Tag: Motley Fool

Ask A Fund Manager

In part 1 of our interview, Medallion Financial managing director Michael Wayne explained how he narrows down booming sectors then targets companies within them. Now in part 2, he tells us the stock that made his clients 500% but he still regrets exiting.

Overrated and underrated shares

The Motley Fool: What’s your most underrated stock at the moment?

Michael Wayne: Audinate Group Ltd (ASX: AD8) is probably the share that we think’s the most underrated at the moment.

Again, it’s probably one of these businesses that suffered as a result of COVID. But as the situation normalises, we expect Audinate will be one of those companies to benefit from the reopening phase.

A good quality company – basically they are operating in the digital audio space. They allow different pieces of equipment to communicate with each other without the need for all the cabling and the cords, et cetera.

They’re growing very, very quickly. The adoption rate… is about 17 times the nearest competitor. So they’ve got a lot of competitive advantages that put them in a good position to benefit in the years to come. I think about 75% of new audio equipment and digital equipment incorporates the Audinate Dante protocol. And that should mean that they’re embedded into that industry for some time to come.

Got some large customers. I think I’ve mentioned [previously] names like Yamaha, Bose, a number of others as well.

It’s one that we got into about maybe a couple of years ago, that’s tracked sideways ever since, maybe slightly higher than where we got it, but it’s yet to see that huge price increase that many other tech names have seen.

MF: So you must’ve bought it at about $6 or $7?

MW: That’s right. That’s when we first sort of brought it to clients and included it in some of our monthly reports, but we think there’s a lot of value still to be unlocked there. 

They had an update the other day and by all accounts, the outlook is improving. Their sales process is picking up again. And I think it bodes well for the future as well as the fact that they’re now also branching out into the digital visual space – so they can bolt that on as well as part of their offering, not just the audio stuff. 

MF: What do you think is the most overrated stock at the moment?

MW: Not in terms of the quality of the company, but the banks for us are probably the most overrated stocks in that so many people hold so much of [them]. 

And that’s probably a symptom of the fact that they’ve done really well over a very long period of time, but there’s a bit of a… what do you call it? A bias towards things that people are familiar with.

What we find with the banks is that people hold them. They are almost emotionally attached to them. But if you look at it on a 5-year horizon, for instance, the banks have really gone nowhere except for dividends. And in the case of National Australia Bank Ltd (ASX: NAB), dividends aside, it’s really gone nowhere for 20 years or so.

So we think that there’s an undue affection for the banks. I think you could also include the buy now, pay later sector, although it’s come back recently, where they’re somewhat overrated in terms of what they can deliver long-term. And how well the companies are going to have to execute in order to deliver on those expectations.

MF: If the market closed tomorrow for 5 years, which stock would you want to hold?

MW: Oh look, it’s a hard question because obviously, you won’t be able to manage different positions. CSL Limited (ASX: CSL) would probably be up there with the number 1 pick in terms of a stock specifically.

Otherwise, we would have to lean towards putting it into an [exchange traded fund] ETF. That way you’re getting broad exposure to the market. You don’t really have to worry about the companies in that market. You can just leave it in the ETF and have faith that over the long run the market should do quite well.

We would lean towards a US-based ETF rather than an Australian based ETF, just because of the way that their market is comprised – more tech companies and more growth type businesses. 

That’s probably how we would prefer to do it. Otherwise, a fund manager of quality would be another way to go about that.

Looking back

MF: Which stock are you most proud of from a past purchase?

MW: There’s been a few in terms of some good returns… But Pro Medicus Limited (ASX: PME) has probably been the best performer amongst client portfolios over the last 4 years or so since our inception.

That’s the company which is a borderline or hybrid healthcare/tech business, which allows for images to be scanned and stored and transferred with ease amongst different medical practitioners and companies.

MF: Is it still on your buy list or has it gone off?

MW: We hold it for clients. We have scaled back some of the position sizes just because [it’s] done so well. However, it is very expensive and we are conscious of the fact that many of these high [price-to-earnings] P/E, high growth names have run very hard. In this market, there’s a lot of rotation back towards value. 

So companies like Pro Medicus could have come under some pressure, but if it fell far enough down to $30, $25, it’s certainly something that we would have a look at again.

MF: Speaking of the rotation, how much longer do you think this could go on? Do you think growth will make a comeback this year or is this more of a medium-term rotation into value?

MW: If inflation rears its head, it will drive more money towards value away from growth. There’s no doubt that the likelihood of inflation occurring, the probabilities have increased. So we are increasing our exposure to those parts of the market that would benefit an inflationary environment.

However, we’re not entirely convinced that inflation’s here to stay. We do think that it would be transitory at this point, just once the economy cycles through some of those weaker numbers. So we are still positioned towards growth companies, but we’ve got what we call a style-neutral approach setting with portfolios in that we’ve increased our exposure to value… [we] probably have 50% exposed to each scenario unfolding. 

But I wouldn’t be surprised if inflation is transitory and if that’s the case then growth can do quite well, but it’s impossible to say for sure at the moment.

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.

MW: Well, in terms of a terrible performer, it would have to be Speedcast International Limited (ASX: SDA). 

This is a telecommunications company that was providing telecommunications services to those companies and those interested parties that operate in remote locations. So if you think about the military or you think about the cruising industry, they’re two sectors that use those services heavily. That’s a business that looked very good for a long period of time.

They ended up taking on debt to acquire businesses. Those acquisitions weren’t successfully integrated. And when that occurs and you’ve run up your debt, you get yourself into a lot of trouble. Fortunately, we managed to get the vast majority of clients out before it delisted or went belly up – but it wasn’t our proudest moment, that’s for sure. 

In terms of missing out, Afterpay Ltd (ASX: APT)’s probably one that we sold out of too early.

MF: When did you sell?

MW: I got clients in there – believe it or not – the day it listed. I’ve got a handful of clients at about $1.30. 

Ended up selling [some] at $4.50 and then at $8 the rest – so that’s obviously got on to a lot bigger and better things, but we did okay out of it. But that’s one that we got a little bit too trigger-happy and sold out too early.

I think that’s par for the course [in] investing, unfortunately. I’m sure there’s numerous names for the people that missed out on over the years, but that’s probably our biggest one that we’ve sold early.

MF: Going back to Speedcast, did that experience make you a little bit more shy about companies with debt?

MW: Absolutely. I mean, we always try to avoid companies with too much debt. 

[Speedcast] is one that started off with not that much debt, but over time it did run up a fair amount. It’s probably made us more wary of those roll-up type companies that go on these acquisition sprees, spending up big on these new purchases and run up debt in the course of it. Because as I touched upon, all it takes is one or two of those acquisitions to go poorly.

You’ve borrowed all this money… purchasing a company and then all of a sudden the company that you’ve purchased probably is worth half or worth nothing. And you’ve still got to pay back the debt after that, so it’s a tough situation. 

But to answer your question, it’s probably made us more wary of roll-up acquisition models, particularly when they involve accumulating more debt.

More reading

• 2 high quality ASX 50 shares given buy ratings
• Which ASX 200 shares withstood today’s selloff?
• Is the worst over for the CSL (ASX:CSL) share price?
• ASX bank shares primed for dividend bonanza
• CSL (ASX:CSL) share price backtracks despite renewed optimism

The post The 6-bagger ASX share that I now regret selling: fundie appeared first on The Motley Fool Australia.

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If you’re a growth investor, then you’re in luck. The Australian share market is home to a large number of companies with the potential to grow strongly in the future.

Two top ASX growth shares that have been given buy ratings are listed below. Here’s what you need to know about them:

Altium Limited (ASX: ALU)

The first ASX growth share to take a look at is Altium. It is the printed circuit board (PCB) design software provider behind the Altium Designer and Altium 365 platforms.

These platforms are used in the design process of everything from automotive and aerospace to consumer electronics and medical devices.

While COVID-19 has softened demand for its offering, it appears well-placed to bounce back very strongly in a post-pandemic world. This is thanks to industry tailwinds, such as the Internet of Things and artificial intelligence booms, which are underpinning the proliferation of electronic devices globally.

One leading broker that is positive on the company is Citi. It currently has a buy rating and $33.50 price target on its shares. The broker notes that website traffic data is pointing to favourable trends for both its Altium 365 platform and Octopart search engine.

Kogan.com Ltd (ASX: KGN)

Another ASX growth share to look closely at is Kogan. It is a growing ecommerce company which has been benefitting greatly from the shift to online shopping. This has particularly been the case over the last 12 months after the pandemic forced shoppers online, many for the first time.

This has underpinned a significant increase in customer numbers, putting Kogan in a great position for long term growth. Not least given the value accretive acquisitions it has made, such as fellow online retailer Mighty Ape for $122 million.

And while the company is going through a difficult spot as tailwinds ease and inventory builds up, this appears to be more than reflected in its recent share price performance.

Analysts at Canaccord Genuity believe the recent weakness in the Kogan share price is a buying opportunity. They recently put a buy rating and $18.00 price target on its shares.

More reading

• 3 top ASX 200 shares that could be in the buy zone
• Is the a2 Milk (ASX:A2M) share price a bargain or value trap?
• Why Zip (ASX:Z1P) and this beaten down ASX tech share could be buys
• These are the 10 most shorted shares on the ASX
• 2 growing ASX dividend shares to buy

The post 2 exciting ASX growth shares rated as buys appeared first on The Motley Fool Australia.

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If you have some cash to invest then there are a few ASX shares that could be very interesting to look at right now.

Businesses that are generating good underlying growth have a good chance of producing shareholder returns over the longer-term.

These two businesses are quality ideas that could be worth considering:

Pushpay Holdings Ltd (ASX: PPH)

Pushpay provides a donor management system, including donor tools, finance tools and a custom community app, and a church management system to the faith sector. It processes a lot of donation volume for large and medium US churches.

It very recently reported its FY21 result which included strong revenue growth, cash flow growth, expanding operating margins and growth of earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF).

FY21 operating revenue grew 40% to US$179.1 million, the gross profit margin rose from 65% to 68% and the EBITDAF margin went up from 22% to 34%. The growing profit margins is one of the compelling reasons to consider this ASX share as it adds revenue at a double digit pace.

Pushpay is expecting further underlying profit growth in FY22. The ASX share is also investing in the Catholic market to grow outside of its core customer base. Pushpay has set a goal of acquiring more than 25% of the Catholic church management system and donor management system market over the next five years.

The Catholic church is closely associated with many education providers and non-profit organisations, which presents further opportunities within the US and other international jurisdictions. The company continues to look at acquisition opportunities that could help it expand its customer base and deliver new products that can be sold more quickly than what could be done organically.

According to Commsec, the Pushpay share price is valued at 19x FY24’s estimated earnings.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

This is a leading exchange-traded fund (ETF) ASX share which is focused on US businesses that have strong competitive positions, or wide economic moats.

There are a few positive reasons why investors should be interested in this ETF.

It gives investors exposure to companies that Morningstar believes possess sustainable competitive advantages. The investment choices that make it into the ETF’s portfolio is fuelled by Morningstar’s forward-looking, rigorous equity research process.

The fees are very reasonable at 0.49%. You’re getting active management choices for passive investment fees.  

Morningstar assigns each company it analyses an economic moat rating of ‘wide’, ‘narrow’ or ‘none’. Companies that are assigned a wide moat rating are those that Morningstar has a strong belief that excess returns will remain for 10 years, with excess returns more likely than not to remain for at least 20 years.

VanEck Vectors Morningstar Wide Moat ETF currently has 49 holdings, including names like Alphabet, Berkshire Hathaway, Yum! Brands, Lockheed Martin, Pfizer and Constellation Brands.

Over the last five years the ETF has produced an average return per annum of 18.6%.

More reading

• 3 exciting ASX growth shares rated as buys
• Why is the Pushpay (ASX:PPH) share price down 13% this year?
• 2 fantastic ASX shares with enormous growth potential
• ASX 200 drops again, Pushpay rises, CSR climbs
• Pushpay (ASX:PPH) share price on watch after FY 2021 results

The post Got cash to invest? Here are 2 ASX shares to buy appeared first on The Motley Fool Australia.

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More reading

• Got cash to invest? Here are 2 ASX shares to buy
• 2 high quality ASX dividend shares with yields above 4%
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 sinks, EML plunges, Appen soars
• 2 highly rated ASX dividend shares for income investors

The post LIVE COVERAGE: ASX to edge higher; Nufarm to report half year results appeared first on The Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) dropped almost 2% today, falling to 6,932 points.

Here are some of the highlights from the ASX:

EML Payments Ltd (ASX: EML)

The EML share price was the worst performer in the ASX 200 by far today.

It came out of its trading halt after giving investors an update about its correspondence from the Central Bank of Ireland.

EML told that market that its Irish regulated subsidiary, PFS Card Services (Ireland) Limited (PCSIL), has received correspondence from the Central Bank of Ireland (CBI) raising significant regulatory concerns.

The CBI concerns relate to PCSIL’s anti money laundering and counter terrorism financing, risk and control frameworks and governance. The correspondent states that the CBI is minded to issue directions pursuant to section 45 of the Central Bank (Supervision and Enforcement) Act 2013.

The correspondence does not concern EML’s Australian or North American operations, or the operations of PFS’ UK subsidiary, or EML’s other Irish regulated subsidiary (EML Money DAC).

Before Brexit, the European business was primarily operated through its FCA regulated subsidiary. But Brexit meant EML was required to transfer its non-UK programs out of the UK. On 19 December 2020, all of the European programs were transferred to the CBI regulated PSCIL.

The directions, if made, could “materially impact” the European operations of the PFS businesses, including restricting PCSIL’s activities. In the quarter ending 31 March 2021, around 27% of EML’s global revenue was derived from programs operating under PCSIL’s Irish authorisation.

PCSIL and the CBI are closely communicating about the concerns raised.

EML wasn’t able to estimate the potential costs and impacts of the CBI correspondence. Aside from that, it said it’s on track to achieve its previous guidance, including underlying full year revenue of between $180 million to $190 million.

Appen Ltd (ASX: APX)

Appen announced a new organisational structure and new reporting segments today. It was the best performer in the ASX 200, rising over 17%.

Its new organisation structure will have four customer-facing business units – global, enterprise, China and government.

The global unit will focus on providing data annotation services and products to major US global tech customers.

Appen’s enterprise unit will be responsible for driving growth outside of its global customers by leveraging its product suite to serve new customers and AI use cases.

The China and government units will continue to try to capture market share in those high-growth markets.

Appen said that the new leadership structure, combined with profit and loss responsibility, will increase performance.

Management believe that the organisation alignment and technology-enabled productivity will allow resources to be optimised for the company’s future needs.

The tech company also said that there’s going to be new segment reporting for investors to get a better understanding on performance, growth and market dynamics.

There’s two segments – ‘global services’ for the services provided to global customers using data annotation tools and ‘new markets’ for global customers using annotation products and the enterprise, government and China businesses.

Reporting will be in US dollars, to enable easier comparison of financial performance between periods.

The ASX 200 technology business also gave a trading update.

The company’s year to date revenue plus orders in hand for delivery in FY21 is approximately US$260 million at the end of April 2021. Appen said this US dollar figure was consistent with the same methodology and timing used for the update provided at the annual general meeting in May 2020.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for FY21 is expected to be between US$83 million to US$90 million.

ASX 200 resource shares sink

Many of the biggest contributors to the ASX 200 decline today were resource businesses.

The BHP Group Ltd (ASX: BHP) share price fell more than 3%, the Rio Tinto Ltd (ASX: RIO) share price fell 3.75%, the Fortescue Metals Group Limited (ASX: FMG) share price dropped 3.2% and the Mineral Resources Limited (ASX: MIN) share price declined almost 3%.

There were also declines in the gold mining space. The St Barbara Limited (ASX: SBM) and Resolute Mining Limited (ASX: RSG) share prices fell around 7% and 6% respectively.

More reading

• Should ASX iron ore producers worry as China plans to up its own production?
• What does zero wage growth mean for the ASX 200?
• Which ASX 200 shares withstood today’s selloff?
• These iron ore miners are outperforming the BHP (ASX:BHP) share price in 2021
• 2 high-yielding ASX 200 dividend shares

Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends EML Payments. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. The Motley Fool Australia has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post ASX 200 sinks, EML plunges, Appen soars appeared first on The Motley Fool Australia.

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If you’re looking for a way to overcome low interest rates, then dividend shares could be the answer.

But which ones should you buy? Below are two ASX dividend shares that have been rated as buys. Here’s why they could be worth considering:

Carsales.Com Ltd (ASX: CAR)

The first ASX dividend share to look at is this auto listings company. It is the dominant force in the ANZ market and has a number of growing operations across the world. It also recently announced the acquisition of US-based Trader Interactive. It is a leading digital marketing solutions and services provider to the commercial truck, recreational vehicle, powersports, and equipment industries.

Carsales has been a positive performer in FY 2021. It expects to report full year adjusted revenue of $433 million to $437 million and adjusted net profit after tax of $149 million to $153 million. The latter will be an increase of 8% to 11% on FY 2020’s profit of $138 million.

Morgans is positive on the company. It currently has an add rating and $20.82 price target on its shares. The broker is also forecasting dividends of 56 cents per share in FY 2021 and 59 cents per share in FY 2022.

Based on the current Carsales share price of $17.27, this will mean fully franked yields of 3.2% and 3.4%, respectively.

Wesfarmers Ltd (ASX: WES)

Another ASX dividend share to look at is Wesfarmers. It is one of Australia’s leading conglomerates and the owner and operator of a diverse group of businesses across several sectors. Among its portfolio are the likes of Bunnings, Catch, Covalent Lithium, Kmart, Officeworks, and Target.

It has also been a positive performer in FY 2021. During the first half, it delivered a 16.6% increase in sales to $17.8 billion and a 25.5% jump in net profit to $1.4 billion. This allowed the Wesfarmers board to increase its interim fully franked dividend by 17.3% to 88 cents per share.

Looking ahead, Goldman Sachs is expecting further dividend growth in the second half and FY 2022. The broker is forecasting dividends of $1.88 per share in FY 2021 and $1.98 per share next year. Based on the current Wesfarmers share price of $53.56, this will mean fully franked yields of 3.5% and 3.7%, respectively.

Goldman has a buy rating and $59.70 price target on the company’s shares.

More reading

• Top broker tips Carsales (ASX:CAR) share price to race 20% higher
• ASX 200 rises, Nuix drops, Elders falls
• Why Carsales, Incitec Pivot, Infinity Lithium, & Nuix shares are sinking
• ASX 200 up 0.45%: Carsales sinks 10%, Aristocrat Leisure jumps
• Carsales (ASX:CAR) share price down 7% after raising $428 million

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended carsales.com 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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Investing in the small side of the share market carries significantly more risk than other areas. However, if your risk tolerance allows for it, having a bit of exposure to this side of the market could be a good thing for a balanced portfolio.

This is due to the potential returns on offer if you can unearth a future mid or large cap whilst it is still in its infancy. With that in mind, I have picked out three exciting small cap shares that have a lot of potential. They are as follows:

Adore Beauty Group Limited (ASX: ABY)

The first small cap to watch is Adore Beauty. It is Australia’s leading online beauty retailer. It has been growing strongly during FY 2021 and recently revealed that it expects to report full year revenue growth of 43% to 47%. And while its growth is likely to moderate in FY 2022 as its cycles significantly strong sales growth during the pandemic, its future remains very positive. This is thanks to its leadership position and the structural shift online for beauty sales. In light of this, the recent weakness in the Adore Beauty share price could be a buying opportunity for investors. Analysts at UBS certainly believe this to be the case. They recently put a buy rating and $5.60 price target on its shares.

Over The Wire Holdings Ltd (ASX: OTW)

Another small cap to watch is Over The Wire. It is a telecommunications, cloud, and IT solutions provider which has been growing at a solid rate in recent years. The good news is that this has continued in FY 2021, with the company delivering a very strong half year update in February. For the six months ended 31 December, Over The Wire reported a 17% increase in revenue to $50.3 million and a 28% jump in EBITDA to $10.5 million. Positively, almost all of its revenue is now recurring, with recurring revenue growing 25% to $45.9 million. Canaccord Genuity is a fan of the company. It currently has a buy rating and $4.85 price target on its shares.

Serko Ltd (ASX: SKO)

Serko is an online travel booking and expense management provider. Times have been hard because of the pandemic, but demand is starting to pick up. For example, this morning the company released its full year results for FY 2021 and revealed significant improvements in its performance. And while it isn’t anticipating a full recovery for another year, management believes it is well-placed to benefit when it does. This is thanks to its game-changing Booking.com deal and favourable industry trends brought about by the pandemic. It notes that risk and cost management will be the key priorities for organisations as they return to travel. Its Zeno product has a number of product capabilities to address the challenges of post-pandemic business travel. Macquarie is positive on Serko. It currently has an outperform rating and NZ$7.25 (A$6.72) price target on its shares.

More reading

• 2 exciting small cap ASX shares to watch in May
• 2 top ASX shares rated as buys this week
• Why Adore Beauty, APN Property, Boral, & Calix shares are pushing higher
• Here’s why the Adore Beauty (ASX:ABY) share price is tumbling 9% today
• Are there buying opportunities among ASX COVID fallen stars?

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 Over The Wire Holdings Ltd and Serko Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Adore Beauty Group Limited. The Motley Fool Australia has recommended Over The Wire Holdings Ltd and Serko Ltd. 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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Exchange traded funds (ETFs) can be a fantastic way to balance out your portfolio. This is because ETFs provide investors with easy access to a large and diverse group of shares that you wouldn’t ordinarily have access to.

With that in mind, I have picked out two ETFs that are popular with investors right now. Here’s what you need to know about them:

BetaShares Global Cybersecurity ETF (ASX: HACK)

The first ETF to look at is the BetaShares Global Cybersecurity ETF. It aims to track the performance of an index providing investors with exposure to the leading companies in the growing global cybersecurity sector.

Given how cyber crime is on the rise, demand for cyber security services is growing fast. This means many leading companies in the industry could be in a position to grow at an above-average rate over the next decade.

Among the companies you’ll be buying a slice of are Accenture, Cisco, Cloudflare, Crowdstrike, and Okta. As you may have noticed, there aren’t any Australian companies included in the fund. This is because this particular sector is under-represented on the ASX. This arguably makes this ETF even more attractive for local investors.

Vanguard MSCI Index International Shares ETF (ASX: VGS)

Another ETF to consider is the Vanguard MSCI Index International Shares ETF. This ETF provides investors with exposure to the world’s largest listed companies.

Vanguard notes that this ETF provides Australian investors with exposure to many of the world’s largest companies listed in major developed countries. It also offers low-cost access to a broadly diversified range of stocks that allows them to participate in the long-term growth potential of international economies outside Australia.

Among its 1529 holdings are the likes of Apple, Johnson & Johnson, JP Morgan, Nestle, Procter & Gamble, and Visa.

Another positive is that the ETF offers investors a source of income. At the last count, its units were providing investors with a 1.6% yield.

More reading

• 2 top ETFs to buy for growth
• 2 ETFs to buy for strong diversification
• 2 excellent ETFs for ASX investors to buy in May
• 2 highly rated ASX tech shares for growth investors
• 3 high quality ETFs for ASX investors in May

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. 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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After helping to drive the iron ore price to record highs recently, it seems China might be planning to leave ASX iron ore producers in its dust by mining the mineral domestically.

An unnamed spokesperson from China’s National Development and Reform Commission (NDRC) said today that Australia has imposed “unreasonable restrictions” on trade between the two nations. They said:

The Australian Government has imposed unreasonable restrictions on China-Australia investment and trade cooperation and undermined collaborative projects, which has shattered mutual trust between the two countries and business confidence in a win-win cooperation. The Chinese authorities have no choice but to make a legitimate and necessary response.

Meanwhile, the Australian Financial Review (AFR) is reported yesterday that China plans to step up its domestic iron ore production.

With China’s demand for steel having pushed the iron ore price to a record high this month, there’s little doubt that China needs as much of the product as it can get.

So, can China sate its own demand for iron ore? And should holders of ASX iron ore shares be worried about China’s domestic production?

An unlikely threat?

According to the AFR, NDRC spokesperson Jin Xiandong replied to a question asking what China might do to guarantee its supply of iron ore by saying China will increase its domestic production.

While China already produces iron ore, it doesn’t produce as much as Australia.

The Australian Strategic Policy Institute (ASPI) states that China produces around 900 million tonnes of iron ore each year. It also imports around 1 billion tonnes.

Furthermore, China’s domestic iron ore production is reportedly expensive. The country’s iron ore reserves also house lower-quality ore, which requires heat-treating before being processed into steel.

This means it’s possible China won’t be able to rely purely on its own iron ore mines to satisfy the country’s demand.

In 2019, 81.7% of Australia’s exported iron ore went to China.  That accounted for around 61% of China’s iron ore imports.

The AFR has previously reported that China makes around 55% of the world’s steel, while the ASPI reports Australia produces around 60% of the world’s iron ore.

Brazil is China’s second-largest source of imported iron ore, but the South American country is unlikely to be able to produce as much as Australia. 

In fact, ABC News has reported that, together, ASX companies Rio Tinto Limited (ASX: RIO), BHP Group Ltd (ASX: BHP), and Fortescue Metals Group Limited (ASX: FMG) produce more than twice the amount of iron ore that Brazil’s (and the world’s) largest iron ore producer, Vale, does.

Foolish takeaway

While it’s unlikely ASX iron ore producers will lose China as a customer anytime soon, it’s possible the increasing political tensions between the People’s Republic and Australia will be cause for concern among some ASX shareholders. 

More reading

• These iron ore miners are outperforming the BHP (ASX:BHP) share price in 2021
• CSL (ASX:CSL) share price backtracks despite renewed optimism
• Why BHP, EML Payments, Laybuy, & St Barbara are sinking today
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Motley Fool contributor Brooke Cooper 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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If you’re looking for portfolio additions in May, then you may want to take a look at the ASX 200 shares listed below.

All three ASX 200 shares were recently rated as buys. Here’s why they could be top options right now:

Altium Limited (ASX: ALU)

Altium is an electronic design software provider best-known for its Altium Designer and Altium 365 platforms. These platforms are regarded as the best in their class and used by many of the world’s largest companies such as BAE Systems, Microsoft, and Tesla.

While FY 2021 has been underwhelming because of the pandemic, Altium looks well-placed for growth over the next decade. This is thanks to the internet of things and artificial intelligence booms, which are driving increasing demand for this type of software. One broker that likes what it sees here is Citi. Late last month Citi retained its buy rating and $33.50 price target on the company’s shares.

NEXTDC Ltd (ASX: NXT)

Another ASX 200 share to look at is NEXTDC. It is Australia’s leading data centre operator with a total of nine centres in key locations across Australia. Unlike Altium, FY 2021 has been a very strong year for the company. This has been driven by the accelerating shift to the cloud.

This led to NEXTDC reporting a 29% increase in EBITDA to $65.7 million for the first half of FY 2021. Pleasingly, more of the same is expected in the second half and beyond thanks to favourable industry tailwinds. This should be supported by its proposed expansion into the Asian market in the near future. Goldman Sachs is positive on its future. Its analysts recently reiterated their conviction buy rating and $15.00 price target on the company’s shares.

Ramsay Health Care Limited (ASX: RHC)

A third and final ASX 200 share to consider buying is Ramsay Health Care. It is a leading private healthcare company with operations across the world. Although the pandemic hit the company hard, it has bounced back strongly in recent months and is now benefiting from a backlog in surgeries.

Looking beyond the pandemic, Ramsay looks well-placed for long term growth thanks to increasing demand for healthcare services due to ageing populations and its penchant for making earnings accretive acquisitions. Macquarie is positive on the company. Earlier this month the broker put an outperform rating and $74.85 price target on its shares.

More reading

• Why Zip (ASX:Z1P) and this beaten down ASX tech share could be buys
• How to turn $20k into $200,000 with ASX shares
• Has COVID-19 killed the ASX WAAAX shares?
• Should you buy Afterpay (ASX:APT) and this ASX tech share following the selloff?
• Little ASX software share to explode once everyone wakes up: fundie

James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Ramsay Health Care Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 3 top ASX 200 shares that could be in the buy zone appeared first on The Motley Fool Australia.

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