Top broker says buy A2 Milk Company Ltd (ASX:A2M) shares

The A2 Milk Company Ltd (ASX: A2M) share price has bounced back from yesterday’s selloff and is pushing notably higher on Thursday.

At the time of writing the infant formula and dairy company’s shares are up almost 4% to $10.95.

Why are its shares bouncing back today?

The market appears to have responded well to the reasonably positive reaction by brokers to yesterday’s sales update.

Although Citi has downgraded the company’s shares down to a neutral rating and $11.00 price target, others haven’t been so bearish.

According to a note out of Goldman Sachs, its analysts have retained their buy rating but cut the price target on its shares ever so slightly to $12.70.

Goldman believes that the weaker than expected sales update is transitory in nature. The broker suspects that it could be the result of the company reducing supply of product over the fourth quarter in order to allow for a smoother transition to its newer packaged product in both China and Australia.

Backing up this theory is demand on China’s Tmall. The broker’s Tmall tracker suggests that consumer demand remains strong, with sales of its infant formula between January and April growing 125% on the prior corresponding period.

As a result, Goldman remains confident that this is a temporary slowdown and that underlying demand fundamentals remain unchanged.

Should you invest?

I think that Goldman Sachs makes some valid points in its note and would agree that it is a buy.

Though, considering the premium that its shares do still trade at, investors may want to limit an investment to just a small part of their portfolio.

In addition to a2 Milk Company, I think the same applies to rival Bellamy’s Australia Ltd (ASX: BAL) which was also sold off yesterday. A small position with a long-term view in Bellamy’s could one day prove to be a very rewarding investment.

Looking for future growth stars like a2 Milk Company? Then don't miss out on these stars of the future.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!