Tag: Motley Fool

S&P/ASX 200 Index (ASX: XJO) gold shares are rocketing out of the blocks on Monday.

At the time of writing, Northern Star Resources Ltd (ASX: NST) shares are up 8.7%.

Newcrest Mining Ltd (ASX: NCM) shares are up 6.8%.

And Evolution Mining Ltd (ASX: EVN) shares are up 10.3%.

Boom!

The blue-chip Aussie gold miners’ surge is helping send the S&P/ASX All Ordinaries Gold Index (ASX: XGD) – which also contains smaller miners outside of the ASX 200 gold shares – up a whopping 8% in early trade.

This comes as the benchmark index is down 0.45% following weakness in US and European markets on Friday.

What’s driving ASX 200 gold shares higher today?

Investors are bidding up the ASX 200 gold shares following a big leg up in the gold price.

On Friday, the miners came under pressure as the yellow metal’s rally faltered and the price slipped to US$1,923 per troy ounce.

Over the weekend, the rally regained steam to see gold trading for US$1,989 per ounce. It’s slipped a tad since, currently trading for  US$1,977 per ounce, up 2.8% from Friday’s levels.

Gold – and ASX 200 gold shares – have benefited from the global uncertainty stemming from the banking crisis unfolding in the United States and Europe.

Investors have again upped their exposure to the yellow metal, a classic haven asset, with economists increasingly forecasting that the financial instability will see the US Federal Reserve, and other central banks, ease off on the past year’s rapid interest rate hikes.

Less aggressive rate hikes amid still high inflation would offer further tailwinds for gold, which doesn’t offer any yield itself.

Commenting on the outlook for gold — and, by extension, ASX 200 gold shares — TD Securities global head of commodity strategy Bart Melek said (courtesy of Kitco News) said, “Markets are concluding that we’ll see the Fed go for another 25bps increase and then probably sit on it for a while and see what happens.”

Melek added:

The view from the gold perspective is that given disruptions in the banking system and the US Treasury Department’s willingness to help, we might get accommodation that allows inflation to hang around longer at a higher level. This is a good thing for gold.

The post ASX 200 gold shares are starting the week with a bang. Here’s why appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Why Carsales, Evolution, Kelsian, and Synlait shares are dropping
• ASX 200 gold shares reverse the charge higher to tumble today. Here’s why
• 5 things to watch on the ASX 200 on Friday
• Despite today’s ASX sell-off, All Ords gold shares are surging significantly higher

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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The Qantas Airways Limited (ASX: QAN) share price is descending on Monday morning.

At the time of writing, the airline operator’s shares are down 3% to $6.27.

Why is the Qantas share price falling?

Today’s weakness in the Qantas share price appears to have been driven by concerns over its proposed acquisition of Alliance Aviation Services Ltd (ASX: AQZ).

Alliance is Australasia’s leading provider of contract, charter, and allied aviation and maintenance services. It provides essential services to mining, energy, and government sectors as well as wet lease services for other airlines.

In May last year, Qantas announced an agreement with Alliance to acquire the remaining 80% stake that it does not already own in an all-scrip deal. At the time, the Qantas share price was trading at $4.75 per share, which valued the 80% stake at $614 million.

Qantas CEO, Alan Joyce, believed that “acquiring the remaining shares in Alliance would mean QantasLink can better compete in the highly competitive charter segment, particularly given the shared fleet type of Fokker aircraft.”

What’s the latest?

This morning, Alliance revealed that the Australian Competition & Consumer Commission (ACCC) has informed it that it will further delay its review of the proposed scheme of arrangement until 20 April 2023.

The market appears to believe that this could be a sign that the ACCC has concerns with the potential acquisition, casting doubts over the deal.

Given that Qantas expects it to be earnings per share accretive, it would be a blow if it didn’t go through. But certainly not the end of the world for the airline operator.

Investors will have to sit tight and wait to see what the ACCC announces this time next month.

The post Qantas share price takes a dive amid more takeover delays appeared first on The Motley Fool Australia.

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More reading

• Top brokers name 3 ASX shares to buy next week
• What’s with the Qantas share price on Thursday?
• 7 ASX shares flying under the radar to buy now: Goldman Sachs
• 5 things to watch on the ASX 200 on Wednesday
• Qantas shares have dumped 7% in 3 days. Should I buy?

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 Australian Clinical Labs Ltd (ASX: ACL) share price is having a solid start to the week.

In morning trade, the ASX All Ords healthcare share is up 3% to $3.73.

Why is the ASX All Ords healthcare share rising?

The catalyst for this has been news that the company has launched a bold takeover approach for larger rival Healius Ltd (ASX: HLS).

According to the release, Australian Clinical Labs has made a nil-premium all-scrip off-market takeover offer of 0.74 shares for every Healius share.

While this may seem like an odd takeover proposal from the ASX All Ords healthcare share, there is method to its madness.

Australian Clinical Labs believes the real value of the proposal will come when the two companies merge.

It believes the merged entity would deliver pro forma earnings before interest and tax (EBIT) of $361 million in FY 2023. This includes cost synergies and operational improvement benefits.

Based on its forecast earnings and belief that it could trade at the current blended forward EV/EBIT multiple of 17.5x, it estimates that it could deliver a value uplift of approximately $2.1 billion. It notes that this equates to a 90% increase in the value per Healius share implied by the offer consideration.

Another positive is that Australian Clinical Labs believes the merged group would be a candidate for ASX 100 inclusion in time.

What’s next?

As things stand, Healius has told its shareholders that it is looking at the offer. In the meantime, it has informed shareholders to take no action.

Management commented:

The Board of Healius advises shareholders to take no action in respect of ACL’s takeover offer. The Board will evaluate the offer and ACL’s bidder’s statement and provide shareholders with a recommendation in due course. Until then, there is no need for shareholders to take any action. Healius will keep its shareholders fully informed of any further developments.

The post Why this ASX All Ords healthcare share is defying the market weakness and zooming higher appeared first on The Motley Fool Australia.

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More reading

• Healius share price jumps 7% on takeover approach from smaller rival
• Catch these fast-rising 2 ASX shares before it’s too late: Celeste
• 6 ASX 200 directors buying up their companies’ shares this week
• 5 things to watch on the ASX 200 on Monday
• 3 ASX shares I’d buy for passive income instead of BHP’s declining dividend

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 AMP Ltd (ASX: AMP) share price is slipping this morning despite the S&P/ASX 200 Index (ASX: XJO) financial giant announcing it will finally begin to offload its real estate and domestic infrastructure business.

The first stage of its long-awaited sale to Dexus Property Group (ASX: DXS) will bring in around $337 million. However, final completion – and another $50 million – still hinges on Chinese regulatory approvals.

The AMP share price is currently trading 0.3% lower at 98.2 cents.

But that’s a better performance than the broader market. The ASX 200 is tumbling 0.78% at the time of writing. Meanwhile, the Dexus share price is down 1.15%, trading at $7.75.

Let’s take a closer look at the latest news of AMP’s massive divestment.

AMP share price slumps amid simplification milestone

 AMP’s sale of Collimate Capital’s real estate and domestic infrastructure equity business was once worth up to $1 billion, but those days have passed.

After lengthy delays, the base purchase price was dropped to $225 million and any potential funds under management-based earn outs forfeited earlier this year. But today has brought brighter news.

The pair have officially finalised a previously-flagged alternative transaction structure. The first stage of the new plan for the sale is set to complete on Friday.

That will see Dexus taking on the business without AMP’s interest in China Life AMP Asset Management (CLAMP) being transferred out. The transfer is yet to be approved by regulators in China.

At first completion, Dexus will pay $175 million of the $225 million base purchase price, as well as $105 million for sponsor investments and $57 million for cash on the business’ balance sheet – a total of around $337 million.

The remaining $50 million of the base purchase price will be paid on final completion. That is, as long as CLAMP’s transfer occurs by 30 September 2024.

Looking forward

AMP CEO Alexis George said the sale would be “a key pillar of our strategy to simplify AMP”. He added:

The sale allows AMP to have a clear focus on our go forward businesses of retail banking and wealth management in Australia and New Zealand.

We will continue to build on the hard work of the past 12 months to position AMP to win in those markets, deliver for customers and drive value for shareholders.

AMP will now begin a review of its balance sheet and cost base. It will do so with the view to reduce debt and return excess liquidity to shareholders.

An update on the reviews will be published sometime before it drops its first-half earnings in August.

The post AMP share price dips despite $337m sale win appeared first on The Motley Fool Australia.

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More reading

• Why I’d be happy to invest in these ASX 200 bank shares today
• 5 things to watch on the ASX 200 on Monday
• $400 in monthly passive income, buy 8,728 shares of this ASX 200 stock
• Which real estate ASX shares should you buy now as interest rates top out?
• Here are the 3 most heavily traded ASX 200 shares on Friday

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 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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There are some S&P/ASX 200 Index (ASX: XJO) bank shares that look like a buy to me, despite the current difficulties the banking industry is seeing in the northern hemisphere.

Ten days ago, Silicon Valley Bank (SVB) collapsed and regulators had to step in to ensure depositors were able to access their money.

Credit Suisse in Switzerland is also facing difficulties, with the investment bank seemingly going to be acquired by UBS.

There has been much analysis of what went wrong at SVB. It seemed part of the problem was that SVB’s at-call deposits were matched with longer-term bonds. Due to the impacts of higher interest rates, selling those bonds before maturity led to a loss for the business.

It also didn’t help that an extremely high proportion of deposits in SVB were from technology business clients. It’s no surprise that those clients with large sums of cash in the bank would want to protect their funds, considering their businesses rely on regularly drawing on that money while they aim for cash flow breakeven status.

However, I think ASX 200 bank shares are in a much better position than their northern hemisphere counterparts for a few different reasons. That includes strong capital levels, a high level of household customers, and low levels of loan arrears.

With that in mind, these would be my current top four ASX 200 bank shares to buy, in my opinion.

Macquarie Group Ltd (ASX: MQG)

Macquarie is a very diversified ASX financial share. The banking segment of Macquarie is growing rapidly. But, it’s very strongly capitalised – the bank common equity tier 1 (CET1) ratio was 13.3% at 31 December 2022.

But, I also like that the business can earn profit from its other segments including asset management, investment banking activities, and commodities and global market activities.

It’s the diversified business that has enabled the net profit after tax (NPAT) to be up in FY23 to date, despite FY22 being a strong year.

I think Macquarie will be able to sail through any economic problems.

National Australia Bank Ltd (ASX: NAB)

NAB has really turned things around under the leadership of Ross McEwan.

The bank is also well-capitalised with a CET1 ratio of 11.3% at 31 December 2022. It’s also growing at a fast pace. In the FY23 first quarter, cash earnings jumped 18.7%, which makes the NAB share price more compelling.

In terms of valuation, Commsec numbers put NAB shares at 11x FY23’s estimated earnings with a possible grossed-up dividend yield of 8.7%.

Westpac Banking Corp (ASX: WBC)

Westpac is another of the big four ASX 200 bank shares, but I’d currently rate it higher than Commonwealth Bank of Australia (ASX: CBA) because of its much-lower valuation and higher dividend yield.

I also prefer Westpac to ANZ Group Holdings Ltd (ASX: ANZ) because I’m uncertain about ANZ’s move to acquire the banking division of Suncorp Group Ltd (ASX: SUN).

According to Commsec numbers, the Westpac share price is valued at 10x FY23’s estimated earnings with a grossed-up dividend yield of 9.3%. I think these numbers look very compelling.

The post Why I’d be happy to invest in these ASX 200 bank shares today appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• $400 in monthly passive income, buy 8,728 shares of this ASX 200 stock
• These ETFs could be top options for buy and hold investors
• How I’d aim to retire rich enough to live on passive income from my ASX dividend shares
• Buy Macquarie and this high yield ASX dividend share: brokers

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 positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Westpac Banking. 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 AGL Energy Limited (ASX: AGL) share price has sunk lower again. It’s down 14.5% since the beginning of 2023.

It has been a difficult time for the business over the last few years. Its leadership team have been replaced, profit has been falling and the AGL share price has declined by almost 70% since the start of 2020.

But, while the AGL share price has fallen, it’s worthwhile noting that, at some point, the AGL share price may become undervalued. It could already be at that point.

What’s been going wrong for AGL shares?

The latest result was an excellent example of the types of things that are going wrong for the business.

In the first six months of FY23, AGL reported that its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 16% to $604 million, while underlying net profit after tax (NPAT) declined 55% to $87 million.

AGL reported a statutory loss after tax of $1.075 billion, including $706 million of impairment charges after tax.

The impairment charges related to the carrying value of the AGL energy generation fleet cash-generating unit, largely as a result of the decision to accelerate the targeted closure date of AGL’s thermal coal generation assets.

AGL’s statutory result was also impacted by a negative movement in the ‘fair value of financial instruments’, to the tune of $622 million, which primarily reflected the “impact of a drop in forward prices for electricity relative to AGL’s hedging of its electricity generation position”.

The business has also suffered from outages of its power generation.

AGL shares can be impacted by its guidance because the market is forward-looking. AGL’s underlying NPAT for FY23 is expected to be between $200 million to $280 million. It’s expecting more energy generation in the second half, with an improvement in the customer margin.

Is the AGL share price a buy right now?

AGL thinks the outlook beyond FY23 is “positive”, with wholesale pricing remaining “elevated compared to prior periods with AGL expected to benefit as historical contract positions are reset in FY24 and FY25.”

On top of that, “sustained periods of higher wholesale electricity prices are expected to flow through to retail pricing outcomes.”

AGL is on a path to investing heavily in renewable energy to replace coal. That will help its green credentials and, while there’s a hefty price tag, AGL will generate earnings from its green energy assets.

Analyst estimates suggest that AGL could generate much higher earnings in the coming years. In FY25, AGL could generate earnings per share (EPS) of 97 cents and pay a dividend per share of 70 cents, according to Commsec.

That puts the current AGL share price at 7 times FY25’s estimated earnings, with a possible dividend yield of 10.2%, excluding the effect of franking credits.

While it’s not the most exciting business around, the prospect of much-improved earnings in FY24 and FY25 is compelling and the current valuation could prove cheap.

Valuation snapshot

According to the ASX, the AGL market capitalisation is $4.6 billion.

The post Should I buy AGL shares at under $7 each? appeared first on The Motley Fool Australia.

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More reading

• Down 15% in 2023, why AGL shares could continue to disappoint
• Morgans warns that these ASX shares could disappoint in FY23
• The AGL share price sank 10% in February. What’s next?
• Don’t be deceived by ASX dividends
• 6 ASX 200 directors buying up their company shares in the past week

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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The Healius Ltd (ASX: HLS) share price is defying the market weakness and pushing higher on Monday.

At the time of writing, the healthcare company’s shares are up 7% to $2.97.

Why is the Healius share price pushing higher?

Investors have been bidding the Healius share price higher today after the company received a takeover proposal from a smaller rival.

In an incredibly bold move by $700 million Australian Clinical Labs Ltd (ASX: ACL), $1.58 billion Healius has received an all-scrip off-market takeover approach.

According to the release, Australian Clinical Labs is offering 0.74 shares for every Healius share. This represents a nil-premium offer based on the Healius share price on the day of its half-year results release and the last close price for the Australian Clinical Labs share price.

Is this a terrible offer?

While this offer may look incredibly unattractive at first glance, the value is expected to be unlocked through merger synergies and a valuation uplift.

The release highlights that the potential merged group is forecast to have pro forma FY 2023 EBIT of $361 million including cost synergies and operational improvement benefits.

Australian Clinical Labs believes that this would deliver a value uplift of approximately $2.1 billion if the merged group trades at the current blended forward EV/EBIT multiple of 17.5x.

This equates to a 90% increase in the value per Healius share implied by the offer consideration. Australian Clinical Labs also believes the merged group could be a candidate for ASX 100 inclusion in time.

Take no action

Healius has responded to the offer this morning. It said:

The Board of Healius advises shareholders to take no action in respect of ACL’s takeover offer. The Board will evaluate the offer and ACL’s bidder’s statement and provide shareholders with a recommendation in due course. Until then, there is no need for shareholders to take any action. Healius will keep its shareholders fully informed of any further developments.

The post Healius share price jumps 7% on takeover approach from smaller rival appeared first on The Motley Fool Australia.

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More reading

• Catch these fast-rising 2 ASX shares before it’s too late: Celeste
• 6 ASX 200 directors buying up their companies’ shares this week
• 5 things to watch on the ASX 200 on Monday
• 3 ASX shares I’d buy for passive income instead of BHP’s declining dividend

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 A2 Milk Co Ltd (ASX: A2M) share price is down 1.7% in early morning trade on Monday, while the S&P/ASX 200 Index (ASX: XJO) is down 0.9%.

Shares in the ASX 200 dairy stock are currently trading for $6.26 after closing Friday at $6.37. 

This comes as the company reports the completion of its NZ$149 (AU$139 million) on-market share buyback program.

What happened with the share buyback?

A2 Milk first announced its intention for an on-market share buyback of up to NZ$150 million on 29 August, when the company released its full-year results.

The A2 Milk share price closed up 10% on the day.

The buyback was enabled by some strong results. Those included a 20% year-on-year increase in revenue to NZ$1.45 billion and a 42% leap in net profit after tax (NPAT) to NZ$115 million.

Commenting on the share buyback at the time, A2 Milk CEO David Bortolussi said, “Our on-market buyback of up to NZ$150 million demonstrates effective capital management and the improved confidence we have in our strategy, execution and outlook.”

Today that buyback is complete.

The company reported that it acquired a total of just under 21.7 million shares. That works out to 2.9% of issued capital.

Excluding brokerage costs, the average price was NZ$6.87 per A2 Milk share, for a total consideration of approximately NZ$149 million.

As part of the buyback, those shares have been cancelled. That leaves A2 Milk with a total of 721,976,214 outstanding ordinary shares.

With the buyback complete, A2 Milk reported it has further reduced its share capital in its statement of financial position. The company expects to report share capital of around NZ$100,000 for FY23.

A2 Milk share price snapshot

As you can see in the chart below, the A2 Milk share price has been a strong performer over the past full year, up 15% despite today’s retrace.

The post A2 Milk share price slides amid $139 million buyback completion appeared first on The Motley Fool Australia.

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More reading

• At almost $7, can the A2 Milk share price go any higher?
• What caused the A2 Milk share price to spill almost 6% in February?
• ‘Result was incredible’: 3 ASX 200 shares Jun Bei Liu would buy now
• Why A2 Milk, Altium, Cogstate, and Ingenia shares are sinking today
• Is the A2 Milk share price good value after its post-results selloff?

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 recommended A2 Milk. 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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Investing is one of the best things households can do to improve their financial positions, in my opinion. I think if people avoid investing then they could be missing out.

Of course, there are some investments that may go wrong. There are always risks. ASX shares regularly suffer from volatility. Some of the riskiest ASX shares can fall heavily, or even drop to $0.

But, I think there’s a big difference between a high-risk biotech, or a mining exploration business, compared to an investment like a blue chip or a diversified exchange-traded fund (ETF).

As long as households stick with growing, resilient businesses, I think they can do well.

Having said that, here are three great reasons why it makes sense to invest rather than keeping all the hard-earned cash in the bank, or under the mattress.

Save for retirement

Building a nest egg could be one of the most important financial goals for a family. But, building a large portfolio doesn’t happen overnight. It could take many years. But, households have a good chance of creating pleasing finances by going for it. If we never attempt to grow our money, there’s 0% chance we’ll have an adequate retirement fund.

Each household’s finances are different. Spending goals in retirement can also influence the picture significantly.

As noted by the Motley Fool’s retirement guide, according to the Association of Superannuation Funds of Australia’s Retirement Standard, “to have a ‘comfortable’ retirement, a couple who own their own home will need an income of about $67,000. A single person will need an annual income of more than $47,000”.

I’d rather build my own portfolio and be able to rely on my own source of retirement funding, rather than hope the pension is as generous in 35 years time as it is now.

If I invested $1,000 a month for the next couple of decades, my portfolio could be worth over $1 million, thanks to the returns the share market typically produces.

Good long-term returns

The share market has done exceptionally well at growing wealth for investors over the long term.

Of course, each individual business has produced a different performance over the years.

However, we can look at the whole ASX share market return. Over the ultra-long term, it has produced an average return per annum of around 10%. Achieving that return would double an investment’s value in less than eight years.

While past performance is not a guarantee of future returns, there are some investments that have done even better. Compared to a term deposit, I’d rather go with the return of the share market.

For example, over the past five years, the iShares S&P 500 ETF (ASX: IVV) has returned an average of 12.7% per year and the Vaneck Morningstar Wide Moat ETF (ASX: MOAT) has returned an average of 15%.

Inflation

Inflation devalues the value of a dollar over time. We’ve just seen a huge period of inflation, which is hopefully over.

But, the Reserve Bank of Australia (RBA) is targeting inflation to be between 2% to 3% in the medium term. While it has some work to do to get to that level, it shows that unless investors are earning a return of at least inflation over time, their money’s value is slowly being eaten away.

I think that investing in businesses involved in increases prices – adding to the inflation situation – can help mitigate this erosion and even help investors benefit from inflation.

Having $10,000 is a solid amount of cash. But, in ten or twenty years, that $10,000 may not be able to buy as much as it does today.

Even if a household isn’t bothered about saving for retirement, I think protecting against inflation is one of the best reasons to invest.

The post 3 reasons not investing at all could be riskier than trying to invest 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 recommended VanEck Morningstar Wide Moat ETF and iShares S&p 500 ETF. 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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While it’s all good and well to pick ASX shares on a “bottom up” basis, no investor can afford to entirely ignore economic conditions.

After all, no business operates in a complete vacuum. External forces will have a bearing on the success of any company.

And with ten consecutive months of interest rate rises burdening both consumers and businesses, the looming economic downturn cannot be discounted when currently deciding on shares to buy.

As such, finance expert John-Louis Judges this week set out to find a pair of S&P/ASX 200 Index (ASX: XJO) stocks that might make the perfect base for a portfolio starting from scratch:

‘A solid foundation for any portfolio’

The insurance industry is seen by many investors as one that can thrive through tougher parts of the economic cycle.

That’s because the sector provides a service that’s seen as essential. Plus higher interest rates mean better returns on the premiums that insurance companies invest in.

So it’s not a long bow to draw that a business that has insurance companies as its clients might also do okay.

That’s the enviable position claims repairer Johns Lyng Group Ltd (ASX: JLG) finds itself in.

“Johns Lyng’s strong financial results, opportunities for growth through acquisitions, relatively recession-resistant industries, and paid dividends make this stock a solid foundation for any portfolio,” Judges said on The Bull.

“JLG has a highly experienced management team with a proven track record of successfully growing and managing businesses. The team has demonstrated the ability to execute its growth strategy while maintaining strong financial discipline.”

With the share price 26.7% lower than it was 12 months ago, there is arguably a buying window open now as well.

Judges acknowledged the building industry is under pressure with supply cost inflation and a declining economy. But Johns Lyng’s business model seems to shield it from the stress.

“At least 20 large construction companies folded in 2022. More closures are expected in 2023. Contractually agreed rates were not enough to offset the sharp rises in prices and wages following COVID, sending many to the wall,” he said.

“Johns Lyng’s focus on shorter-duration projects in the renovation and reconstruction sector has shielded its balance sheet from the worst price hikes.”

‘Ample opportunities for growth’

On the other end of the supply chain is Steadfast Group Ltd (ASX: SDF), which is an insurance broker network that’s enjoyed a 17% rise in its share price over the past year.

Judges sees Steadfast as “an attractive investment”, operating in a recession-resistant industry and a “robust regulatory environment”.

“Insurance is an essential industry that is unlikely to be significantly impacted by economic downturns,” he said.

“Rising interest rates provide an opportunity for higher returns on their collected premiums.”

The last financial year saw a 20% increase in revenue, according to Judges. 

“And the present trailing twelve-month [period] has a climb of 9% in revenues.”

The dynamics of the brokerage market is also alluring for Steadfast investors.

“Steadfast Group operates in a highly fragmented market, which provides the company with ample opportunities for growth through acquisitions,” said Judges.

“Its history of successful acquisitions has allowed the company to expand its customer base and geographical reach.”

According to CMC Markets, seven out of 12 analysts currently rate Steadfast shares as a strong buy.

The post 2 ‘recession-resistant’ ASX 200 shares to start a strong portfolio: expert appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 200 shares to rocket from same booming industry: expert
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Motley Fool contributor Tony Yoo has positions in Johns Lyng Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group and Steadfast Group. The Motley Fool Australia has positions in and has recommended Steadfast Group. The Motley Fool Australia has recommended Johns Lyng 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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