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The S&P/ASX 200 Index (ASX: XJO) lithium shares are under the spotlight as China is reportedly facing a supply shortage.

Analysts bullish on ASX 200 lithium shares

According to reporting by The Australian, analysts at Macquarie Group Ltd (ASX: MQG) are even more confident on the prospects about the lithium miners on the ASX as there is reportedly a lithium shortage in China.

This shortage is due to a “rebound in downstream demand and soft seasonal domestic supply as global demand grows”.

It was reported that Pilbara Minerals Ltd (ASX: PLS) and Mineral Resources Limited (ASX: MIN) were favoured picks as Australian-based lithium miners.

Pilbara was a preferred pick due to its near-term growth potential.

The Liontown Resources Limited (ASX: LTR) price target was lifted to $2 because of lower stage 2 and downstream funding, and the earlier start of Kathleen Valley.

Macquarie isn’t the only one pointing out the supply issues with the market.

Forbes recently ran an article warning that the shift to electric cars will stall if lithium supply can’t keep up with the forecast demand. The publication noted at report from GlobalData, a leading data and analytics company, said:

Western weaknesses in lithium-ion supply chains will slow electric vehicle adoption and demonstrate China’s dominance of the EV (electric vehicle) market.  With lithium prices set to rise throughout the next decade, the EV sector in the West will have to face rising battery costs. If they pass costs on to the consumer, EV adoption will likely accelerate at a slower rate than previously expected.

By 2026, EV output is expected to rise to 12.76 million cars a year. More than half of this total is expected to come from China.

How strong are lithium prices?

ASX 200 lithium shares, indeed all lithium stocks, make money from the price they can get for the lithium they are producing.

Pilbara has been tapping the Battery Material Exchange (BMX) to auction some of its lithium.

The second time the company used BMX, the highest bid it received was US$2,240 per dry metric tonne (dmt). It said that given the strong margins yielded through the BMX trading platform to date, Pilbara expected to channel more concentrate sales through the platform, including concentrate generated from the recommencement of the Ngungaju processing plant.

At the third auction, a cargo of 10,000 dmt at a target grade of 5.5% lithia was presented for sale on the digital platform, with a deferred delivery date in February 2022. There was “strong” bidding by a range of buyers. Pilbara Minerals said it intends to accept the highest bid of US$2,350 per dmt.

ASX 200 lithium share snapshot

In early trading on Monday, the Mineral Resources share price is up 2.4%, the Pilbara Minerals share price is up 2.5%, the Orocobre Limited (ASX: ORE) share price is up 0.5% and the Liontown Resources share price is up 1.9%.

Pilbara Minerals is ramping up its production to take advantage of these prices. In the three months to September 2021, it achieved record production of 85,879 dmt – up 11% quarter on quarter.

The post ASX 200 lithium shares in focus amid China supply shortage appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Top brokers name 3 ASX shares to buy next week
• These were the best performing ASX 200 shares last week
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• Brokers think the tanking Ansell (ASX:ANN) share price will rebound

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 shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Mesoblast limited (ASX: MSB) share price is starting the week on a very positive note.

In morning trade, the allogeneic cellular medicines developer’s shares are up 9% to $1.87.

Why is the Mesoblast share price surging higher?

Investors have been bidding the Mesoblast share price higher today following the release of an update on a phase three trial.

This relates to a trial of rexlemestrocel-L in 565 patients with New York Heart Association (NYHA) class II and class III chronic heart failure (CHF) with reduced ejection fraction (HFrEF).

According to the release, the results from the randomised, controlled phase three trial were presented as a late breaking presentation at the American Heart Association (AHA) annual Scientific Sessions.

The release explains that the new results show a significant relationship between the presence of systemic inflammation as quantified by high-sensitivity C-reactive protein (hs-CRP) and treatment benefit with rexlemestrocel-L on risk of cardiovascular mortality, heart attacks or strokes.

The trial’s co-principal investigator, Dr Emerson Perin, commented: “Cell therapy has the potential to change how we treat heart failure. This study addresses the inflammatory aspects of heart failure, which go mostly untreated, despite significant pharmaceutical and device therapy development.”

The study notes that a single dose of rexlemestrocel-L on top of standard of care reduced the incidence of heart attacks or strokes by 65% across all 537 NYHA class II or class III treated patients compared with standard of care alone.

Furthermore, compared with standard of care alone, a single dose of rexlemestrocel-L on top of standard of care reduced the incidence of cardiovascular death, heart attacks, or strokes by 33% across all 537 NYHA class II or class III patients.

Though, as previously reported, compared with standard of care alone, the addition of rexlemestrocel-L did not further reduce the frequency of hospitalisation for worsening HF symptoms.

Despite today’s gain, the Mesoblast share price remains down 20% in 2021.

The post Mesoblast (ASX:MSB) share price surges 9% higher on trial update appeared first on The Motley Fool Australia.

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• These are the 10 most shorted ASX shares

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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BHP Group Ltd (ASX: BHP) shares have come under pressure amid falling iron ore prices.

Indeed, after hitting record prices of US$237 (AU$324) per tonne back in May, iron ore is currently trading for US$90 per tonne, down some 62%.

Those falls have seen BHP shares slide 24% over the past 6 months. But the S&P/ASX 200 Index (ASX: XJO) mining giant’s CEO, Mike Henry, remains bullish on the global economic outlook.

And he’s confident that China’s not about to stop producing record amounts of steel.

Reasons for optimism

Addressing BHP shareholders at the company’s annual general meeting (AGM), Henry ran through the list of growth opportunities on the horizon.

“The big trends unfolding in the world around us,” he said, “include population growth, rising living standards, electrification and decarbonisation. We want to grow in those commodities that stand to benefit greatest from these trends.”

To that end, Henry said that in the financial year gone by, BHP “invested more than US$5 billion in development, growth and exploration across our business.”

And on the sustainability front, he added, “We are also targeting net zero for our direct suppliers’ emissions from the provision of goods and services to BHP, also by 2050.”

How BHP shares can still benefit from Chinese demand

While iron ore prices have plummeted from their May records, Henry noted that the metal is still trading at historically high levels. And he said Chinese demand for the core steel-making ingredient remained strong.

Speaking after the AGM, Henry said (quoted by The Australian):

Of course, with high energy prices we’re seeing some inflation. But that hasn’t changed our very positive outlook for global economic growth. Our medium-term outlook for the recovery from COVID-19 is still for strong economic growth…

The Chinese steel industry will produce a billion tonnes of steel for the second year running, and our outlook for the Chinese economy does remain very positive.

How have BHP shares been performing?

Over the past 12 months BHP shares are up 3%. That compares to a 15% gain posted by the ASX 200 in that same time.

The BHP share price is down around 3% since this time last month.

The post Own BHP (ASX:BHP) shares? Here’s why the company is still bullish on China appeared first on The Motley Fool Australia.

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• Why are ASX 200 resources shares booming again on Friday?
• ASX 200 (ASX:XJO) midday update: BHP & Fortescue rise, Zip completes acquisition
• BHP (ASX:BHP) will reap US$1.35 billion from its coal asset sales. Where might the cash go?
• Fortescue (ASX:FMG) share price surges 9% to shrug off falling iron ore price

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

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The National Australia Bank Ltd (ASX: NAB) share price is starting the week in the red.

In morning trade, the banking giant’s shares are down 2.5% to $29.15.

Why is the NAB share price falling?

The weakness in the NAB share price on Monday has nothing to do with its performance or a broker note.

Rather, it has everything to do with the bank’s shares trading ex-dividend this morning for its final dividend of FY 2021.

When a share trades ex-dividend, it means that new buyers will not be entitled to an upcoming dividend payment. In light of this, a share price will more often than not drop in line with the value of the dividend to reflect this. After all, why would you pay for something you’re not going to receive?

The NAB dividend

Last week when NAB released its full year results, it revealed a 76.8% increase in cash earnings to $6,558 million. Management advised that this strong growth reflects notable items in the prior corresponding period that weren’t repeated in FY 2021 and a solid performance across much of the business.

This strong performance allowed the NAB board to declare a fully franked final dividend of 67 cents per share, which brought the full year NAB dividend to $1.27 per share fully franked. This was up 112% on FY 2020’s 60 cents per share dividend and represents a payout ratio of 63.7% of earnings.

NAB’s Non-Executive Director and Chair, Philip Chronican, commented: “We are pleased to have increased dividends across the full year to 127 cents per share, compared to a reduced level in 2020. This outcome is closer to the level of shareholder return the Board is targeting going forward, with future dividends to be guided by a target payout ratio range of 65-75% of sustainable cash earnings, subject to circumstances at the time.”

Eligible NAB shareholders can now look forward to being paid this dividend in exactly a month on 15 December.

The NAB share price is still up 27% in 2021 following today’s decline.

The post Why is the NAB (ASX:NAB) share price sinking today? appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Monday
• How do the CBA (ASX:CBA) results stack up against NAB’s?
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• Do analysts rate the NAB share price a buy after its FY21 result?
• How does the CBA share price performance stack up against the other big banks?

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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The Incitec Pivot Ltd (ASX: IPL) share price in the move on Monday following the release of its full year results.

In early trade, the agricultural chemicals company’s shares jumped 17% to a 52-week high of $3.67.

Incitec Pivot share price jumps on strong profit growth

• Revenue up 10% to $4,348.5 million
• Earnings before interest and tax (EBIT) excluding individually material items (IMIs) up 51% to $374 million
• Net profit after tax (NPAT) excluding IMIs up 91% to $209 million
• Earnings per share excluding IMIs up 70% to 18.5 cents
• Net profit after IMIs up 21% to $149.1 million
• Final dividend of 8.3 cents per share, bringing full year dividend to 9.3 cents per share

What happened in FY 2021?

For the 12 months ended 30 September, Incitec Pivot delivered a 10% increase in revenue to $4,348.5 million. This was driven by a 5% increase in Dyno Nobel Americas (DNA) revenue to $1,588.7 million and a 26% lift in Fertilisers APAC revenue to $1.894.6 million, which offset weakness in the Dyno Nobel Asia Pacific (DNAP) business.

And while both Dyno businesses reported profit declines in FY 2021, the Fertilisers APAC more than offset this with a whopping 924% increase in EBIT. Management advised that the Fertilisers APAC business benefited from a commodity price upswing in the second half and strong ammonium phosphates production at the Phosphate Hill operation.

Incitec Pivot’s Managing Director and CEO, Jeanne Johns, commented: “The strong full year result reflects the strength of the second half, with strong pull through from technology in explosives and a recovery in our end markets as well as our Fertilisers business capturing the upswing in commodities prices.”

“Premium technology continues to increase productivity and safety and reduce environmental footprint for our customers, which is underpinning strong demand. Our technology vision is coming to life with our product development work now being commercialised. Our wireless electronic detonator CyberDet ITM (2) has been successfully trialled at a number of customer sites across Australia with further trials planned, and commercial supply arrangements expected to commence in 2022,” Johns added.

Outlook

No guidance has been given for FY 2022. However, management appears optimistic on the future, particularly given improvements made to its manufacturing performance.

Jeanne Johns commented: “We also saw a significant improvement in our manufacturing performance in the second half, with our Waggaman plant performing well following the delayed restart in June. We expect the benefits of our manufacturing reliability to come through following completion of the current turnaround cycle in FY22.”

“Looking ahead, as we enter FY22 we are well positioned to benefit from the continued execution of our strategy, as we invest in and grow our two strong base businesses in explosives and fertilisers and capture the strength in commodity pricing,” she concluded.

The post Incitec Pivot (ASX:IPL) share price up 17% after 91% profit jump appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
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• Here are the 3 most heavily traded ASX 200 shares on Monday
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• HESTA boss calls out ASX 300 companies without net-zero targets

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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Zip Co Ltd (ASX: Z1P) has seen short interest in its shares increase in November.

According to data from the Australian Securities and Investments Commission (ASIC), on Monday last week 9.07% of the buy now, pay later (BNPL) service provider’s shares were being held in short positions. That’s nearly 1% more than were being shorted this time last month.

Additionally, as short sellers’ interest in the stock has increased, the Zip share price has slipped.

Since the month began, the Zip share price has fallen 9.08%. At Friday’s close, Zip shares were swapping hands for $5.91 apiece.

Let’s take a look at what might be drawing short sellers to the BNPL giant.

Why are short sellers targeting Zip?

Fortunately or unfortunately, there’s no clear answer as to why short-seller interest in Zip shares has increased in November. Particularly as the market has only heard good news from the company.

The most recent news from Zip was that it had completed its acquisition of European BNPL provider Twisto Payments.

The acquisition cost Zip $115.8 million. The company stated the purchase will provide a “gateway” into the European market.

Further, the quarter just been was a record-breaking one for Zip.

Over the 3 months ended 30 September, the company brought in $136.8 million of revenue and facilitated 14.7 million transactions. Those figures are up 89% and 177% respectively on the company’s first quarter of financial year 2021.  

The same quarterly update that announced the record-breaking performance also proclaimed the company’s completed rebrand.

The rebrand saw Quadpay become Zip in the United States, as well as the company launching its new look.

Zip share price snapshot

Despite the poor performance of Zip shares through the first half of November, they are still in the long-term green.

Right now, the Zip share price is 5% higher than it was at the start of 2021. However, it has fallen 1.5% since this time last year.

The post Why are Zip (ASX:Z1P) shares being shorted in November? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Why Calix, Fortescue, Link, and Zip shares are jumping today
• ASX 200 (ASX:XJO) midday update: BHP & Fortescue rise, Zip completes acquisition
• Why the Zip (ASX:Z1P) share price is storming higher today
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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The PlaySide Studios Ltd (ASX: PLY) share price will be one to watch this week.

This morning the company announced a major agreement and a trading halt.

Why could the PlaySide share price zoom higher?

The PlaySide share price could be on the move later this week after it announced a landmark agreement.

According to the release, the company has signed an early eight-figure (Australian dollars) work-for-hire development agreement with 2K Games. It is a label of leading global publisher Take-Two Interactive Software (NASDAQ: TTWO), which is best-known as the company behind the Grand Theft Auto series.

The release explains that the agreement relates to the production of a forthcoming major franchise. The project will have a development cycle of 23 months, with 12 months of maintenance post launch. The deal is fixed price milestone based without revenue share.

Management advised that developing a strong relationship with 2K Games through quality delivery and partnering is seen as a long term strategic benefit to Playside. It also believes it furthers the company’s credentials as a global player in the marketplace.

Management commentary

PlaySide’s CEO, Gerry Sakkas, said: “This is an extremely pleasing outcome for PlaySide, representing the largest work for hire contract since listing. We are excited to be working with 2K Games, a label from one of the world’s largest Publishers, TakeTwo Interactive Software.”

“Our ability to secure this agreement with 2K Games underlines our position as Australia’s largest publicly listed game developer. We are looking forward to starting work on this project to demonstrate our capabilities in AAA game development on a franchise that we are extremely passionate about.”

Mr Sakkas believes the success of its Age of Darkness: Final Stand game has been the driving force of the deal.

”This deal is reflective of the quality of Age of Darkness: Final Stand which has been the catalyst for companies like 2K Games to recognise the Company’s world class development capabilities,” he added.

Trading halt

The PlaySide share price won’t be going anywhere immediately, though. This morning the company requested a trading halt.

Its request explains: “The trading halt is requested until the earlier of: PlaySide releasing announcements to the market regarding a material transaction and a proposed capital raise; and the commencement of trade on Wednesday, 17 November 2021.”

No details further details have been provided.

The PlaySide share price has almost doubled in value in 2021.

The post PlaySide (ASX:PLY) share price on watch after landmark agreement with video game giant appeared first on The Motley Fool Australia.

More reading

• 5 ASX shares in an obscure but booming sector
• Why is the Playside Studios (ASX:PLY) share price rocketing 16% 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 Bruce Jackson.

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Once a week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

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

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

• Flight Centre Travel Group Ltd (ASX: FLT) remains the most shorted ASX share despite its short interest easing to 11.8%. Valuation concerns appear to be the reason for this high level of short interest. For example, Citi estimates that its shares are changing hands for 32x FY 2023 earnings.
• Kogan.com Ltd (ASX: KGN) has seen its short interest rise week on week again to 11.4%. This ecommerce company’s slowing growth and inventory issues have been weighing on sentiment.
• Redbubble Ltd (ASX: RBL) has short interest of 10.4%, which is flat week on week. This ecommerce company’s shares have come under significant pressure since the release of a disappointing quarterly update.
• Zip Co Ltd (ASX: Z1P) has seen its short interest rise to 9%. Short sellers appear concerned over the costs involved with this buy now pay later provider’s global expansion and also with increasing competition.
• Webjet Limited (ASX: WEB) has short interest of 8.9%, which is down slightly week on week. As with Flight Centre, valuation concerns appear to be behind this high level of short interest. Citi estimates that Webjet’s shares are trading at almost 38x FY 2023 earnings.
• Mesoblast limited (ASX: MSB) has short interest of 8.8%, which is flat week on week. Due to its ongoing cash burn, there are concerns that this biotech company will soon have to raise funds again.
• Electro Optic Systems Hldg Ltd (ASX: EOS) has 8.7% of its shares held short, which is up week on week once again. Short positions have increased since the defence and space company downgraded its earnings guidance.
• Inghams Group Ltd (ASX: ING) has 8.4% of its shares held short, which is up week on week. This poultry producer recently confirmed that it was being impacted by higher grain costs.
• Cooper Energy Ltd (ASX: COE) has 8.2% of its shares held short, which is up week on week once again. Concerns over the Sole Gas operation continue to weigh on sentiment.
• A2 Milk Company Ltd (ASX: A2M) has returned to the top with short interest of 7%. Short sellers have been increasing their positions since A2 Milk’s disappointing strategy update. That update revealed a challenging medium term outlook.

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

More reading

• 2 ASX shares I regret and 2 that I don’t: expert
• 2 ASX shares that may be too good to ignore
• Flight Centre (ASX:FLT) shares a ‘good long term investment’, says CEO
• Why are Kogan (ASX:KGN) shares being shorted in November?
• Why Calix, Fortescue, Link, and Zip shares are jumping 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. owns shares of and has recommended Electro Optic Systems Holdings Limited, Kogan.com ltd, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Electro Optic Systems Holdings Limited, Kogan.com ltd, and Webjet Ltd. The Motley Fool Australia has recommended A2 Milk and Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Fidelity International portfolio manager Kate Howitt describes the big mistake you can make with successful ASX growth shares.

Looking back

MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price?

KH: I’ve been doing it long enough, and I’ve had a couple of stocks go to zero. And those are really annoying, and they do hit the portfolio. 

But I actually think, when you go back, the biggest losses are actually the opportunity cost, where you don’t see… When something goes to zero, you see the basis points, you can do the attribution report, and you can say, “I lost that many basis points on it”. 

Actually, the ones that you lose more on are the ones that you sell too early. 

So we invested in WiseTech Global Ltd (ASX: WTC) pre-IPO. And then topped up a lot in the IPO. And there was a lot of debate at the IPO about whether the IPO was being priced too high or too low, but it was in the $3s and the stock is now in the $50s. So I’m glad that I didn’t sell out my WiseTech because it got to $10 and was too expensive. I think it’s really understanding those longer-term. 

Now, there have been stocks like that, wonderful stocks that we bought into the IPO and then felt like they’d run too hard and said, “Okay, that’s enough”. Something like Netwealth Group Ltd (ASX: NWL) — sold that one a bit too early and it’s just gone from strength to strength. Magellan Financial Group Ltd (ASX: MFG) I owned in the very early days, and got to where I thought it had gone too far — and it went from strength to strength. 

So those are the ones I think they actually cost you more money, when you don’t let those really quality business models compound and reinvest — when you don’t let those run.

Now, a lot of them, they do get to maturity. One of the largest contributors over the fund was A2 Milk Company Ltd (ASX: A2M) — I owned it from its listing in Australia. Fortunately, we called that one really well, where we looked at the A2 price and the market share of the China infant formula market that was implied in that market in that price, and we felt that it was implying something like 15%. 

And at that point, no brands had got beyond 12%. And we just thought the odds were against the Aussie battler, particularly when you knew there was going to be competition coming in because their IP protection was maturing. 

So you can always look back and say, “Oh, I wish I’d held that one longer”, but then you always have names where you held it too long and it rolls over, too. 

What is that Buffet quote? It’s simple, but not easy.

I’m fortunate in that I have a talented analyst team here locally who are doing the detailed work and refreshing the valuation. And then we tap into a global team of our portfolio managers and analysts all around the world, which lets us do due diligence and really tap into competitive threats. 

A lot of our work on A2 was informed by our colleagues sitting in Shanghai and talking to them: “What do you think is the likelihood that A2 is going to get to 15%?”. And we can have those conversations. That’s a real benefit that we have in trying to [decide], “Are we going to sell too early? Are we going to sell too late?”

Kate Howitt tells us about 2 ASX shares cashing in on decarbonisation and online shopping here.

The post 2 ASX shares I regret and 2 that I don’t: expert appeared first on The Motley Fool Australia.

More reading

• The ASX share with ‘unassailable’ lead over rivals: expert
• The Magellan (ASX:MFG) share price is now down 40% since July
• Are A2 Milk (ASX:A2M) shares a buy? The case for and against
• 2 ASX 200 shares that could be top buys for dividends
• Is the A2 Milk (ASX:A2M) share price dirt cheap?

Motley Fool contributor Tony Yoo owns shares of A2 Milk. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Netwealth and WiseTech Global. The Motley Fool Australia owns shares of and has recommended Netwealth and WiseTech Global. 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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The Sezzle Inc (ASX: SZL) share price has nearly halved over the last five months. Could the buy now, pay later operator be an obvious buy?

In the last five months, Sezzle shares have declined by 49%. That’s despite the business continuing to grow and process more payment volume.

The third quarter of its 2021 financial year showed how quickly the business continues to grow.

Sezzle’s third quarter

In the three months to September 2021, its underlying merchant sales (UMS) were US$460.7 million. That was an increase of 101.9% year on year and 12% quarter on quarter.

That growth of UMS helped total income grow by 78.9% to US$28.5 million.

Customer and merchant numbers also continue to grow significantly.

Active merchants increased by 112.5% year on year, or 10.2% quarter on quarter, to 44,400. A couple of highlights relating to merchants was that BigCommerce designated Sezzle as its preferred buy now, pay later partner. Sezzle also launched Sezzle Capital for merchants through a partnership with Wayflyer, a revenue-based financing and growth platform – Sezzle doesn’t take on credit risk or additional capital requirements with this.

Active consumers reached 3.2 million at the end of the quarter. That was an increase of 77.9% year on year and 10.7% quarter on quarter.

Growth of these different areas could help the long-term prosperity of the Sezzle share price.

Continuing adoption

Sezzle pointed to various elements relating to consumers that were showing improvement.

It noted that the top 10% of Sezzle users remained highly engaged, transacting 49x on average over the trailing 12 month period to 30 September 2021.

Management said that repeat usage continued to improved, with the consecutive growth streak increasing to 33 months, with a rise to 92.3%.

In-store represented more than 5% of UMS in the quarter, reflecting the long-term omnichannel opportunity, according to the company.

It also said that it “significantly” lowered its provision for uncollectible accounts receivable as it declined over 100 basis points in the third quarter to 2.3% of UMS, down from 3.4% in the second quarter.

The company also reached an agreement with Alliance Data Systems Corporation.

International

Another area that could help the Sezzle share price over time is the company’s expansion into other countries beyond the USA.

In Canada the company reached an important milestone of 3,000 active merchants in just the second quarter of operations, representing a 220.3% year on year increase. UMS there reached a run-rate pace of more than US$100 million annually. It also reached 190,000 active consumers (up 232.2% year on year).

Turning to Europe, Sezzle is still in very early stages, so management called that segment “immaterial” at this stage. However, its connections with merchants in North America could help it grow in Europe. For example, it has signed The Hut Group.

Its Indian operations are also classified as immaterial, though it is growing quickly. Active merchants were up 37% quarter on quarter, active consumers increased 56% quarter on quarter and UMS increased 38% quarter on quarter.

Is the Sezzle share price a buy?

Ord Minnett thinks so. It has a buy rating on the buy now, pay later business with a price target of $9.90. That suggests the broker believes Sezzle’s shares could more than double over the next year.

The broker thinks Sezzle looks cheap compared to others like Afterpay Ltd (ASX: APT) and that the discount to peers could improve if Sezzle can keep growing with large merchants like Target.

The post Is the Sezzle (ASX:SZL) share price an obvious buy? 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. owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. 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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