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The Neuren Pharmaceuticals Ltd (ASX: NEU) share price is racing higher again on Wednesday.

In morning trade, the biotech company’s shares are up a further 14% to a multi-year high of $11.36.

This means the ASX 300 share has now risen a whopping 48% over the last three sessions.

As you can see below, this has driven the Neuren share price almost 200% higher since this time last year.

Why is this ASX 300 share rocketing this week?

Investors have been buying this ASX 300 share after its treatment for Rett’s Syndrome was granted US FDA approval.

This is the first and only approved treatment for Rett Syndrome, which is a rare genetic neurological and developmental disorder that affects the way the brain develops.

The company has a deal in place with its partner Acadia Pharmaceuticals (NASDAQ: ACAD) that could result in significant revenue generation.

This includes royalties of up to 15% of net sales above US$750 million and sales milestone payments of up to US$350 million on total sales above US$1 billion in a calendar year.

Can its shares keep rising?

The good news is that Bell Potter believes the Neuren share price can keep rising even after its stellar gains this week.

This morning, the broker has retained its speculative buy rating with an improved price target of $13.67. This suggests that the ASX 300 share could rise a further 20% from current levels.

Bell Potter commented:

This is a huge success for the company, and we now expect income from trofinetide to come in at up to A$104m plus royalties in 2023. The next potential milestone payment to Neuren would be US$40m (A$61m at an assumed exchange rate of 0.65), payable following the first commercial sale of trofinetide in the United States.

Subsequently, Neuren is eligible to receive double-digit percentage royalties on net sales of trofinetide in North America, plus milestone payments of up to US$350m (A$538m) on achievement of a series of four thresholds of total annual net sales.

The post This ASX 300 healthcare stock is up 48% in 3 days. Broker says buy appeared first on The Motley Fool Australia.

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More reading

• Why Kingsgate, Neuren, Newcrest, and Pushpay shares are rising today
• Why Neuren, Northern Star, Race Oncology, and Westgold shares are storming higher
• Guess which ASX All Ords stock is rocketing 27% on a new FDA approval

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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One of the more frustrating aspects of owning ASX dividend shares is the fact that the income that dividend shares generate is never guaranteed. Even if an ASX dividend share showers its shareholders with dividends one year, there could be a dividend drought the next.

That makes using dividend shares to fund a retirement or generate a passive income stream a difficult endeavour.

Fortunately, although no dividend share is ‘safe’ for investors seeking income, some are safer than others.

To illustrate, let’s talk about two ASX dividend shares where the dividends just don’t seem to stop arriving in investors’ bank accounts like clockwork.

2 ASX dividend shares that don’t stop paying their investors

Brickworks Limited (ASX: BKW)

Brickworks is an ASX 200 construction materials company. But it also invests in other assets like property and other ASX shares. As such, Brickworks is a company with a remarkably stable earnings base — and one it has been able to consistently nurture over decades.

That’s despite its primary business of manufacturing bricks and other building materials being highly cyclical in nature.

In fact, Brickworks has one of the best dividend histories on the ASX. This ASX 200 share hasn’t given its investors a dividend cut in more than four decades. It has also given investors an annual dividend pay rise almost every single year over this long history.

Brickworks’ current dividend yield of 2.7% might not look too special on the surface. But when you consider the impressive long-term performance of the Brickworks dividend, it starts looking very special indeed.

Washington H. Soul Pattinson and Co Ltd (ASX: SOL)

Soul Patts is another ASX 200 dividend share that has a very proud payout history. This income share doesn’t quite have a 40-year-plus track record of not cutting its dividend. But it does have the best ongoing streak of annual dividend rises on the ASX 200.

Soul Patts is an investing conglomerate at its heart. It invests in a large portfolio of assets, including other ASX shares, that it manages on behalf of its shareholders.

It has been able to do this so successfully that the company has given its investors an annual dividend pay rise every single year since 2000. Not even Brickworks can boast a streak that long.

This trend continued in 2022, with Soul Patts forking outs its largest annual dividend ever at 72 cents per share, fully franked.

Again, this company’s current dividend yield of 2.58% won’t catch too many eyes at first glance. But it hides Soul Patts’ impressive and unrivalled track record of providing passive income to its investors.

The post 2 ASX 200 shares where the dividends don’t stop appeared first on The Motley Fool Australia.

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More reading

• $1,000 in monthly passive income? Buy 18,462 shares of this ASX 200 stock
• I’d aim for $1 million, thanks to just a few ASX shares
• How I’d aim to replace an entire salary with passive income from ASX dividend shares
• 3 ASX shares I own for passive income
• Don’t be deceived by ASX dividends

Motley Fool contributor Sebastian Bowen has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. 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 interest rates rising rapidly over the last 12 months, term deposits are back in favour with income investors.

Term deposits are financial instruments that let you invest for a set amount of time and receive a fixed interest rate.

Given that they are classed as risk-free, they are popular with investors with a lower than average risk appetite.

However, there are hidden risks that investors should be aware of before choosing term deposits over other investments, such as ASX shares.

Term deposits vs ASX shares

If you want peace of mind and capital preservation, it is hard to fault term deposits.

However, in the current environment, you’re not truly preserving capital because of inflation, which currently stands at 7.8% according to the Reserve Bank of Australia.

For example, if you were to invest $1,000 into anything, you would need to generate a 7.8% return just to break even because of inflation. Anything less and your purchasing power for that $1,000 will reduce accordingly.

So, with Commonwealth Bank of Australia (ASX: CBA) currently offering 3.85% interest rates on 12-month term deposits, inflation is still eating away at 3.95% of your wealth. This effectively means your $1,000 is now worth approximately $960 in real terms.

So, with ASX shares providing investors with a 9.55% per annum average annual return over the last 30 years, you arguably stand more of a chance of beating inflation and growing your wealth in the share market.

Though, unlike term deposits, it is worth remembering that there is no guarantee that ASX shares will deliver those returns again. But you do have history on your side.

Opportunity cost

In addition, taking inflation out of the equation, if you’re investing for a long period in term deposits, there is your opportunity cost to think about.

For example, if you invest $1,000 into a term deposit for 10 years at 3.85% per annum, you will grow your investment to just under $1,460. That’s a return of 46%.

However, if the share market delivers a 9.55% annual return over the same period, $1,000 invested in ASX shares would turn into just under $2,500. That’s a 150% return and more than triple what you would generate with a term deposit.

It’s all about risk and reward. Ultimately, investors should do what is right for their risk profile.

The post What are the risks of investing in term deposits instead of ASX shares? appeared first on The Motley Fool Australia.

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More reading

• Down 14% in a month, should I buy the dip on CBA shares?
• ASX 200 bank shares punished again on US bank fallout
• ASX 200 bank shares: Are they better prepared than Silicon Valley Bank?
• S&P 500 futures lift as regulators shore up SVB deposits
• 5 things to watch on the ASX 200 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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It’s a bit of an understatement to say that the S&P/ASX 200 Index (ASX: XJO) has had a bit of a rough month. Since mid-February, the ASX 200 has lost just under 4.7% of its value. Commonwealth Bank of Australia (ASX: CBA) shares haven’t been spared either. 

Yesterday, CBA recovered from a nasty morning plunge to finish the day slightly higher at $95.28 a share. That was despite the CBA share price falling as low as $93.05 soon after lunchtime.

But even so, since the beginning of February, CBA shares have lost close to 15%. Yes, a month ago, CBA was going for more than $111 a share. But yesterday, this leading ASX 200 bank closed at $95.28.

That leaves the CBA share price down by 5.7% year to date:

As what many investors on the ASX regard as a high-quality share, it’s not too often that we see pullbacks like this in the CBA share price.

As such, many investors might be wondering if this dramatic pullback over the past month has left the Commonwealth Bank share price in the buy zone today.

Are CBA shares a buy-the-dip opportunity right now?

Well, one ASX broker who reckons CBA shares could be in the buy zone after these recent falls is Morgans. As my Fool colleague James covered earlier this month, Morgan currently rates CBA as one of its best buy ideas. That’s despite the broker only having a hold rating on the bank right now.

Even so, Morgans gives the CBA share price a 12-month target of $96.11 per share – slightly above where CBA closed at yesterday.

Here’s some of what the broker said in its recommendation:

We view CBA as the highest quality bank and a core portfolio holding for the long term, but the trade-off is it is the most expensive on key valuation metrics (including the lowest dividend yield). Amongst the major banks, CBA has the highest return on equity, lowest cost of equity (reflecting asset and funding mix), and strongest technology.

As such, Morgans might be even more bullish on CBA shares after their recent descent.

The broker is also forecasting a fully franked, final dividend of $2.40 per share later this year, which would be a nice boost to investor returns too if Morgans is on the money here.

So that’s how one ASX broker views the Commonwealth Bank share price right now. Take that how you will.

The post Down 14% in a month, should I buy the dip on CBA shares? appeared first on The Motley Fool Australia.

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More reading

• ASX 200 bank shares punished again on US bank fallout
• ASX 200 bank shares: Are they better prepared than Silicon Valley Bank?
• S&P 500 futures lift as regulators shore up SVB deposits
• 5 things to watch on the ASX 200 on Monday
• Here’s how I would secure monthly dividends in the 2024 financial year with these ASX stocks

Motley Fool contributor Sebastian Bowen 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 recent failures of several banks in the United States could counterintuitively be a boost for ASX shares, according to one expert.

Silicon Valley Bank, Signature Bank and Silvergate Capital have all closed over the last few days as they faced a classic bank run.

The US$175 billion collapse of Silicon Valley Bank was the second largest bank failure in that nation’s history, according to Visual Capitalist.

AMP Ltd (ASX: AMP) chief economist Dr Shane Oliver noted that the financial chaos has almost wiped out all the January gains in the US stock market and leaves Australian shares vulnerable too.

“These closures have led to concerns they may reflect the start of broader problems in US banks,” Oliver said on the AMP blog.

“This is quite possible as Fed rate hiking cycles, by tightening financial conditions, invariably trigger financial stresses — think the tech wreck and GFC.”

What’s going to happen now that these banks have failed?

However, a devastation of the US financial system looks unlikely, as regulators have stepped in quickly to stop the bank collapses becoming a “contagion”.

“US authorities have moved quickly to guarantee deposits (beyond the $US250,000 usually covered by deposit insurance) and the Fed has unveiled a Term Funding Facility that enables banks to borrow cheaply from the Fed in order to avoid selling their bonds at a loss,” said Oliver.

“This should help reduce the risk of runs on banks and avoid a fire sale of bonds.”

The support will minimise problems for businesses that were customers of these banks and save them from sacking staff or not paying their suppliers.

“However, it will take a while to determine the full impact and for the dust to settle,” Oliver added.

“And either way banks are likely to see a tougher environment ahead as growth slows and higher rates cause more financial stress for borrowers.”

Fortunately, the chances of such collapses in Australia are even more remote as banks here play under much stricter rules.

“All Australian banks are required, post GFC, to maintain much stronger capital buffers and have tougher restrictions in terms of what they can invest in,” said Oliver.

“They also have very diverse deposit bases so are less at risk of high deposit withdrawals than regional US banks… Australian bank deposits are implicitly (if not explicitly) protected.”

The big vulnerability for Australian banks is if the real estate market tanks, causing a flood of home loan defaults.

What does all this mean for ASX shares?

For the immediate future, there could be chaos, warned Oliver.

“Right now shares are at risk of more downside until some of the issues around the US financial system, inflation, recession and short-term interest rates are resolved.”

But in the longer run, the trauma from the US could prompt central banks to stop raising interest rates.

“It’s normal for problems like this after rapid rate hikes,” said Oliver.

“Given the now high risk of recession (which would curtail inflation) it makes sense for central banks (including the RBA) to pause rate hikes.”

So on a 12-month horizon, he’s bullish on ASX stocks.

“We see shares being stronger on a one-year view, as inflation falls taking pressure [off] central banks, hopefully enabling economies to avoid a deep recession.”

The post US bank collapses could actually be good news for ASX shares: economist appeared first on The Motley Fool Australia.

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More reading

• 2 small-cap ASX shares to ride on their way up: expert
• 3 ASX 200 coal shares to buy for big gains and huge yields: Morgans
• 2 blue chip ASX 200 dividend shares to buy: brokers
• These 2 ASX shares just doubled. But there’s more to come: experts
• 5 ASX 200 shares that inflation can’t touch: expert

Motley Fool contributor Tony Yoo 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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After a promising start to the year, small-cap ASX shares have once again been hammered over the past month.

The S&P/ASX Small Ordinaries (INDEXASX: XSO) index is now more than 23% down from its peak in November 2021.

Cyan Investment Management portfolio managers Dean Fergie and Graeme Carson admitted there are still plenty of reasons for small caps to struggle.

“There are still headwinds in the market: a lack of corporate activity which has declined markedly from two years ago, diminished investor engagement and associated low volumes and, for the moment, higher interest rates,” their memo to clients read.

However, great news is that markets are cyclical.

“These are all negative factors that are occurring simultaneously, but cannot continue indefinitely,” read the Cyan memo.

“Of course, the timing of such turnarounds is difficult to predict, but our experience in the past has been when investor exasperation is at a peak, and most selling has impacted the market, this is often the time when the tables turn.”

Two rising small cap stocks to quickly latch onto

Among this small-cap wreckage, when particular stocks manage to rise it’s worth investors paying attention.

After all, they must be doing something right.

The Cyan analysts named two such gems in their portfolio that went gangbusters during reporting season: Silk Logistics Holdings Ltd (ASX: SLH) and Big River Industries Ltd (ASX: BRI).

They respectively rose 6.8% and 12% over February.

“Warehousing and logistics provided Silk Logistics produced yet another strong result with revenue up 39% and NPAT up 32%, along with a dividend of 5.3 cents per share.” 

The fund managers are shocked at how cheap the stock is, even after rallying 10.75% year to date.

“We’re surprised the stock isn’t pushing much higher given the recent results and its attractive valuation metrics,” read the memo.

“Silk Logistics is trading on a PE of just 11x and is paying a 5% fully franked yield — all with a net cash balance of $34 million on its balance sheet.”

Big River Industries also reported well last month.

“Building products supplier Big River Industries reported strong performance with revenue up 20% and NPAT rising 34% along with a dividend to shareholders of 8.6 cents per share,” the memo read.

“Big River’s customers are well diversified across Australia and industries with products supplied to residential development and commercial builders and a growing civil client base with the outlook strong across the board.”

The Cyan portfolio managers said that the “silver lining” with the current low liquidity environment with small caps is that “it can magnify share price movement on the upside as well as the down”.

“Some optimism can be taken from the most recent RBA rate decision on 7 March that indicated there may be a pause in further rises — a distinct change from prior commentary,” read their memo.

“That, combined with some extreme quantitative value in the marketplace, gives us some near-term optimism.”

The post 2 small-cap ASX shares to ride on their way up: expert appeared first on The Motley Fool Australia.

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More reading

• 2 ASX shares offering both growth and nice dividends: expert

Motley Fool contributor Tony Yoo 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 Silk Logistics. 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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One area of the market that has come under significant pressure recently is the coal industry.

After delivering sensational gains in 2022, ASX 200 coal shares are firmly in the red year to date.

One leading broker that believes this has created a buying opportunity is Morgans.

Buy ASX 200 coal shares

According to a note, the broker believes some of this weakness has been driven by dividend disappointment in February.

However, its analysts believe that coal miners were holding back in order to preserve capital for potential mergers and acquisitions (M&A) activities. And if no M&A eventuates or capital is leftover, Morgans suspects that these funds will find their way back to shareholders instead. It explained:

February dividends disappointed as feared/flagged as producers mainly appear to be withholding dry powder for M&A optionality. […] Windfall sector dividends have been delayed, not consumed, for most producers in our view. The most disciplined boards should duly reward shareholders with the spill-over of excess capital and/or disciplined growth.

In light of this, the broker sees plenty of value in ASX 200 coal shares at current levels. Here’s a summary of its ratings:

Coronado Global Resources Inc (ASX: CRN)

Morgans has an add rating and $2.50 price target on Coronado Global’s shares, which suggests 43% upside over the next 12 months. It is also forecasting a 12% dividend yield for investors.

New Hope Corporation Limited (ASX: NHC)

The broker currently has an add rating and $6.65 price target on New Hope’s shares. This implies potential upside of 27%. Morgans also expects a massive 20% dividend yield from the miner.

Whitehaven Coal Ltd (ASX: WHC)

Finally, Morgans has an add rating and $10.35 price target on this ASX 200 coal share. This suggests potential upside of 53% for investors. Its analysts expect this to be complemented with a 10% dividend yield.

The post 3 ASX 200 coal shares to buy for big gains and huge yields: Morgans appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• 3 ASX 200 shares trading ex-dividend on Tuesday
• The whopper Whitehaven dividend is being paid today. Here’s what you need to know
• Is the party well and truly over for ASX 200 coal shares?
• Why Fortescue, Lynas, Myer, and New Hope shares are dropping today

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

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If you’re looking for dividend shares to buy this week, then the two blue chips listed below could be worth checking out.

Here’s what you need to know about these dividend shares:

Coles Group Ltd (ASX: COL)

The first ASX dividend share that brokers think is a buy is supermarket giant Coles.

Morgans is very positive on the company and has an add rating and $19.60 price target on its shares. Its analysts were happy with Coles’ half-year results and the stronger than expected performance from its supermarkets segment.

In light of this and its defensive qualities, the broker believe it is a share buy now. It said:

Trading on 22.5x FY24F PE and 3.6% yield, we continue to see COL as offering good value with the company’s healthy balance sheet and defensive characteristics putting it in a good position to navigate through a weaker economic environment. In our view, the unwinding of local shopping trends should continue to be a tailwind and further trading down from consumers will also be positive given COL’s strong Own Brand offering.

As for dividends, the broker is forecasting fully franked dividends per share of 66 cents in both FY 2023 and FY 2024. Based on the current Coles share price of $17.35, this represents yields of 3.8% for both years.

South32 Ltd (ASX: S32)

Another ASX dividend share that has been named as a buy is South32.

It is one of Australia’s largest miners with exposure to a range of commodities including aluminium, copper, manganese, and nickel.

Citi is positive on South32 and has a buy rating and $5.05 price target on the mining giant’s shares. It was pleased with its half-year results and sees plenty of value in its shares at the current level. Citi explained:

1H FY23 profit of US$560m was better than expected. Importantly, FY23 prodn and cost guidance was maintained. FY24 prodn guidance points to modestly higher output in FY24. Dividend was modestly lower than expected at a 40% payout ratio. Buyback was extended with US$158m remaining and net debt of $298m. […] We raise our TP to $5.05 and stay Buy rated. We believe S32 has not yet run to full valuation levels trading on FY24E EV/EBITDA of 4x vs peers at >5x.

As for dividends, Citi is forecasting fully franked dividends per share of 28 cents in FY 2023 and 33 cents in FY 2024. Based on the current South32 share price of $4.16, this will mean yields of 6.7% and 7.9%, respectively.

The post 2 blue chip ASX 200 dividend shares to buy: brokers appeared first on The Motley Fool Australia.

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More reading

• These are the best ASX 200 mining shares to buy in March: Morgans
• Analysts name 2 ASX dividend shares to buy with 4%+ yields
• Coles stock can deliver golden combo of share price growth plus dividends: Citi
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• How can I hope to retire rich when the share market is falling?

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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Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Discovery Fund portfolio manager Chris Bainbridge and Mark Devcich tell us how the planets are aligning for two ASX shares.

Hottest ASX shares

The Motley Fool: What are the two best stock buys right now?

Chris Bainbridge: You mentioned that markets have been difficult overall. That was our experience of reporting season, but we like to think there’s always a bull market somewhere and you just have to find it.

One of those is the offshore service vessel market, as a case in point. So, one stock which we believe is a great buy right now is MMA Offshore Ltd (ASX: MRM). MMA provides offshore service vessels to oil, gas, and wind producers.

There’s been an increase in the number of offshore oil and gas projects, combined with a shortage of the offshore service vessels, [that] has driven up utilisation and day rates for the offshore service vessel operators. MMA had a really strong first half. EBITDA of $32.1 million and management team is very conservative, but NTA [net tangible assets] was upgraded to $1.15 and we still believe that’s conservative. 

Looking ahead, you’re in an environment with a cyclical stock, where if demand is high and supply is constrained, day rates probably need to go up another 50% to justify anyone building a new vessel. And when they build a new vessel, there’s a three-year wait time on that vessel. 

So it’s a really great environment at the moment to be [an] offshore service vessel provider and that’s where MMA is.

Final point, MMA traded up to around two times the NTA. Management has said that they’re targeting 15% return on capital. If that was achieved, based on the potential replacement value of these vessels, they should be achieving $100 million dollars a year just on the vessels alone, and they also provide subsea and project logistic services on top of that. So plenty of upside [to] earnings coming out there.

MF: It’s so funny how it’s all turned, isn’t it? Thirteen or 14 months ago, this type of business would have been so out of fashion, but I see that the MMA share price has doubled in the past year.

CB: Yeah, well, they [were] at 30 cents, which feels not too long ago, and at $1.20 today. 

But they’re in a great position where they have a lot of tax losses, they don’t really pay too much tax, there’s only modest capex requirements, so they’re already generating plenty of cash… and potentially in a place and an environment that demands quality, that is a fantastic way to grow that.

MF: Excellent. What’s your other best buy that you see at the moment?

Mark Devcich: Yeah, the other one is Duratec Ltd (ASX: DUR), which [is] a maintenance and remediation contractor. 

They reported a strong first-half result of $16.2 million EBITDA. However, the first half could have actually been a lot better — there was margin contraction due to some delays with projects, particularly in the northwest. They’ve also taken a conservative view on project margins as well with their new acquisition of Wilson’s Pipe Fabrication. They did that acquisition last year and only got a partial contribution from it in the first half.

However, when you look to the second half, the guidance is $32 to $35 million. If you just double the first half, you’re at the bottom end of the range. That will grow organically into the second half and then also if you include the contribution from Wilson’s, which is expected to be just under $4 million for the full year on a 12-month basis, that should add a couple of million dollars to the second-half result.

So you’re already getting a result that’s towards the top end of the guidance range for FY2023, and if they achieve anything like the organic growth rates they did in the first half, we feel there’s potential to exceed that again. 

It’s a founder-led business. Our flagship fund is the Founders’ Fund where we like investing alongside founders. And because it’s heavily skewed to the maintenance and remediation work, far more predictable. They’ve got lots of formal contracts with smaller tickets of work, so that they’re less likely to run into contract issues.

It’s been a strong investment for us that we listed, basically, since the inception of the fund back in late September.

MF: I see that’s another stock that’s more than doubled in the past year — but you guys feel like there’s more to come.

MD: Yeah, the valuation model is still very low and there’s just so much work out there for these guys that they’re being constrained, really, around labour. So they could take on more work if they had the labour availability. 

The other thing that I didn’t mention was that they do get good insights into projects by doing ECI work, which is the industry acronym for early contract involvement. They get on these sites, do the engineering work, scope out the project design, and then they’re in a good position to win the actual contracting work on the back of that. That gives them potentially up to a 25 times uplift from their initial engineering work to actually executing on the contracting work. So they’re in a good position to see more revenue from getting involved with the project very early on at an engineering and design level.

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• Why Block, Liontown, MMA, and Norwest Energy shares are charging higher today

Motley Fool contributor Tony Yoo 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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One lesson out of last month’s reporting season was that cost pressures are persisting for ASX-listed companies.

That’s the analysis from Wilsons equity strategist Rob Crookston, who argued that the biggest pressure for businesses at the moment is labour costs.

“For instance, Cleanaway Waste Management Ltd (ASX: CWY) reported a heightened number of job vacancies caused employee costs to rise +16% due to the need to pay more overtime and use more expensive labour hire contractors,” he said in a Wilsons memo to clients.

While in the longer term, inflation will settle down, according to Crookston, its effects can’t be ignored when deciding which ASX shares to buy at the moment.

“The near-term threat to profitability is… meaningful and we see further downside to margins from here, particularly in more cyclical sectors with less pricing power — e.g. retail, discretionary goods.”

So which are the best ASX shares to buy under such conditions?

Nothing beats setting your own prices

According to Crookston, “the best defence against cost inflation is pricing power”.

“High quality companies with resilient customer demand through the cycle and dominant market positions operating in attractive industry structures are best placed to protect their margins by raising prices.”

He named five such S&P/ASX 200 Index (ASX: XJO) stocks that the Wilsons team holds in its focus portfolio:

• CSL Limited (ASX: CSL)
• Resmed CDI (ASX: RMD)
• Telstra Group Ltd (ASX: TLS)
• Insurance Australia Group Ltd (ASX: IAG)
• Lottery Corporation Ltd (ASX: TLC)

CSL can set its own prices as the “dominant and lowest-cost player” in the international blood plasma industry, said Crookston.

“The market for immunoglobulin (IG) products is supply constrained, while underlying demand is highly defensive given IG is used to treat patients with a range of serious immunologic and neurologic diseases.”

Another medical player, ResMed, already has about 70% of the sleep apnea device market. According to Crookston, it’s on its way to supplying the entire market because its nearest rival, Koninklijke Philips NV (AMS: PHIA), is still hamstrung from a 2021 product recall.

Telstra, whose dominance goes without saying for most Australians, is “committed to raising prices annually (and cutting costs) to offset inflation”.

“Mobile net ads were strong in 1H23 in spite of higher prices, and the competitive setting is increasingly rational.”

In the recession-resilient insurance industry, IAG can name its own prices.

“Number 1 general insurer in Australia, which has been [raising] premium rates strongly to offset rising perils costs (albeit there is a timing lag to margins),” said Crookston.

“Even with higher premiums, customer retention rates remain high.”

He noted that The Lottery Corporation operates in a monopoly in every state except for Western Australia.

“Lottery sales have historically been [highly] resilient in economic downturns, and TLC has a proven ability to incrementally raise ticket prices over time.”

The post 5 ASX 200 shares that inflation can’t touch: expert appeared first on The Motley Fool Australia.

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• Here’s why experts rate these ASX 200 growth shares as buys
• Here’s how much I’d need to invest in Telstra shares to generate a $200 monthly income
• Warren Buffett is invested in IAG shares, should you be?
• Big lesson from reporting season: STAY AWAY from these ASX shares, says expert
• Here’s how I would secure monthly dividends in the 2024 financial year with these ASX stocks

Motley Fool contributor Tony Yoo has positions in CSL and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and ResMed. The Motley Fool Australia has positions in and has recommended ResMed and Telstra 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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