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The Core Lithium Ltd (ASX: CXO) share price is having a tough day on the market today.

Core Lithium shares are down 3.75% at the time of writing and are currently fetching $1.285. For perspective, the S&P/ASX 200 Resources Index (ASX: XJR) is down 1.36% today.

So why is the Core Lithium share price struggling today?

Why are Core Lithium shares falling.

Core Lithium may be down today, but it is not the only ASX lithium share in the red. The Liontown Resources Ltd (ASX: LTR) share price is down 6.75% at the time of writing, while Lake Resources N.L. (ASX: LKE) shares are 4.57% lower. IGO Ltd (ASX: IGO) shares are also down 3.89%, while Sayona Mining Ltd (ASX: SYA) shares are falling 2.38%.

News out of China could be impacting ASX lithium shares on Monday. China is a major electric vehicle (EV) producer and there are concerns lithium prices could pull back amid a fall in demand, as my Foolish colleague James reported.

Further, the South China Morning Post reported yesterday that Chinese EV battery producers will exceed domestic electric car makers’ demands threefold by 2025. This may be further adding to concerns about falling lithium prices.

Lithium carbonate prices in China fell 0.53% to 562,500 yuan on Friday.

Meanwhile, unprecedented protests over COVID-19 restrictions have erupted in China over recent days amid the nation’s COVID-zero policy.

Also, lithium shares in the United States struggled on Friday. Sociedad Quimica y Minera de Chile (NYSE: SQM) lost 6.8%, while Livent Corp (NYSE: LTHM) shares fell a massive 8.81%.

The Core Lithium share price also fell 5.6% on the ASX on Friday amid fears COVID-19 restrictions in China could impact demand for lithium.

Share price snapshot

The Core Lithium share price has soared 138% in the past year, while it has climbed 118% in the year to date.

For perspective, the Resources Index has gained nearly 20% in the past year.

Core Lithium has a market capitalisation of more than $2.4 billion based on the current share price.

The post Why is the Core Lithium share price in the red today? appeared first on The Motley Fool Australia.

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More reading

• Why are ASX lithium shares getting slammed again on Monday?
• Why is the Liontown share price sinking 9% on Monday?
• Here are the 10 most shorted ASX shares
• Why is the Allkem share price diving 8% today?
• Here are the 3 most heavily traded ASX 200 shares on Friday

Motley Fool contributor Monica O’Shea 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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On paper, Wesfarmers Ltd (ASX: WES) shares look like one of the most diversified companies on the ASX.

Wesfarmers is about as close to ASX royalty as you can get. This company was founded way back in 1914 and today owns some of the country’s most well-known and beloved retail outfits.

Yes, Wesfarmers is the name behind Bunnings, Kmart, OfficeWorks and Target. But it gets a whole lot deeper than that.

In addition to these names, Wesfarmers also owns Beaumont Tiles, TKD, Covalent Lithium, Kleenheat Gas, Australian Vinyls, Workwear Group, catch.com.au, Wesfarmers Chemicals, Energy And Fertilisers, and its most recent acquisition, the Priceline pharmacy chain.

On top of that, this company also retains stakes in a few other ASX-listed businesses, including Coles Group Ltd (ASX: COL) and BWP Trust (ASX: BWP).

There’s more, but we’ll leave these lists at that.

So it goes without saying that Wesfarmers is without a doubt one of the most diversified blue-chip shares on the ASX 200 Index, right? And a buy for portfolio diversification?

Are Wesfarmers shares a buy for ASX diversification?

Well… it’s complicated.

Yes, Wesfarmers does have many fingers in many pies. But not all of these pies are the same size.

To illustrate, let’s look at a recent interview that Blake Henricks of Firetrail Investment did with Livewire.

Henricks named Wesfarmers as a sell, partly due to diversification concerns. Here’s some of what he said:

It’s a sell. Everyone loves Wesfarmers, and everyone knows about it, but two-thirds of the value sits within Bunnings. Now, Bunnings has done a great job through this huge boom…

What I’m concerned about is that if I’m looking for a defensive stock, I don’t invest in a housing-related one and I don’t invest in one with Kmart, Target and Lithium as well. So 20 times PE, it’s not too bad, but I think there’s downside risk to earnings and therefore as a defensive, it’s a sell.

Knowing that two-thirds of a Wesfarmers share represents a share in Bunnings alone, Wesfarmers doesn’t seem like the diversification play that one might initially assume. But that doesn’t mean all expert investors reckon it’s worth selling.

The upside…

As my Fool colleague James covered last week, ASX broker Morgans remains upbeat on Wesfarmers shares. This broker has an add rating on the company right now, with a 12-month share price target of $55.60.

Morgans cites Wesfarmers’ “quality retail portfolio” and “highly regarded management team” as reasons for its optimism. It also reckons Wesfarmers will be able to grow its dividends across FY2023 and into FY2024 as well.

So only time will tell which ASX expert is right on their Wesfarmers call. But we can conclude that Wesfarmers shares aren’t the silver bullet of portfolio diversification that their range of interests suggests.

The post Are Wesfarmers shares a buy for portfolio diversification? appeared first on The Motley Fool Australia.

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More reading

• Almost ready to retire? How to generate $70k per year of passive income from ASX dividend shares
• Could buying Wesfarmers shares give you $10,000 in annual dividend income by retirement?
• Markets are nervous. Why waiting to buy these ASX 200 shares could prove expensive
• Almost ready to retire? Here’s why I’d be buying up ASX dividend shares right now
• I’d invest $100 a week in cheap ASX dividend shares for passive income in retirement

Motley Fool contributor Sebastian Bowen has positions in Wesfarmers. 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 COLESGROUP DEF SET and Wesfarmers 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Don’t believe for one second that Warren Buffett doesn’t think about dividends. In his latest letter to Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shareholders, he mentioned that the company received $785 million in dividends from just one stock in 2021 (it was Apple).

Buffett’s recent buys for Berkshire’s portfolio also hints that dividends might have been on his mind. In the third quarter of 2022, he purchased eight stocks. Seven of them pay dividends. A few of them offer dividends that are quite attractive. Buffett just bought these three dividend stocks with yields of over 3%.

1. Paramount Global

Paramount Global (NASDAQ: PARA) stands out as Buffett’s only high-yield purchase in the third quarter. The media company’s dividend yield currently tops 5.1%. 

Buffett’s history with Paramount goes back to when the company was known as Viacom. He led Berkshire to open a position in Viacom in 2012. While the legendary investor later sold all of those shares, he apparently regained an interest in the stock in the first quarter of this year and has kept on buying.

Berkshire now owns 15% of Paramount Global’s outstanding class B shares. The stock hasn’t been a winner for Buffett so far, though, with a year-to-date decline of close to 40%. 

What does the multibillionaire investor like about Paramount (other than its dividend)? Its valuation probably ranks high on the list. The stock trades below 12.8 times expected earnings.

2. Jefferies Financial Group

Buffett has long been a fan of bank stocks. But he’s become less enamored of the financial services sector lately. That’s what makes Berkshire’s new position in Jefferies Financial Group (NYSE: JEF) somewhat surprising.

With a market cap of under $9 billion, Jefferies is much smaller than the other banks in Berkshire’s portfolio. Unlike those other bigger corporations, Jefferies focuses only on investment banking and doesn’t have a commercial banking unit. But it offers a dividend that rivals the big boys with a yield of more than 3.2%.

Jefferies’ stock has also outgained Berkshire’s other bank stocks so far this year. However, Buffett’s investment in the company played a key role in that outperformance.

Berkshire owns only a tiny position in Jefferies, though. That could indicate that Buffett and his team began buying in the latter part of the third quarter and are continuing to scoop up shares in the fourth quarter.

3. Chevron

It wasn’t surprising whatsoever that Buffett added to his position in Chevron (NYSE: CVX) in the third quarter. The oil and gas giant is Berkshire’s third-largest holding, including shares owned by its New England Asset Management subsidiary. 

Chevron’s dividend yield of 3.1% is lower than it’s been throughout much of the past 10 years. That’s not because the company has cut its dividend, though. Actually, Chevron is a Dividend Aristocrat with 35 consecutive years of dividend increases.

Instead, the company’s dividend yield is lower because its stock price has risen so much. Chevron stock has soared nearly 60% year to date. That follows a 39% gain in 2021.

Buffett seems to still think Chevron is attractively valued. Its shares trade at 11.2 times expected earnings. There’s a good chance that this stock — and its dividend — go even higher. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Warren Buffett just bought these 3 dividend stocks with yields of over 3% appeared first on The Motley Fool Australia.

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More reading

• 74% of Warren Buffet’s portfolio is in these 5 stocks. Could this help guide which ASX shares to buy?
• Warren Buffett owns these 5 value stocks
• Warren Buffett doesn’t follow his own advice – and it’s made him richer
• Is it a Warren Buffett stock or not? 5 simple questions to ask yourself

Keith Speights has positions in Apple and Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Berkshire Hathaway (B shares), and Jefferies Financial Group Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Tyro Payments Ltd (ASX: TYR) share price is starting the week in a very positive fashion.

In afternoon trade, the payments company’s shares are up 9% to $1.72.

Why is the Tyro share price jumping?

The Tyro share price is taking off today despite there being no news out of the company.

Though, it is worth noting that Tyro was the subject of a bullish broker note out of Morgans at the end of last week. This could be giving its shares a lift on Monday.

According to the note, the broker has retained its add rating with an improved price target of $2.05.

Even after today’s gain, this still implies potential upside of 19% for investors over the next 12 months.

What did the broker say?

Morgans was pleased with Tyro’s update at its annual general meeting last week.

It highlights that management is now guiding to EBITDA at the high end of its target range of $28 million to $34 million in FY 2023. This was ahead of the broker’s expectations, which has led to its analysts upgrading their estimates accordingly. It commented:

It continues to be a positive start for new TYR CEO John David, with improving operating momentum driving two earning upgrades in a row. For FY23, we forecast TYR to do an EBITDA margin (EBITDA to gross profit or net revenue) of ~18.5%, well up on the ~7% level achieved in the pcp. Post this improvement, we still see a good opportunity for TYR to drive significant further efficiencies, noting peers like Worldline and Adyen are producing comparable margins of ~30% and 59% respectively.

In light of this, the broker believes the weakness in the Tyro share price in 2022 has created a buying opportunity for investors. It commented:

TYR sold off heavily in the first half of 2022 affected by the broad pull back in technology stocks and overall concerns on its earnings trajectory. However, we believe recent updates are now pointing to improved business momentum and importantly a greater focus on driving profitability. Potential corporate action also remains an area of possible upside.

The post Why is the Tyro share price surging 9% on Monday? appeared first on The Motley Fool Australia.

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More reading

• Why Nanosonics, Nick Scali, NRW, and Tyro shares are charging higher

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 Tyro Payments. The Motley Fool Australia has recommended Tyro Payments. 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) bank shares are operating in rapidly changing times. COVID-19 was an eventful time and now rapidly rising interest rates are altering the banking landscape.

There are plenty of ASX 200 bank shares for investors to keep an eye on, including the biggest: Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and Australia and New Zealand Banking Group Ltd (ASX: ANZ).

But, there are also smaller ones such as Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).

Higher interest rates can have the effect of boosting profitability for banks because the loan rate is being bumped up quickly while the interest rate for savers is rising at a slower pace. This means that the net interest margin (NIM) is now improved compared to the start of the year.

But how are borrowers going to cope with the higher interest rate?

Good borrowers in focus

According to reporting by The Australian, experts are warning that a “normalisation of bad debts is coming” and that the roll-off of tens of thousands of fixed-interest loans could put pressure on the Australian home loan market.

S&P Global Ratings shows that “prime” home loans were “steady” in September, though arrears for “non-conforming” loans rose.

In August, the arrears of non-conforming loans compared to the total loan amount was 2.07%. But, in September, this rose to 2.24%.

According to the reporting, the amount of non-conforming loans almost doubled to approximately $16 billion in September 2022.

The Australian reported that S&P Global Ratings is expecting a rise in arrears as the economy slows. There is a forecast of higher arrears in January and February after the spending for Christmas.

The newspaper noted some commentary from S&P Global Ratings analyst Erin Kitson that suggested some ASX 200 bank shares are going to lend to “safer” borrowers to preserve market share without hurting the reliability of their loan books.

Chief investment officer from Climate Capital Will Riggall suggested that the three months to September 2022 showed it was being more selective in how it took on risk.

However, this is allowing banks like Westpac and NAB to win those borrowers.

Are CBA shares good value?

Riggall suggests that NAB shares and Westpac shares are better ASX 200 bank share picks than Commonwealth Bank. This is  because of CBA’s “high price” and the success of the other two banks at “executing growth and transformation strategies.”

How expensive are CBA shares? According to CMC Markets, the CBA share price is valued at around 18 times FY23’s estimated earnings.

The post Which ASX 200 bank share stands to benefit the most from ‘good borrowers’? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Bendigo and Adelaide Bank Limited. The Motley Fool Australia has recommended Westpac Banking Corporation. 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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ASX lithium shares are getting hammered again on Monday after also struggling on Friday.

Lithium shares in the red today include:

• Core Lithium Ltd (ASX: CXO), sliding 3.37%
• Liontown Resources Ltd (ASX: LTR), down 6%
• IGO Ltd (ASX: IGO), down 2.59%
• Lake Resources N.L. (ASX: LKE), falling 4.31%
• Allkem Ltd (ASX: AKE), sliding 0.08%

Let’s take a look at what could be impacting ASX lithium shares today.

What is going on?

ASX lithium shares may be falling amid concerns about the lithium price and some analyst notes.

The lithium carbonate price in China fell 0.53% to 562,500 yuan on Friday. As my Foolish colleague James reported this morning, Goldman Sachs and Credit Suisse have recently put out bearish notes amid concerns about falling demand from China.

Lithium shares in the United States also had a horror day on Friday. For example, the Livent Corp (NYSE: LTHM) share price descended 8.81% while Sociedad Quimica y Minera de Chile (NYSE: SQM) lost 6.8%.

Meanwhile, Morgan Stanley has revealed its institutional desk could be looking at selling lithium shares. This follows the addition of Pilbara and IGO to the MSCI index on Wednesday. Analysts, quoted by The Australian, said:

There is no doubt that lithium is a very crowded trade heaved higher by retail exposure, but a side effect of this is IGO, PLS replacing DMP/EVN in an MSCI index on Wednesday.

Index funds and traders front running them generally buy in the lead up, then sell after the inclusion, but given the incredible performance in lithium, our insto desk is looking for selling, and the catalyst may come from the Chinese protests.

In other news, South China Morning Post reported yesterday that Chinese EV battery producers will exceed domestic electric-car makers’ demand threefold by 2025.

What else is happening?

The Pilbara Minerals Ltd (ASX: PLS) share price is outperforming other ASX lithium shares today amid joint venture news. Pilbara shares are up 0.11% at the time of writing. The lithium company has executed a joint venture agreement with Calix Ltd (ASX: CXL) to develop a mid-stream demonstration plant.

Commenting on this news, Managing director and CEO Dale Henderson said:

It’s a great privilege to enter this JV partnership with Calix. The Mid-stream project has the potential to be a game changer for our industry.

If successful, we will be able to deliver a superior chemical intermediary product to market compared to spodumene concentrate.

The post Why are ASX lithium shares getting slammed again on Monday? appeared first on The Motley Fool Australia.

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More reading

• Why is the Liontown share price sinking 9% on Monday?
• Here are the 10 most shorted ASX shares
• Why is the Allkem share price diving 8% today?
• Here are the 3 most heavily traded ASX 200 shares on Friday
• What could be sending the Pilbara Minerals share price 7% lower today?

Motley Fool contributor Monica O’Shea 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 Woodside Energy Group Ltd (ASX: WDS) share price is sinking on Monday despite no word having been released by the company. However, it’s far from alone in the red. Many of its energy peers are suffering amid tumbling oil prices.

The Woodside share price is down 2.55% right now, trading at $37.

Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has slumped 0.33% and the S&P/ASX 200 Energy Index (ASX: XEJ) has dumped 1.47%.

Let’s take a closer look at what might be weighing on Woodside and its ASX 200 energy peers today.

Woodside shares tumble alongside oil prices

The Woodside share price is tumbling on Monday. It comes as oil prices fall to near-12 month lows.

The Brent crude oil price slumped another 2% on Friday to close last week at US$83.63 a barrel. Meanwhile, the US Nymex crude oil price fell 2.1% to US$76.28 a barrel. That left the respective contracts down 4.6% and 4.7% week-on-week.

And the situation has only deteriorated today. Oil has fallen to its lowest point since December 2021 on Monday, according to media reports, with WTI crude oil falling to around US$74 a barrel and Brent crude oil slipping to less than US$82 a barrel.

Recent falls came amid concerns COVID-19 outbreaks in China could hamper demand for the black liquid and the suspension of discussions of a mooted US$65 to US$70 price cap on Russian oil, CNBC reported over the weekend.

Of course, oil producers’ profits are tightly tied to oil prices. Indeed, soaring energy commodity prices saw Woodside post a US$1.6 billion profit for the first half of 2022 – a 417% increase on that of the prior comparable period.

Interestingly, Woodside isn’t the worst performer in the ASX 200 energy sector right now. The Beach Energy Ltd (ASX: BPT) share price takes out the unfortunate crown, slumping 2.7%.

Other oil giants are also suffering. The share prices of Santos Ltd (ASX: STO) and Worley Ltd (ASX: WOR) are down 2.5% and 0.9% right now.

The post Why is the Woodside share price tanking today? appeared first on The Motley Fool Australia.

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• Would this side of Woodside put you off buying its shares?
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 on Friday
• Crude down, stocks up: Here’s what happened to Woodside shares the last time this occurred
• Markets are nervous. Why waiting to buy these ASX 200 shares could prove expensive

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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New Hope Corporation Limited (ASX: NHC) shares are charging higher today.

Again.

In early afternoon trade, the S&P/ASX 200 Index (ASX: XJO) coal stock is up 5%.

That puts New Hope shares up an eye-popping 152% since the closing bell on 31 January.

And that doesn’t include the four lots of fully franked dividends paid out this year. Even at the current share price of $5.66, New Hope still pays a trailing dividend yield of 15.2%.

ASX 200 investors who bought shares early in the year, will have realised far higher yields.

So, with those kinds of gains already in the bag, is it time to take some profits?

Is it time to cash in on New Hope shares?

The answer to that question depends on who you ask.

John Athanasiou, the founder of Red Leaf Securities, is in the take some profit camp.

According to Athanasiou (courtesy of The Bull), “It’s been a bumper year for the coal sector. However, weaker coal prices recently and possibly in the future causes us concern.”

Noting the meteoric rise in New Hope shares this calendar year, Athanasiou said, “Investors may want to consider cashing in some gains and look for opportunities elsewhere.”

Sounding off for the more bullish side are the analysts over at Macquarie.

Following the coal miner’s quarterly update last week, Macquarie retained its outperform rating for New Hope shares. While the broker did reduce its price target to $6.40, that’s still 13% above the current share price.

Pointing to strong thermal coal prices, Macquarie believes New Hope will continue to be a strong dividend payer.

Just how profitable is this ASX 200 coal stock?

In its quarterly update last Thursday, New Hope revealed that underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) leapt 167% to reach $648 million.

That came despite wet weather and labour issues seeing production fall 10% quarter on quarter.

Investors may be concerned about that production slide, with New Hope shares down 4% since the miner released that update.

The post New Hope shares have soared 152% in 2022. Is it time to cash in? appeared first on The Motley Fool Australia.

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• Brokers name 3 ASX shares to buy today
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• 8%+ dividend yields! 3 ASX 200 shares I’d snap up to beat inflation
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Arafura Rare Earths Ltd (ASX: ARU) share price is having a tough start to the week.

In afternoon trade, the rare earths developer’s shares are down 9% to 41 cents.

Why is the Arafura share price dropping?

Investors have been selling down the Arafura share price today despite there being no news out of it.

However, it is worth noting that prior to today, the company’s shares were up 50% since this time last month.

This could mean that some investors are taking a bit of profit off the table. Particularly given broad weakness in the materials sector today.

This has seen the likes of Core Lithium Ltd (ASX: CXO), Leo Lithium Ltd (ASX: LLL), Liontown Resources Ltd (ASX: LTR), and Talga Group Ltd (ASX: TLG) tumble deep into the red today.

What’s going on?

This weakness may have been caused by concerns that soaring COVID cases in China could put pressure on battery materials demand in the key market.

Though, with the Arafura share price up a massive 80% since the start of the year, longer term shareholders aren’t likely to be too concerned by today’s pullback.

Those gains have been driven by excitement over the company’s Nolans project in the Northern Territory. For example, it recently signed offtake agreements with Hyundai and Kia for neodymium-praseodymium from Nolans.

The post Why is the Arafura share price crashing 9% today? appeared first on The Motley Fool Australia.

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More reading

• 3 ASX All Ords shares that had a cracking run on Friday
• Why Arafura, Nanosonics, NextDC, and OZ Minerals shares are rising today
• Why is the Arafura Rare Earths share price rocketing 16% on Wednesday?
• Why Arafura, Nufarm, Pilbara Minerals, and Whitehaven Coal are charging higher
• What’s going on with the Arafura share price 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

While international stocks have been quite tumultuous this year, the story of South African investment company Naspers (OTC: NPSNY) and its associated investee, Prosus (OTC: PROSY), keeps getting better.

While investors in this conglomerate have had a difficult few years, both Naspers and Prosus have greatly outperformed both the KraneShares CSI Chinese Internet ETF (NYSEMKT: KWEB) as well as the Vanguard FTSE Emerging Markets ETF (NYSEMKT: VWO) over the past six months.

NPSNY data by YCharts

These two companies have a somewhat complex cross-holding structure, but they are essentially large part-owners in the same set of assets, with Prosus shareholders owning 57% of the portfolio, and Naspers owning about 43%.

The largest asset of the combined company is its 27.3% ownership in Chinese internet giant Tencent (OTC: TCEHY), which accounts for about 75% of the portfolio. However, Naspers/Prosus also owns a portfolio of other growth businesses, including online classifieds and food delivery companies in Europe and South America, fintech assets in India, and education technology companies in both the U.S. and internationally.

The company’s earnings report for the first half of fiscal 2023 had good news on just about every single front. Assuming the combined company can execute on its plans, its outperformance may just be getting started.

The new sale and buyback strategy is all going according to plan

Despite management’s best efforts, the discount at which Naspers/Prosus trade in relation to their assets had widened over the years, much to the frustration of its investors, Yours Truly included.

Yet Naspers/Prosus’ recent outperformance came after management announced a decisive step in June. Starting in June, management began selling little bits of its Tencent stake and simultaneously repurchasing shares of both Prosus and Naspers. Given that Prosus and Naspers stocks were trading at huge discounts the value of their Tencent stake at the time – never mind all the other assets – that move immediately added to the per-share value of the company.

Since then, management has been able to repurchase 7% of Prosus’ and 5% of Naspers’ shares outstanding, while selling a lower percentage of Tencent. So while the company’s overall stake in Tencent fell, Naspers and Prosus shareholders actually now have 1.4% more exposure to Tencent on a per-share basis than five months ago.

It also helps that Tencent has begun repurchasing its own stock in significant quantities this year as its share price has fallen. So Naspers and Prosus aren’t even losing as much exposure to Tencent as their sales would indicate.

A near-7% stock dividend is coming

The news gets even better, since Tencent recently announced it would be spinning off its 17% stake in Chinese food delivery and travel platform Meituan (OTC: MPNG.Y) to shareholders, probably because of regulatory pressure from the government. Prosus’ management estimates it will receive roughly $5.4 billion worth of Meituan shares when the spinoff happens next March.

That would increase Prosus’ asset base by 4.3%, but given that Prosus shares currently trade at a 33% discount to its estimated net asset value, the upcoming Meituan dividend will amount to a nearly 7% dividend of Meituan shares, based on where Prosus shares trade now.

The other businesses will turn profitable by mid-2024

As Prosus/Naspers is now selling down its Tencent stake, management hopes to refocus the company on its other assets. These consist of a collection of both wholly owned businesses, as well as large stakes in other publicly traded companies across online classifieds, food delivery, fintech, education tech, and e-retail.

That conglomerate setup is not unlike Warren Buffett’s Berkshire Hathaway, except for one thing — Prosus’ other big segments aren’t profitable. So, the company has had to feed these businesses, with the only cash coming from Tencent’s dividend or other asset sales. That’s different from Buffett’s Berkshire, which has profitable operating and insurance businesses that constantly kick cash back to headquarters for redeployment. 

However, given the current economic environment, Prosus management is looking to change that. For the first time, Prosus’ management gave specific projections for when consolidated operations — those being its wholly owned or majority-owned businesses — would become profitable.

The target for profitability is the first half of fiscal 2025, which is the March-September 2024 quarter.

To that end, management increased some investments in its most promising markets while pulling out of others. For instance, while Prosus just bought out the remaining 33.3% stake in Brazil’s iFood for another $1.5 billion, it also pulled out of iFood’s Colombia business. Prosus also exited its OLX auto trading platform in Peru and Ecuador.

While the non-Tencent segments collectively grew revenue an impressive 35.2% to $5.2 billion over the past six months, despite the strong dollar, their trading losses also expanded from ($522 million) to ($998 million). However, management pledged that profitability would improve from here going forward, as some one-time investments were accelerated in the last half-year.

We’ll see if management is able to hit that profitability target in time; however, given the strong revenue growth across those segments despite economic troubles abroad, it seems a decent bet that those profit targets can be hit with greater scale — especially now that management is laser-focused on profits.

What will it mean for the stock?

If management can get the non-Tencent parts of the business to become profitable, it could be a big deal. Not only will Prosus get a stream of regular profits to either repurchase stock or make new investments, instead of having to sell more Tencent, but perhaps it would cause investors to view the conglomerate as something more than just a derivative play on Tencent.

If that happens, the outsized gains of the past six months could be a sign of things to come, especially given the still-huge discount to net asset value. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The best way to invest in emerging markets just got even better appeared first on The Motley Fool Australia.

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Billy Duberstein has positions in Berkshire Hathaway (B shares), Naspers Limited (ADR), and Prosus. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway (B shares), Tencent Holdings, and Vanguard International Equity Index Funds. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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