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The Pilbara Minerals Ltd (ASX: PLS) share price will be one to watch closely on Friday.

That’s because the lithium miner released its eagerly anticipated quarterly update after the market close yesterday.

Pilbara Minerals share price on watch following Q3 update

All eyes will be on the Pilbara Minerals share price this morning after the lithium miner reported a 9% quarter on quarter decline in spodumene production to 148,131 dry metric tonnes (dmt) for the three months ended 31 March.

However, before you panic, it is worth highlighting that this decline was actually in-line with the market’s expectations. The consensus estimate was for spodumene production of 148,000 dmt.

One thing, though, that could disappoint the market was its shipments. Pilbara Minerals reported shipments of 144,312 dmt of spodumene concentrate This was down 3% quarter on quarter and well short of the market’s estimate of 161,000 dmt. It was also a world away from Goldman Sachs’ forecast of 170,000 dmt.

Lithium prices soften

There’s been a lot of talk of falling lithium prices recently, which has been weighing heavily on the Pilbara Minerals share price.

These concerns aren’t unwarranted, with the company reporting a 15% quarter on quarter decline in the average estimated realised spodumene concentrate sales price to ~US$4,840 per dmt on a ~SC5.3 basis. As a comparison, the consensus estimate was for a decline to US$5,209 per tonne for the quarter.

Management also warned that it expects prices to soften further “until pricing for lithium chemicals stabilises, including domestic pricing in China.”

On a positive note, it does see scope for “prices potentially strengthening in the second half of this year as restocking of inventory levels in China occurs across the supply chain.”

Costs rise

As with most miners, Pilbara Minerals reported a rise in its cost of production during the quarter.

It reported a unit operating cost of A$632 per dmt (FOB Port Hedland and excl. royalties), which was up 9.15% from the previous quarter. This reflects reduced production volumes and cost pressures due to labour shortages in the Western Australia mining sector, supply chain disruptions, and general inflation.

Despite its rising costs, lower sales volumes, and falling prices, Pilbara Minerals still had a highly profitable quarter. This led to the miner reporting a A$457 million increase in its cash balance to A$2.683 billion.

FY 2023 guidance

Unfortunately, its costs are not expected to improve enough for the company to achieve its unit cost guidance in FY 2023. Management has increased its full-year unit cost guidance to A$600 to A$640 per dmt from A$580 to A$610 per dmt. All other guidance has been reaffirmed for FY 2023.

The post Pilbara Minerals share price on watch following tough quarter appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• 5 things to watch on the ASX 200 on Thursday
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Monday

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

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ASX shares offer the potential of building a comfortable second income.

The Aussie market is fairly unique when it comes to dividends. That’s because those dividends often come with franking credits, which can leave you with a good bit more money in your pocket come tax time.

Or better yet, money to reinvest into ASX shares.

If I had little to no savings at 30, I’d look into gradually building an ASX share portfolio to build that passive income stream.

Say $3 a day.

And with at least 35 years before retirement, I’ve got a lot of time to make up for those savings I didn’t bank in my 20s.

Start buying ASX shares now

35 years may seem like a long time.

But the sooner you begin to invest in ASX shares for passive income, the better your outcome is likely to be. That’s because your investments will have longer to compound and grow your wealth.

Now, a lot of younger investors might opt to turn to a fund manager to choose their ASX shares for them.

That’s a fine option.

But here at The Motley Fool, we prefer to do our own research and buy specific company shares to boost our long-term returns.

And there are some juicy yields being offered by ASX dividend shares.

Whitehaven Coal Ltd (ASX: WHC), for example, trades on a fully franked trailing yield of 10%.

Woodside Energy Group Ltd (ASX: WDS) trades on a trailing yield of 11.1%, also fully franked.

And ANZ Group Holdings Ltd (ASX: ANZ) shares pay a fully franked yield of 6%.

Good luck trying to get those kinds of returns from your deposit account.

How will I get there with $3 a day?

If I opted to hold off my retirement until 67, I’d have 37 years to build my $10,824 a year in passive income from ASX shares.

Investing just $3 each day works out to $1,095 per year.

With inflation in mind, I’ll also increase that by 3% each year.

Now, a look at the ASX 200 Gross Index, which includes reinvested dividends, shows that the blue-chip ASX shares have returned an average of approximately 7% per year over the past five years.

Of course, those returns may be lower or higher over the next 37 years. But we’ll take that to be the long-term average moving into the future for the purposes of this article.

With 7% returns per year, and increasing my $3 a-day investment by 3% each year to offset inflation, my investment in ASX shares will have grown to $270,604 by the time I retire at 67.

At that point I should be able to withdraw 4% each year without depleting that amount. This is known in the industry as the ‘safe withdrawal rate’. That’s because my portfolio should still be earning dividend income and hopefully seeing share price appreciation.

At that 4% per year, I’d have a passive income stream of $10,824 and change, every year!

Not bad.

Now I mentioned three high-yielding ASX shares above.

These might be ones to consider to help build your own second income.

But ideally, you want to invest in at least 10 ASX dividend shares, spread across different sectors, to reduce your risks.

Happy income investing!

The post No savings at 30? I’d invest $3 a day in ASX shares to target a second income of $10,824 a year appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• 12 ASX dividend shares with yields over 10%. Are they too good to be true?
• Why is the Woodside share price lagging the ASX 200 today?
• Which is the best ASX 200 bank share to buy right now?

Motley Fool contributor 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 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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On Thursday, the S&P/ASX 200 Index (ASX: XJO) was out of form again and dropped into the red. The benchmark index was down 0.3% to 7,292.7 points.

Will the market be able to bounce back from this on Friday? Here are five things to watch:

ASX 200 expected to jump

The Australian share market looks set to end the week in a positive fashion following a stunning night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open 55 points or 0.75% higher this morning. In the United States, the Dow Jones was up 1.6%, the S&P 500 rose 2%, and the NASDAQ jumped 2.4%. The S&P 500 index had its best session since January.

Oil prices rebound

ASX 200 energy shares Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a decent finish to the week after oil prices rebounded overnight. According to Bloomberg, the WTI crude oil price is up 0.65% to US$74.78 a barrel and the Brent crude oil price is up 0.85% to US$78.35 a barrel. Traders appear to believe that oil has been oversold following recent weakness.

Pilbara Minerals quarterly update

The Pilbara Minerals Ltd (ASX: PLS) share price will be one to watch today after the lithium miner released its quarterly update after the market close yesterday. Pilbara Minerals had a tough quarter, reporting lower than expected shipments and lithium prices, as well as higher than forecast costs.

Gold price edges higher

Gold shares Newcrest Mining Ltd (ASX: NCM) and St Barbara Ltd (ASX: SBM) could have a subdued finish to the week after the gold price edged ever so slightly higher overnight. According to CNBC, the spot gold price is up 0.05% to US$1,997 an ounce. A stronger US dollar held back the gold price.

Coles quarterly

The Coles Group Ltd (ASX: COL) share price will be in focus today when the supermarket operator releases its third-quarter update. Another solid quarter is expected from the retailer, with UBS forecasting a 7.5% increase in sales to $9.8 billion. This would be ahead of the consensus estimate of $9.6 billion. UBS expects this to be underpinned by a 7.9% increase in total supermarket sales on inflation and modest volume growth. The broker expects supermarket same store sales growth of 7.8%.

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

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More reading

• Here are the top 10 ASX 200 shares today
• How Coles shares could help ‘recession proof’ your portfolio
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• 3 ASX 300 mining shares climbing following quarterly updates
• 12 ASX dividend shares with yields over 10%. Are they too good to be true?

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 positions in and has recommended Coles 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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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 rate as buys right now. They are as follows:

CSL Limited (ASX: CSL)

The first blue chip ASX 200 share that is highly rated is CSL. It is one of the world’s leading biotechnology companies, comprising the CSL Behring, CSL Vifor, and Seqirus businesses.

CSL has been growing its earnings at a solid rate for years thanks to a combination of strong demand for its products and its material investment in research and development (R&D) each year. The latter ensures that the company’s pipeline is filled to the brim with potential lifesaving and lucrative products.

Looking ahead, CSL has been tipped to continue its growth long into the future thanks to these same factors. In addition, this will be supported by improvements in plasma collections and the company’s new collection technology.

Citi is positive on CSL and currently has a buy rating and $350.00 price target on its shares.

Goodman Group (ASX: GMG)

Another blue chip ASX 200 share to look at is Goodman Group.

This leading integrated commercial and industrial property company currently has $77.8 billion of total assets under management and over 1,700 customers globally. This includes the likes of Amazon, Coles Group Ltd (ASX: COL), DHL, and Walmart.

But management isn’t settling for that. Goodman continues to build new properties and has $13.8 billion of development work in progress across 85 projects. With a yield on cost of 6.1%, these properties look likely to support its growth in the future.

UBS is a big fan of Goodman. It is expecting the company to continue its strong earnings growth in the coming years. As a result, it recently reiterated its buy rating with a $23.00 price target on its shares.

The post Here’s why analysts rate these strong blue chip ASX 200 shares as buys appeared first on The Motley Fool Australia.

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More reading

• The CSL share price is a sleeping dividend giant. Here’s why
• Strengthen your ASX portfolio with these blue chip blockbusters: analysts
• Which stocks does Warren Buffett own (and what can ASX 200 investors learn from this)?
• CSL shares dip despite new FDA approval
• What are analysts saying about the CSL share price?

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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Although the Fortescue Metals Group Ltd (ASX: FMG) share price has pulled back meaningfully from recent highs, one leading broker believes there could be more declines to come.

In response to the miner’s recent quarterly update, Goldman Sachs has reiterated its sell rating with a $15.80 price target.

Based on the current Fortescue share price of $20.86, this suggests potential downside of almost 25% for investors over the next 12 months.

What did the broker say about the Fortescue and its share price?

Firstly, Goldman was actually reasonably pleased with the iron ore miner’s performance during the third quarter. It highlights that its production was in-line and its costs were better than expected. It said:

FMG reported a strong March Q with record iron ore shipments of 46.3Mt (in-line with GSe), and unit costs 2% below and price realisations 2% above our estimates. FY23 shipments guidance is unchanged at 187-192Mt (GSe 192Mt) and costs are tracking to the bottom end of the US$18-18.75/wmt range (GSe at US$18.1/wmt) due to higher volumes and lower diesel prices.

Together with higher forecast iron ore prices, this has led to the broker lifting its earnings per share estimates by 4% in FY 2023 and 2% in FY 2024.

Why is it still bearish?

Unfortunately, the company’s quarterly performance wasn’t enough for a more positive rating. Goldman continues to believe that the Fortescue share price is vastly overvalued at the current level compared to peers. It commented:

[T]he stock is trading at a premium to RIO & BHP on our estimates; 1.4x NAV vs. BHP at c. 0.95x NAV and RIO at 0.9x NAV, c. 5.5x NTM EV/EBITDA (vs. BHP/RIO on c. 5x/3.5x), and FY24 FCF of c. 4% vs. BHP/RIO on c. 7/10%.

In addition, the broker has concerns over its Fortescue Future Industries business and expects it to weigh heavily on its free cash flow and dividends. It said:

The 2022 FMG site trip to the Pilbara highlighted ongoing elevated spend to maintain hematite group shipments at ~190Mtpa going forward. Combined with the ~US$7-8bn decarb program, we forecast FMG’s capex to increase from ~US$3.3bn in FY23 to US$3.8bn by FY25. We continue to think FMG is at an inflection point on capital allocation, and to fund the ambitious strategy, we assume the company raises ~US$5.5bn of new debt, reduces the dividend payout ratio from the current ~65% in 1H FY23 to ~50% from FY24 onwards (bottom end of the 50-80% guidance range), and increases gross gearing to ~30% by FY26 (in-line with the company’s target of 30-40%).

The post Be careful, the Fortescue share price is overvalued: Goldman Sachs appeared first on The Motley Fool Australia.

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More reading

• Should I snap up Fortescue shares while they’re around $20?
• Investing in ASX 200 mining stocks? Here’s Citi’s latest iron ore price forecast
• Invested in Fortescue shares during the July 2022 dip? Here’s the dividend yield you’re earning today
• Fortescue share price plummets 5% amid weaker production
• Fortescue shares: Bull vs. Bear

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

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The COVID stock market crash of 2020 was a watershed moment for ASX shares and the share market. In just over three weeks, ASX investors watched the S&P/ASX 300 Index (ASX: XKO) experience its biggest fall since the global financial crisis of 2007-2008. And that one took 18 months to get from the top to the bottom. But let’s talk about the Vanguard Australian Shares Index ETF (ASX: VAS).

This exchange-traded fund (ETF) from Vanguard is a quintessential index fund. That means that this ETF closely reflects the movements of the index that it tacks at all times. In this case, the index in question is the ASX 300.

Put another way, you can expect his ETF to behave almost exactly in line with the ASX 300.

So let’s cast our minds back (if we dare) to early 2020. COVID was raging and the world was full to the brim with uncertainty. If there’s one thing investors hate above all else, it is uncertainty. As such, the crash that we saw across February and March of 2020 wasn’t exactly unexpected in hindsight.

Between 21 February and 24 March 2020, the ASX 300 Index went from 7,115 points all the way down to 4,500. That was a precipitous drop of 36.75%.

Lo and behold, we saw something very similar occur with VAS units. On 20 February, the ETF closed at $90.55. But by 23 March, the fund was down to $58.35 a unit, a fall of 35.56%:

Now picking the bottom of a market crash is a very difficult needle to thread. Most of us would probably do better if we avoided attempting such a difficult task. But let’s say, for argument’s sake, that an investor managed to time the bottom of this COVID crash perfectly and invested $5,000 into Vanguard Australian Shares ETF units on 23 March.

How much has the Vanguard Australian Shares ETF given back to ASX investors?

So assuming a buy price of $58.35 per unit, this investor would have been able to bag 85 Vanguard Australian Shares ETF units, with around $40 left over for brokerage costs. On the ASX today, VAS units have just closed at $90.60 each. That’s worth a capital gain of 55.27% over the past three-and-a-bit years alone, and would give our investor’s 85 units a value of $7,701 today.

But then there are also dividend distributions to consider. Like most ASX index funds, the Vanguard Australian Shares ETF pays out a distribution every quarter to investors.

So between 23 March and today, this ETF has forked out nine dividend distributions, worth a collective (and approximate) $10.36 per unit. Since we have 85 VAS units, our investor would have also received a rough total of $880.60 in dividend income as well. That stretches our gain to $3,581.60, and our total lump sum to $8,581.60, or a gain of 71.63%.

Not a bad return for just over three years of waiting.

The post If you’d invested $5,000 in the Vanguard Australian Shares Index ETF (VAS) after the COVID crash, here’s much you’d have now appeared first on The Motley Fool Australia.

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More reading

• 5 dividend shares I think are among the safest on the ASX
• I think this underrated reason is key to why ETFs can be great investments
• The Vanguard Australian Shares Index ETF dividend is being paid today. Here’s the lowdown
• Here’s how I’d dip my toe in the Aussie stock market with $500
• The cheapest index fund on the ASX revealed

Motley Fool contributor Sebastian Bowen has positions in Vanguard Australian Shares Index ETF. 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 National Australia Bank Ltd (ASX: NAB) share price has shed nearly 5% in the year to date but is now the time to buy?

NAB shares closed 0.38% in Thursday’s trade at $28.73 apiece. For perspective, the S&P/ASX 200 (ASX: XJO) closed 0.32% lower.

Let’s take a look at the outlook for the NAB share price.

What’s ahead?

NAB is due to deliver half-year financial results to the market on Thursday next week. The company’s interim dividend is also expected to be announced.

Analysts at Goldman Sachs are positive on NAB’s outlook. The broker has a “buy” rating on NAB shares with a $35.42 price target.

The team at Goldman likes NAB’s exposure to commercial lending and forecasts “volume momentum over the next 12 months as favouring commercial volumes over housing volumes”.

Goldman is tipping NAB to pay a total of $1.68 in dividends in the 2023 financial year. If this forecast is delivered, it would be a higher dividend than shareholders received last financial year.

NAB paid a fully franked interim dividend of 73 cents per share last year, followed by a 78 cents per share fully franked final dividend in November. This was a total of $1.51 in dividends per share for the year.

However, the team at Morgans has recently cut its price target on NAB to $28.78 with one reason being “slowing loan growth”. The broker said:

Recent slowing of loan growth. Leading SME [small to medium enterprise] relationship banking franchise. Increased simplification and improving digitisation in personal banking.

Meaningful improvement in ROE that is in excess of cost of equity. Attractive yield and buyback. Cautious re step-up in costs and weaker valuation support.

Meanwhile, the Reserve Bank of Australia is also due to meet next Tuesday to decide the official cash rate. Banks tend to take the lead from the RBA when it comes to lifting interest rates on customer loans.

However, inflation data yesterday came out lower than expected at 6.6% year on year. City Index senior market analyst Matt Simpson believes the RBA is on track to keep the official cash rate on pause at next week’s meeting. He said:

Trimmed mean inflation year on year (the RBA’s preferred inflation measure) snapped a seven quarter rise, and it backs up the hopes that inflation has indeed topped in Australia. The quarterly measure also moved lower for a second consecutive quarter, at its fastest pace since the pandemic.

And as the trajectory from Q4 2022 to Q1 2022 more than keeps them on track for their Q2 target, I suspect the RBA will be content in keeping rates on hold at next week’s meeting, especially as “inflation expectations remain well anchored”.  However, that is not to say the RBA have reached their terminal rate in the cycle, as disinflation needs to keep up the pact to justify a pause in the coming months.

ANZ research analysts are also tipping the RBA to maintain the cash rate at 3.6% at the May meeting, according to a research note this morning.

Share price snapshot

National Australia Bank shares have fallen 11% in the last year but they have climbed 5.43% in the last month.

NAB has a market capitalisation of about $89.9 billion based on the current share price.

The post Should I buy NAB shares ahead of next week’s half-year results? appeared first on The Motley Fool Australia.

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• Which is the best ASX 200 bank share to buy right now?
• First Republic Bank shares just crashed 50%. Here’s how ASX 200 bank stocks are responding
• Lowest ASX bank yield: Are CBA shares still worth it?
• Here’s how much investing in NAB shares will pay you in dividends every year
• Buy these ASX 200 dividend shares with 5%+ yields: analysts

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The S&P/ASX 200 Index (ASX: XJO) slipped lower on Thursday, falling 0.32% to close the session at 7,292.7 points.

Leading the fall was the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ), which slumped 0.8%.

Other sectors posting notable slumps included the S&P/ASX 200 Health Care Index (ASX: XHJ), the S&P/ASX 200 Financials Index (ASX: XFJ), and the S&P/ASX 200 Real Estate Index (ASX: XRE). They fell 0.6%, 0.5%, and 0.6% respectively.

Though, it wasn’t all bad. The S&P/ASX 200 Materials Index (ASX: XMJ) rose 0.2%, helped by the Allkem Ltd (ASX: AKE) share price. The company’s stock gained 4.1% amid rumours Rio Tinto Ltd (ASX: RIO) could consider it a takeover target.  

But today’s top-performing share doesn’t belong to any of the sectors mentioned thus far. Let’s take a look at what drove it to lead the ASX 200 today.

Top 10 ASX 200 shares countdown

Taking out today’s top spot was, of course, newly crowned takeover target Blackmores Ltd (ASX: BKL). The stock soared 22.75% on the back of a $1.9 billion acquisition offer.

These shares made today’s biggest gains:

ASX-listed company	Share price	Price change
Blackmores Ltd (ASX: BKL)	$94.26	22.75%
Brainchip Holdings Ltd (ASX: BRN)	$0.42	9.09%
Allkem Ltd (ASX: AKE)	$11.80	4.15%
Kelsian Group Ltd (ASX: KLS)	$5.99	3.28%
Nanosonics Ltd (ASX: NAN)	$5.65	2.54%
Iress Ltd (ASX: IRE)	$10.21	2%
Whitehaven Coal Ltd (ASX: WHC)	$7.29	1.96%
Regis Resources Ltd (ASX: RRL)	$2.18	1.87%
Capricorn Metals Ltd (ASX: CMM)	$4.59	1.77%
Silver Lake Resources Ltd (ASX: SLR)	$1.27	1.6%

Our top 10 shares countdown is a recurring end-of-day summary to let you know which companies were making big moves on the day. Check in at Fool.com.au after the weekday market closes to see which stocks make the countdown.

The post Here are the top 10 ASX 200 shares today appeared first on The Motley Fool Australia.

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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. has positions in and has recommended Nanosonics. The Motley Fool Australia has positions in and has recommended Nanosonics. The Motley Fool Australia has recommended Blackmores. 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 explosion of strong inflation has made things more complex in the investment world. But stock picking specific ASX shares could begin to deliver good returns again, going by recent moves of the Future Fund.

Before now, the Australian government’s sovereign wealth fund was investing in low-cost index funds, according to reporting by the Australian Financial Review. It had terminated its mandates with fund managers. But, the $200 billion Future Fund is now returning to stock pickers once again.

A key reason for the strategic change is that “central bank policies no longer dominate equity market returns, and stock pickers can truly add value”, according to the AFR’s reporting.

Future Fund backs stock picking

The Future Fund’s CEO Raphael Arndt told the AFR:

There’s a richer universe for active management. Equity market returns were largely responsive to central bank policies around either interest rate or quantitative easing or liquidity settings.

We continue to think that strategy makes sense at some level, but it’s also true that markets have become more sophisticated around those decisions, so you need a more dynamic approach.

As economic conditions change in the real world, then some companies will be in sweet spots where they can take advantage of that.

Other ones won’t be or will come under margin pressure because of more populist politics and more aggressive regulation.

This move will include the Future Fund investing in stock picking domestic small-cap funds as well.

Are economic conditions getting better?

The Future Fund is worried about the impacts of inflation and how this could impact economic growth. These could be good conditions for stock picking. Arndt said:

We still are concerned about a stagflation. In fact, it looks more likely than not that we’ll have a stagflation.

However, while interest rates have risen, they are still below the rate of inflation, so cash isn’t providing a strong enough return yet, Arndt continued:

Unfortunately, it’s still negative in a real sense. We felt like cash was expensive to hold because of inflation, so we have reduced that cash holding as a result of that.

The Australian Bureau of Statistics (ABS) has just delivered its quarterly inflation numbers, which showed that the consumer price index (CPI) rose by 1.4% in the three months to 31 March 2023, while over the 12 months, it showed a 7% rise.

Tertiary education and gas and other household fuels saw two of the largest gains, with rises of 9.7% and 14.3%, respectively.

So, while inflation has reduced from the most recent quarter – CPI annual inflation was 7.8% in the three months to December 2022 – it is still strong.

Time will tell whether inflation settles back towards the Reserve Bank of Australia (RBA) goal of 3% quickly or if it stays elevated for longer than hoped.

The post The importance of stock picking in an inflationary environment appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has 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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Coles Group Ltd (ASX: COL) shares have strongly outperformed in 2023.

Since the opening bell on 3 January, shares in the S&P/ASX 200 Index (ASX: XJO) consumer staples retail stock are up 12%.

That’s more than twice the 5% year-to-date gains posted by the ASX 200.

And it doesn’t include the 36 cents per share fully franked dividend shareholders will have received on 30 March.

Now, here’s why investors concerned about a looming recession may want to run their slide rules over Coles shares.

Recession resilience

With its combined segments of Coles Supermarkets, Coles Express, and the Coles liquor division, the retail giant has a market cap of $24.6 billion.

And with the majority of its revenue derived from staple goods, Coles shares are well positioned to weather an economic downturn – or even a full-fledged recession – should stubbornly high inflation and rising interest rates send the Aussie economy into a tailspin.

After all, at the end of the day, we all need to eat and ensure our homes have the basic essentials.

For some idea of Coles shares’ defensive qualities, the company managed to post solid profits even during the height of the pandemic.

And the ASX 200 retailer’s latest half-year results revealed strong growth trends as Australia shakes off the last vestiges of those COVID times.

Among the highlights, Coles reported a 3.9% year-on-year increase in sales revenue, which reached $20.8 billion over the six months. And net profit after tax (NPAT) leapt 11.4% to $616 million.

The 36 cents per share interim dividend mentioned up top also represented a 9.1% increase from the prior corresponding half year. That continues the trend of Coles shares delivering an increased dividend every year since 2019.

Importantly, despite inflation running hot over the six-month reporting period, Coles’ gross profit margin increased by 0.43% to 26.5%.

The company also has a solid balance sheet.

Net assets as at 1 January were $3.38 billion, an increase of $370 million year on year. Net debt, meanwhile, decreased by $144 million. Net debt (excluding lease liabilities) at the half-year came in at $362 million.

What other recession resistant qualities do Coles shares have?

Another recession resistant aspect of Coles shares is the company’s ability to pass on any cost inflation to its customers.

Though management has noted it is seeing inflation pressures on its shelves begin to ease.

And, as The Australian reports, Coles is also working to lower costs via investments in automation.

This week, the retail giant unveiled its first automated distribution centre in Queensland. The centre will service 219 Coles supermarkets in Queensland and New South Wales.

Commenting on the investments in automation, outgoing Coles CEO Steven Cain said:

Modernising our operations is how we improve efficiency and availability in our stores and deliver higher service levels for our customers, team members and suppliers.

Our new automated distribution centres can process twice the number of cases and hold twice the number of pallets in half the footprint compared to our current distribution centres, leading to a more productive and sustainable business model.

Now no stock is likely to be wholly immune in the face of any lengthy recession down under.

But Coles shares have plenty of defensive qualities to help support their valuation through any upcoming economic downturns.

The post How Coles shares could help ‘recession proof’ your portfolio appeared first on The Motley Fool Australia.

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• Could Coles shares be a market-beating buy for passive income right now?

Motley Fool contributor 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 positions in and has recommended Coles 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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