Tag: Motley Fool

Many of Australia’s top brokers have been busy adjusting their financial models again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

ARB Corporation Limited (ASX: ARB)

According to a note out of Morgan Stanley, its analysts have commenced coverage on this 4×4 accessories company’s shares with an overweight rating and $56.00 price target. Morgan Stanley likes the company due to its strong market position globally. It believes this leaves ARB well-positioned for growth in the coming years. Particularly given its store rollout plans in the United States. The ARB share price is trading at $47.46 this afternoon.

Baby Bunting Group Ltd (ASX: BBN)

A note out of Citi reveals that its analysts have upgraded this baby products retailer’s shares to a buy rating with an improved price target of $5.98. The broker made the move partly on valuation grounds following a pullback in the Baby Bunting share price since its results. The broker feels Baby Bunting is well-placed to deliver a solid update at its annual general meeting next month. This is due to the non-discretionary nature of its products and its strong offering. The Baby Bunting share price is fetching $5.39 today.

South32 Ltd (ASX: S32)

Analysts at Macquarie have retained their outperform rating and lifted their price target on this mining giant’s shares to $4.30. This follows news that its Alumar aluminium smelter in Brazil will be restarted next year. In response to the news, the broker has lifted its aluminium production forecasts and earnings estimates accordingly. The South32 share price is trading at $3.36 on Wednesday.

The post Top brokers name 3 ASX shares to buy today appeared first on The Motley Fool Australia.

More reading

• South32 (ASX:S32) share price edges higher after plan to restart Brazil plant
• Baby Bunting (ASX:BBN) share price surges higher on broker upgrade
• Here are the ASX 200’s most active shares this Tuesday
• Why Atlas Arteria, Baby Bunting, De Grey Mining, & New Hope are pushing higher
• 2 strong ASX retail shares that could be buys

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ARB Corporation Limited and Baby Bunting. 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 AusNet Services Ltd (ASX: AST) share price has dipped 4% into the red during afternoon trade on Wednesday.

AusNet shares have been on a wild ride over the last week after a bidding war started over the company and its assets.

Let’s take a closer look.

What led us to this point?

AusNet’s share price has been on liftoff since a company announcement on Monday. Brookfield Asset Management made a non-binding offer to acquire the energy distributor for $2.50 per share.

At the time, the offer represented a 26% premium to AusNet’s closing price from the previous Friday.

But then, electricity giant APA Group (ASX: APA) stepped into the ring. APA Group upped the ante by putting down a $2.60 per share offer to acquire AusNet.

However, AusNet had already entered into a period of exclusivity with Brookfield, meaning it can’t consider APA’s offer. AusNet must wait until the due diligence period of 8 weeks is done.

As The Motley Fool’s James Mickleboro reported last week, there are “a couple of potential scenarios” that could arise before this time. One being that AusNet could accept the “lower, but binding offer” from Brookfield versus risking throwing it away in favour of the 10 cents/share gain.

Nonetheless, investors will have until November to observe the AusNet share price in preparation for Brookfield’s assessment.

What are the experts saying?

One leading broker has weighed in on the debate and sees headwinds for both opponents involved with the deal.

Investment banking giant UBS doesn’t see a rosy path for Brookfield from Australian regulators, should it proceed with the acquisition.

The broker understands that Brookfield will have a tough time convincing Australia’s Foreign Investment Review Board (FIRB) to support its deal – even if it beats APA to the finish line.

It believes that Australia’s Cyber and Infrastructure Security Centre “may consider” electricity transmission “one of the most critical types of infrastructure from a national security perspective.” UBS sees this “potentially applying a very high bar” for FIRB approval.

With respect to APA’s bid, it believes the energy rival may not have the backing to overturn Brookfield’s offer.

The reason is because of Brookfield’s own asset base, and how this can interlock with AusNet’s energy assets.

It understands that Brookfield “could allow” AusNet’s major shareholders, State Grid and Singapore Power – around 20% and 32.75% owners respectively – to “roll their equity into the new unlisted entity”.

However it is “less confident of such ability” under APA’s proposal, which “may weaken the shareholder appeal” of its offer.

And the AusNet share price…?

Either way, it appears that AusNet shares could be worth keeping an eye on in the coming months as more rolls out with this deal.

At the time of writing, the AusNet share price is trading 3.86% lower at $2.49 apiece.

The post What this leading broker is saying about the AusNet (ASX:AST) acquisition saga appeared first on The Motley Fool Australia.

More reading

• ASX 200 (ASX:XJO) midday update: Evergrande news boosts market, Zip’s Indian investment
• AusNet (ASX:AST) share price down 5% amid takeover battle uncertainty
• Why APA, Kathmandu, Nickel Mines, & Sigma shares are dropping
• Which ASX 300 shares are the biggest winners and losers on Tuesday?
• ASX 200 (ASX:XJO) midday update: APA makes AusNet bid, New Hope results impress

The author Zach Bristow has no positions 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 APA Group. 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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Here’s what could be powering the Telstra Corporation Ltd (ASX: TLS) share price today.

The telco giant prides itself as a barometer of innovation. The telecommunications behemoth has looked to continue this inclination with its recent partnership.  

Let’s take a look at what’s new with Telstra.

Telstra to help launch flying car series

The Telstra share price could be poised to benefit from the company’s recent initiative.

The telco giant announced today its technology services business Telstra Purple will help launch an electric vehicle racing series.

Telstra’s services arm revealed a 12-month communications partnership with Adelaide-based manufacturing business Alauda.

Although Telstra won’t be participating in manufacturing, the telco will provide vehicle to vehicle and vehicle to infrastructure communications.

In a statement released earlier today, Telstra noted;

Telstra Purple will deliver the near real-time virtual race-control system required for the high-speed, close format, multi-vehicle circuit racing in the Airspeeder EXA series.

The premise of the EXA series is to complete a “Formula One–style” series of races in order to promote electric flying vehicles.

Alauda’s Airspeeder Mk3, which are four metre long multicopters, will be remotely piloted as part of the world’s first racing series for electric flying cars

In addition to vehicle to vehicle communication, Telstra is also looking to leverage its 5G network for spectators through augmented and virtual reality devices.

What else has been happening with Telstra?

The Telstra share price has also received attention from factors closer to home.

Since the start of 2021, shares in the telco giant have surged more than 30%.

By comparison, the S&P/ASX 200 Index (ASX: XJO) has only managed to claw 10.5% higher for the year to date.

Telstra shares have been propelled by several catalysts.

In late June, Telstra announced that it will be selling its mobile towers infrastructure business.

The telco expects to receive $2.8 billion after transaction costs with completion of the acquisition expected in Q1 of FY22.

In addition, the Telstra share price has also been buoyed by strong earnings for FY21 and positive broker sentiment.

Most recently, investment bank Goldman Sachs rated Telstra shares as a buy with a 12-month share price target of $4.40 a share.  

At the time of writing, the Telstra share price is trading slightly higher for the day at around $3.95.

The post Own Telstra (ASX:TLS) shares? Then you’re helping develop flying cars appeared first on The Motley Fool Australia.

More reading

• Widgie Nickel (ASX:WIN) share price jumps 45% after IPO
• ASX 200 (ASX:XJO) midday update: Evergrande news boosts market, Zip’s Indian investment
• 3 beaten-up ASX shares that are exciting us: experts
• 5 things to watch on the ASX 200 on Wednesday
• How does the AFIC (ASX:AFI) share price compare to its net tangible assets?

Motley Fool contributor Nikhil Gangaram 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 Telstra Corporation 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 BHP Group Ltd (ASX: BHP) share price is climbing higher on Wednesday as fears around the Evergrande collapse have subsided for the time being.

Why the BHP share price is climbing on Wednesday

To understand why shares in the iron ore miner are climbing today, it pays to understand why they initially fell. BHP was one of many ASX shares under pressure on Monday and Tuesday. That was largely due to news of Chinese property developer, Evergrande’s, financial troubles emerging.

Investors were skittish earlier this week as fears of a knock-on impact sparked a broad sell-off on the ASX. The BHP share price fell 3.4% from Friday’s close to Tuesday afternoon as iron ore shares slid lower.

One of the reasons the iron ore miners were in focus was the potential knock on effect of an Evergrande collapse. Some noted a slowdown in the economy, including the construction sector, could weigh on iron ore demand.

However, those fears appear to have subsided somewhat for the moment. The broader S&P/ASX 200 Index (ASX: XJO) is up 0.7% today while the Aussie miners are performing strongly.

With the BHP share price up 2.7% at the time of writing, it looks like some investors are willing to buy up despite the uncertainty. It’s a similar story for the other Aussie miners on Wednesday afternoon.

The Fortescue Metals Group Limited (ASX: FMG) is up 4.7% on Wednesday while Rio Tinto Limited (ASX: RIO) shares are up 2.8% to $98.41 per share.

Foolish takeaway

The BHP share price is rebounding strongly on Wednesday as the Chinese economy fears appear to have subsided for now. Shares in many of the Aussie iron ore miners are climbing higher despite the looming situation surrounding Evergrande.

It’s welcome news for investors in these Aussie companies after two straight days of losses to start the week.

The post BHP (ASX: BHP) share price lifts as China fears abate…for now appeared first on The Motley Fool Australia.

More reading

• ASX 200 jumps as Evergrande confirms it will meet next interest repayment
• Iron ore price may fall further as experts warn of China trade risk
• What the Evergrande crisis could mean for ASX 200 iron ore shares
• ASX 200 rebounds into positive territory led by energy and materials shares
• The final BHP (ASX:BHP) dividend will be paid to shareholders today. Here’s what to expect

Motley Fool contributor Ken Hall 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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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is back on form and charging higher. At the time of writing, the benchmark index is up 0.6% to 7,316 points.

Four ASX shares that are climbing more than most today are listed below. Here’s why they are racing higher:

Champion Iron Ltd (ASX: CIA)

The Champion Iron share price is up 7% to $5.00. This morning the team at Citi upgraded the iron ore producer’s shares to a buy rating with a $6.40 price target. The broker made the move on valuation grounds following a pullback in its share price recently. Promising news out of China has also boosted its shares.

Fortescue Metals Group Limited (ASX: FMG)

The Fortescue share price is up 5% to $15.50. Investors have been buying this iron ore producer’s shares following positive news out of China. According to Reuters, embattled property giant Evergrande has staved off defaulting for the time being. This afternoon it announced that it would be making a bond repayment tomorrow.

Lake Resources N.L. (ASX: LKE)

The Lake Resources share price has jumped 23% to 62.5 cents. This morning the lithium developer announced a partnership with Lilac Solutions. The partnership is for technology and funding to develop Lake’s Kachi Lithium Brine Project in Argentina. Under the terms of the agreement, Lilac Solutions will contribute technology, engineering teams, and an on-site demonstration plant. It can also earn a maximum 25% equity stake in the Kachi project based on performance-based milestones.

Zip Co Ltd (ASX: Z1P)

The Zip share price is up 4% to $6.50. The catalyst for this was the announcement of a major investment. According to the release, Zip has agreed to make a strategic US$50 million investment in India-based BNPL operator ZestMoney. The Indian BNPL provider has 11 million registered users, over 10,000 online merchants on the platform, and a point of presence in over 75,000 physical stores.

The post Why Champion Iron, Fortescue, Lake Resources, & Zip are racing higher appeared first on The Motley Fool Australia.

More reading

• Why the Fortescue (ASX:FMG) share price is up 5% today
• ASX 200 jumps as Evergrande confirms it will meet next interest repayment
• Champion Iron (ASX:CIA) share price up 7% but could still go 28% higher
• ASX 200 (ASX:XJO) midday update: Evergrande news boosts market, Zip’s Indian investment
• Zip (ASX:Z1P) share price higher on India BNPL investment news

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 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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Investors of ASX 200 insurance companies may not be too pleased today.

The sector is underperforming the market as The Australian reports the industry is bracing for a wave of claims in the wake of this morning’s Melbourne earthquake.

At the time of writing, shares in Insurance Australia Group Ltd (ASX: IAG) are $4.92 – down 1.99%, QBE Insurance Group Ltd (ASX: QBE) shares are $11.31 – up 0.31%, and Suncorp Group Ltd (ASX: SUN) is trading for $12.31 – down 1.01%. The S&P/ASX 200 Index (ASX: XJO) is 0.84% higher.

Let’s take a closer look at today’s news.

Earthquake strikes Victoria

Just after 9 this morning, a 5.9 magnitude earthquake struck 10km from the Victorian town of Mansfield. Heavy shaking was felt in Melbourne with tremors felt in Tasmania, the ACT, and even Sydney.

A video circulating social media shows the damage experienced by at least one building on Melbourne’s popular Chapel Street.

Just got sent this video from a friend in Melbourne pic.twitter.com/SWOpRdirkJ

— Tom Steinfort (@tomsteinfort) September 21, 2021

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While the extent of the damage is unclear following the earthquake and subsequent aftershocks at the moment, investors in ASX 200 insurance companies aren’t taking any chances.

For FY22, IAG increased its natural perils (i.e., disasters) allowance from $658 million to $765 million. QBE was already above its allocated amount when it released its half-year results and Suncorp also increased its allowance for the current financial year to $980 million.

Considering this is the most powerful earthquake in Victoria since European settlement, at least according to one seismologist, this may not have been the forecasts of these ASX 200 insurers.

According to The Australian, insurers lost $3.2 billion the last time Australia had such a powerful earthquake – the 1989 tremor that hit Newcastle.

ASX 200 insurers share price snapshot

Over the past 12 months, the IAG share price has increased 10.1%, the QBE share price lifted 29.6%, and the Suncorp share price jumped 46.3%.

QBE and Suncorp have overperformed the S&P/ASX 200 Index (ASX: XJO) over the same period while IAG has underperformed the index by about 16 percentage points.

The market capitalisations of these companies range from $12-$17 billion.

The post Here’s why ASX 200 insurers are underperforming the market this Wednesday appeared first on The Motley Fool Australia.

More reading

• Why the QBE (ASX:QBE) share price is on a rollercoaster today
• IAG (ASX:IAG) share price slumps 2% amid earthquake payout concerns
• 2 excellent ASX dividend shares named as buys
• 5 things to watch on the ASX 200 on Wednesday
• IAG (ASX:IAG) share price gains after Chief Risk Officer resignation

Motley Fool contributor Marc Sidarous 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 Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Fortescue Metals Group Ltd (ASX: FMG) share price is bouncing off 14-month lows, up 4.95% to $15.48.

The broader S&P/ASX 200 Index (ASX: XJO) and, more specifically, the resources sector has reacted positively to news that China’s embattled real estate developer Evergrande will meet its bond interest payments due Thursday, 23 September.

At the time of writing, the ASX 200 is up 0.74% to 7,327.7 with the S&P/ASX Energy (INDEXASX: XEJ) and S&P/ASX Materials (INDEXASX: XMJ) indices up 2.53% and 2.51% respectively.

What’s the significance of Evergrande’s repayments?

China’s second-largest real estate developer is on the verge of collapse as it struggles to find the liquidity to pay off upcoming liabilities.

The Evergrande debacle has exposed the vulnerable underbelly of Chinese property developers taking on dangerous amounts of leverage with a dependency that housing prices will continue to boom.

Evergrande’s US$300 billion in liabilities is tied to more than 128 banks and 121 non-banking institutions, meaning its default could spark a domino effect across the Chinese and, potentially, global economy.

Evergrande calmed nervous markets on Wednesday, saying it will make a coupon repayment on its bonds due Thursday, 23 September.

According to Reuters, Evergrande appointed Houlihan Lokey and Admiralty Harbour Capital as joint financial advisers last week. The two firms will evaluate the Group’s financial position and explore solutions to ease its dire situation.

A slowdown in China’s property and construction sectors have significant flow-on effects for the price of iron ore and, subsequently, the Fortescue share price.

According to S&P Global, China’s property and infrastructure construction accounts for 55% of its steel consumption.

Fortescue share price bounces as iron ore prices trade flat

Iron ore prices have dropped sharply lower in the past few days, falling from US$123.84 a tonne last Monday to US$93.03 a tonne on Tuesday, according to Fastmarkets.

Iron ore logged steep losses almost every day, with its first positive green day on Tuesday, edging 5 US cents higher to US$93.03.

The post Why the Fortescue (ASX:FMG) share price is up 5% today appeared first on The Motley Fool Australia.

More reading

• ASX 200 jumps as Evergrande confirms it will meet next interest repayment
• What the Evergrande crisis could mean for ASX 200 iron ore shares
• What this leading broker is saying about the Fortescue (ASX:FMG) share price
• Leading brokers name 3 ASX shares to sell today
• ASX 200 rebounds into positive territory led by energy and materials shares

Motley Fool contributor Kerry Sun 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 QBE Insurance Group Ltd (ASX: QBE) share price is edging back into the green after a tough morning’s trade.

The insurers’ stock has rebounded amid dwindling concerns surrounding a magnitude 5.8 earthquake that affected Melbourne and much of Victoria this morning.

At the time of writing, the QBE share price has rebounded to $11.30, 0.27% higher than its previous close.

While QBE shares have recovered, other ASX-listed insurance providers’ stock isn’t faring so well.

The Suncorp Group Ltd (ASX: SUN) share price is currently 0.84% lower than its previous close. While that of Insurance Australia Group Ltd (ASX: IAG) is currently down 2.19%.

Let’s take a look at how the QBE share price has been performing in the wake of the earthquake.

QBE share price recovers as earthquake damage tallied

The QBE share price has bounced back from a poor start to today’s session.

Meanwhile, the damage caused by a 5.8 magnitude earthquake in Mansfield, Victoria has come to light.

The state’s acting premier, James Merlino, told a press conference no injuries were sustained as a result of the quake.

However, the government is aware of 46 reports of damage to buildings in Mansfield and suburbs of Melbourne.

Merlino also noted calls to 000 and call outs for assistance from the State Emergency Service spiked earlier today but are now back to normal levels.

The earthquake has shaken Melbourne & other parts of Victoria. Considerable damage in & around Chapel St. See the footage captured by a local trader nearby to my office. I want to thank police & firefighters who are on the scene & who I have spoken to. They're doing a great job. pic.twitter.com/gaPlJQfy3W

— David Davis MP (@DavidDavisMLC) September 22, 2021

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Tremors from the earthquake were felt as far away as Launceston and Sydney.

The state also experienced 3 aftershocks in the hour following the initial quake. They reached magnitudes of 5.5, 4.0, and 3.0.

Experts have noted today’s earthquake is the highest magnitude quake felt by eastern Australia in decades.

As a result, the market might have been expecting it to have caused more damage than it seemingly did, thereby affecting ASX-listed insurance companies.

The QBE share price dipped quickly upon open and has steadily regained its losses, reaching its intraday high just before noon.

The post Why the QBE (ASX:QBE) share price is on a rollercoaster today appeared first on The Motley Fool Australia.

More reading

• The next ASX 200 shares that could undertake a big capital return
• This leading fund manager thinks these ASX shares might be buys
• The QBE (ASX:QBE) share price has slumped 6% in 4 weeks. What’s happening?
• Top broker says QBE (ASX:QBE) share price is a buy
• 10 ASX shares we’re overweight in right now: fund

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

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Lithium and batteries have been hot trends on the ASX boards for a few years now. As a perceived ‘growth area’ for the world economy over the coming decades, investors have been very excited to try and find the renewable energy powerhouses of tomorrow and ride the wave to a new electric future. One ASX exchange-traded fund (ETF) that offers investors exposure to this space is the ETFS Battery Tech & Lithium ETF (ASX: ACDC).

This ETF has been listed on the ASX since 2018. Since that date, it has delivered some impressive results. ACDC has returned an average of 27.7% per annum since its inception. That includes an average of 27.5% per annum over the past 3 years, as well as an incredible 65.5% over just the past year alone.

So how does this ETF manage these impressive numbers? Well, let’s dig a little deeper into the kinds of companies that ACDC invests in.

According to ETFS’ latest data (as of 31 August), this ETF has a total of $370.48 million in funds under management. It is invested in a basket of 32 shares across various counties of the world. Its largest exposure is to the United States at 22.4%, followed by Japan at 21.7% and South Korea at 11.9%. Australia is in fourth place with 8.3%.

What is the ETFS Battery Tech & Lithium ETF invested in right now?

So let’s go through this ETF’s top 10 investments as of 31 August:

1. BYD Co Ltd with a portfolio weighting of 5.3%
2. Pilbara Minerals Ltd (ASX: PLS) with a weighting of 5.2%
3. Livent Corp (NYSE: LTHM) with a weighting of 4.1%
4. SolarEdge Technologies Inc (NASDAQ: SEDG) with a weighting of 3.9%
5. Samsung Electronics Co Ltd with a weighting of 3.5%
6. Bollore SE with a weighting of 3.4%
7. Eos Energy Enterprises Inc (NASDAQ: EOSE) with a weighting of 3.4%
8. Tesla Inc (NASDAQ: TSLA) with a weighting of 3.3%
9. ABB Ltd (NYSE: ABB) with a weighting of 3.3%
10. Minerals Resources Limited (ASX: MIN) with a weighting of 3.1%

So a very mixed bag there. You have electric vehicle and battery manufacturers like Tesla and BYD, raw lithium producers like Pilbara Minerals and Mineral Resources, and solar energy companies like SolarEdge.

Minerals Resources and Pilbara have gained roughly 86% and 500% in value over the past 12 months, respectively. Livent Corp has managed a return of 183% over the past year too. When we look at numbers like these, we can start to understand how this ETF has delivered such impressive returns over the past year and beyond.

BYD is up 334% over the past 5 years, and Tesla is up an incredible 1680% – no doubt helping ACDC’s longer-dated performance metrics.

The ETFS Battery Tech & Lithium ETF charges an annual management fee of 0.69%.

The post Own the ETFS Battery Tech & Lithium ETF (ASX:ACDC)? Here’s what you’re invested in appeared first on The Motley Fool Australia.

More reading

• Why the QBE (ASX:QBE) share price is on a rollercoaster today
• Here’s why investors can consider Netflix in the next market crash
• Why is the Liontown (ASX:LTR) share price sinking 6% today?
• Widgie Nickel (ASX:WIN) share price jumps 45% after IPO
• ASX 200 jumps as Evergrande confirms it will meet next interest repayment

Motley Fool contributor Sebastian Bowen owns shares of Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Tesla. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Streaming content pioneer Netflix (NASDAQ: NFLX) is in a great position to thrive as more of the world chooses to stream their content instead of watching over linear TV. The company is gaining millions of new subscribers during the pandemic, and the scale is improving profit margins and cash flows. 

The downside for investors is that Netflix’s success is no secret to the market. The stock is performing well, rising 102% over the past two years and over 500% in five years. That said, during a stock market crash, Netflix’s stock may come down along with the broader market, allowing investors to buy this excellent performer at a lower entry point.

Subscriber growth is fueling profits

Netflix boasts 209 million paying subscribers worldwide, including 74 million in the U.S and Canada. While it may feel like Netflix has been around forever and has saturated the market for its services, there is plenty of room for growth. In the U.S. in particular, streaming made up just 27% of total viewing time compared with 63% for linear TV, according to Nielsen.

As Netflix continues building out its content library, getting to know its viewers better, and customizing experiences to suit their needs better, the company can take a more significant share of viewing hours. That should lead to more pricing power and the ability to raise monthly fees without losing subscribers. 

For now, results are already quite impressive. In its fiscal second quarter, Netflix’s 209 million viewers generated $7.3 billion in revenue. Annualized, that would amount to $29 billion, giving Netflix a robust content budget, which will help attract new subscribers and retain existing ones.

The company’s growing scale is also improving profit margins. Indeed, in the most recent quarter, Netflix’s operating profit margin was 25.2%, 310 basis points higher than the 22.1% it earned in the same quarter last year. Management feels these results are sufficient enough to sustain the company without tapping into capital markets for cash.

Reducing competitive risk

Another exciting development for Netflix during 2020 and 2021: It reduced the market’s perception of competitive risk. Several streaming competitors entered the space during that time, but it did not harm Netflix. Most notably, Disney‘s flagship service Disney+ attracted 116 million subscribers from November 2019 to July 2021 without taking them away from Netflix.

That raises credence to the argument that streaming competitors don’t hurt Netflix, and they may even be helping the streaming category as a whole. As more services enter the market, canceling linear TV services and switching to streaming is a more compelling proposition for customers. The overall costs are likely to be lower for them, and they have better control over the selection of content. 

A market crash could present an opportunity 

Netflix is trading at a price-to-earnings ratio of 61, the lowest it has sold for going back to 2015. On that basis, Netflix stock is inexpensive right now. However, a stock market crash could take Netflix stock down along with it — and such a drop could allow investors to buy it at an even more favorable entry point.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here’s why investors can consider Netflix in the next market crash appeared first on The Motley Fool Australia.

More reading

• Here’s why Netflix is more recession-proof than disney
• Amazon vs. Netflix: Which is a better growth stock to buy?

Parkev Tatevosian owns shares of Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Netflix and Walt Disney. The Motley Fool Australia has recommended Netflix and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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