Tag: Motley Fool

It’s only human nature to be buoyed by ASX shares that have risen and scared of those that have fallen.

But stocks themselves don’t have any memory.

They don’t care whether they have been soaring or plunging. All that matters is where it will go from now.

Santa might only bring presents to nice girls and boys, but naughty shares can still be handsomely rewarded if the underlying business performs well.

With this in mind, the team at Celeste Funds Management this week named two stocks it holds that gained spectacularly in November and one that bitterly disappointed.

But all three, the analysts hope, are set to reach lofty heights.

‘Asset quality remains solid’

Small business bank Judo Capital Holdings Ltd (ASX: JDO) saw its share price climb a tidy 18.4% in November.

The Celeste team, in a memo to clients, attributed this to “strong” briefing at its annual general meeting in late October.

“The update confirmed Judo appear[s] to be on track to reach their at-scale metrics, with the loan book growing to $6.8 billion.”

Despite an excellent November, the Judo share price is still more than 39% down year to date.

The prospect of an economic slowdown or a recession does not concern Celeste analysts.

“Judo’s asset quality remains solid with no material uptick in arrears and the company remains well-capitalised with a 19.5% CET1 ratio, well in excess of the major banks benchmark of circa 10.5%.”

The bank also revealed new appointments to the deputy executive officer and chief financial officer positions.

Opening new stores

Furniture merchant Nick Scali Limited (ASX: NCK) enjoyed a 12.2% rise in value last month.

Again, Celeste analysts tracked this back to an AGM update, which apparently “alleviated market concerns around short-term consumer demand”.

“Group revenue for the four months to October was 74% above the prior year while written sales orders were 55% above the prior year,” the memo read.

“Ongoing Plush synergy capture saw group gross margins expand to 61.3% from 59.5% in June 2022, resulting in expected 1H23 net profit of between $56 million and $59 million, [which is] a 57% to 66% increase on the prior year.”

Similar to Judo, one good month still leaves Nick Scali shares a long way from breaking even in 2022. The stock is more than 29% lower than where it started the year.

The Celeste team sees a viable growth plan in the Nick Scali business.

“Management intends to continue their store rollout strategy, aiming to open at least six new stores across the group in FY23.”

Focus on the long-term growth

Infomedia Limited (ASX: IFM) makes software for the vehicle parts and services sector.

Unfortunately, its share price plummeted a painful 10.2% over November.

Again, the AGM was to blame, with the company downgrading its revenue guidance at the event.

“Infomedia noted that the range would be $127 million to $132 million, down from previous expectations of $131 to $139 million,” read the Celeste memo.

“The slippage has been driven by a slowdown in ecommerce transactions, in part, an unwind of the previous year’s covid driven spike.”

But the Celeste analysts were not worried about that. They were focused on what the future would bring.

“More relevant was the announcement that Infomedia data offerings continue to see double-digit revenue growth,” read the memo.

“The new CEO is seeking to address the legacy cost base while at the same time driving the sales discussion and negotiations towards the higher level management at the major global auto players.”

The Infomedia share price is down 28.8% year to date.

The post Naughty or nice? Buy 3 ASX shares heading in opposite directions, says fund appeared first on The Motley Fool Australia.

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More reading

• My top wildly undervalued ASX dividend king to buy in 2023
• Why Atlas Arteria, Cleanaway, Nick Scali, and Tyro shares are pushing higher
• Why I think Warren Buffett would love this ASX dividend share
• Why Nanosonics, Nick Scali, NRW, and Tyro shares are charging higher
• Why Kogan, Nick Scali, PointsBet, and Sayona Mining shares are pushing higher

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 positions in and has recommended Infomedia and Judo Capital. The Motley Fool Australia has recommended Infomedia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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On Friday, the S&P/ASX 200 Index (ASX: XJO) finished the week with a solid gain. The benchmark index rose 0.5% to 7,213.2 points.

Will the market be able to build on this on Monday? Here are five things to watch:

ASX 200 expected to fall

The Australian share market looks set to give back Friday’s gains on Monday following a poor finish to the week on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 35 points or 0.45% lower this morning. On Wall Street, the Dow Jones was down 0.9%, the S&P 500 fell 0.7%, and the NASDAQ dropped 0.7%.

Oil prices drop

ASX 200 energy shares Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) could have a soft start to the week after oil prices dropped again on Friday night. According to Bloomberg, the WTI crude oil price was down 0.6% to US$71.02 a barrel and the Brent crude oil price fell 0.1% to US$76.10 a barrel. Oil prices tumbled 11% last week amid concerns over demand.

Woolworths to acquire Petstock?

The Woolworths Group Ltd (ASX: WOW) share price will be one to watch this morning amid speculation the retail conglomerate is on the verge of making a major new acquisition. According to the AFR, Woolworths is close to signing an agreement to acquire pet accessories and food retailer Petstock. No acquisition price was provided but it is likely to come with a sizeable price tag given Petstock reportedly achieved sales of almost $700 million and profit before tax of $54 million in FY 2022.

HMC rated as a buy

The HMC Capital Ltd (ASX: HMC) share price could be great value according to analysts at Morgans. This morning, the broker has retained its add rating with a $5.85 price target. This implies almost 30% upside for the property development company’s shares. It said: “The share price has been impacted by the overall REIT sector underperformance this year, however with a capital light business model and a track record for executing on complex deals we back management to deliver on its targets.”

Gold price rises

Gold miners such as Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) could have a decent start to the week after the gold price pushed higher on Friday. According to CNBC, the spot gold price was up 0.5% to US$1,810.7 an ounce during the session. The gold price rose on hopes the US Federal Reserve could still slow its rate hikes.

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

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More reading

• Here’s how I’d invest $20,000 in ASX 200 shares for a 7% dividend yield
• The difference between uncertainty and risk’: 5 ASX shares this fundie is backing for 2023
• Here are the top 10 ASX 200 shares today
• What’s driving ASX 200 gold shares to outperform this week?
• Here are the 3 most heavily traded ASX 200 shares on Friday

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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Last week saw a number of broker notes hitting the wires once again. Three buy ratings that investors might want to be aware of are summarised below.

Here’s why brokers think investors ought to buy them next week:

Corporate Travel Management Ltd (ASX: CTD)

According to a note out of Macquarie, its analysts have retained their outperform rating but trimmed their price target on this corporate travel specialist’s shares to $19.95. Macquarie notes that industry data shows that corporate travel activity softened in the United States in November. While the broker suspects that this could mean the company falls short of its expectations during the first half, it retains its buy rating due to its attractive valuation. The Corporate Travel Management share price ended the week at $14.09.

Maas Group Holdings Ltd (ASX: MGH)

A note out of Goldman Sachs reveals that its analysts have initiated coverage on this property, construction, and infrastructure solutions provider’s shares with a buy rating and $4.20 price target. Goldman believes that Maas is in a transition phase and will see higher quality real estate income become the largest source of earnings in the next three years. And with its shares trading at 10x forward earnings, it believes there’s a lot of value on offer here. The Maas share price was fetching $2.51 at Friday’s close.

Telstra Group Ltd (ASX: TLS)

Analysts at Morgan Stanley have retained their overweight rating on this telco giant’s shares with an improved price target of $4.75. According to the note, the broker believes Telstra’s outlook is positive thanks to the recent shareholder approval of a restructure. The broker highlights that this means the company has the opportunity to unlock value by selling some of its infrastructure assets. If this happens, Morgan Stanley suspects that a major share buyback could be undertaken. The Telstra share price ended the week at $4.00.

The post Top brokers name 3 ASX shares to buy next week appeared first on The Motley Fool Australia.

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More reading

• I’d aim for $1 million, buying just 10 cheap ASX shares
• 2 safe and reliable ASX dividend shares to buy for 2023: analysts
• 10 ASX shares to buy in 2023
• Why Domino’s, New Hope, PolyNovo, and Telstra shares are pushing higher today
• Where will Telstra shares be in 5 years?

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 Corporate Travel Management. 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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Both the Vanguard Australian Shares Index ETF (ASX: VAS) unit price and BHP Group Ltd (ASX: BHP) share price look well-placed to end 2022 with a bang.

Since the end of September 2022, the Vanguard Australia shares Index ETF has lifted around 10%. Over the same time period, BHP shares have surged more than 20%.

It has been a strong period of time for Australia’s biggest business, which has a commodity portfolio across iron ore, copper, nickel, coal and potash.

It’s an interesting question to consider whether the exchange-traded fund (ETF) or the resources giant will do better. Keep in mind that BHP holds the biggest position in the Vanguard Australian Shares Index ETF portfolio – at the end of October 2022, it comprised 9% of the portfolio.

The case for the BHP share price

It’s important to note that 2022 hasn’t finished yet, so if BHP shares keep rising from here, it could be harder for the company to outperform the ASX share market in 2023.

The company’s success is heavily linked to commodity prices. Whether the price of iron ore is US$50 per tonne or US$150 per tonne, BHP still needs to pay for the people, machinery, trucks, trains and boats needed to get the resources out of the ground and to its industrial customers.

When the iron ore price goes up, it largely adds straight onto the company’s cash flow and net profit after tax (NPAT), after paying more to the government. Of course, a lower resource price can wipe off the profit.

According to reporting by the Australian Financial Review, the broker Citi has suggested that the iron ore price could go as high as US$150 per tonne by June 2023 as China relaxes its COVID-19 restrictions.

This means people in Shanghai, for example, no longer need a negative COVID test to enter “most public places”. And a negative test is no longer required for people to enter a Beijing-based supermarket or commercial building.

There is also work being done by Chinese officials to help Chinese property developers that are in financial trouble, according to the AFR.

The broker Morgans thinks that the BHP share price has already priced in much of the China recovery potential, which is why it only rates it as a hold, with a price target of $44.80. That implies a drop of around 5%.

On Morgans numbers, the BHP share price is valued at under 10x FY23’s estimated earnings with a potential grossed-up dividend yield of 8.8%.

The case for the Vanguard Australian Shares Index ETF

There are some major iron ore miners within the S&P/ASX 300 Index (ASX: XKO) – the index that the ETF tracks – like BHP, Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO).

The big question for the non-iron ore miners is how the Australian economy performs in 2023.

A big part of the weighting of the ASX 300 is to banks like Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC), Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).

Interest rates have jumped. In some ways, this can help banking profitability because loan rates are rising quickly, faster than savings rates. But there’s also the problem of potentially higher arrears if borrowers can’t handle the higher repayments.

Some banks are now saying that a big improvement in lending margins has already occurred. Higher interest rates may not lead to much of an improvement in lending margins from here.

There’s also the question of how retailers like Wesfarmers Ltd (ASX: WES) will perform if consumers have less money to spend because of inflation and higher interest rates.

My verdict

From here, I think the capital growth performance could be quite similar between the two by the end of 2023. If the interest rate is only increased by 25 basis points in 2023, I think the Vanguard Australian Shares Index ETF will outperform because the underlying businesses may see fewer negative headwinds, such as higher borrower arrears.

But, in terms of total returns, I think BHP could produce stronger returns because of the large dividend yield that it pays. This could provide a useful boost for shareholders.

The post Could the VAS ETF outperform the BHP share price in 2023? appeared first on The Motley Fool Australia.

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More reading

• Look out below! Broker tips Fortescue share price to fall 32%
• I’d buy 6 shares a week of this ASX stock for $1800 a year in passive income
• Here’s how I’d invest $20,000 in ASX 200 shares for a 7% dividend yield
• Earn passive income with these strong ASX 200 dividend shares: brokers
• Why did ASX 200 iron ore shares like BHP have such a cracking Friday

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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 Bendigo And Adelaide Bank and Wesfarmers. 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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Approaching retirement can be a scary time. There’s a lack of active income to worry about for one thing. But there’s also the pressure of choosing the shares that will provide the passive income to fund said retirement. So who better to turn to for advice for this transition than the legendary investor Warren Buffett?

Not that Warren Buffett knows too much about retirement. Although the man is now 92 years old, he is still very much not retired and remains chair and CEO of the company he has run for more than six decades, Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B).

Some Buffett wisdom for a pending retirement

And Buffett knows a thing or two about obtaining a growing passive income. He bought shares in Coca-Cola Co (NYSE: KO) back in 1988. Coca-Cola is a well-known dividend share over in the United States.

But, as our Fool colleagues over in the US point out, such was Buffett’s prowess in finding the right price, he now enjoys a yield on cost of 54% every year.

So this tells us that Buffett only invests in shares that he feels comfortable holding for a generation or longer. Why Coca-Cola? Buffett’s love of what he calls an economic moat is probably why. And Coke arguably has more than one. There’d be few people on the planet who wouldn’t know what a Coke is for one. But, as usual, Buffett puts it best:

If you gave me $100 billion and said take away the soft drink leadership of Coca-Cola in the world, I’d give it back to you and say it can’t be done.

But Buffett also tells us that it’s ok not to go chasing individual shares for an investment portfolio, even a retirement one.

He once said this on index investing:

If you invest in a very low cost index find – where you don’t put the money in at once, but average in over 10 years – you’ll do better than 90% of the people who started investing at the same time.

So that’s the two takeaways we can take from Buffett for a healthy retirement. Buy the best companies at the right price. And if you don’t know how, stick with a low-cost index fund.

The post Almost ready to retire? I’d follow Warren Buffett’s tips to enjoy a growing passive income from ASX dividend shares appeared first on The Motley Fool Australia.

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More reading

• Is the iShares S&P 500 ETF (IVV) really down 95% today?
• One Warren Buffett-style stock I’m ‘never’ selling
• I’d aim for a million by buying just a few ASX shares
• Will the Nasdaq or S&P 500 have a better 2023?
• What Warren Buffett can teach us about handling bear markets

Motley Fool contributor Sebastian Bowen has positions in Berkshire Hathaway and Coca-Cola. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway, long January 2024 $47.50 calls on Coca-Cola, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. 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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Shares in the spray-on skin company Avita Medical Inc (ASX: AVH) closed 2.6% higher on Friday at $1.96.

The ASX healthcare share may be down 42% over the year to date, but it appears to be making a comeback.

The Avita share price is up almost 20% over the past six months.

CEO confident about new skin treatment

According to reporting in the Australian Financial Review (AFR), new CEO James Corbett says there is a “pot of gold at the end of the rainbow” with Avita’s expansion into vitiligo.

In market terms, treatment for the autoimmune disease that causes a loss of skin pigmentation has an estimated value of $US5.2 billion (A$7.8 billion).

It would be a welcome turnaround. To say Avita shareholders have been suffering of late is an understatement. Just ask those investors who bought in when the ASX healthcare share was trading above $16 in early 2020.

Corbett said:

I think the sell-off was a combination of us not executing adequately and us not communicating adequately.

Those sound like my problems. It’s not a market problem. I always tell the management team, the stock market will take care of itself, but execution is up to us.

I think shareholders will benefit from more transparency from Avita management, and they’ll get it.

What’s the latest news from Avita?

The company’s flagship product is Recell, which uses a patient’s own cells to treat skin defects. The company intends to expand Recell into a treatment for vitiligo.

According to the AFR, Avita is working with the United States Food and Drug Administration to gain approval for the use of Recell in various soft tissue repair treatments.

It plans to submit applications for Recell’s use in the US$1 billion soft tissue repair market this month. It expects approval in June 2023 and hopes to launch the treatment in July.

Recell as a treatment for vitiligo will take a while longer.

Corbett said:

Vitiligo on the other hand will get approval, but its anticipated primary treatment will occur in the physician office setting, so what we’ll be doing between the expected approval in June 2023, and January 2025… is collect in-office reimbursement approval data, work with government payers, conduct physician initiated studies and work to identify the best patients [those who will benefit most from treatment].

Broker tips $3 target for ASX healthcare share

Bell Potter has a 12-month share price target of $3 on this ASX healthcare share.  

Bell Direct market analyst Grady Wulff last week told my colleague, Tony, he rates Avita a speculative buy.

He tips the ASX healthcare share “really takes off” when those approvals come through in mid-2023.

Wulff said:

They are well capitalised while expecting to release major clinical trial results in the near future.

The company is making waves and they’ve got really strong revenues up 29% year on year to US$9.1 million for the commercial product sales, but they are burning a lot of cash.

The revenues were 7% above what Bell Potter expected for the September quarter.

The post Is there an $8 billion ‘pot of gold at the end of the rainbow’ for investors in this ASX healthcare share? appeared first on The Motley Fool Australia.

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More reading

• 2 absolute bargain ASX shares to buy right now: analyst

Motley Fool contributor Bronwyn Allen 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 Avita Medical. The Motley Fool Australia has recommended Avita Medical. 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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Are you looking to add some growth shares to your portfolio in 2023?

If you are, two explosive ASX growth shares that could be worth considering are listed below. Here’s what you need to know about them:

Aristocrat Leisure Limited (ASX: ALL)

Morgans believes that this gaming technology company is a growth share to buy right now. Its analysts have an add rating and $43.00 price target on its shares. This compares to the current Aristocrat share price of $34.01.

The broker is a fan of the company due to its strong long term growth potential. This is being driven by a number of factors including its ability to invest in design and development and its expansion in real money gaming (RMG). Morgans commented:

We have three key reasons for being positive on ALL. They are: (1) long-term organic growth potential. ALL is better capitalised than many of its competitors and has what we regard as a strong platform to continue investment in design and development in both its land-based gaming and digital businesses; (2) strong cash conversion and ROCE. ALL is a capital-light business despite its ongoing investment in Gaming Operations capex and working capital. It has a high level of cash conversion and ROCE and (3) strong platform for investment. ALL has funding capacity for organic and inorganic investment in online RMG, even after the recent buyback. Its current available liquidity is $3.8bn.

Temple & Webster Group Ltd (ASX: TPW)

Goldman Sachs is a big fan of this online furniture and homewares retailer and has a buy rating and $7.55 price target on its shares. This compares favourably to the latest Temple & Webster share price of $4.55.

Goldman believes that Temple & Webster is well-placed for long term growth thanks to its leadership position in a retail category that is in the early stages of shifting online. It commented:

Our Buy thesis is predicated on the following key drivers: (1) we believe TPW is well positioned in the upcoming cycle to continue to grow market share, despite a weaker macro environment; (2) in our view TPW is best placed to be a winner in a category that favours scale players, requires a specialised approach to e-commerce, and has higher barriers to entry vs. other retail categories; and (3) greater focus on costs is a sensible strategy to balance near-term profitability with growth.

The post These are the explosive ASX growth shares to buy for 2023 according to experts appeared first on The Motley Fool Australia.

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More reading

• ‘Strong buy’: Experts name 2 ASX shares enjoying a post-COVID resurgence
• I’d aim for $1 million, buying just 10 cheap ASX shares
• Down but not out: Expert names 2 slaughtered ASX shares to buy right now
• With $5,000 to invest, I’d aim to make a 1,000% return from ASX shares
• 10 ASX shares to buy in 2023

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 Temple & Webster Group. The Motley Fool Australia has recommended Temple & Webster 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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If you’d like to make some investments in 2023 but aren’t sure which shares to buy, you could look at exchange traded funds (ETFs).

But which ETFs could be buys? Two that are very popular and could be top options for next year are listed below. Here’s what you need to know about them:

BetaShares Global Cybersecurity ETF (ASX: HACK)

The first ETF for investors to consider for 2023 is the BetaShares Global Cybersecurity ETF.

As you might have guessed from its name, this fund provides investors with exposure to the leaders in the global cybersecurity sector.

This year there have been a number of major cyberattacks and you can bet that they won’t be the last. This has highlighted just how important cybersecurity is as the world shifts to the cloud.

This bodes well for the companies included in the fund, which stand to benefit from increasing demand from consumers and businesses. This includes Accenture, Cloudflare, Crowdstrike, Okta, and Palo Alto Networks.

Vanguard All-World ex-U.S. Shares Index ETF (ASX: VEU)

Another ETF that could be a top option for investors in 2023 is the Vanguard All-World ex-U.S. Shares Index ETF.

Vanguard notes that the VEU ETF brings the world to your portfolio with around 3,500 companies listed in developed and emerging markets across the globe, excluding the United States.

In addition, it highlights that it can expand a portfolio to include many sectors not well represented in Australia. The largest country allocations are Japan, China, United Kingdom, France, and Canada, with Australia accounting for approximately 5% of the exposure.

Among its holdings you’ll find shares sectors such as financial (e.g. Royal Bank of Canada, AIA Group, HSBC Holdings), consumer discretionary (e.g. Samsung, LVMH Moet Hennessy Louis Vuitton, Sony), technology (e.g. Taiwan Semiconductor, Tencent), industrials (e.g. Toyota) and healthcare (e.g. Astra Zeneca, Roche Holdings).

The post Here are 2 fantastic ETFs for ASX investors in 2023 appeared first on The Motley Fool Australia.

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More reading

• I’d aim for $1 million, buying just 10 cheap ASX shares
• Don’t miss these very exciting ASX ETFs in December
• 3 fantastic ETFs for ASX investors to buy in December
• Here’s how I’d invest $20,000 in ASX shares today to double my money
• 3 top ETFs for ASX investors to buy and hold for a decade

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 BetaShares Global Cybersecurity ETF. The Motley Fool Australia has positions in and has recommended BetaShares Global Cybersecurity 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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The Fortescue Metals Group Limited (ASX: FMG) share price was on form last week and continued its ascent.

So much so, the iron ore miner’s shares are now up almost 50% since hitting a 52-week low at the end of October.

Investors have been bidding the Fortescue share price higher in response to a strong rebound by the iron ore price amid the easing of COVID restrictions in China.

Where next for the Fortescue share price?

One leading broker appears to believe that investors should be locking in their gains and heading to the exits before it’s too late.

According to a note out of Morgans, its analysts have reiterated their reduce rating with a trimmed price target of $14.50.

Based on the current Fortescue share price of $21.39, this implies potential downside of 32% for investors over the next 12 months.

What did the broker say?

Morgans believes that investors have got ahead of themselves when it comes to iron ore miners. It commented:

Over the last month iron ore price (+27%) and share prices for BHP (+16%), RIO (+20%) and FMG (+27%) have bounced hard off their November lows. We agree that the developments are likely to see improved demand conditions in early 2023, but the issue is how fast the equity market has moved to price in this recovery.

This is reflected in the current FCF yields on offer in our iron ore miners, which even at spot prices are a modest 6%/6%/9% for BHP/RIO/FMG respectively, which is well below their average levels over recent years.

Overall, the broker believes that investors should sit tight and wait for a better entry point. It concludes:

We can certainly see the potential green shoots for a recovery in demand drivers for steel, but it is also not hard to see a fresh bout of volatility before that recovery takes hold. We view current share prices on our large-cap iron ore miners as suggesting we have to ‘pay up front’ for that potential recovery, leaving us with lower conviction. As a result we downgrade our rating on BHP and RIO to HOLD (from ADD), while maintaining a REDUCE on FMG.

The post Look out below! Broker tips Fortescue share price to fall 32% appeared first on The Motley Fool Australia.

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More reading

• Why did ASX 200 iron ore shares like BHP have such a cracking Friday
• Will Fortescue’s green hydrogen plans really pay off for shareholders?
• Forecast for ASX 200 iron ore shares in 2023: bull vs bear
• Is this the beginning of a beautiful green hydrogen friendship between Fortescue and Rio Tinto?
• Dividend darling becomes disappointment: What happened to Fortescue shares?

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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Flaming hot inflation and raging interest rate rises are taking their toll on how far the average Aussie earnings can stretch. It’s times like these that passive income from dividend-paying S&P/ASX 200 Index (ASX: XJO) stocks become all the more valuable.

An extra $1,800 each year can go a long way to easing some of the financial strain. Yet, despite a 4% return on cash savings now being a reality, you’d need to stash $45,000 to earn $1,800 annually.

That’s why I’d personally be much more inclined to invest in Australia and New Zealand Banking Group Ltd (ASX: ANZ) instead. The big four bank has filled its shareholders’ pockets with a generous $1.46 worth of fully franked dividends this year.

Notably, the exceptional 6.2% yield is not the product of an abnormally high payout this year. In the last 10 years, ANZ has typically paid between $1.40 to $1.80 in dividends per share.

Out of all the ASX bank stocks, why ANZ?

You might be thinking: ANZ is the only big four bank in the red compared to a year ago, why would you want to invest in it for passive income? To that I say, great question, thanks for asking! So here’s my reasoning…

While it is true ANZ is the worst-performing ASX big four bank stock in the last 12 months, based on its share price — fundamentally it is the best, at least in my eyes.

Compared to a year ago, the smallest member of the major four has dialled up its earnings the most. Net profits increased 15.5% year-on-year, while its peers were hard-pressed to break a 10% clip.

In addition, the potential acquisition of Suncorp could bolster ANZ’s loan book with a further $47 billion in home loans and $11 billion in commercial loans.

Even with the potential upside, ANZ appears to be trading at a discount to its peers. Right now, the price-to-earnings (P/E) ratio on ANZ is hovering around 10 times. Meanwhile, the bigger end of town is fetching between 13 to 18 times earnings.

Paving the way to $1,800 passively

The most important component in this assessment is ANZ’s passive income potential. In the big four landscape, the blue bank offers the biggest dividend yield at 6.2%.

Now, to generate $1,800 per year in income from this dividend investment, one would only need to buy six shares a week over four years — based on the current share price. The table below outlines the journey of a willing investor.

Year	Number of shares	Annual income
1	312	$455
2	624	$911
3	936	$1,367
4	1,248	$1,822

If all went to plan — and ANZ continues to offer a similar dividend — in four years’ time, $1,822 would be flowing in passively.

Earlier in the article, I highlighted how $45,000 would be required to generate the same income. Whereas, the ANZ route would require a more manageable $29,465 investment over four years.

It might still seem like a lot now, but at $142 per week, it quickly adds up. And don’t forget — unlike cash, your initial investment in an ASX stock can appreciate in value over time.

The post I’d buy 6 shares a week of this ASX stock for $1800 a year in passive income appeared first on The Motley Fool Australia.

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More reading

• Here’s how I’d invest $20,000 in ASX 200 shares for a 7% dividend yield
• Can ANZ shares finish the year with a strong performance in December?
• Why did the ANZ share price tumble in November while the ASX 200 gained 6%?
• The 3 best-performing ASX 200 bank shares in November revealed
• The 10 ASX 200 shares responsible for 60% of all Aussie dividends last quarter

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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