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By now, most investors would be aware of just how brutal 2022 has been for ASX shares and the share market. Since the start of the year, the S&P/ASX 200 Index (ASX: XJO) has lost a nasty 10.55%. But many ASX shares have lost more than that. So in these dark days, what better time to turn to the teachings of one of the greatest investors of all time: Warren Buffett.

Warren Buffett, of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) fame, may be in his 90s but his investing philosophy is still undeniably and timelessly potent. So let’s discuss three pieces of Buffett wisdom that I think can help investors steer the ship through the rough seas of 2022.

3 doses of Warren Buffett wisdom that we all need right now

Take advantage of volatility

Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get’. Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

Buffett often speaks of his bafflement that investors seem to panic when shares are cheap, rather than treating a selloff like the Boxing Day sales. At the end of the day, the cheaper you can buy a quality company’s shares, the greater your returns will be.

Many of Buffett’s most lucrative buys have been executed during market crashes. If you are happy buying a quality company for $100 a share when investors are in an optimistic mood, then you should be overjoyed if a market crash sends that same company down 50%.

Obviously, there are caveats to this. We should be far warier if investors are sending a company down for a very good reason, for example. But remember that Buffett’s favourite time to buy is when everyone else is selling.

Buffett buys the company, not the trend

The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.

I see this time and time again in the share market. Investors can make the assumption that if a company is part of a successful industry or emerging trend, then its shares are somehow automatically destined for greatness.

We all saw this play out, for example, in the buy now, pay later (BNPL) space in recent years. Yes, we all know that BNPL grew phenomenally as a preferred payment method. And yet, it seems investors were convinced for a while there that all BNPL shares were worthy of massive share price appreciation.

The sector has now come back to earth. And, arguably, exposed this fad for what it was in the process. It turns out that most BNPL shares didn’t have anything close to what Buffett would call a competitive advantage.

Fads come and go all the time in the world of investing. So it might pay off to make sure any company you buy adheres to this piece of Buffett wisdom.

Forget the crowd

The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.

We can all be guilty of obsessing over the day-to-day gyrations of the share market: the ASX 200 is up 1% one day, down 0.5% the next. But all we are doing here is reporting on what the ‘crowd’ is doing. Buffett is famous for not worrying about the daily moves of shares.

Instead, he is always focused on what he can buy for a bargain. Following the crowd will, at best, get you a market return and, at worst, woeful underperformance. If we instead focus on what the crowd is missing, only then can we hope to beat it.

The post 3 doses of Warren Buffett wisdom I think all ASX investors need right now appeared first on The Motley Fool Australia.

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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 Novonix Ltd (ASX: NVX) share price is continuing its long slide into the red this year, currently trading at near record lows.

Shares in the battery materials and technology company are fetching $2.09 apiece at the time of writing, the same as yesterday’s closing price.

After reaching highs of $12.15 per share back in December 2021, Novonix shares have seen a dramatic fall.

Investors have continued the selling pressure amid a weaker macroeconomic outlook and a shift in capital flows away from unprofitable, growth-type names to more profitable companies.

Concerns for Novonix’s cash flows

Last month, the company posted its annual report to shareholders.

In what was a record year for the price of lithium, and the global electric vehicle/lithium-ion battery industry as a whole, Novonix printed a substantial loss after tax of $71 million, coupled with around a $40 million net outflow in cash from operations.

Just for the record, in 2021, Novonix recognised a net loss of $18 million and cash outflow of $8.17 million. The company reported revenue of $8.4 million in FY22, up from $5 million year on year.

In light of this, the company’s auditors, PriceWaterhouseCoopers (PWC), noted a “material uncertainty” related to Novonix as a going concern.

Specifically, the auditor says that it “draw[s] attention to Note 1 in the financial report, which indicates that the group incurred a net loss of $71.4 million and net operating cash outflows of $40.35 million during the year ended 30 June 2022”.

Alas, Novonix “remains dependent upon raising additional funding to finance its ongoing expansionary activities”, PWC says.

These conditions, along with other matters set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Where did this stem from?

Digging a little deeper, it’s abundantly clear where the cash was spent in 2022.

Firstly, Novonix bought securities in US battery tech company KORE Power, Inc. in January, acquiring around 5% of the company for a $35.1 million cash and scrip consideration.

However, the company booked a ‘fair value’ loss of around $11 million on this position on its income statement, despite no cash actually leaving its bank account for the ‘expense’.

In addition, Novonix also increased its compensation to key management personnel by 224% year on year to $21.45 million, up from $6.6 million.

It could be seen as a curious move considering the company’s substantially wider net loss last financial year.

Indeed, the share-based compensation expense (and the increased payment to managers) and fair value loss are the largest expense items on Novonix’s FY22 income statement.

Combined, $31.15 million of shareholder capital was spent on these two items that, on face value, have little relation to the company’s operations. That’s not to mention the $35 million Novonix spent in acquiring the KORE position in the first place.

As well, of the $40 million net loss in cash from operations, the company booked $9 million in cash receipts from its customers but paid out $52.8 million in cash payments to suppliers and employees.

What’s the prognosis?

It’s certainly not uncommon for growth companies to churn through capital as they expand and reinvest heavily back into their operations.

Novonix has a plan to reach a production capacity of 40,000 tonnes of battery materials by FY25. To get there, significant capital investment and expenditure will be needed to finance the growth — certainly more than the company’s current cash balance.

Plus, with no profitability reaching the bottom line and cash payments outpacing receipts, the company can only proceed so far before it needs to raise additional cash.

That’s been the story of the past decade in equities. However, as we’ve seen in 2022, the tides are shifting.

Investors are no longer focused on rewarding revenue and sales growth but are instead constructive on bottom-line fundamentals such as earnings, cash receipts, and free cash flow.

So, with Novonix awarding its key managers an additional $16 million amid the net loss blowout of more than $53 million, plus the $31.5 million KORE investment that, after the 11% fair value drop, would now be marked at $28.4 million, it does start to raise questions on management’s budgeting strategy.

Thankfully, the company has a strong track record of raising cash. Its top 20 shareholders on the register are largely comprised of institutional investors and investment banks.

With Novonix now “dependant” on raising additional capital, so PWC says, this could risk additional growth ventures and hamper the company’s ability to build out operations.

As we’ve seen this year, investors will only put up with unprofitable growth stories for so long until factors impacting the wider economy become too big to ignore.

Meanwhile, the Novonix share price has slipped more than 66% into the red these past 12 months, losing more than 77% in 2022 alone.

The post Could this be a red flag or false alarm for Novonix shares? appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today

Motley Fool contributor Zach Bristow 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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ASX lithium stocks have been among the top performers over the past year, amid soaring prices for the lightweight, conductive metal.

Ragusa Minerals Ltd (ASX: RAS) is no exception.

And the microcap ASX lithium stock is charging higher again today.

Shares were up more than 36% in earlier trading and are currently up 16.3%, at 29 cents per share.

So, what’s piquing investor interest on Tuesday?

ASX lithium stock surges on tenement grant

Did someone say lithium?

The Ragusa Minerals share price is soaring after the explorer reported that its NT Lithium Project tenement has been granted by the Northern Territory’s Mineral Titles office.

The tenement, EL33150, is part of the company’s NT Lithium Project, located near Darwin. The tenement was granted for a period of six years.

The ASX lithium stock’s project area hosts hard rock lithium prospects, within the Litchfield Pegmatite Belt.

Commenting on the progress, Ragusa chair Jerko Zuvela said:

The company’s strategic and highly prospective NT Lithium Project – with high grade historical and confirmatory lithium sample results, approved MMP for drilling commencing soon, and now contains five granted tenements.

This is another very positive milestone that puts Ragusa in a strong position to rapidly accelerate the development of our project within a proven high-quality lithium district.

Zuvela added that the ASX lithium stock will make use of its exploration and development experience to “rapidly progress” the project to “realise the massive upside value potential in a Tier 1 jurisdiction close to major infrastructure at a time of record lithium prices.”

Two additional tenement applications within the project area are currently being processed by the NT Mineral Titles office.

Ragusa Mineral share price snapshot

As mentioned up top, ASX lithium stocks have broadly been rocketing this year.

As for Ragusa Mining, shares are now up an eye-popping 256% in 2022. That compares to a year-to-date loss of 12% posted by the All Ordinaries Index (ASX: XAO).

The post Guess which ASX lithium stock just rocketed 36% on ‘another very positive milestone’ appeared first on The Motley Fool Australia.

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

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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.

This year has been challenging for investors, with the S&P 500 and the Nasdaq Composite indexes slipping into bear markets. Persistent inflation and rising interest rates have taken center stage, dragging down nearly all asset classes.

A bear market can be a scary time for investors. Nobody likes seeing their portfolio going down. However, at times like this, it helps to think like Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett.

Buffett achieved his (and Berkshire’s) decades-long success by thinking about the long term and owning companies (or stocks in companies) for years or even decades. you would do well to follow his investing techniques and focus on quality companies, building up your positions slowly rather than trying to time a market bottom. Bear markets offer opportunities to buy stocks at discounted prices, and two Buffett stocks you could invest $1,000 in today that trade at a discount are Visa Inc. (NYSE: V) and Ally Financial (NYSE: ALLY). Let’s take a look at why these two Buffett stocks are great long-term investing options.

1. Visa

Visa helps people in more than 200 countries move their money via debit cards, credit cards, and other payment products. Nearly 49% of American adults had a Visa card as of 2020, while about 39% have a Mastercard Incorporated (NYSE: MA) and 15% have an American Express Company (NYSE: AXP). This gives Visa a sizable lead in the payment-processing space: In 2020, the company processed a total volume of $11.4 billion, outpacing Mastercard and American Express, which processed $6.3 billion and $1 billion, respectively.  

The payment company has a sizable lead over the competition because of its widely accepted cards. Not only that, but Visa continues to innovate and expand its offerings to stay ahead of the competition.

Its business model is relatively asset-light, meaning the company doesn’t need to invest much of its capital in assets. As a result, Visa has very high profit margins, averaging 44% over the past decade. It’s also a money-making machine, generating over $16 billion in free cash flow over the past year. The company can use this cash to make acquisitions, pay dividends, or buy back its stock.

Data by YCharts.

Visa stock has performed well, and in the first nine months of its fiscal year, its net revenue was up 22.6%, and net income grew by 26%. The company keeps performing despite high levels of inflation, which CEO Al Kelly has said, “net-net, historically, inflation has been a positive for us.” Because the company earns fees as a percentage of payment volume, rising costs of goods and services increase transaction size, helping Visa rake in more fee income.  

Visa’s long-term prospects look bright. According to a study by BlueWeave Consulting, the global digital payment marketplace will grow 12% annually through 2028. However, it does face increasing competition from the likes of PayPal Holdings, Inc. (NYSE: PYPL) and major banks from their money transfer service, Zelle.

To protect its top spot, Visa has acquired fintech partners that enhance its existing business. It looked to break into the open banking space by buying Plaid for $5.3 billion in 2020. However, regulators shot down the deal, and Visa instead acquired Tink for $2.1 billion, an open banking network in Europe.

Open banking could be the future of finance. According to Allied Market Research, the open banking market allows nonbank companies to build financial products and is projected to grow at 22% annually through 2032. By acquiring Tink and staying one step ahead of the competition, Visa is in an excellent position to continue delivering for its investors.

2. Ally Financial

Ally Financial is an all-digital consumer bank that specializes in automotive lending. Warren Buffett increased Berkshire’s stake in the bank in the second quarter by buying 21 million shares. Berkshire’s $1 billion stake gives Buffett and Berkshire over 9% ownership in the bank. Ally Financial trades at a low valuation, and its price-to-tangible-book-value ratio of just 0.93 is likely one reason Buffett upped Berkshire’s stake.

The bank benefited from shortages in used cars in the past couple of years, which increased the costs of used vehicles. In the second quarter, the bank originated $13.3 billion in auto loans, its highest quarter of originations since 2006.  

Ally also benefited from higher interest rates. The Federal Reserve has raised its federal funds rate from near 0% to 2.5% since March, pushing funding costs up for all loans. Ally’s net interest margin, the difference between the interest it earns on its loans and the interest it pays on deposits, improved from 3.55% last year to over 4% in the second quarter.  

Ally Bank has benefited from being one of the first all-digital banks, with its deposit customers growing 20% annually since it was founded in 2009. According to Allied Market Research, the digital banking market is forecast to grow at 13.6% annually through 2027. Ally believes its purpose-driven culture will help it continue to grow in the digital banking space. This, coupled with the bank’s growing suite of products like Ally Invest, its brokerage product, and Ally Lending, should provide it with multiple avenues of growth in the coming years.

Another thing to like about Ally is how much cash it returns to its shareholders. This year the bank has spent $1.2 billion buying back its stock and paid out another $259 million in dividends. Ally stock trades below book value, giving the stock a good margin for safety, and its dividend yield of 3.56% makes it a solid investment for those looking for passive income.

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

The post Got $1,000? 2 top Warren Buffett stocks to buy for the long term appeared first on The Motley Fool Australia.

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• Which of these Warren Buffett stocks is the better buy?
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• Should you buy stocks now or wait? Here’s Warren Buffett’s advice

Ally is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Courtney Carlsen 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 Mastercard, PayPal Holdings, and Visa. The Motley Fool Australia has recommended Mastercard and PayPal Holdings. 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 NextDC Ltd (ASX: NXT) share price dropped to a 52-week low of $9.44 this morning before rebounding slightly.

This means the data centre operator’s shares are now down 26% since the start of the year.

Where next for the NextDC share price?

While it is difficult to say where the NextDC share price will go in the immediate term, it is worth noting that several brokers see major upside potential over the next 12 months.

For example, a recent note out of Goldman Sachs reveals that its analysts have a conviction buy rating and $14.30 price target on the company’s shares.

Based on the latest NextDC share price, this implies huge potential upside of 50% for investors over the next 12 months.

Goldman Sachs was pleased with NextDC’s performance in FY 2022 and guidance for the year ahead. It commented:

NXT reported a solid FY22 result, with revenue/EBITDA -1% vs. GSe, but within/above its upgraded guidance range. Positively FY23 Rev/EBITDA guidance for +19%/+15% growth was provided, which was +1% vs. Gse.

We revise NXT FY23-24 EBITDA +2%/+0% given stronger yields, offset by higher costs. Our 12m TP is +1% to $14.30. Stay Buy (on CL) ahead of the acceleration in growth following S3/M3 openings and supply chain normalization.

What else?

Analysts at Morgans are similarly positive on the NextDC share price. They currently have an add rating and $13.30 price target on the company’s shares.

Morgans commented:

Structural demand for cloud and colocation remains incredibly strong. NXT’s new S3 and M3 data centres go live shortly and this should result in significant new customer wins over the next six months (including CSP options being exercised). Sales should drive the share price higher. NXT looks comfortably on-track to generate over $300m of EBITDA in the next three to five years.

Finally, the team at Citi currently has a buy rating and $12.90 price target on NextDC’s shares. It explained:

We see the pick-up in Enterprise/Retail bookings as positive for both yield and the potential for higher power costs to accelerate the shift to co-location datacenters. Further, while NXT has not quantified it, the increase in hyperscale options backlog underpins our medium-term earnings.

However, with customer deployments being impacted by supply chain issues, we lower FY24e EBITDA by -3% and target price by -8% to $12.90 to reflect slower billing ramp. Update on the Asian expansion represents the next catalyst, with NXT pointing to an organic build as its preferred option. With ~$1.9 billion in liquidity, we see NXT as having ample capacity to fund an organic DC build in Asia.

All in all, these brokers appear to see the NextDC share price as a bit of a steal at its 52-week low.

The post NextDC share price hits 52-week low: Is it a bargain buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in NEXTDC Limited. 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 NIB Holdings Ltd (ASX: NHF) share price is edging slightly lower today following the company’s latest cash giveback.

At the time of writing, the private health insurance giant’s shares are swapping hands at $7.77, down 0.77%.

NIB returns additional savings to members

Investors are sending NIB shares into negative territory despite the S&P/ASX 200 Index (ASX: XJO) climbing today.

For context, the ASX 200 Index is up 1.11% to 6,794.4 points after Wall Street recorded strong gains overnight.

In its release, NIB advised it is returning an additional $40 million in health insurance claims savings to its members. This brings the total amount of support provided by the business since the start of the pandemic to roughly $145 million.

Last year, the company provided $15 million in a one-off COVID credit, reflecting claims savings made during that year. The credit was applied as a discount to premium payments from September 6 2021.

The latest cash back funds will be deposited into customers’ bank accounts by 30 November 2022.

However, the financial package is dependent on the policy and level of cover.

For members with Hospital and Extras combined policies, they will receive on average about $71.

For those with hospital only policies or extras only policies, they’ll get approximately $47 or $15, respectively.

NIB managing director, Mark Fitzgibbon commented:

The give back is in recognition of members’ reduced ability to access healthcare services during the COVID-19 pandemic.

We saw a significant reduction in hospital and healthcare treatment.

To date, the volume of catch up in claims has been lower and slower than expected, which is why we’re able to return a further $40 million to our members.

NIB share price summary

Over the last 12 months, the NIB share price has travelled 15% higher despite the recent market volatility.

In comparison, the benchmark ASX 200 index has fallen by 6% over the same time frame.

Based on today’s price, NIB presides a market capitalisation of roughly $3.57 billion.

The post Why is the NIB share price edging lower on Tuesday? appeared first on The Motley Fool Australia.

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• Why has the NIB share price leapt 14% in a month?
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Motley Fool contributor Aaron Teboneras has positions in NIB Holdings Limited. 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 NIB Holdings 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 Zenith Minerals Ltd (ASX: ZNC) share price is having a stellar day after returning from a trading halt.

In afternoon trade, the lithium explorer’s shares are up 12% to 33 cents.

Why is the Zenith Minerals share price surging higher?

Investors have been bidding the Zenith Minerals share price higher today after the company released drilling results from the Split Rocks project in Western Australia. This project is part of the Zenith Lithium Joint Venture with EV Metals Group.

According to the release, step-out drilling to establish the extent of lithium mineralisation in the northern part of the Split Rocks project has been a success.

Lithium mineralisation has now been outlined over >1200m of strike, remaining open to the north, south, east and at depth. Of the 22 holes drilled to date, 15 have either ended in pegmatite or are deemed to be too short to fully test the target zone.

What’s next?

Zenith advised that exploration will now be accelerated with the addition of a diamond drill rig that will enable testing of the full thickness of the lithium pegmatite target zone.

The company also advised that it has now received permits for a further 84 reverse circulation (RC) and 84 diamond holes, with its joint venture partner, EV Metals, approving the budget for a further 60 RC and 10 diamond holes that are aimed at initially defining the size of the Rio Pegmatite system.

Zenith’s managing director, Michael Clifford, was delighted with the results. He said:

I am delighted to report on lithium exploration success at the Split Rocks project. New results from an initial 22 holes, that are part of an ongoing follow-up drill campaign, confirms we are onto a very significant lithium mineralised pegmatite.

RC drilling over the past 6 weeks has been slower than planned, impacted by frequent high-rainfall events which necessitated moving the rig away from the Rio prospect to more accessible areas. The plan is to now accelerate drilling at Rio with a clear runway of greater than 160 permitted holes ahead of us. The RC rig will focus on 400m spaced step-out sections, working our way south, whilst a diamond drill rig explores the eastern and depth extents of the system.

The post Guess which tiny ASX mining share is soaring 12% on a major lithium discovery appeared first on The Motley Fool Australia.

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• 3 little-known ASX lithium shares that rocketed today

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

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The New Hope Corporation Limited (ASX: NHC) share price is launching higher on Tuesday after the company revealed a monster dividend offering.

The S&P/ASX 200 Index (ASX: XJO) coal giant will hand investors a 31-cent final dividend for financial year 2022 – up a whopping 343% from last year’s 7-cent final dividend.

And that’s not all. It will also provide a 25-cent per share special dividend.

Together, the payouts will see those invested in New Hope shares receiving 700% more than they did at the same time last year.

Perhaps unsurprisingly, the New Hope share price is rejoicing on the news. It’s currently trading at $5.78, 5.86% higher than its previous close.

Though, earlier today it hit a new 52-week high of $5.91, representing an 8% gain.

Let’s take a closer look at all the details of New Hope’s latest dividend offering.

All investors need to know about the New Hope dividend

Record coal sales in financial year 2022 led New Hope to declare a record dividend payout – totalling a whopping 56 cents per share.

Combined with the 30 cents the company handed investors in April – made up of a 17-cent interim dividend and a 13-cent special dividend – New Hope will have paid out 86 cents per share for financial year 2022.

That leaves it trading with a 14.87% dividend yield, placing it among the S&P/ASX 200 Index (ASX: XJO)’s highest-dividend yielding shares right now.

On top of that, both of the company’s newly announced offerings will come fully franked. That means they could bring about additional benefits for some investors come tax time.

And those interested in snapping up stock in the company for its upcoming dividend have a while to do so. New Hope shares will trade ex-dividend on 24 October.

Market watchers have until then to buy into the company and still receive the payout, which will be handed out on 8 November.

The post Everything you need to know about the monster New Hope dividend appeared first on The Motley Fool Australia.

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More reading

• New Hope share price leaps 8% as profit skyrockets
• 3 ASX energy stocks up more than 100% so far this year
• 5 ASX energy shares powering portfolios with the highest dividend yields
• Here are the top 10 ASX 200 shares today
• Why are ASX 200 coal shares breaking records yet again?

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 Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is off to a good start on Tuesday morning.

At the time of writing, the ASX bank share is up 1.1% at $23.82 a share, despite taking a hit across the past 12 months.

Now, with the interest rates cycle shifting to a new regime, the question is: what does this mean for the bank and its share price?

Are surging interest rates good for ANZ?

Since it began its monetary tightening policies earlier this year, the Reserve Bank of Australia (RBA) has outlined its commitment to stamp out inflation.

In May, it announced the first of five jumps to the cash rate, lifting it from a record low 0.10% to its current level of 2.35%.

While the rate is still relatively low — during 2012, it was at 4.25% — it is the substantial increase from such a low base that is relevant.

Banks have been quick to pass on the jump in base rates to customers via the various interest-bearing products they sell – in particular, mortgages.

Indeed, the surge in rates is typically viewed as a net positive for banks, such as ANZ, as it widens their net interest margins (NIMs) and net interest income (NII) they receive on loaned funds.

It’s simple – higher interest rates equals more NII to banks, given the higher mortgage payments borrowers must now make.

Therefore, investors would typically back the banking majors in times such as these as, theoretically, this is the banking sector’s time to shine.

Not all as it seems

Despite that theory, however, we have to look at real-world data. As it stands, Australia’s mortgage market is heavily saturated and very concentrated.

In 2021, for instance, the 10 largest mortgage providers in Australia made up more than 91% of the entire market.

In a speech to the Australian Financial Review Property Summit 2022 yesterday, head of domestic markets at the RBA Jonathan Kearns noted that commercial interest rates have ratcheted up alongside the cash rate.

Given this 225 basis point increase in the cash rate has been fully passed through to mortgage interest rates, it will have reduced borrowers’ maximum loan size by around 20%.

[T]he decrease in borrowing capacity is even larger for prospective borrowers who have existing debt, such as property investors.

In other words, the increase in interest rates impacts a borrower’s maximum loan size and their ability to service the repayments.

“Unsurprisingly, because higher interest rates reduce borrowing capacity and increase loan repayments, they typically result in a decline in new housing borrowing,” Kearns also remarked.

Undoubtedly, this offsets the perceived gains to ANZ, and other banks, through higher interest payments.

As such, it’s not as clear-cut as it seems. If we go by what Kearns says, then it’s understandable the ANZ share price has underperformed this year, despite expectations of the opposite.

ANZ share price snapshot

Shares in ANZ remain down almost 13% year to date and 11.6% lower over the past 12 months.

Meantime, the S&P/ASX 200 Financials Index (ASX: XFJ) is down 5.7% and 6.3% respectively over the same time frames.

ANZ has a current market capitalisation of around $71 billion.

The post Can the ANZ share price stretch higher if interest rates keep rising? appeared first on The Motley Fool Australia.

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More reading

• 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
• Why has the ANZ share price been outperforming the ASX 200 this week?
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Zach Bristow 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 Galileo Mining Ltd (ASX: GAL) share price is up 1.3%, after earlier posting gains of more than 8%.

Galileo Mining shares closed yesterday trading for $1.20 and are currently trading for $1.22 apiece.

So, what’s driving investor interest in the ASX resource explorer?

What’s piquing ASX investor interest today?

The Galileo Mining share price is marching higher after the miner reported new high grade assay results.

The assays come from Galileo’s ongoing reverse circulation (RC) drill campaign at its Callisto palladium-platinum-gold-rhodium-copper-nickel discovery. Callisto is situated within Galileo’s 100% owned Norseman project, located in Western Australia.

According to the release, the latest assays confirm consistent high grade palladium mineralisation at the discovery. The drill holes also intersected platinum and gold.

Galileo has now completed 8,600 metres of RC drilling and 1,400 metres of diamond drilling in the ongoing exploration campaign. The company is awaiting assays on all the diamond drill holes, which include a massive sulphide intersection. It expects the first diamond core drill assays within four weeks.

Commenting on the results that are driving the Galileo Mining share price higher today, managing director Brad Underwood said:

Assay results from a further four drill holes each returned consistent palladium grades over greater than 20 metre thickness with every palladium zone accompanied by platinum, gold, copper, and nickel.

We are also seeing copper and nickel zones in [drill hole] NRC299 above 0.6% and 0.5% respectively. This is a great sign for the potential development of even higher-grade zones particularly where we have previously encountered massive sulphides.

The miner has an RC rig and a diamond rig continuing to drill at the Callisto discovery.

“We have a lot to learn about the overall mineralised system and the opportunities that may present themselves as we continue with our large-scale drill campaigns,” Underwood said.

Galileo Mining share price snapshot

The Galileo Mining share price has been a stellar performer this year, up a whopping 439%. And that’s in a calendar year that’s seen the All Ordinaries Index (ASX: XAO) fall by 11%.

The post Why is the Galileo Mining share price marching higher on Tuesday? appeared first on The Motley Fool Australia.

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More reading

• Up 500% since May, can the Galileo Mining share price keep shooting for the stars?
• Expert names 2 ASX shares to buy for ‘extended, uninterrupted’ good times

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

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