Top brokers weigh in on 3 top stocks

Most investors look out for the changing ratings of popular brokers to signal buy, hold or sell opportunities in their portfolio.

These 3 stocks are on these major broker’s minds this Monday morning.

BHP Billiton Limited (ASX: BHP)

Morgan Stanley has rated BHP as overweight after the release of disappointing March quarter production results with only copper meeting the broker’s forecasts for the diversified natural resources company.

Shares in BHP have rallied up since the release of the results, in line with its 12-month share price chart which has been trending upwards steadily despite the company cutting its FY18 iron ore output forecast due to reliability issues with its car dumpers.

The Morgan Stanley broker has been concerned about slow progress at the Olympic Dam site but expects the rail car dumper issue to have little impact on earnings, nonetheless.

According to the broker, the sale of US shale assets is the key near-term valuation driver for BHP, with first bids expected in June and the sale tipped to boost BHP’s investment capacity and capital management.

BHP shares were up 1% to $31.19 at the time of writing with the Morgan Stanley broker retaining a $34.25 target on the stock.

Challenger Ltd (ASX: CGF)

Morgans has placed a hold rating on Challenger Ltd after the release of March quarter annuity sales that showed a drop of 13%, with weakness over the same segment also noted for competing fund managers Perpetual Limited (ASX: PPT) and AMP Limited (ASX: AMP) which both bottomed out at 52-week lows this month.

Challenger shares have been on a downturn since late 2017, but rebounded slightly during April 20 trade, finishing up 1.8% at $10.98.

Challenger shares are down 1.7% at the time of writing to $10.79.

The Morgans broker thinks Challenger has good long-term value, with a “strong organic growth profile”, and considers the stock fair value for buy-ins at its current price, reducing price targets from $12.03 to $11.75.

Challenger reported growth of 3% for March quarter assets under management, but total life sales were down 13% on the previous corresponding period to $1.1 billion.

South32 Ltd (ASX: S32)

Citigroup has placed a neutral rating on South32 Ltd in the wake of mixed results out of its March quarter production update which saw the Citi broker upgrade medium-term EPS forecasts by 12% to 15%.

The diversified miner was one of the biggest movers on the S&P/ASX 200 late last week, with shares closing up 1.2% on April 20 to $3.93 and prices up 0.8% to $3.96 at the time of writing.

The South32 rally was likely due to a surge in metal prices which most aluminium and nickel players reaped the benefits of and while the Citi broker believes South32 has limited growth opportunities in its existing portfolio its strong balance sheet should signal solid returns for shareholders.

Base metal prices may have turned south again with the nickel price down 1.3% after last Wednesday’s 7.5% upsurge and possible price dips in the next 12-months attributed to potential oversupply issues.

Citi has upped its price target on South32 from $3.40 to $3.80.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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