Tag: Motley Fool

The Iluka Resources Limited (ASX: ILU) share price has struggled in the past month, but could there be better days ahead?

Since market close on 26 August, the company’s share price has fallen nearly 18% to $8.82.

Let’s take a look at the outlook for the Iluka Resources share price.

Can the Iluka Resources share price go higher?

Iluka Resources is a mineral sands explorer producing rare earth minerals for an electrified future. These include neodymium, praseodymium, dysprosium, terbium, lanthanum, and cerium.

Spotee Connect managing director Elio D’Amato is recommending Iluka as a buy.

Commenting on the outlook for Iluka on The Bull, D’Amato highlighted Iluka delivered a “solid interim report” recently. He added:

Sales exceeded production, and all at high zircon prices. The company is expected to start its rutile mill in Western Australia by mid next year. 

D’Amato believes Iluka’s Eneabba rare earths refinery project in Western Australia is set to drive growth in the future. He said:

The Eneabba rare earths refinery will be a new growth engine, following recent approvals and a $1.25 billion non-recourse loan from the Australian Government to build it.

The Eneabba refinery will be the third of its kind outside China, as my Foolish colleague James reported recently.

Goldman Sachs has also recently placed a buy rating on the Iluka share price and a $13.30 price target. Goldman said: “We think ILU’s Eneabba RE refinery is a strategic asset considering it will be only the third western world RE refinery.”

Iluka reported a 186% increase in profit to $368,5 million in the first half of calendar year 2022.

Iluka share price snapshot

The Iluka share price has shed 4% in the past year, while it has fallen 11% year to date.

For perspective, the S&P/ASX 200 Materials Index (ASX: XMJ) has fallen 13% in the year to date.

Iluka has a market capitalisation of more than $3.7 billion based on the current share price.

The post Down 18% in a month, is the Iluka Resources share price a smart buy? appeared first on The Motley Fool Australia.

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More reading

• 2 ‘cyclical’ ASX shares about to take off: experts
• Experts say these are the ASX mining shares to buy
• Analysts name 2 ASX 200 mining shares to buy
• The ASX 200 rare earths mining share this fundie is watching like a hawk. (Hint: not Lynas)
• These ASX 200 shares are going ex-dividend on Monday

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 positions in and has recommended Goldman Sachs. 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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Like many ASX tech shares, the Xero Limited (ASX: XRO) share price has been battered and bruised this year.

So much so that Xero shares are wearing a 46% fall since the beginning of the year. By comparison, the S&P/ASX 200 Index (ASX: XJO) has dropped 15%.

Despite the recent turbulence, here are a few reasons why I’m holding onto my Xero shares for the long term.

Mission-critical products

I love investing in companies that offer mission-critical products. Companies with products that are so deeply embedded in their customers’ lives that they’re hard to give up.

These products are sticky, leading to high levels of customer retention and recurring revenue. Not only does this help companies to weather economic storms, but it can also give them lucrative pricing power.

I believe Xero fits this bill to a tee. Its software plays an integral role in the operations of its small to medium size business customers. 

Plus, there are also meaningful switching costs involved in moving to another cloud accounting provider. Users would have to learn an entirely new system, move all of their old accounts to another platform, and set up various processes and workflows all over again – a daunting and disruptive process.

So, Xero’s revenue is very sticky. And the company has consistently flexed its pricing power over the years, increasing the prices of its monthly subscriptions without drastically impacting the number of customers going out the door (also known as ‘churn’). 

It helps that Xero continues to roll out new features and integrations for its customers, providing more value while also embedding itself even further into customers’ workflows.

Attractive unit economics

This pricing power has helped Xero to increase its average revenue per user (ARPU) over time. Which, combined with stable churn, has boosted Xero’s customer lifetime value (LTV).

Put simply, LTV is the gross profit Xero estimates it will collect from a customer over the expected lifetime of that customer. I should add that Xero boasts high gross margins, which came in at 87% in FY22.

In my view, Xero is a company with very attractive underlying economics. The beauty of these economics is best seen through the relationship between its LTV and customer acquisition costs (CAC).

In other words, how much it costs Xero to acquire a customer compared to how much that customer is worth.

In FY22, Xero reported an LTV-to-CAC ratio of 6.9. This means that Xero estimates it gets NZ$6.90 back for every NZ$1 it spends to acquire a new customer.

So although Xero has a hefty marketing spend, it makes sense to invest in these channels at such attractive rates of return.

A large opportunity

Xero has nearly all but gobbled up its local markets of Australia and New Zealand. But the international opportunity remains large. And with many businesses overseas yet to shift to cloud accounting, this opportunity is ripe for the picking.

Competition is certainly fierce, especially in the US, where Intuit (NASDAQ: INTU) reigns supreme.  But with a leading cloud-native product, more than 1,000 app integrations (where Xero now clips the ticket, à la Apple), a broad and growing set of tools, and heavy investment into product design and development, I believe Xero is in a strong position to gain market share as more companies take their business to the cloud. 

The UK and Canada are particular regions of focus, with low cloud accounting penetration and industry tailwinds blowing in Xero’s favour.

The opportunity for Xero lies in adding to its 3.3 million-strong subscriber base. And from there, continuing to extract more revenue from its existing customers. 

Where to from here?

Although it’s very capable of generating free cash flow, Xero continues to reinvest cash back into the business for future growth. So, it’s not a surprise to see market sentiment turn against Xero this year.

Xero is a business that will require patience. But, much like management, I believe it pays to think long term. 

In my mind, Xero is one of the highest quality businesses on the ASX. And as long as the economics remain attractive, and it continues to take market share, Xero is a business I’ll be happy to hold in my portfolio for many years to come.

The post Down 46% in 2022, why ASX 200 tech share Xero is still my hero appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 200 growth shares analysts rate as buys
• Here are the top 10 ASX 200 shares today
• Markets move all the time. Why it’s important to ‘keep calm and focus on longer-term strategy’
• Here’s how I’d invest $2,000 in ASX shares if I’d just turned 18
• Xero share price is tumbling 5%, but could it be worth a buy?

Motley Fool contributor Cathryn Goh has positions in Apple and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Intuit, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Apple. 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 BHP Group Ltd (ASX: BHP) share price has been hurting over the last few weeks. It’s down 14% in the past month.

How does that compare to the S&P/ASX 200 Index (ASX: XJO)? The ASX 200 has fallen 7%. That’s interesting considering BHP is such a large proportion of the ASX 200 — it’s around 10% of the index.

A lot of the fall happened yesterday when BHP slumped by more than 5%.

Can things turn around? Let me just consult my crystal ball here…

Volatile commodities

There are a few key things that affect BHP’s share price and profit.

General market sentiment can really affect the share price, as we saw during the COVID-19 crash. But then there are more specific things for BHP, such as commodity prices and its production volumes, that can also influence investor sentiment.

BHP has a portfolio of different commodities, including iron ore, copper, coal, and so on.

There are certainly concerns about what a global recession could do to resource prices. The iron ore price has dropped from above US$150 per tonne earlier this year to under US$100 per tonne. However, how much further are the commodity prices going to drop?

It’s hard to say. But, the longer-term outlook for some of its commodities looks promising in a decarbonising world. Copper and nickel are needed for electric vehicles and electrification, and potash is a ‘greener’ fertiliser.

Do experts think the BHP share price is an opportunity?

The broker Macquarie certainly does, with an outperform rating. Earlier in September, Macquarie increased its price target on BHP to $42, implying a rise of around 16% from the current level of $36.20. It notes that BHP’s earnings are benefiting from the strong coal prices.

Another broker, Morgan Stanley, is equal-weight on the business, which is like a hold. However, the price target is $43.20 – this implies a possible rise of almost 20%. The broker thinks that some miners look good value and that higher resource prices can help BHP.

However, Credit Suisse is not so convinced, with a price target of $36. That implies no movement over the next year. It is cautious about where copper and iron ore prices could move in the short term. The broker thinks that BHP wants to find an acquisition.

My take on the BHP share price

The last 12 months alone have seen plenty of volatility for the big resources business.

I think it’s great at what it does and, at the right price, I believe it’s worth thinking about because of its ability to make big profits in the good times. The low share price comes when there are shorter-term concerns about commodity prices and demand.

With a solid dividend expected even as profits fall, I think it could be worth owning BHP shares during this period of uncertainty.

The dividend per share estimate on CMC Markets for FY24 is $2.79, which equates to a grossed-up dividend yield of 11% at the current BHP share price. I think BHP’s greener-focused portfolio has a promising future, so I’d be happy to use the current weakness to buy a parcel of shares and consider buying more if it dropped further.

The post Down 14% in a month, what’s next for the BHP share price? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Why BHP, Costa, Link, and Syrah shares are dropping
• Why has the Macquarie share price been thrashed 10% in a fortnight?
• BHP share price dips 4% in miserable Monday for ASX 200 miners
• Why BHP might still have a chance at acquiring OZ Minerals 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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie 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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The price of Bitcoin (CRYPTO: BTC) is treading near its lowest level in the past 12 months. After failing to continue its rebound in August, demand for the weathered crypto asset has waned.

Today, Bitcoin is hovering around US$18,780, down a gut-wrenching 73% from its 52-week high. The harrowing fall has coincided with monetary tightening by central banks around the world. As a result, liquidity for this alternative has evaporated right in front of our eyes.

At the same time, greater scrutiny around proof-of-work (PoW) — Bitcoin’s consensus mechanism — has increased awareness of Ethereum (CRYPTO: ETH) and its recently adopted proof-of-stake (PoS) mechanism. The Ethereum network now uses approximately 99.95% less energy post-merge.

But here’s why I continue to hold Bitcoin… and no, I don’t hate the environment.

Why I still see value in Bitcoin

We have all seen them, the comparisons of Bitcoin’s network energy consumption relative to whole countries.

According to estimates by the University of Cambridge, the network is currently operating on annualised energy consumption of approximately 93 terawatt-hours (TWh). This would put the decentralised blockchain’s consumption roughly on par with all of Pakistan.

Though, I personally don’t consider this a negative if there is something of a corresponding value from it. In this case, the value proposition is a highly secure, immutable, and deflationary form of monetary exchange.

For context, YouTube demands around 244 TWh per year — pictured below — and no one bats an eye. Why is this? Because instant access to a library of content at your fingertips has value… immense value.

In the same way, I believe there is a huge need for a means of exchange that is governed by a decentralised cohort, accessible globally, and eliminates the inequality-inducing economic problem of inflation.

But why not Ethereum? And I agree, Ethereum has great value in its own right — bringing decentralisation to all forms of finances. However, in the process of converting to PoS, I personally believe the network removed an important tangible aspect.

To be fair, Ethereum has implemented some highly sophisticated tech that should maintain network security. However, there is something to be said for a network — such as Bitcoin’s — that is reliant on something that cannot be imitated, created, or destroyed… real and tangible energy.

I’m still in the process of understanding all the intricacies of Ethereum 2.0.

Simple and stable

Speaking of intricacies… another reason why I personally still hold Bitcoin is because of its relatively straightforward concept. As my engineering days taught me: the more parts, the more points of failure.

While Ethereum quite honestly needs to be complex to achieve its goal, a decentralised store of value doesn’t need to be. And, quite frankly, if I’m keeping a large sum of money there, I don’t want it to be either.

Each time a protocol undergoes a change, it presents a risk. Thankfully, Ethereum successfully completed ‘The Merge’ unscathed, but there were likely a few people sweating in the process.

In contrast, Bitcoin rarely makes substantial changes to its foundational code. Personally, this is another reason why I like it as an alternative store of value. It may not be as ‘smart’ as Ethereum, but it sure is reliable.

The post Bitcoin isn’t as ‘smart’ as Ethereum… and that’s why I hold it appeared first on The Motley Fool Australia.

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More reading

• Check out this US stock if you’re worried about crypto and chip shortages
• Soy boy and bitshaming: Here’s your guide to crypto slang
• How will the Ethereum merge impact the Bitcoin price?
• Why Bitcoin, Dogecoin, and Shiba Inu fell this morning
• Spinoff token EthereumPOW price crashes 86% post merge. Here’s why

Motley Fool contributor Mitchell Lawler has positions in Bitcoin and Ethereum. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Ethereum. The Motley Fool Australia has positions in and has recommended Bitcoin and Ethereum. 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.

What happened

Shares of Apple Inc. (NASDAQ: AAPL) climbed higher Monday morning, adding as much as 2.2%. By market close, the stock was still up 0.23%, even as the broader market slipped.

The catalyst that sent the tech giant higher was reporting that it had begun manufacturing some iPhone 14 models in India.

So what

Apple has long produced the vast majority of its iPhones in China. In recent years, however, the company has been working to diversify its manufacturing footprint, while also expanding its market share in India.

The company has been producing a limited number of devices in India for about five years, but assembly has been restricted to older models, including the iPhone SE. Apple global manufacturing partner Foxconn is producing the locally manufactured iPhones, which will be available to customers in India within days.

Apple issued the following statement: “The new iPhone 14 lineup introduces groundbreaking new technologies and important safety capabilities. We’re excited to be manufacturing iPhone 14 in India.”

Now what

There are a number of benefits to further expanding beyond its primary factory. Apple has been working to increase its market share in India, but those efforts have been hampered by lower-cost smartphones from competitors manufactured in that country. By increasing its production capacity in India, Apple could reduce the cost of the device for consumers in the local market, and it could also export iPhones to nearby markets, according to reports.

Apple has also been hampered by government efforts to curb the resurgence of COVID-19 in China, which has resulted in lockdowns and manufacturing delays due to shuttered factories. This has shined a spotlight on a potential weakness in Apple’s supply chain.

In a note to clients earlier this month, J.P. Morgan analysts posited that Apple would likely move 5% of its worldwide production of the iPhone 14 to India by later this year. Furthermore, Apple could make one-quarter of all iPhones in India by 2025, the analysts suggested.

This is a smart move, particularly since the company generates more than half its revenue from the iPhone. Not only will this provide Apple with additional production options, but also help it tap into the world’s second-largest population.

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

The post Why Apple stock rallied Monday appeared first on The Motley Fool Australia.

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More reading

• This stock market investment strategy made money 100% of the time over the last century
• Why is everyone talking about Apple stock?
• Should you really buy Apple stock?
• Where will Apple be in 5 years?
• Why investors found Apple stock tempting today

Danny Vena has positions in Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple. 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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If you’re looking for ASX dividend shares to buy, then you may want to check out the two listed below.

Both have recently been named as buys by analysts. Here’s why they rate them highly this month:

Australia and New Zealand Banking Group Ltd (ASX: ANZ)

The first ASX dividend share for income investors to consider is ANZ Bank.

It is of course one of the big four banks, providing a range of banking and financial products and services to retail, small business, corporate, and institutional clients.

The bank also recently announced an agreement to boost its operations with the acquisition of the banking operations of Suncorp Group Ltd (ASX: SUN) for $4.9 billion. If this deal goes through, it will give the bank’s presence in the Queensland market a significant lift.

According to a note out of Citi, its analysts are positive on the deal. They believe the deal meets a strategic objective at a reasonable price.

In light of this, the broker currently recently put a buy rating and $29.00 price target on the bank’s shares.

As for dividends, the broker is forecasting fully franked dividends of $1.44 per share in FY 2022 and $1.65 per share in FY 2023. Based on the current ANZ share price of $23.04, this will mean yields of 6.3% and 7.2%, respectively.

Charter Hall Retail REIT (ASX: CQR)

Another dividend share to look at is the Charter Hall Retail REIT.

This property company provides investors with exposure to the supermarket anchored neighbourhood and sub-regional shopping centre markets in Australia.

The team at Macquarie are positive on the company. The broker currently has an outperform rating and $4.42 price target on the company’s shares.

Its analysts have been pleased with the company’s recent acquisitions. This includes 18 Gull service stations in New Zealand and 51 Long WALE convenience retail properties leased to Z Energy.

Overall, the broker appears to believe this leaves the Charter Hall Retail REIT well-placed to pay some generous dividends in the near future. It is forecasting dividends per share to 25.7 cents in FY 2023 and 23 cents in FY 2024. Based on the current Charter Hall Retail REIT share price of $3.72, this implies potential yields of 6.9% and 6.2%, respectively.

The post Analysts name 2 ASX dividend shares to buy today appeared first on The Motley Fool Australia.

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More reading

• Does ANZ really have the best profit margins of the big four bank shares?
• Can the ANZ share price stretch higher if interest rates keep rising?
• Here’s why I decided to buy each of the big 4 ASX 200 bank shares
• Looking to buy CBA shares? Here’s how the bank’s balance sheet stacks up
• Top brokers name 3 ASX shares to buy next week

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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Turbulence continues in share markets as investors oscillate between the fear of a recession and buying oversold stocks.

If the rollercoaster is making your stomach churn, it’s best to get back to basics and think long term.

The longer that you stay invested in a stock, the better your portfolio can fight off the effects of the current turbulence and your entry price.

So with this in mind, let’s take a look two ASX shares that Medallion Financial private client advisor Jean-Claude Perrottet this week named as ripe long-term buys:

Innovations and demand driving earnings

Biotechnology giant CSL Limited (ASX: CSL) saw its shares enjoy a nice rally in the middle of this year.

But it’s fallen more than 7% over the past fortnight.

Perrottet told The Bull that this was despite what he thought was a good reporting season update

“Full year results for this blood products company were positive in response to strong demand for flu vaccines, in our view.”

He pointed out how CSL is implementing new technology in the US market, which will cut down plasma donation times by about 30%.

“These innovations should improve the collection process and, as a result, we retain a positive long term view on CSL.”

The majority of Perrottet’s peers agree with him. According to CMC Markets, 13 out of 18 analysts currently rate CSL shares as a buy.

CSL shares closed Monday at $284.81.

Every metric up in reporting season

Similar to CSL, the IDP Education Ltd (ASX: IEL) share price rocketed mid-year, gaining 35% over a six-week period over June and July.

And again, just like CSL, it has been punished in recent times. IDP shares have lost more than 7% over the past week.

Perrottet was a fan of what he saw out of reporting season.

“This global education services provider delivered a strong fiscal year 2022 result,” he said.

“Margins improved by 24.8%, the highest in the company’s history. Revenue grew by 50% on the prior corresponding period, in response to a 45% increase in student placements and a 67% increase in international English language tests.”

The tailwinds from a world moving past COVID-19 restrictions will be significant for the business in the coming period.

“With Australian student placement volumes expected to grow, IDP offers a bright outlook.”

IDP is another favourite among the professional community. Ten out of 12 analysts currently surveyed on CMC Markets rate the stock as a buy, with nine of them saying it’s a strong buy.

The IDP share price closed Monday at $26.81.

The post ‘Long term view’: Expert names 2 punished ASX shares with ‘bright outlook’ appeared first on The Motley Fool Australia.

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More reading

• Why this expert has a ‘positive long-term view’ on the CSL share price
• 2 ASX growth shares that this leading broker rates as buys
• Top brokers name 3 ASX shares to buy next week
• CSL share price tipped to rise 23% by Citi
• Brokers name 3 ASX shares to buy today

Motley Fool contributor Tony Yoo has positions in CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. and Idp Education Pty Ltd. 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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Cyclical businesses sometimes get a bad rap for their inherent volatility.

But if you buy ASX shares in growing businesses that are in cyclical industries, you can still make a reliable long-term investment.

Much like the general stock market, they will be volatile in the shorter term but head upwards in the long run because of their growth.

Experts this week explicitly named two such stocks as buys.

Upside from tight labour market

Seneca investment advisor Arthur Garipoli is recommending online jobs classifieds site SEEK Limited (ASX: SEK).

“This employment and education company reported a good fiscal year 2022 result,” Garipoli told The Bull.

“Revenue from continuing operations was up 47% on the prior corresponding period, while EBITDA grew 53%.”

Unfortunately, the Seek share price has dipped 20% since mid-August.

Garipoli attributed this to the mystery around what the economy might be like once the ongoing interest rate rise is done. 

“The market failed to embrace the good result based on an uncertain macroeconomic outlook.”

But, he added, patient investors will be fine.

“Seek is a cyclical business. The stock offers potential upside on valuation grounds, as a result of a tight domestic labour market.”

Catapult Wealth portfolio manager Tim Haselum last week also mentioned the “tight labour markets” in recommending Seek as a buy.

“The company is investing in its IT systems. Revenue from continuing operations grew by 47% in fiscal year 2022.”

Mineral sands and rare earths to boom

Iluka Resources Limited (ASX: ILU) is in a sector that’s more traditionally thought of as cyclical.

According to Spotee Connect founder Elio D’Amato, the mineral sands miner dished out a “solid interim report”.

“Sales exceeded production, and all at high zircon prices.” 

The coming pipeline is also pleasing.

“The company is expected to start its rutile mill in Western Australia by mid next year,” said D’Amato.

“The Eneabba rare earths refinery will be a new growth engine, following recent approvals and a $1.25 billion non-recourse loan from the Australian government to build it.”

Iluka Resources shares have not taken off like some other resources equities in 2022. The stock is down 11% for the year, after suffering a 15.2% drop over the past fortnight.

That hasn’t stopped Goldman Sachs in agreeing with D’Amato that it’s a buy right now.

“We are positive on Iluka’s project pipeline and forecast >40% production growth in mineral sands volumes,” its notes read.

“We think Iluka’s Eneabba rare earths refinery is a strategic asset considering it will be only the third western world rare earths refinery.”

The post 2 ‘cyclical’ ASX shares about to take off: experts appeared first on The Motley Fool Australia.

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• ‘Offers value’: Experts pick 2 quality ASX shares to buy at a 40% discount
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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 recommended SEEK 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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‘Buy low, sell high’ is a timeless investment axiom, but it’s easier said than done.

After all, if you want to buy ASX shares for cheap, you need to be at least a bit contrarian.

And this means backing a company when it’s friendless among other investors. Buying in at such a time takes genuine courage.

Through all the turbulence seen in share markets in 2022, one of the sectors that investors have abandoned is retail, especially those that sell discretionary products.

The logic is that as interest rates rise, Australians will have less to spend. When people have less cash to burn, the first items they will cut out will be those that are not necessary for survival.

Take City Chic Collective Ltd (ASX: CCX) and Dusk Group Ltd (ASX: DSK) for example. Those ASX shares have dropped a painful 74% and 46% respectively so far this year.

‘Bearish sentiment is at a low ebb’

Earlier this month, Montgomery Investment Management founder Roger Montgomery revealed his fund had reduced its exposure to retail.

“The reasons we are underweight discretionary retail is because they are underperformers in an inflationary environment,” he said on the Montgomery blog.

“Declining house prices represent inescapable quicksand on spending, and if they are growth stocks, their price-to-earnings ratios are vulnerable to further compression.”

But only a couple of weeks later, he thinks there are signs retail stocks may have bottomed.

“The comments we subsequently received pointed out that bearish sentiment is at a low ebb, and reflected in single digit price-to-earnings ratios for even high quality retailers,” Montgomery said this week.

“Those observations are indeed reasonable, and so it now falls on the investor to determine whether positive changes are evident in the world of consumer spending and retail sales.”

Another encouraging sign, according to Montgomery, is that inflation expectations are starting to ease.

“Expectations for the inflation rate for the next 12 months have declined to 4.6% from 4.8% in September,” he said.

“That is the lowest reading in 12 months and the third consecutive decline. The [US] Federal Reserve action on rates is having the desired effect, preventing high current rates of inflation from dangerously feeding into higher expectations for the future.”

Montgomery noted that the inflation expectations for the next five years have dropped to 2.8%, which is the lowest in 14 months.

Consumer health is much better in Australia than elsewhere

In Australia, ‘consumer health’, as measured by Goldman Sachs, is faring much better than in other advanced economies.

“Their consumer health average registers around percentile 35 in the Euro Area and the UK, down from around 50 three months ago… The average stands at around percentile 40 in the US and percentile 50 in Canada, down from 70 three months ago,” said Montgomery.

“On the positive side, their consumer health average sits around percentile 60 in Japan and Australia, down only slightly from around 65 three months ago.”

All this, for Mongtomery, means that Australian retail stocks may be oversold.

“It does look like Australian retail stocks have fallen in sympathy with their overseas counterparts,” he said.

“However, those declines might be undeserved, at least for retailers with no overseas exposure.”

So those very ASX shares that his fund has shunned in recent times could be prime targets now for those seeking to buy at the bottom.

“Single digit price-to-earnings ratios for even high quality Australian retailers could represent a bargain, if the benefits of global store rollouts offset the weaker stats coming out of those foreign domiciles.”

The post Has this ASX sector hit rock bottom? Is it time to buy in? appeared first on The Motley Fool Australia.

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More reading

• I think these 2 cheap ASX shares are buys for value investors
• 8 ASX 200 shares got kicked out of the index on Monday. How are they tracking?
• The ASX 200 is getting a shakeup today. Here’s the tea
• Out in the cold: How are the ASX 200 evictees faring on Monday?
• Here are the 10 most shorted ASX shares

Motley Fool contributor Tony Yoo has positions in Dusk Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. The Motley Fool Australia has recommended Dusk 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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On Monday, the S&P/ASX 200 Index (ASX: XJO) once again started the week in a disappointing fashion. The benchmark index fell 1.6% to 6,469.4 points.

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

ASX 200 expected to rebound

The Australian share market is expected to rebound on Tuesday despite a poor start to the week on Wall Street. According to the latest SPI futures, the ASX 200 is poised to open the day 31 points or 0.5% higher. In the United States, the Dow Jones fell 1.1%, the S&P 500 was down 1%, and the NASDAQ dropped 0.6%. The S&P 500 closed at its lowest level in 2022.

Oil prices fall again

It could be a tough day for energy shares including Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) after oil prices dropped again overnight. According to Bloomberg, the WTI crude oil price is down 2.3% to US$76.87 a barrel and the Brent crude oil price has fallen 2.3% to US$84.18 a barrel. A strong dollar and recession fears weighed on prices.

Dividends being paid

A number of popular ASX 200 shares are paying their shareholders their latest dividends on Tuesday. This includes energy company AGL Energy Limited (ASX: AGL), electronic design software provider Altium Limited (ASX: ALU), and supermarket giant Woolworths Group Ltd (ASX: WOW). The latter is paying its shareholders a fully franked 53 cents per share dividend.

Miners on watch

Beaten down mining giants BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) will be on watch today after their US listed shares dropped into the red again on Wall Street overnight. This appears to have been driven by a combination of recession fears and iron ore price weakness. In respect to the latter, according to Metal Bulletin, the benchmark iron ore price fell 3.5% to US$96.05 a tonne.

Gold price continues to slide

Gold miners such as Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) could have a difficult day after the gold price continued to slide overnight. According to CNBC, the spot gold price is down 1.4% to US$1,632.6 an ounce. The gold price is now trading at a two and a half year low.

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

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More reading

• Despite all the recent noise, is it business as usual for AGL shares?
• Here are the top 10 ASX 200 shares today
• Why is the Woolworths share price having such a stellar run on Monday?
• Why BHP, Costa, Link, and Syrah shares are dropping
• Why Altium, Greenwing, Superloop, and Universal Store shares are racing 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 Altium. 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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