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The fund manager Wilson Asset Management has named a fintech S&P/ASX 200 Index (ASX: XJO) share as one of its leading investment picks. Hub24 Ltd (ASX: HUB) shares are one of the largest 20 holdings within the WAM Capital Limited (ASX: WAM) portfolio.

WAM Capital is a listed investment company (LIC) which is aiming for “the most compelling undervalued growth opportunities in the Australian market”.

The LIC has managed to deliver gross portfolio returns of 14.9% per annum since its inception in August 1999. That compares to an average return per annum of 8.1% for the S&P/ASX All Ordinaries Accumulation Index (ASX: XAOA).

What’s the bull case for Hub24 shares?

WAM described Hub24 as a financial services company that is “focused on investment and superannuation portfolio administration services which also provides integrated platform, technology and data solutions”.

The fund manager noted that in the first quarter of FY23, Hub24 achieved $3 billion of net inflows from its platform, beating market expectations.

WAM explained the result was “driven by growth in its existing client base”, as well as the 13% increase in the number of advisers using its platform, compared to the prior comparative quarter.

It was also noted that Hub24 was recently named the best SMSF investment platform in the CoreData SMSF service provider awards, which ranks platforms for service quality and adviser preference.

In the quarter, Hub24 also said that its total funds under administration (FUA) was $68.4 billion at 30 September 2022. This comprised platform FUA of $52.4 billion (up 15.4%), and portfolio, administration and reporting services (PARS) FUA of $16 billion (down 9.9% year over year due to market movement).

Average monthly net inflows for FY23 to date was $995 million, up 1.7% from FY22.

The company noted that in the September quarter, there was an improvement in net inflows following a “slightly softer” FY22 fourth quarter.

Hub24 was ranked first in terms of annual FUA growth in percentage terms. The fintech ASX 200 share said that it still has a “solid pipeline of opportunities”.

WAM’s view

The investment team were impressed by that pleasing update considering the broader market volatility. WAM concluded:

We believe the company is well-positioned to continue building on this strong performance.

Some of the other ASX shares in WAM Capital’s top 20 holdings were: AMP Limited (ASX: AMP), Idp Education Ltd (ASX: IEL), IPH Ltd (ASX: IPH), Pro Medicus Ltd (ASX: PME), Temple & Webster Group Ltd (ASX: TPW), Webjet Limited (ASX: WEB) and Johns Lyng Group Ltd (ASX: JLG).

Hub24 share price snapshot

Since the start of the year, the Hub24 share price is down around 9%. But, over the past month, it has risen by around 20%.

The post This fintech ASX 200 share is ‘well positioned’ to keep growing: experts appeared first on The Motley Fool Australia.

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More reading

• Hub24 or Altium: Which ASX 200 tech stock is the better buy right now?
• Here are the top 10 ASX 200 shares today
• ‘Very bullish’: 3 small-cap ASX shares QVG is loving right now
• US$10 billion was just wiped from the value of Atlassian. How are ASX 200 tech shares responding?
• Leading fund manager names the 3 ASX stocks that drove its returns higher in October

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 Hub24 Ltd, Idp Education Pty Ltd, Johns Lyng Group Limited, Pro Medicus Ltd., and Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended IPH Ltd. The Motley Fool Australia has positions in and has recommended Hub24 Ltd and Pro Medicus Ltd. The Motley Fool Australia has recommended IPH Ltd, Johns Lyng Group Limited, Temple & Webster Group Ltd, and Webjet 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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If you’re looking for dividend shares to buy, then you may want to look at the two listed below.

Here’s why experts rate these ASX 200 dividend shares highly:

Coles Group Ltd (ASX: COL)

The first ASX 200 dividend share that experts rate as a buy is supermarket operator Coles.

It released its first quarter update at the end of last month and revealed a 2.1% increase in like for like sales. This was achieved despite cycling heightened COVID-19 related sales in the prior corresponding period and customers returning to dining out at cafes and restaurants.

This update went down well with the team at Citi. In response to its release, the broker retained its buy rating with an $18.90 price target.

As for dividends, Citi is now expecting a 72 cents per share dividend in FY 2023 and a 78 cents per share dividend in FY 2024. Based on the current Coles share price of $16.63, this will mean yields of 4.3% and 4.7%, respectively, for investors.

Wesfarmers Ltd (ASX: WES)

Another ASX 200 dividend share that could be in the buy zone is Coles’ former parent Wesfarmers.

While the conglomerate may have divested Coles, it still owns a high quality portfolio of businesses across a range of industries.

Morgans is very positive on the company in the current environment. This is due to its belief that the company’s retail offering is well-placed to navigate the tough retail environment due to its value offering. The broker highlights that “Kmart is well-placed to benefit with the average price of an item at around $6-7.”

The broker expects this to support fully franked dividends per share of $1.82 in FY 2023 and $1.89 in FY 2024. Based on the current Wesfarmers share price of $46.82, this will mean yields of 3.9% and 4%, respectively.

Morgans has an add rating and $58.40 price target on its shares.

The post Experts name the blue chip ASX 200 dividend shares to buy now appeared first on The Motley Fool Australia.

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More reading

• Are ASX share investors getting their mojo back?
• Top ASX dividend shares to buy in November 2022
• Why Wesfarmers shares could be a dirt-cheap buy right now
• Worried about your income in retirement? Take a look at these 3 ASX 200 dividend shares
• 4 ‘fantastic long-term’ ASX shares to put on your watchlist: fund manager

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 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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As steep interest rate rises start biting Australian households, how badly will the economy crash?

That’s one of the biggest questions for investors as the market winds up 2022.

One way to shield your portfolio is to buy ASX shares of companies that supply other companies. That may help in avoiding volatility in consumer spending. 

Sure, any dip in economic fortunes will hurt every business. But if you’re removed from direct exposure to end customers then the dip might not be quite as dramatic.

After all, business-to-business transactions are very different from consumer sales. Often supply contracts are longer term, rather than engaged on a transactional basis.

So if you’re looking to buy ASX shares in businesses that provide for other businesses, here is a pair that experts have recently recommended:

‘Strong start to fiscal year 2023’

Multiple experts have told The Motley Fool in recent times that they like the look of Brambles Limited (ASX: BXB).

Now Ord Minnett senior investment advisor Tony Paterno joins those ranks.

“This global logistics supply company recorded a strong start to fiscal year 2023,” Paterno told The Bull

He noted that on constant currency terms, sales in the quarter ending September grew 14%. 

“Management expects sales to grow between 7% and 10% on a constant currency basis in fiscal year 2023.”

According to Paterno, this sales growth will be converted into profit.

“Management reiterated underlying profit growth of between 8% and 11% on a constant currency basis in fiscal year 2023.” Brambles shares also pay out a handy 2.88% dividend yield.

The share price has proven resilient in a turbulent year, now trading 4.4% higher than at the start of 2022.

Ecommerce can only grow in the coming years

Catapult Wealth portfolio manager Tim Haselum rates Goodman Group (ASX: GMG) as a buy at the moment.

He admitted there are worries for the industrial real estate provider in the coming months.

“Recently rising bond yields and exposure to Europe are short-term concerns,” said Haselum.

“However, over the longer term, we believe Goodman Group now presents a good buying opportunity, given near full occupancy and a development pipeline of about $13 billion.”  

Haselum’s team reckons a decent earnings boost is in the pipeline.

“In our view, earnings per share growth guidance of about 11% is conservative.”

The Motley Fool last week reported on Bell Potter’s latest memo, which indicated those analysts share the same bullish view as Haselum.

“The long term outlook for industrial and logistics properties is favourable given the continuing growth in ecommerce (or online retail sales) and the growing middle class in developing countries.”

The post 2 ASX shares that could ride out the coming volatility: experts appeared first on The Motley Fool Australia.

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More reading

• 3 ‘champion’ ASX shares to buy and hold: Bell Potter
• Top brokers name 3 ASX shares to buy next week
• Why I’m seriously considering investing $10,000 in these ASX 200 shares
• Why Amcor, Australian Strategic Materials, Goodman, and Pilbara Minerals are dropping
• Goodman share price drops 3% on Q1 update

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

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The fund manager Wilson Asset Management (WAM) has recently identified some S&P/ASX 200 Index (ASX: XJO) shares that it owns (or owned) in one of its main portfolios.

WAM operates several listed investment companies (LICs). Two of these LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).

There’s also one called WAM Leaders Ltd (ASX: WLE) that looks at the larger businesses on the ASX, often referred to as ASX blue-chip shares.

WAM says WAM Leaders actively invests in the highest quality Australian companies. But does WAM have a good reputation for picking stocks?

The WAM Leaders portfolio has delivered gross returns (before fees, expenses, and taxes) of 14.3% per annum since its inception in May 2016. This compares to the S&P/ASX 200 Accumulation Index average return of 8.1% over the same time.

WAM outlined these ASX 200 shares in its recent monthly update.

Insurance Australia Group Ltd (ASX: IAG)

The fund manager revealed that IAG, an insurance giant in Australia, has been a “core holding” in the portfolio because it is a “high-quality company that has been impacted by multiple significant one-offs”. WAM referred to business interruption lawsuits, elevated natural disasters and management turnover.

The investment team noted that the downsides of the above factors have been “more than captured” by the IAG share price.

It continues to hold the ASX 200 share position because of a few different factors: continued strength in the premium rate cycle, leverage to higher bond yields, the internal turnaround program and the potential for a capital return.

WAM pointed out that one of the catalysts occurred in the middle of October 2022, with the business interruption test case appeal being dismissed by the High Court, and then IAG announced a $350 million on-market share buyback.

Star Entertainment Group Ltd (ASX: SGR)

The casino ASX 200 share was another name that the fund manager wrote about. It is another company that is in the WAM Leaders portfolio despite the negative media attention.

Investors have sent the Star Entertainment share price down around 20% this year.

WAM pointed out that the market valued the entire company at less than the land value of its properties alone.

The conclusion of the Star Entertainment Bell review’s final outcome was announced in October.

The investment manager thought there was an attractive risk-to-return opportunity given the precedent set by the Crown Resort Royal Commission finding last year.

As a reminder, the outcome was that a manager was appointed to control The Star Sydney casino, while Star Entertainment retains the profits made during the period, as well as the payment of a fine.

WAM noted the Star Entertainment share price has rallied on the back of the news, as it removed a key factor of uncertainty for investors.

The fund manager believes an unlisted investor would be a “natural owner” of the ASX 200 share because they could reap synergies with existing gaming assets, making it an “attractive takeover candidate”.

The post 2 ASX 200 shares that could be too cheap to ignore: fund manager appeared first on The Motley Fool Australia.

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More reading

• The IAG share price has smashed the ASX 200 this year. Is it too late to buy?
• Why did the IAG share price just hit a new 52-week high?
• 3 ASX 200 shares hitting new heights today
• Why IAG shares are a cheap buy right now: expert
• 22 high-yield ASX dividend shares Wilsons is targeting

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 Insurance Australia Group 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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At the start of each week, I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Betmakers Technology Group Ltd (ASX: BET) remains the most shorted share on the Australian share market after its short interest rose to 15.9%. This betting technology company’s shares are down almost 70% this year.
• Flight Centre Travel Group Ltd (ASX: FLT) has seen its short interest ease to 14.5%. Short sellers will have been pleased to see this travel agent giant’s shares tumble on Monday following a softer than expected trading update.
• Block Inc (ASX: SQ2) has seen its short interest rise to 12.4%. Short sellers continue to build their positions despite the payments company’s shares rising 25% in a month.
• Megaport Ltd (ASX: MP1) has seen its short interest rise to 11.9%. Short sellers appear to be increasing their positions after a softer than expected first quarter update from the network as a service provider.
• Domino’s Pizza Enterprises Ltd (ASX: DMP) has seen its short interest rise to 11.7%. This pizza chain operator’s shares have fallen heavily this year after inflationary pressures weighed on its performance.
• Perpetual Limited (ASX: PPT) has seen its short interest ease to 11%. Short sellers will have been disappointed to see this fund manager’s shares charge higher this month after receiving a takeover offer.
• Breville Group Ltd (ASX: BRG) has seen its short interest rise to 9.1%. Unfortunately for short sellers, this appliance manufacturer’s shares jumped last week after a solid first quarter update.
• Temple & Webster Group Ltd (ASX: TPW) has short interest of 9.1%, which is up strongly week on week. Valuation concerns and an ecommerce slowdown may be behind this high level of short interest.
• Nanosonics Ltd (ASX: NAN) has short interest of 8.7%, which is up week on week again. Concerns over this infection prevention company’s business model change in the key US market have been weighing on sentiment.
• Sayona Mining Ltd (ASX: SYA) has seen its short interest fall to 8.6%. Short sellers may be targeting this lithium developer due to valuation and funding concerns.

The post Here are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Leading brokers name 3 ASX shares to buy today
• Share market rally: How I’d invest $5,000 right now in ASX shares
• Why Elders, Flight Centre, Perpetual, and Telstra shares are dropping
• Could the flurry of recent takeover bids mean ASX 200 shares are going cheap right now?

Motley Fool contributor James Mickleboro has positions in Dominos Pizza Enterprises Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Betmakers Technology Group Ltd, Block, Inc., MEGAPORT FPO, Nanosonics Limited, and Temple & Webster Group Ltd. The Motley Fool Australia has positions in and has recommended Block, Inc. and Nanosonics Limited. The Motley Fool Australia has recommended Betmakers Technology Group Ltd, Dominos Pizza Enterprises Limited, Flight Centre Travel Group Limited, MEGAPORT FPO, and Temple & Webster Group 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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The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch this morning.

This follows the release of Australia’s largest bank’s first quarter update.

CBA share price on watch following Q1 update

• Income up 9% over the second half average to ~$6.6 billion
• Expenses up 4.5% excluding remediation
• Cash net profit after tax up 2% to $2.5 billion
• Troublesome and impaired assets down 4.7% to $6.1 billion
• Loan impairments of $222 million
• CET1 ratio of 11.1%

What happened during the quarter?

For the three months ended 30 September, CBA reported a modest 2% increase in cash earnings over the second half average to $2.5 billion. This reflects a 9% jump in operating income, offset by a 4.5% increase in expenses.

CBA’s income growth was driven by higher margins and volume growth, partly offset by reduced non-interest income. Household deposits rose 8.6%, home lending grew 6.3%, and business lending increased 12.6% year over year.

Operating expenses excluding remediation were approximately ~4.5% higher than the second half average. This reflects higher staff costs driven by wage inflation, additional working days, and seasonally lower annual leave usage. It was partly offset by lower software amortisation and occupancy costs.

The bank reported net interest income growth of 16%, which was driven by higher deposit earnings, volume growth across core products, the benefit of rising rates on replicating portfolio and equity hedge balances, and 1.5 additional days in the quarter. This was partly offset by the impact of competition and rising rates on lending products.

No details were provided about the widely followed net interest margin (NIM).

How does this compare to expectations?

Unfortunately for the CBA share price today, this update appears to have fallen a touch short of expectations.

Yesterday, analysts at Citi revealed that they were expecting earnings growth of 6%, which was in line with consensus estimates.

Citi commented: “Our 1Q23 cash earnings forecast is in-line with consensus, and we forecast a quarterly NIM of 1.96%, ~9bps ahead of 2H22. At the core earnings line, we expect ~6% core earnings growth in 1Q23 vs the 2H22 average.”

Management commentary

CBA’s CEO, Matt Comyn, appeared to be happy with the quarter and remains positive on the bank’s outlook despite the cost of living crisis. He commented:

Consistent and disciplined execution of our strategy delivered strong financial and operational outcomes in the first quarter of FY23, highlighted by Cash NPAT of approximately $2.5 billion, 12% growth in operating performance and sound portfolio credit quality. In a competitive environment, we remained disciplined and achieved good volume growth in our core markets.

We recognise the concern and pressure many customers are feeling due to the higher cost of living, and increases in the cash rate. As well as providing a range of measures to help these customers, we also supported customers and communities impacted by natural disasters, particularly those affected by recent flooding.

Our strong balance sheet positions us well to continue helping customers achieve their financial goals, consistent with our purpose to build a brighter future for all. The economy has shown resilience in the face of growing cost of living and interest rate pressures and despite these near-term challenges we remain optimistic on the medium to long term outlook.

The post CBA share price on watch amid $2.5b Q1 cash profit appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Looking to buy CBA shares? Here’s what to watch in Tuesday’s update
• Are ASX share investors getting their mojo back?
• Don’t panic! Here are 7 reasons we can avoid a recession: AMP
• Why are CBA shares so high right now?

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Invest for the long-term, you hear ad nauseum.

But it’s easier said than done.

If you don’t pick the right businesses to invest, your “reward” for sticking with your ASX shares through thick and thin could be seeing your wealth shrink.

Ouch.

That’s why among all the stock tips you hear on here and everywhere, it’s worth noting the ones that the experts have marked as long-term prospects.

Those are the stocks in which you might have more confidence holding onto even when the valuation becomes volatile in the immediate future.

Here is a couple of ASX shares that are fit the bill:

‘Benefitting from a tight labour market’

Wilsons investment advisor Peter Moran is currently a fan of PeopleIn Ltd (ASX: PPE) because of Australia’s historic low unemployment rate.

“PeopleIn provides human resources outsourcing and contract staffing to a diverse range of sectors, including health and community services, early learning, government and manufacturing,” Moran told The Bull.

“PeopleIn is benefitting from a tight labour market.”

The long-term driver for the business, according to Wilson, is the nature of its clientele.

“PPE is also attractive for its positioning in defensive sectors, which are expected to experience strong growth over the long term,” he said.

“We hold an overweight rating.”

The PeopleIn share price has dropped 27% year to date, but has spiked up 24.9% since a mid-June trough.

It seems Moran’s peers are unanimously in agreement with him.

According to CMC Markets, all six analysts who currently cover PeopleIn rate it as a buy, with five of them labelling it a strong buy.

Immediate earnings downgraded, but still great balance sheet

The Allkem Ltd (ASX: AKE) share price has ridden the lithium thematic all the way home to be almost 50% up so far in 2022.

According to Ord Minnett senior investment advisor Tony Paterno, his team has recently downgraded the earnings expectations for the miner due to “lighter production”.

But it’s still a worthy long-term buy.

“The stock continues to show valuation support, based on a recent price-to-net-present-value multiple of 0.76 times,” he said.

“Anticipated growing free cash flow yields of 5% to 17% between fiscal years 2023 and 2025 also appeals. There’s no stress on the balance sheet.”

With lithium prices reaching phenomenal highs this year, experts are divided as to whether the producers have hit their peak.

Ten out of 17 analysts currently surveyed on CMC Markets are rating Allkem shares as a strong buy, but six others are convinced it’s a hold.

The post ‘No stress’: Experts name 2 ASX shares to buy for strong long-term growth appeared first on The Motley Fool Australia.

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More reading

• Why did ASX lithium shares have a dream run on Monday?
• 4 ASX 200 shares to play the global decarbonisation theme: fund manager
• Top brokers name 3 ASX shares to buy next week
• Top ASX dividend shares to buy in November 2022
• Analysts say these ASX growth shares are buys

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 Peoplein. The Motley Fool Australia has recommended Peoplein. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, 1851 Capital portfolio manager Martin Hickson names three ASX shares investors should buy that drove strong returns for his fund.

Investment style

The Motley Fool: How would you describe your fund to a potential client?

Martin Hickson: I’m Martin Hickson, portfolio manager at 1851 Capital, a reasonably newly established business and fund. 

We launched the fund back in February 2020. Both Chris Stott, who’s my partner in the business, worked together previously at Wilson Asset Management for a decade together before setting up this business. 

Our style is we’re a long-only small and micro-cap fund manager. We’ve got restricted capacity. We soft-closed the fund at $400 million back in August last year. From the launch, that was always the plan, to soft-close the fund once we got to that level. It’s our belief that as you grow your funds under management past a certain point, it starts to inhibit performance, so that’s why we’ve restricted the capacity of the fund. 

We invest in companies ex-S&P/ASX 100 Index (ASX: XTO) industrial companies, ASX-listed only. There’s no pre-IPO or overseas companies, [no] unlisted assets. Our style is we’re looking for growth companies with attractive valuations and a catalyst that can re-rate the share price.

MF: This year’s been a tough time for smaller caps, hasn’t it? How do you see things at the moment, and where do you see them going?

MH: Yeah, it has been a volatile time. The area of the market that we invest in, the small industrials, since we launched the fund just under three years ago, our area of the market’s actually down by 15% over the first 33 months of launching the fund. [But] the fund’s done okay. As of the end of October… from memory, it’s up around 35%. 

It’s been a tough 12 months, and it’s been a very volatile almost three years for markets. Since we’ve launched the fund, we’ve been through two bear markets now, and a potential recession coming. We’ve been through the COVID pandemic, obviously a war, so there’s a lot that’s occurred in the first three years of the fund.

Hottest ASX shares

MF: What are the three best stock buys right now?

MH: The three stocks that I’ll talk about, they’re all companies that we own within the portfolio and at the smaller end of the overall market.

The first one is a company called IPD Group Ltd (ASX: IPG). A reasonably new entrant to the ASX, so listed back in December last year. It’s been a strong performer. The share price has more than doubled over the last 12 months. 

What they do is they’re an electrical equipment distributor and services company. If you go into a big apartment building or an office, you look at the electricity distribution room, and you see all the equipment in there, a lot of the equipment has likely come from a company like IPD Group. So power distribution, power monitoring, industrial control products.

It’s been a very successful position for us. Despite the strong performance in the share price, it still trades at an attractive valuation — so they’re 15 times post-earnings ratio, so quite cheap, below what the overall market’s trading at. Their earnings are growing at over 20%. So very, very strong growth, but still trading at that cheap price. 

They extended their agreement with ABB Ltd. ABB is one of the largest electrical equipment manufacturers globally, with 30% market share. [IPD is] distributing all of those products in Australia on behalf of ABB.

The other thing we like about it is that they’ve got a growing EV business. They sell the equipment to install EV chargers in both residential homes but also in EV charging stations. They’re one of the only ways to get exposure to that growing electronic vehicle thematic in the industrial space. There’s obviously lithium, but this is one of the only ways to play it on the ASX in the industrial space. 

That’s one that’s performed strongly for us, but we still think there is further upside to that company.

Thirdly, they’ve got a strong balance sheet. They’ve got $25 million of net cash on the balance sheet, and that provides flexibility to potentially deploy that cash into acquisition opportunities.

MF: Fantastic performance, isn’t it? It’s not an energy company or a mining company, but it’s more than doubled this year when everything else has flopped.

MH: Yeah, that’s right. It’s doubled in a period where the overall market’s down just over 20%, so a lot of good tailwinds for that business.

MF: Great, your next stock to buy right now?

MH: Next one’s a company called Atturra Ltd (ASX: ATA). They’re an IT services company.

Similar to IPG, really. There’s a lot of similar characteristics. They also listed around 12 months ago. We participated in the [initial public offering] IPO. It trades at a price-to-earnings ratio of 15 times, earnings rate 20% as well. And again, [a] very strong balance sheet — $30 million net cash on the balance sheet, similar to IPG. It gives them flexibility to potentially deploy that cash into accretive acquisitions. 

They’ve also given earnings guidance to the market back in August of $15 to $16 million of EBIT. We think that looks conservative. We think their earnings are growing at a very fast rate, but again, it’s still trading at quite a reasonable multiple.

MF: You would think listing at the end of last year would be absolutely terrible timing, but both those companies have done really well.

MH: Yeah. If you look at the overall list of companies that IPOed in the second half of last calendar year, in that December half, there aren’t many of them that have performed strongly. A lot of them are well underwater, but both IPD Group and Atturra have bucked the trend. They’re up significantly since their IPO. 

Even in any market, in the micro-cap and small-cap space, there are always opportunities to find these gems that grow irrespective of what’s happening in the overall economy.

MF: And your third pick, I think, is a bit more of a mature player?

MH: Yeah, the third is Capitol Health Ltd (ASX: CAJ). They’re a radiology company. There’s a couple of reasons why I like it. 

Firstly, their earnings are recovering close to COVID disruptions of the last couple of years. Their business is primarily in Victoria, so they were significantly impacted by the lockdowns there over the last few years, so they’ve seen a tailwind for their earnings this financial year. 

Justin Walter, the CEO there, who’s been CEO for three years, has changed the business a lot since he joined. He’s taken significant costs out of the business, he’s improved the culture of the organisation, and also, in August this year, they acquired one of their competitors in Victoria, a business called Future Medical Imaging Group. That was an accretive acquisition for them, and it really reinforced that dominant position in the Victorian radiology market.

The other attraction is that it trades on a low EBITDA multiple of 7.5 times. We’ve seen, over the last couple of years, there have been private transactions where companies have been taken over at EBITDA multiples of 12 to 13 times. So based on those numbers, Capitol Health is trading a lot cheaper than a lot of those private companies were taken over at. That gives it very strong valuation support.

MF: The health industry is also defensive, isn’t it, when an economic downturn is coming?

MH: Yeah, that’s right, so better earnings streams … Like you say, quite defensive, given they operate in the healthcare space.

The post 3 small-cap ASX shares that drove fund up 35% while the market plunged appeared first on The Motley Fool Australia.

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

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On Monday, the S&P/ASX 200 Index (ASX: XJO) started the week in a subdued manner. The benchmark index edged 0.15% lower to 7,146.3 points.

Will the market be able to bounce back from this on Tuesday? Here are five things to watch:

ASX 200 expected to edge higher

The Australian share market looks set to edge higher on Tuesday following a decent start to the week on Wall Street. According to the latest SPI futures, the ASX 200 is poised to open the day 2 points higher. In late trade in the United States, the Dow Jones is up 0.45%, the S&P 500 is up 0.3%, and the NASDAQ has edged 0.1% higher.

CBA Q1 update

The Commonwealth Bank of Australia (ASX: CBA) share price will be in focus today when Australia’s largest bank releases its first quarter update. Analysts at Citi commented: “Our 1Q23 cash earnings forecast is in-line with consensus, and we forecast a quarterly NIM of 1.96%, ~9bps ahead of 2H22. At the core earnings line, we expect ~6% core earnings growth in 1Q23 vs the 2H22 average.”

Oil prices fall

Energy producers such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could have a difficult day after oil prices dropped overnight. According to Bloomberg, the WTI crude oil price is down 3.4% to US$86.00 a barrel and the Brent crude oil price has fallen 2.75% to US$93.33 a barrel. A strong US dollar and a surge in COVID cases in China weighed on prices.

NAB goes ex-dividend

The National Australia Bank Ltd (ASX: NAB) share price is likely to trade lower today when the banking giant’s shares go ex-dividend for its final dividend. Last week, NAB released its full year results and declared a fully franked 78 cents per share fully franked final dividend. This will now be paid to eligible shareholders on 14 December.

Gold price rises

Gold miners Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) could have a positive day after the gold price traded higher overnight. According to CNBC, the spot gold price is up 0.4% to US$1,776.6 an ounce. That was despite the US Federal Reserve warning that it was not softening its fight against inflation.

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

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• Hoping to bag the next NAB dividend? You’d better get in quick
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• Analysts say these high yield ASX dividend shares are buys

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.

A strong bull market for many years may have given some investors the misimpression that everything goes up. For some period of time, that’s pretty much what happened, with some growth stocks skyrocketing in price with percent gains in the thousands. It looked easy, because it was. 

Many new investors never experienced a bear market, but many of those early gains have now been completely wiped out. It turns out that it may not be so easy to accumulate wealth overnight or over months.

One consistent voice of reason through decades of ups and downs is guru investor Warren Buffett, who has beaten the market through his value-oriented approach. It’s always worthwhile to listen to what he says, but in this kind of market it makes even more sense to make note of what he looks for in a stock. There are several factors that inform his decisions, but there’s one that stands out in how he defines a great business.

What is a moat?

Buffett says, “A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital.” The “moat” he talks about refers to a competitive advantage that makes the business unique and better than others. In a literal sense, a moat protects a castle from oncoming attacks. In the markets, a moat protects a business from challengers.

There are several parts of this formula. One is that the moat has to be enduring. If it’s not, it’s not really protective. It also has to protect excellent returns on invested capital, which means those need to be there in the first place. If a company seems differentiated but is not performing and posting excellent results, the business will fall apart despite any seeming advantages.

Some excellent examples

Buffett goes on to say:

The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns. Therefore a formidable barrier such as a company’s being the low-cost producer…or possessing a powerful worldwide brand…is essential for sustained success. 

He gives several examples. Geico (owned by Buffett’s holding company, Berkshire Hathaway) and Costco Wholesale both operate a discount model that is compellingly better than competitors. That’s a moat, because they are both hard to challenge.

As for a powerful, global brand, he cites Coca-Cola as an example. Despite years of taste-testing and debates about whether or not Coca-Cola is better than your local off-brand, Coca-Cola can demand high pricing, and loyal customers respond. Coca-Cola remains the largest beverage brand in the world by sales, and its unbeatable brand is a robust sales generator, driving excellent returns on invested capital.

Buffett also mentions American Express as having a moat in its powerful brand. It has a premium image with real perks that attract an affluent clientele. Other credit card companies that cater to a wider mix of customers do not carry the same cachet. 

Stronger moats lead to better stocks

Finding businesses with real moats can lead to higher long-term gains. Buffett made these remarks over 15 years ago, and the examples he mentions have indeed endured. Coca-Cola and American Express remain two of his top holdings, and they have been posting outstanding results in an otherwise slumpy market and volatile economy. Their brands have endured over time and look to carry their companies well into the future. Buffett sold his position in Costco in 2020, but it also remains a top stock. Although only Coca-Cola stock is showing a gain so far this year, all of these stocks are beating the market.

AXP data by YCharts

A strong moat is a mark of a great business. Building one takes an excellent business, a competitive advantage, and the ability to strengthen that advantage over the long term. Shifting your focus to investments that demonstrate these qualities, instead of looking for the next hot growth stock, can lead to more successful long-term investing.

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

The post This is how Warren Buffett defines a great business — and how you should too appeared first on The Motley Fool Australia.

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More reading

• Is it a Warren Buffett stock or not? 5 simple questions to ask yourself
• These 3 US stocks were Warren Buffett’s biggest winners over the past 5 years
• Warren Buffett bought $9 billion in stocks and sold more than $5 billion last quarter
• Berkshire, Buffett feel the bear’s bite
• Why I think Warren Buffett is right to always think a market crash is coming

Jennifer Saibil has positions in American Express. American Express is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Costco Wholesale. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $47.50 calls on Coca-Cola. 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.

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

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