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S&P/ASX 200 Index (ASX: XJO) investors might be approaching the end of the year with less enthusiasm than they closed 2021 with. Indeed, it’s been a trying year for market watchers. The index has so far backed up last year’s 13% gain with a 6.5% tumble. But I believe there’s a good reason to celebrate the ASX 200’s market correction.

It has likely created numerous buying opportunities capable of building riches.

Stock market correction or wealth-building opportunity?

There’s a bit more to the ASX 200’s 2022 fall than meets the eye. Namely, the vastly different performances posted by its various sectors.

The index has been buoyed by soaring energy shares and a strong performance from miners this year.

The S&P/ASX 200 Energy Index (ASX: XEJ) has jumped 37% year to date amid soaring oil and coal prices, mainly spurred by the conflict in Ukraine, and the S&P/ASX 200 Materials Index (ASX: XMJ) has outperformed the broader market by around 10% so far this year.

Conversely, the S&P/ASX 200 Real Estate Index (ASX: XRE) has plunged 25% amid rising inflation and resulting rate hikes.

Similar factors have likely dragged the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) 24% lower.

Now, there’s no guarantee these embattled sectors will transform their poor performance into gains in 2023. Particularly as many of the factors compressing them haven’t abated yet.

However, I personally expect them to recover their losses over the longer term.

I’ll be hunting for ASX 200 bargains in 2023

I’ll be taking a good look at many compressed real estate and consumer discretionary shares in the new year in a bid to find diamonds in the rough of the ASX 200 correction.

If I find a few that I believe could be future winners, I’ll aim to hold them for the next five to ten years, at least. Here’s why.

Historically, the market has always recovered from downturns and corrections to post new highs. Take the Dotcom bust, the Global Financial Crisis, and the COVID-19 downturn for example.

Indeed, the ASX 200 has gained more than 50% over the last 10 years despite this year’s market correction. If we also factor in dividends, the index returned an average of around 9.3% over the decade to 2021.

Thus, I hope to employ a combination of buying the dip and compounding gains by reinvesting dividends in a bid to realise above-market returns on the back of 2022’s correction over the coming decade.

Though, no investment is guaranteed to provide returns or downside protection and past performance isn’t an indication of future performance.

The post Stock market correction: A once-in-a-decade chance to get rich? appeared first on The Motley Fool Australia.

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More reading

• 2023 ready: Here are my non-negotiables for investing in ASX shares next year
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• 3 reasons to buy Wesfarmers shares before 2023

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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The Retail Food Group Ltd (ASX: RFG) share price is satisfying the appetites of its shareholders today amid its latest update.

As we head into the afternoon, shares in the food and beverage company are trading 10.1% higher at 7.6 cents apiece. The performance is more impressive given the context of the broader market on Friday.

At the time of writing, the S&P/ASX 200 Index (ASX: XJO) is 0.81% weaker than yesterday.

Messy past comes due

Since 2017, Retail Food Group has been shrouded in controversy and contempt. Explosive allegations were made regarding the company’s dealings with franchisees following an investigation conducted by The Sydney Morning Herald.

At the time, it was alleged that Retail Food Group failed to provide adequate financial information for the stores being sold to franchisees — among other issues — leading to financial ruin, at times, for those that operated stores such as Michel’s Patisserie, Donut King, and Brumby’s.

Understandably, the market grew nervous about the situation, sending the Retail Food Group share price into the dirt. In the space of two years, the company’s shares descended a crippling 98%.

The reports prompted the Australian Competition and Consumer Commission (ACCC) to commence proceedings against Retail Food Group. Fast forward to today and we have our verdict.

According to the release, Retail Food has agreed to settle with the ACCC. As part of the agreement, the company will pay approximately $8 million to the impacted franchisees. Additionally, the company will waive around $1.8 million worth of franchisee debts.

Retail Food pointed out that the proceeding would be dismissed without:

• making any admission to the allegations
• paying any pecuniary penalty; or
• being subject to any injunction, disclosure, or adverse publicity order

Path travelled by the Retail Food Group share price

It has been a bumpy old ride for Retail Food shares in 2022, swinging between 4 cents and 8 cents. Yet, today’s gain takes the company’s shares into the green for the year.

In fact, the food and beverage business has outperformed the ASX 200 by approximately 14%. A title that not too many ASX shares can claim to hold at the end of this challenging 12-month stint.

The post It’s settled then: Why the Retail Food Group share price is prancing 10% today appeared first on The Motley Fool Australia.

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More reading

• Why AGL, Retail Food Group, Starpharma, and TPG shares are rising today

Motley Fool contributor Mitchell Lawler 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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Writing this – and expecting anyone to read it – on Christmas Eve-eve might be an optimistic thing to do.

After all, we’re apparently going to spend $440 million in a single hour – between 12pm and 1pm – today.

(I can neither confirm nor deny I’ll be one of the people sneaking out at lunchtime to do some last minute Christmas shopping that I should have done days ago!)

That’s part of the $66 billion we’re expected to spend over the Christmas period, overall – up 7% or so on last year’s figure.

What slowdown, huh?

Of course, those numbers are totals, and don’t show the range of circumstances for different people across our wide brown land.

Some have been doing it tough for a while. Some will see this as a ‘last hurrah’ of sorts, before tightening their belts in 2023. Others will go on, blissfully unimpacted.

Such, as always, is life.

That doesn’t make it fair. Or okay. But, as the cool kids say, it is what it is.

Which brings me to some Christmas wishes.

This is the sort of thing that can become pretty saccharine, if you let it.

Or cynical, if you push too hard in the other direction.

You probably know I’m an optimist.

I’m also, despite occasional evidence to the contrary from public and private figures, a believer in the better angels of our nature.

Faced with the choice to be too optimistic or too pessimistic, I’ll take the former, every time.

Indeed, you can’t be both a pessimist and a (successful) investor.

Investing is, at its core, the act that comes from believing things will get better, in time.

And if I’m going to get scorned for being too optimistic, too positive, and for hoping for a better future for us all, then go your hardest.

I’m going to keep believing in the incredible drive of the human spirit.

Oh, we’re a deeply flawed and imperfect species, for sure.

But we make things better, over time.

For every ‘but what about’, I’ll give you two-dozen examples of the progress that we’ve been responsible for.

Not to negate those very reasonable concerns, but to show you that with some effort and goodwill, we have both the ability and the track record to suggest that we can overcome.

If you’re offended by optimism, stop reading now. There’s plenty of doom and gloom being offered by the usual suspects, if you prefer to read that, instead.

Christmas, 1939, felt pretty rough for many, as war raged.

Christmas, 1981, felt pretty ordinary, as high oil prices and rising interest rates confronted out economy.

Christmas, 1999, felt good… but the market crashed soon after.

And?

And we overcame.

We got better.

Our world is a much, much better place, today, than before any of those times, despite our current challenges.

Christmas, 2019, was to be the calm before the pandemic storm.

And it’s not over.

But I have a supremely high level of confidence that we’ll look back on that time, in years to come, and marvel at what we achieved in the 3, 5, 15 and 25 years since.

And I think investors will be, as a group, much richer.

And so, those wishes?

Well, I hope interest rates peak soon. Not because the pollies have said they should (they’re talking out of barely-concealed self-interest), but because I hope those higher rates achieve their aim of bringing down inflation during 2023.

I hope, as inflation cools, the share market rises. Not too fast – we don’t need more irrational exuberance – but in keeping with the rising potential of the companies listed on it.

I hope investors, traders and speculators manage to avoid the next bubble. The next ‘hot stock’, sector or commodity. The only thing worse than your neighbour getting rich while you miss out is joining him and both of you losing your shirts. There are too many examples of the latter.

I hope our politicians – whole parliaments, not just governments – make laws that improve our society and economy. For the long term. Increasing wide-spread prosperity is its own fly-wheel, creating more and more prosperity as it goes. Short-termism that favours a little money now will cost us a lot of money later – the very opposite of smart investing… and smart governance.

I hope our members and readers keep the faith. Not for our sake, but for yours. We’ve been here before. Countless times. But the market is higher than at those previous times, just as it was those times, too. I hope the lessons of history convince you that continuing to invest is the right thing to do.

And I hope that, as we climb to (all-but inevitable) higher heights in the future, we remember how this felt, and what comes next, so that during the next downturn we are able to more easily keep that faith.

Saccharine enough for you?

I hope so.

Because the long term future has always belonged to the optimists. Optimists with fortitude, to be sure, but optimists nonetheless.

Thank you to those of you who are Motley Fool members. Thank you to those of you who are regular – or even occasional – readers. And thank you to those who take the time to respond – to let me know where I’ve got it right… and wrong.

I like picking stocks. I like making money. But mostly, am I privileged to have a job that allows me to help others work toward their financial goals.

I hope 2023 takes you one year closer to yours.

Fool on!

The post What I’m asking Santa for this Christmas appeared first on The Motley Fool Australia.

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More reading

• Why AGL, Retail Food Group, Starpharma, and TPG shares are rising today
• Why BWX, Earlypay, Evolution, and Pointsbet shares are dropping today
• This ‘very attractive’ ASX share could be a takeover target with over 50% upside
• 2023 ready: Here are my non-negotiables for investing in ASX shares next year
• Brokers name 3 ASX shares to buy for Christmas

Motley Fool contributor Scott Phillips 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 S&P/ASX 200 Index (ASX: XJO) has followed Wall Street’s lead and is on course to end the week in the red. At the time of writing, the benchmark index is down 0.8% to 7,094.3 points.

Four ASX shares that have not let that hold them back today are listed below. Here’s why they are rising:

AGL Energy Limited (ASX: AGL)

The AGL share price is up 1% to $8.23. Investors have been buying this energy company’s shares despite there being no news out of it. However, given the market selloff today, safe haven assets like utilities could be in demand with investors.

Retail Food Group Ltd (ASX: RFG)

The Retail Food Group share price is up 10% to 7.6 cents. This morning, this embattled quick service restaurant operator revealed that it has settled its ACCC proceeding. The Donut King, Gloria Jean’s, and Michel Patisserie’s operator has agreed to pay $8 million to settle.

Starpharma Holdings Limited (ASX: SPL)

The Starpharma share price is up 1% to 52 cents. This follows news that the drug developer has received a $7.1 million research and development (R&D) tax incentive refund under the Australian Federal Government’s R&D Tax Incentive scheme.

TPG Telecom Ltd (ASX: TPG)

The TPG share price is up 2% to $4.89. Investors have been buying this telco’s shares following the release of a bullish broker note out of Morgans this morning. According to the note, the broker has upgraded TPG’s shares to an add rating with a $5.50 price target. The broker said: “We think the bad news is now priced in and see value at current levels. We upgrade TPG to an Add recommendation (from Hold).” TPG’s shares are still down 17% year to date.

The post Why AGL, Retail Food Group, Starpharma, and TPG shares are rising today appeared first on The Motley Fool Australia.

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More reading

• Brokers name 3 ASX shares to buy for Christmas
• 5 things to watch on the ASX 200 on Friday
• Why BWX, Novonix, Symbio, and TPG shares are dropping today
• Telstra share price lower after ACCC blocks TPG deal
• Here are the top 10 ASX 200 shares 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 positions in and has recommended Starpharma. The Motley Fool Australia has recommended Starpharma and Tpg Telecom. 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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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to end the week in the red. At the time of writing, the benchmark index is down 1.15% to 7,071 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

BWX Ltd (ASX: BWX)

The BWX share price is down heavily for a fourth day in a row and nursing an 8% decline to a new record low of 17 cents. Investors have been selling the Sukin skincare manufacturer’s shares this week following the release of shocking business update. BWX now has a mountain of debt almost triple its market capitalisation and is on track to breach its debt covenants. A recapitalisation may be needed to save the company from going under at this rate.

Earlypay Ltd (ASX: EPY)

The Earlypay share price is down a whopping 39% to 19.5 cents. Investors have been selling this lender’s shares after the release of an update on its exposure to RevRoof. The roofing business has fallen into administration and owes Earlypay approximately $29 million. Management advised that uncertainty has arisen around how much will be recovered by Earlypay from Revroof. As a result, it has withdrawn its guidance for FY 2023.

Evolution Mining Ltd (ASX: EVN)

The Evolution share price is down 3% to $2.93. This follows a pullback in the gold price overnight amid interest rate hike concerns. It isn’t just Evolution that is dropping today. The S&P/ASX All Ordinaries Gold index is down 2.2% this afternoon.

Pointsbet Holdings Ltd (ASX: PBH)

The Pointsbet share price is down a sizeable 11.5% to $1.24. This is despite there being no news out of the sports betting company today. And while there is plenty of selling going on in the tech sector after a poor night on the NASDAQ index, PointsBet is being punished far more than most. Interestingly, the company’s market capitalisation is now lower than its cash balance at the end of the last quarter.

The post Why BWX, Earlypay, Evolution, and Pointsbet shares are dropping today appeared first on The Motley Fool Australia.

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More reading

• Why 29Metals, BWX, Readytech, and Synlait shares are dropping
• 5 things to watch on the ASX 200 on Thursday
• Could ASX 200 gold shares be ‘at another pivot point’?
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Wednesday

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 positions in and has recommended PointsBet. The Motley Fool Australia has recommended PointsBet. 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 Estia Health Ltd (ASX: EHE) share price could offer investors a lot of potential returns according to the fund manager Wilson Asset Management. It suggested the ASX share could rise by more than 50%.

What is Estia Health? For readers that haven’t heard of it, it’s an aged care operator. At December 2022, it had 72 operational homes, with 6,596 places and over 7,500 employees. It has almost 2,000 places in each of NSW and Victoria, with Queensland and South Australia making up the rest.

The business says it wants to keep growing with a program of capital investment to “increase capacity, and continually improve asset quality.”

WAM’s optimistic view on the Estia Health share price

Two of WAM’s leading investors were recently featured in a video talking about a few different topics.

Portfolio manager Tobias Yao called out Estia shares as an opportunity.

He said that the company has a “competent board and management team now”.

Yao noted that the aged care sector has had a “very tough time” over the last few years after the aged care royal commission and also with COVID-19. But, he said that WAM believes “that’s now behind us”. Explaining the positive case for the ASX share, he said:

If you’re an efficient operator in the aged care space there are a lot of opportunities from an M & A (mergers and acquisitions) perspective to acquire good assets at very attractive prices and at the same time we’ve seen quite a few large takeovers of aged care operating groups and we believe Estia itself is the target of potential acquisitions.

So, we think the intrinsic value is over $3 and currently the risk/reward looks to be very attractive.

If the Estia Health share price were to rise to $3 after a takeover offer, that would represent a potential rise of around 50%.

Recent performance

Estia Health recently made its own acquisition – it bought four residential aged care homes from Premier Health Care Group for $62 million, excluding stamp duty and transaction costs, funded by debt.

In the first quarter of FY23, its ‘spot occupancy’ on its mature home portfolio of 6,163 places, excluding the Burton expansion, was 92.3% at 31 October 2022. Average occupancy for the quarter was 91.7% for the ASX share compared to 90.6% in the second half of FY22.

The impact of COVID-19 has “continued to decline” during the FY23 first quarter. Total estimated incremental costs associated with prevention and response were $8.9 million for the quarter, compared to $13.4 million in the prior quarter.

It’s expecting to see the industry benefit from higher occupancy as the impact of COVID-19 lessens and a reduction in new supply intersects with the ageing population. The number of people over 85 is projected to increase by 60% in the next decade.

Estia Health share price snapshot

Over the last month, the aged care company has dropped around 8%.

The post This ‘very attractive’ ASX share could be a takeover target with over 50% upside appeared first on The Motley Fool Australia.

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More reading

• Why BWX, Earlypay, Evolution, and Pointsbet shares are dropping today
• 2023 ready: Here are my non-negotiables for investing in ASX shares next year
• Brokers name 3 ASX shares to buy for Christmas
• Should I buy Allkem shares this Christmas?
• This well-known ASX share is down 35% this year. Time to buy?

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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Next year could be a curly one for ASX shares as the global economy navigates the possibility of a recession. That’s why I think it is critical to have a game plan for your portfolio heading into 2023.

Having set criteria for your investments can help prevent impulse purchases. At the same time, it clarifies your acceptable standard for portfolio entry. As the saying goes, “You can’t hit a target you cannot see, and you cannot see a target you do not have.”

The importance of an investment checklist — or non-negotiables as I like to call them — is even greater during challenging economic times. Without it, you might run the risk of adding a fragile company to your holdings.

My ‘must-have’ list for ASX shares in 2023

Firstly, these are the conditions I’m personally setting out for my investments in 2023. I strongly urge you to consider what is important to you and your portfolio to create your own ‘non-negotiables’.

Steady up on the debt hotshot

Debt can be a beautiful thing when used effectively by a company. However, with elevated interest rates, a challenging market to raise capital in, and a possibly rocky road ahead — a boatload of debt is not something you want an ASX share to be strapped with.

Normally a debt-to-equity ratio below 40% is considered healthy. For me, I’m setting a hard limit of 25% debt on the balance sheet for 2023. Ideally, the company would also be in a net cash position.

I believe financial hardiness will be an important trait to have next year.

Hitting pause on the unprofitable ASX shares

There are plenty of exciting businesses that are pre-earnings, screaming that they’ll be the next 100X investment. Yet, next year will require my investments to be profit generators.

I’m not against investing in loss-makers in general… in fact, eight out of my 27 holdings are unprofitable companies. But, it comes with added risk if the cash runs out and the company is unable to raise additional capital.

In my opinion, profitable ASX shares are offering the most attractive risk-to-reward potential now. After all, it is company earnings that drive the share price in the long run, as shown above.

Ok, but can you allocate capital like a boss?

Capital allocation will make or break a company — that I am sure of. In 2023, the most important non-negotiable is a proven track record of effective use of capital by management.

Next year’s potential economic landscape is what makes this a critical consideration. There will likely be opportunities for ASX-listed companies to acquire and grow. Executed well, this can add huge value to the company. Executed poorly, and we could look at another Slater and Gordon (value destruction from Quindell acquisition shown below).

Before investing in an ASX share, consider reviewing the company’s past return on capital (ROC). For me, the bar is set at a minimum of 15%. Although, above 20% will be preferred.

The post 2023 ready: Here are my non-negotiables for investing in ASX shares next year appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• 3 reasons to buy Wesfarmers shares before 2023
• Forget gold! Start hunting fallen ASX 200 shares to buy for an earlier retirement

Motley Fool contributor Mitchell Lawler 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 has been another busy week for Australia’s top brokers. This has led to the release of a large number of broker notes.

Three broker buy ratings that you might want to know more about are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

Liontown Resources Ltd (ASX: LTR)

According to a note out of Macquarie, its analysts have retained their outperform rating and $3.40 price target on this lithium developer’s shares. This follows news that the company has signed a binding power purchase agreement with Zenith Energy. The broker believes this is a positive outcome for the company and remains positive on the outlook of the Kathleen Valley project. The Liontown share price is trading at $1.26 on Friday.

Mineral Resources Ltd (ASX: MIN)

A note out of Morgans reveals that its analysts have initiated coverage on this mining and mining services company’s shares with an add rating and $94.00 price target. The broker is a fan of Mineral Resources due to its transformation from being primarily leveraged to high-cost/shortlife iron ore operations to low-cost/long-life iron ore and lithium assets. The Mineral Resources share price is fetching $79.30 today.

TPG Telecom Ltd (ASX: TPG)

Analysts at Morgans have upgraded this telco’s shares to an add rating with a $5.50 price target. Morgans made the move on the belief that recent share price weakness has created a buying opportunity for investors. Although it was disappointed to see the Telstra Corporation Ltd (ASX: TLS) blocked by the ACCC, its analysts believe the bad news is now priced in. Furthermore, the broker highlights that the Optus hack this year is likely to be a positive for TPG. The TPG share price is trading at $4.83 on Friday.

The post Brokers name 3 ASX shares to buy for Christmas appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• 2 ASX dividend shares that could see big payout increases next year
• Mineral Resources is a ‘formidable player in the lithium market’: Broker tips major share price gains
• 5 things to watch on the ASX 200 on Thursday
• Here are the 3 most heavily traded ASX 200 shares on Wednesday

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 Telstra Group. The Motley Fool Australia has recommended Tpg Telecom. 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 on the lookout for last minute Christmas gift ideas for your investment portfolio, then Allkem Ltd (ASX: AKE) shares could be a top option.

Although, this lithium miner’s shares are up 24% over the last 12 months, as shown below, one leading broker believes they can keep rising.

Should you buy Allkem shares for Christmas?

According to a note out of Goldman Sachs this month, its analysts have initiated coverage on the lithium miner with a buy rating and $15.20 price target.

Based on where Allkem shares are currently trading, this implies potential upside of 32% for investors over the next 12 months.

Interestingly, Goldman Sachs is bullish on Allkem despite being extremely bearish on lithium prices.

As mentioned here recently, the broker is predicting the lithium carbonate price to go from an average of US$59,331 a tonne this year to US$11,000 a tonne in 2024.

So why is Allkem a buy?

Goldman expects Allkem’s production growth to help offset softer lithium prices and sees opportunities to add value through downstream activities.

Allkem has the best production outlook in our lithium coverage, growing equity LCE production >4x by FY27E, supporting earnings rebound to current record levels despite declining lithium prices, on the back of: (i) Olaroz Stage 2, (ii) Sal de Vida, (iii) James Bay, and (iv) the Naraha lithium hydroxide facility.

Allkem has the largest lithium metal contained resource base amongst our coverage though is trading at a discount to peers. Future opportunities in Olaroz/Cauchari Stage 3, enhanced brine recoveries at Olaroz, Potash production at SdV, Mt. Cattlin resource extension, and the possible downstream at James Bay provide upside risks to our forecasts.

The post Should I buy Allkem shares this Christmas? appeared first on The Motley Fool Australia.

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More reading

• While the ASX 200 struggled in 2022, investors doubled down on lithium shares. Here’s why
• Leading brokers name 3 ASX shares to buy today
• ASX lithium shares have just been crunched. Time to buy?
• Why are ASX 200 lithium shares sinking like stones on Thursday?
• Lithium and travel: Goldman Sachs names the ASX growth shares to buy now

Motley Fool contributor James Mickleboro has positions in Allkem. 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 REA Group Limited (ASX: REA) share price has been hit hard during 2022. At the time of writing the ASX share is down by 35%.

It’s rare for a leading business to fall that much over 12 months. The higher interest rates (and inflation) seem to be really affecting some parts of the market.

REA Group is a business that operates property sites like realestate.com.au.

For REA Group, it’s a tricky situation. Not only do higher interest rates (theoretically) hurt the company’s valuation, but it’s also hurting house prices – the thing that people are advertising on the platform. Why do interest rates matter so much for ASX shares and property? Warren Buffett once explained:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.

What’s going on with the property market?

House prices are falling amid the significantly higher interest rate. According to Corelogic, Sydney house prices have fallen more than 10% from their peak, though were still 10.3% above the pre-COVID level, at the end of November 2022.

Melbourne prices are only 2.8% above where they were at the onset of COVID. Melbourne house prices could reach pre-COVID levels by March next year.

Corelogic said that most of the other capital cities and broad ‘rest-of-state regions’ are still showing dwelling values at least 25% above March 2020 levels.

REA Group earns most of its revenue thanks to two different factors – how much it can charge for property listings and how many listings there are.

Falling property prices may give the company less room to implement strong price increases.

Domain Holdings Australia Ltd (ASX: DHG) shares were recently crunched after it told the market that conditions are “deteriorating”. There was a 16% decline in listings in October and a 22% decline in November. The ASX share then said:

Inner city Sydney and Melbourne continue to experience particular weakness, with November listings down 38% and 32% respectively. December is experiencing an earlier than usual seasonal decline as agents and vendors defer listings into the 2023 calendar year. This trend contrasts with December 2021 when listings activity was unusually long, extending into late December. As a result, December month to date listings are down around 51% in Sydney and 37% in Melbourne.

Is the REA Group share price a buy?

It seems quite likely that REA Group is also seeing a sizeable drop in listings, which puts pressure on earnings.

However, it’s possible that there could be a bit of a rebound in listing volumes next year if the higher interest rates encourage some property owners to sell.

The REA Group share price was higher than the current level for most of FY21 and FY22.

But, the ASX share could go lower than today if investors become more bearish about its earnings.

According to Commsec, the REA Group share price is valued at 36 times FY23’s estimated earnings. But, it is priced at 31 times FY24’s estimated earnings.

I think the business has a very strong market position, with promising investments in property sites in India, south east Asia and the US. But, we should pay most attention to the main profit generator of the business, which is uncertain.

It’d be even better valued if the shares were closer to $100, so I’d be happy to be patient, but I think the company can do well over the long term.

The post This well-known ASX share is down 35% this year. Time to buy? appeared first on The Motley Fool Australia.

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More reading

• Why European Lithium, Evolution, MedAdvisor, and REA shares are charging higher
• 5 things to watch on the ASX 200 on Wednesday
• Goldman Sachs names 2 ASX 200 blue chip shares to buy
• Top brokers name 3 ASX shares to buy today
• 3 ASX 200 tech shares to buy now before the market wakes up: expert

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 REA 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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