It’s a relief to see the market bounce strongly today but there are three stocks in particular that have caught the eye of analysts at major investment banks.
These stocks represent some of the best buying opportunities in the market even though two of the three have been under duress for the past six months.
Goldman Sachs has added business standards and auditing company SAI Global Limited (ASX: SAI) to its Australian small and mid-cap focus list, while Credit Suisse selected graphite miner Syrah Resources Ltd (ASX: SYR) and investment bank Macquarie Group Ltd (ASX: MQG) for its top buys list.
The inclusion into Goldman Sachs’ list is a strong endorsement for SAI’s new chief executive, Peter Mullins, who took up the top job in November.
Shareholders will be looking to him to turn the fortunes of SAI after a turbulent year that was marked by failed takeover bids for parts of the company. The stock shot up to $5.20 in June last year before shedding a quarter of its market value when it became clear that SAI was unable to consummate a deal.
However, the stock may have overshot to the downside, particularly given that analysts are expecting net profit to grow over 20% in two years to around $55 million in 2015-16. This puts the stock on an undemanding forecast price-earnings multiple of around 15 times and yield of 5% for that year.
By coincidence Syrah Resources may also have been subjected to the same “boom-bust” mentality that goes with the deflating of takeover speculation.
It was rumored that mining giant Glencore was running the ruler over the $550 million market cap company last year but the market subsequently dismissed the speculation, which triggered a 41% slide in its share price.
This is an opportunity, according to Credit Suisse. The broker likes its high quality graphite with the miner producing what has been described by Japanese clients as superior to current available stocks. Graphite is used primarily in batteries.
Meanwhile, Macquarie’s better than expected guidance of a 10% to 20% increase in profit for 2014-15 has sent the stock jumping around 8% this week to $59.55.
The weaker Australian dollar and improving trading conditions have provided an earnings tailwind but Credit Suisse also likes the stock for its lack of regulatory, political and litigation risks – which is more than what can be said for rival investment banks.
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Motley Fool contributor Brendon Lau does not own any stocks listed in the article.