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The Auroch Minerals Ltd (ASX: AOU) share price is having a sensational day.

In morning trade, the lithium exploration company’s shares are up 31% to 6.8 cents.

Why is this lithium share racing higher?

Investors have been scrambling to buy this lithium share today after the company released an update on recent drilling activities.

According to the release, Auroch has discovered high grade lithium mineralisation in reverse circulation (RC) drill-hole samples at the Nepean Nickel Project in Western Australia. Auroch owns 80% of this project, with Lodestar Minerals Ltd (ASX: LSR) owning the balance.

What happened?

The release notes that drilling at the Nepean North Prospect was completed in the third quarter and consisted of two reverse RC holes for 539m to test an IP anomaly for nickel sulphide mineralisation.

All geologically logged pegmatites intercepted by the two RC holes were submitted for re-assay for lithium, caesium and tantalum (LCT) mineralisation as part of the company’s ongoing investigation into the project’s lithium potential.

Pleasingly, high grade lithium results in one hole, combined with re-logging of the 6m pegmatite interval, confirmed the presence of the lithium pyroxene mineral spodumene (the principal lithium ore mineral).

Significantly, the two holes were drilled approximately 150m apart, approximately 420m north of the previously reported lithium result. Management believes this suggests potential LCT-enriched pegmatites over a significant strike length at the Nepean North Prospect.

Auroch will immediately commence a high priority exploration programme to potentially delineate further high grade spodumene mineralisation.

Auroch’s executive chairman, Mike Edwards, commented:

The discovery of high grade lithium within spodumene at Nepean is a great addition to our strategy as a battery metals focussed resource company. This nicely compliments our efforts at the Nevada Lithium Project and it will be extremely exciting to see these new lithium exploration programmes running in parallel at our WA and US projects early in the new year!

The post Guess which ASX lithium share is rocketing 30% on a new discovery appeared first on The Motley Fool Australia.

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More reading

• Why is the Invictus Energy share price crumbling 16% on Thursday?
• Why is the Pointsbet share price smashing the ASX All Ords today?
• Could increased BNPL regulation be a positive for Zip shares?
• Kogan share price jumps 13% as boss touts ‘return to historic growth trajectory’
• Down more than 50% from their highs, are Tesla and these other EV stocks buys for 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 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 Invictus Energy Ltd (ASX: IVZ) share price is tumbling on news of the company’s exploration of its Mukuyu-1 well.

While there were plenty of positives in this morning’s release from the upstream oil and gas company, the market appears to be hung up on one disappointing detail.

The Invictus Energy share price is currently trading for 26.5 cents, 15.87% lower than its previous close.

Let’s take a closer look at the latest news from the $200 million energy stock.

What’s going so wrong for this ASX energy stock?

The Invictus Energy share price is plummeting this morning after the company announced its 80%-owned Mukuyu-1 Well will need to be sidetracked for evaluations to be completed.

Though, there appears to be plenty of good news accompanying the bad in today’s release. Managing director Scott Macmillan commented:

The existing Mukuyu-1 wellbore was successfully deepened to 3,923 metres measured depth and continued to encounter multiple reservoir units with elevated gas shows and fluorescence until total depth, proving up the potential of the Upper Angwa formation over a 900 metres gross interval.

Our primary Upper Angwa target formation is thicker than anticipated from pre-drill estimates, which bodes well for future prospectivity in the basin.

However, when total depth was reached, the company found deteriorating borehole conditions. That meant tools needed to run wireline logs were unable to pass low enough. Macmillan continues:

Current borehole conditions make logging the existing hole section extremely risky with an increased likelihood of losing tools and not meeting the objectives of the well.

Thus, the Mukuyu-1 well will be sidetracked for future testing. That means the company will drill a secondary wellbore away from the original. Sidetracking is often used to bypass an unusable section or explore a nearby geological feature.

The remaining activities will likely take an extra 12 to 18 days. The company expects to provide more information in the coming weeks.

Invictus Energy share price snapshot

Fortunately, today’s fall hasn’t driven the Invictus energy share price into the longer-term red.

The stock is still 104% higher than it was at the start of 2022. It has also lifted 96% since this time last year.

Comparatively, the benchmark All Ordinaries Index (ASX: XAO) has slipped 6% year to date. It’s also slipped 4% over the last 12 months.

The post Why is the Invictus Energy share price crumbling 16% on Thursday? appeared first on The Motley Fool Australia.

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More reading

• 3 tiny ASX shares that exploded over 30% on big news today
• Invictus Energy share price rockets again, up almost 250% in under a week
• Guess which ASX energy share is rocketing 150% on an ‘exciting development’

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 Pointsbet Holdings Ltd (ASX: PBH) share price is smashing the All Ordinaries Index (ASX: XAO) today.

That is not something ASX investors have heard all too often in 2022.

In morning trade, the Pointsbet share price is up 5.3% to $1.98. Meanwhile, the All Ords is up a more muted 0.4%.

So, what’s driving investor interest in the corporate bookmaker today?

What’s piquing ASX investor interest?

The Pointsbet share price is charging higher after the company announced the launch of online sports betting operations in the US state of Maryland.

The betting operations will be run by its wholly owned subsidiary, PointsBet Maryland, LLC.

Maryland is the 13th US state where Pointsbet now has an online sports betting operation in place.

The other states where the company has launched online sports betting are: New Jersey, Iowa, Indiana, Illinois, Colorado, Michigan, West Virginia, Virginia, New York, Pennsylvania, Kansas, and Louisiana.

Commenting on the expansion that looks to be driving the Pointsbet share price higher today, USA CEO Johnny Aitken said, “Just a few short months after unveiling The PointsBet Retail Sportsbook at The Riverboat on the Potomac, we’re thrilled to now be able to add our market-leading online sports betting product to the mix.”

Aitken continued:

As one of the few sportsbooks to be on the starting line in Maryland, PointsBet will be delivering sports fans in the state a new way to take part in the action – whether that’s for the NFL, NBA, or NHL.

And we’re particularly happy to launch just as the 2022 World Cup is starting and showing Maryland bettors why we’re known as the home of live betting through our new suite of Soccer Lightning Bet markets.

Pointsbet share price snapshot

Today’s boost will come as welcome news to longer-term stockholders, who’ve watched the Pointsbet share price slide a painful 71% in 2022.

By comparison, the All Ords is down 6% year to date.

The post Why is the Pointsbet share price smashing the ASX All Ords today? appeared first on The Motley Fool Australia.

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More reading

• Why has the Pointsbet share price dumped 9% in 2 days?
• Why is the PointsBet share price dropping today?

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 positions in and has recommended Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. 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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Zip Co Ltd (ASX: ZIP) shares kicked off the week in positive territory, closing up 1.3% on Monday at 78 cents per share.

The buy now, pay later (BNPL) stock posted those gains on the day federal regulators indicated Zip shares and other stocks in the BNPL sector were likely to face similar regulations to credit card companies.

Currently, BNPL companies aren’t held to the same regulatory standards as credit card providers in ensuring their customers are unlikely to face difficulties in making their repayments.

But on Monday finance minister Katy Gallagher flagged likely changes ahead.

“People are starting to see it as a credit card,” she said. “It’s responsible to have a look at how it is regulated and how people are using it, what some of the problems are and how to provide that protection to people.”

Could increased BNPL regulation be a positive for Zip shares?

While Zip shares closed higher on Monday, they dropped 3.9% on Tuesday and fell 4% on Wednesday. In early morning trade today, the Zip share price is up 3.5%.

That’s a bit of a mixed picture regarding the outlook for Zip shares amid tighter potential regulation of BNPL companies.

However, Zip’s ANZ head Cynthia Scott was upbeat about the government’s plans.

“We firmly believe the buy now, pay later industry is ready for regulation,” she said. “We have been working with Treasury on options for some time and endorse any changes that give consumers greater confidence when using BNPL products.”

Scott said Zip, whose shares began trading in December 2009, operates “above the minimum standard”.

According to Scott:

Right from the beginning, we have held an Australian Credit Licence (ACL) and conducted credit and affordability tests on our customers in Australia. As a result we have very few customers in arrears or hardship…

The industry continues to grow very rapidly and regulation is vital as it matures. It is important that appropriate guardrails are in place to ensure consumers are protected.

How has Zip stock been tracking longer-term?

Zip shares, along with every BNPL stock we’re aware of, have taken a beating over the past year as investors began to price in the impacts of fast-rising interest rates.

That’s left the Zip share price down 85% over the past 12 months. For some context, the All Ordinaries Index (ASX: XAO) is down 4% over the full year.

The post Could increased BNPL regulation be a positive for Zip shares? appeared first on The Motley Fool Australia.

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More reading

• Zip share price charges higher as BNPL regulation looms large
• Boom! Why has the Zip share price soared 31% in a week?
• 3 ASX All Ordinaries shares having a cracker session on Thursday
• Guess which ASX All Ords share is leaping 22% on ‘significant progress towards profitability’
• Up 18% today: Can the Zip share price really fight City Hall?

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 positions in and has recommended ZIPCOLTD FPO. 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.

from The Motley Fool Australia https://www.fool.com.au/2022/11/24/could-increased-bnpl-regulation-be-a-positive-for-zip-shares/

In morning trade, the Kogan.com Ltd (ASX: KGN) share price is charging higher.

At the time of writing, the struggling ecommerce company’s shares are up 13% to $3.87.

Why is the Kogan share price jumping?

Investors have been bidding the Kogan share price higher following the release of its annual general meeting update.

Kogan’s CEO, Ruslan Kogan, acknowledged that its business “suffered” over the last 18 months but was positive that the company is on course to “historical operating margins during the second half of FY23.”

That certainly will be a relief for shareholders based on its performance in FY 2023 through to the end of October and ahead of the key holiday season.

Here’s a quick summary of how it is performing:

• Gross sales down 38.2% to $267.6 million
• Gross profit down 40.6% to $41.1 million
• Adjusted EBITDA down 104.4% to a loss of $0.5 million
• Net cash position of $20.1 million

Management explained that it does not believe that its abject year to date trading result is indicative of projected trading performance once the final sell-through of excess inventory is completed.

As a result, it is looking to the second half with confidence in its ability to return to an agile, inventory-light business returning strong operating margins. Mr Kogan commented:

Once the final sell through of inventory is completed, we plan to have the Kogan Group return to the historic growth trajectory and profitability that it has been able to deliver. We look to the second half of FY23 with confidence as the Kogan Group returns to being an agile, inventory-light business with strong operating margins.

Time will tell if Kogan delivers on this.

The post Kogan share price jumps 13% as boss touts ‘return to historic growth trajectory’ appeared first on The Motley Fool Australia.

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More reading

• These 10 predictions could help you profit from the stock market regardless of inflation, interest rates or even another bear market
• Amazon stock just tanked. Could this be a canary in the coal mine for ASX 200 retail shares?
• Why ANZ, Australian Clinical Labs, Core Lithium, and Kogan are sinking today
• The bear market rally has seen the ASX 200 jump five percent higher in October. It could all be about to run out of steam
• Kogan share price jumps despite first quarter sales collapse

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 Kogan.com ltd. The Motley Fool Australia has positions in and has recommended Kogan.com ltd. 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.

Electric vehicle (EV) sales are rising. In 2021, 6.6 million EVs were sold worldwide, nearly double the sales in 2020. EV Volumes, a data base, estimates 2022 global EV sales at 10.6 million, up nearly 60% from 2021. More than 16.5 million electric cars and trucks were on the road in 2021.

Despite such encouraging growth in sales, EV makers’ stocks have continued to falter in 2022. Let’s see why that was so, and if the stocks look attractive for 2023 after the steep declines.

Top EV stocks fell steeply in 2022

U.S. stock markets have corrected significantly so far this year. The S&P 500 is down 17%, while the Nasdaq Composite has fallen more than 28% as of this writing. Since growth stocks typically trade at high multiples, they tend to fall harder during market corrections. This has certainly been true in 2022.   

TSLA data by YCharts..

While Tesla (NASDAQ: TSLA) stock has fallen 49%, Lucid (NASDAQ: LCID), Rivian (NASDAQ: RIVN), and Nio (NYSE: NIO) have fallen more than 60% year to date. And all four stocks have fallen far more from their all-time high prices; while Tesla stock has dropped more than 55% from its peak, the others are down more than 80% from theirs.

Is the correction justified, or is there a buying opportunity?

In early 2021, the valuations of EV stocks went through the roof thanks to the hype surrounding electric vehicles. As the broader markets corrected, EV stocks fell, too. And supply chain challenges have hurt the production of EV companies while raising their costs. But has the recent decline finally made these stocks attractive?

For sure, the EV story is just getting started. All these companies have a long growth runway as the transition from internal-combustion vehicles to EVs unfolds. While it is broadly accepted that this transition is inevitable, what isn’t as clear is which players will thrive in the long run.

Tesla continues to post solid performance

Tesla’s stock seems to have fallen to an attractive level. While it is difficult to determine whether it’ll fall further in the short term, the stock is intriguing for several reasons. To begin with, its valuation is far more sensible than it has been in the past.

TSLA PS Ratio data by YCharts.

Tesla’s price-to-sales ratio has fallen to 8.3 from around 30 in January 2021. Although it still looks high compared to traditional automakers, that’s because Tesla is still growing fast. The company’s revenue increased 56% year over year in the third quarter. And that isn’t a one-off quarter; its growth over the years is impressive.

TSLA Revenue (TTM) data by YCharts. TTM = traling 12 months..

The above chart compares Tesla’s revenue growth over the last three years with that of traditional automakers.

At the same time, its margins remain impressive.

TSLA profit margin (quarterly); data by YCharts.

Overall, Tesla appears to be on a solid footing to keep posting sustained growth in the coming years.

Nio’s growth looks impressive

Chinese EV maker Nio expects substantial growth in vehicle deliveries in the fourth quarter and in 2023. Although the company is still incurring losses, it is increasing revenue rapidly, as the chart above shows. Its upcoming models and expansion plans in Europe can be key drivers in the coming years.

Lucid and Rivian look promising

Lucid and Rivian are still at very early stages of their growth compared to Tesla, but both look promising. Lucid managed to establish itself as a serious player by delivering the longest range for its first model, the Lucid Air. The company, which started deliveries at the end of October 2021, has delivered roughly 2,500 cars in a year. It targets producing 6,000 to 7,000 cars in 2022.

After launching the Sapphire, Pure, and Grand Touring variations of the Lucid Air, the company now plans to open registrations for its first SUV, the Gravity, in early 2023. Its focus on the less-tapped Saudi market could help it drive significant growth.

After starting deliveries in September 2021, Rivian has already produced more than 15,000 vehicles. And it has a backlog of more than 114,000 units of its R1, including both SUVs and pickup trucks. It has an attractive order backlog, too: 100,000 delivery vans from Amazon. What’s more, it has enough cash to fund its operations through 2025.

Both Lucid and Rivian are at early stages of their growth and are incurring losses. As young EV makers, they are more affected by the supply chain issues that the industry is facing than are the established players. Both companies look promising, but investors should note that these stocks are riskier compared to those of legacy automakers or Tesla.

But they have corrected drastically and, if successful, could generate windfall returns for long-term investors. In short, all four stocks look like attractive buys for 2023.                  

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

The post Down more than 50% from their highs, are Tesla and these other EV stocks buys for 2023? appeared first on The Motley Fool Australia.

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More reading

• Why Tesla shares hit a 2-year low today
• Why Tesla stock could have 930% upside: expert
• Ex-Tesla Australia boss faces 15 years’ jail for insider trading ASX lithium shares
• Here’s what drove Tesla shares back above $200 today
• Why is Tesla stock falling today?

Rekha Khandelwal has no position in any of the stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Nio Inc., and Tesla. The Motley Fool Australia has recommended Amazon. 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 Qantas Airways Limited (ASX: QAN) share price is pushing higher again on Thursday.

In morning trade, the airline operator’s shares are up 3% to a new 52-week high of $6.36.

This means the Qantas share price is now up almost 24% since the start of the year.

Can the Qantas share price keep ascending?

The good news for investors is that one leading broker believes there’s significantly more upside ahead for the Qantas share price.

According to a note out of Goldman Sachs, its analysts have responded to yesterday’s profit guidance upgrade by reiterating their conviction buy rating with an improved price target of $8.20.

This price target implies potential upside of 29% for investors over the next 12 months and would represent a record high for the airline’s shares.

What did Goldman say?

Goldman was impressed with the update and believes the market is valuing the Qantas share price too cheaply given its improved earnings capacity. The broker said:

With the market capitalization 5% above pre-COVID levels and EV (based on last reported net debt) 12% below pre-COVID, we believe the stock is not appropriately pricing QAN’s improved earnings capacity. Specifically, our forecast FY23e EPS is 58% above FY19a levels with group capacity still 21% below pro-COVID levels. Even as the yields moderate (with capacity restoration) our FY24e EPS (100% of FY19 capacity) is 46% above FY19 levels.

Goldman is expecting this to lead to dividends per share of 10 cents in FY 2023 and 20 cents in FY 2024.

These certainly are good times for shareholders!

Though, you might not be able to say the same for passengers, which are having to pay higher than normal prices for domestic flights due to strong demand and low capacity. But with travellers seemingly willing to pay these prices, you can’t blame Qantas for charging them.

The post Leading broker tips Qantas share price to climb to a new record high appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today
• 3 ASX 200 shares hitting new 52-week highs on Wednesday
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Why Calix, Chalice Mining, Qantas, and Whitehaven Coal shares are rising

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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Watch out Lynas Rare Earths Ltd (ASX: LYC). There could soon be a new rare earths miner on the ASX. And this one’s backed by Mineral Resources Limited (ASX: MIN) managing director Chris Ellison.

Rare earths and mineral sands developer VHM Limited is undergoing an ASX initial public offering (IPO).

The company expects to list with a market capitalisation of at least $256 million in January. It’s offering shares for $1.35 apiece under its prospectus.

Let’s take a closer look at what could soon be an Aussie rare earths favourite.

ASX rare earths float on the horizon

The new year will likely bring new possibilities for ASX materials fans. Mineral developer VHM Limited is gearing up for an ASX float in early 2023.

The company is developing its flagship Goschen Project in Victoria. It expects to undergo a final investment decision (FID) for the project’s first phase in the second half of 2023, with production targeted in 2025.

Goschen has been found to house a “globally significant” 413,107 tonnes of total rare earths oxides.

Ellison holds a 10.3% stake in the future ASX rare earths stock – worth around $19.4 million at its offer price. The Mineral Resources boss could top up that hold under the IPO.

VHM Limited expects to raise $20 million under its prospectus. It has also allowed for up to $10 million of over-subscriptions.

The raised funds will go towards Goschen’s FID. The company expects the project will cost $445 million to deliver, assuming $360 million of capital expenditure and $85 million of ancillary costs.

The company was incorporated in 2014. It raised $31.8 million earlier this year as part of a pre-IPO offer.

The ASX rare earths hopeful held $11.1 million of cash at hand as of 1 October and incurred $6.6 million of operating expenses in financial year 2022.

The post Move over Lynas! This new Chris Ellison-backed rare earths company is set to hit the ASX appeared first on The Motley Fool Australia.

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More reading

• Which are the best ASX mining shares to buy now for 2023?
• Here are the top 10 ASX 200 shares today
• Dig this! Look how many of the top-performing ASX 200 shares today are miners
• Why did Macquarie just downgrade Lynas shares?
• Up 20% in a month, here’s the bull and bear case for the Lynas share price

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 AGL Energy Limited (ASX: AGL) share price is under pressure on Thursday.

In morning trade, the energy company’s shares are down 1% to $7.86.

Why is the AGL share price falling?

The catalyst for the weakness in the AGL share price on Thursday has been the release of an announcement relating to the Torrens Island ‘B’ Power Station in South Australia.

According to the release, AGL has decided to close the power station on 30 June 2026 after 50 years of operation. After which, it will continue to progress the transformation of its Torrens Island site into a low-carbon industrial Energy Hub.

AGL advised that this has been driven in part by the planned completion of the Project Energy Connect interconnector between South Australia and New South Wales in mid-2026, which will further impact gas-fired generation in South Australia and the economic viability of the power station.

What impact will this have?

The good news is that management doesn’t expect this to have a material impact on its earnings in FY 2023. Nor does it expect the closure to have a long term impact due to the challenged economic viability of the power station.

Looking ahead, the company advised that Torrens Island will continue to play a crucial role in AGL’s current energy requirements and future generation plans as the site is transformed into an integrated industrial Energy Hub.

It notes that it has the potential to drive new investment, create new job opportunities, and even expand into new markets such as hydrogen and green energy. In fact, AGL is currently working on a feasibility study into the development of a green hydrogen facility at Torrens Island.

The post Why is the AGL share price falling on Thursday? appeared first on The Motley Fool Australia.

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More reading

• How much dividend income would $20,000 worth of AGL shares have netted you in 2022?
• Here are the top 10 ASX 200 shares today
• 5 of the craziest things making news on the ASX this week
• AGL share price slips amid Cannon-Brookes’ board victory
• Why did the AGL share price lag the ASX 200 on Monday?

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

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The Telstra Corporation Ltd (ASX: TLS) share price has managed to provide stability compared to other sectors during the volatility of 2022.

For example, while Telstra shares are down 6% for 2022 to date, the Betashares Nasdaq 100 ETF (ASX: NDQ) – which is predominately invested in US tech shares – is down around 25%.

One of the attractions of Telstra may be that it receives regular cash flow from its household and business customers. The COVID-19 period and ongoing digitalisation of the economy are probably good indications of how integral an internet connection is these days.

But, past returns are old news. However, one expert thinks that telcos can keep performing well from here.

“Higher returns for longer” for telcos

According to investment bank Morgan Stanley, the telco sector has beaten the performance of global shares by more than 10% in 2022 to date. However, could this outperformance mean that the defensive play of investing in the telco sector is over?

Not so, according to Morgan Stanley’s Emmet Kelly, head of telecom research at the investment bank. Kelly said the following, not specifically about Telstra, but on the telco sector:

Telecoms are trading about 30% cheaper than other defensive stocks, which is a 15-year low. This leads us to think the outperformance is set to continue.

A key part of Morgan Stanley’s thinking is that telco spending on infrastructure may decrease, meaning they will have more “financial flexibility” and that stronger cash flow will enable telcos to carry out “buybacks and shareholder dividends.”

Telstra forecasts lower costs and higher profit

As part of its T25 strategy, Telstra has said it is planning to reduce its fixed costs by $500 million between FY23 to FY25. It’s also hoping to grow its underlying earnings per share (EPS) at a compound annual growth rate (CAGR) in the “high-teens” to FY25.

Over the next few years, it’s planning to extend 5G network coverage to 95% of the population. By FY25, it’s expecting 80% of all mobile traffic to be on 5G.

Telstra also said that it’s seeking to grow its dividends over time whilst also investing for growth. The final dividend of FY22 was an increase from 8 cents per share to 8.5 cents per share.

Is the Telstra share price an opportunity?

Morgan Stanley does have an overweight rating on the telco at the moment, which is equivalent to a buy.

The price target is $4.60, implying a mid-teen rise for Telstra shares over the next year, on top of the dividend return. Morgan Stanley has also suggested the recent cyber hack at Optus could lead to subscribers jumping ship to Telstra.

At the current Telstra share price, it could have a grossed-up dividend yield of 6.1% in FY 23 according to the broker.

The post Could the stage now be set for Telstra shares to outperform? appeared first on The Motley Fool Australia.

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More reading

• Markets are nervous. Why waiting to buy these ASX 200 shares could prove expensive
• Why ASX shares in these sectors should outperform in 2023 while these are ones to avoid: fund manager
• Why Telstra shares have 16% upside right now: fundie
• Ballin’ on a budget: The best ASX shares to buy for under $5
• 3 key things I look for when buying ASX dividend shares

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 positions in and has recommended BETANASDAQ ETF UNITS. The Motley Fool Australia has positions in and has recommended BETANASDAQ ETF UNITS and Telstra Corporation 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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