Xero has done very well for shareholders in the first few months of 2023, and I think the FY24 half-year result could be another catalyst for the ASX tech share to keep rising.

By 2030, I think Xero could become one of the most profitable non-bank, non-miner businesses if it keeps growing subscribers and its profit margins.

The post Up 59% this year, I think the Xero share price can keep climbing in 2023 appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Top brokers name 3 ASX shares to buy next week
• Here are the top 10 ASX 200 shares today
• Brokers name 3 ASX shares to buy now
• Why AUB, Austal, Core Lithium, and Xero shares are pushing higher

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 Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re a fan of growth stocks like I am, then I have some good news for you.

A couple of high quality shares with heaps of growth potential have recently been named as buys.

Here’s why brokers are tipping them as buys:

Corporate Travel Management Ltd (ASX: CTD)

Morgans is bullish on Corporate Travel Management and has recently named it as an ASX growth stock to buy.

The broker believes corporate travel booker is well-positioned for growth thanks to acquisitions made during the pandemic, its cost reductions, and its investment in technology. Its analysts commented:

Taking a longer term view, CTD remains as a key pick for the travel sector. We see substantial upside in its share price as the company recovers from the COVID affected travel downturn. In fact, CTD should be a materially larger business post COVID given it has made two highly accretive acquisitions during the downturn. The company has also won a lot of new business, implemented structural cost out opportunities and continued to develop its market leading technology offering which means that it will require less staff in the future. CTD is well managed and has a strong balance sheet (no debt).

Morgans has an add rating and $24.00 price target on its shares.

Objective Corporation Limited (ASX: OCL)

Goldman Sachs has tipped Objective Corp as an ASX growth stock to buy this week.

Its analysts believe the public sector software provider is well-placed for growth thanks to strong demand in a defensive sector. The broker is expecting this to lead to earnings per share growth above 20% in both FY 2024 and FY 2025. It said:

In our view OCL is well placed to deliver robust and defensive earnings growth driven by (1) R&D and new product cycles accelerating the contribution from newer products including Nexus, Build and RegWorks; (2) cycling of revenue/earnings headwinds from model transition away from perpetual / services revenue and towards subscriptions; and (3) cost management into FY24, with +350/+250bps margin expansion driving +23%/+32% FY24/25 EPS growth when comping trough FY23E earnings.

Goldman has a buy rating and $14.90 price target on Objective Corp’s shares.

The post These ASX growth stocks could be destined for big returns: experts appeared first on The Motley Fool Australia.

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More reading

• Up 44% this year: 2 ASX 200 ‘recovery’ shares starting to rocket
• Buy this ASX tech share for big returns: Goldman Sachs
• 2 ASX 200 shares that had a MASSIVE April, set for more gains
• Morgans names the best ASX 200 growth shares to buy in May
• 2 ASX 200 travel stocks (not Qantas!) just upgraded by Citi

James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Objective. The Motley Fool Australia has recommended Corporate Travel Management. 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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