FY23 is over…
And what a gruelling and testing financial year it has been for investors!
Inflation, interest rates, and fear of recession have dominated discussion all year long. A non-stop barrage that has built a wall of worry around markets.
Yet, despite the rhetoric, the overall market has done better than you might think.
We’re certainly not back to peak 2021 boom levels, but we’re not far off either.
Underneath it all though, there has been a dramatic rotation of winners and losers.
Local tech stocks have crumbled compared to their pandemic highs. And while some have tried to emulate the success of their US peers, it’s far harder without the reach that those global firms have.
For example, Apple became the first public company to be valued at US$3 trillion over the weekend, a milestone that exemplifies the overperformance of mega-cap tech stocks in the US.
I mean, the stock is up 37% over the past year.
That is simply unreal for a company that is as large as Apple is.
It begs the question, is big tech a big bubble in the US?
Maybe, to a certain degree.
But don’t count on a repeat of the dotcom bust. Because as frothy as US tech may be, most of them are still making profits hand over fist.
Profit hunting Down Under
Circling back to local markets, investors deserve to feel a little peeved.
We’re in a similar spot economically to the US, we just don’t have the luxury of five companies lifting the rest of the market. Instead, our usual profit powerhouses — the banks and big miners — have delivered only modest gains.
So, should you give up on the ASX and go all-in on the NASDAQ?
Absolutely not.
Because as tempting as big tech may be, I think Aussie investors should be optimistic about local stocks. There are a lot of bargains on the market right now, and a whole lot more value in Aus relative to the US.
Of course, not every single stock fits this bill, but there are more hidden gems than you might think.
It just takes a little effort to find them, mostly because they’ve been dragged down by everything else.
The exact opposite of US markets…
Take Pepper Money [ASX:PPM], for example.
This $620 million market cap stock has been stuck on the market rollercoaster all year. And despite being up 11.9% for FY23, it should probably be trading even higher.
That’s because if you look beyond share price volatility, the fundamentals of this business are pretty fantastic.
Take a look at the following chart and data:
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| Source: Market Screener |
Sales continue to grow and are forecast to keep growing.
Earnings are expected to remain stable for FY23 and bounce back in FY24 and FY25. And net income will do the same.
For a company that specialises in consumer loans and mortgages, that’s a decent outlook, particularly as most analysts are pretty sour on the sector with interest rates as high as they are.
But that’s not all…
Great value can deliver great income
The real cherry on top for Pepper investors is its dividend, in my view. Just look at the yield forecasts for yourself:
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| Source: Market Screener |
For a small-cap stock with solid fundamentals, this is the real standout. It’s the kind of passive income that can turn a good investment into a fantastic investment.
And Pepper isn’t the only example out there on the ASX.
There are dozens of these unloved and undervalued stocks to be found. Businesses that have solid foundations that reward loyal investors.
As our own investment director, Greg Canavan, puts it:
‘You go for stocks that give you the opportunity for price appreciation, like the ones above. But that also REWARD your risk with regular dividend payments.
‘Ideally ones in the 6% to 10% range.’
This is the ideal target to get you started on your FY24 investments.
Because as Greg knows all too well, income is the name of the game right now.
You can read all about why that is the case, right here.
It truly is a simple scenario, at least in theory. Like I said though, the real challenge is finding the best picks amidst a sea of mediocrity.
Again, that’s where Greg can help.
He has identified six of the best dividend picks the ASX has to offer right now. Stocks that not only have a solid chance to increase their share price, but also deliver regular income as well.
Do yourself a favour to kick off the new financial year and check them out for yourself by clicking here.
After all, you’ll be hard-pressed to find a better investment angle right now.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
