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Why A2 Milk Company Ltd (ASX:A2M) and Bellamy’s Australia Ltd (ASX:BAL) shares are sinking lower today

One of the worst performers this morning has been the A2 Milk Company Ltd (ASX: A2M) share price.

In morning trade the infant formula and dairy company’s shares are down 4.5% to $9.49.

Why are a2 Milk’s shares on the decline again?

Today’s decline appears to be related to a broker note out of Hong Kong investment bank CLSA.

According to the note, the broker has downgraded the company’s shares to a sell rating on the back of concerns over daigou pricing.

Unsurprisingly, this has also weighed heavily on the performance of fellow infant formula company Bellamy’s Australia Ltd (ASX: BAL). Its shares are down almost 5% at the time of writing.

Should you buy the dip?

While a broker downgrade to a sell rating will always shake the confidence of investors, especially when it trades on such a high valuation, I do think that when the dust settles it could be worth considering an investment.

But I would only recommend making one if you are willing to invest for the long-term. In the short term the company’s shares are likely to remain quite volatile due to the bulls and the bears battling it out for control. But in the long-term, I can see its shares climbing notably higher from here as it expands internationally and gains more market share in China.

Investors might want to consider buying half the total shares they want own in the coming weeks, before picking up the rest after its full-year results later this year.

What about Bellamy’s Australia shares?

I would say the same applies to its rival Bellamy’s Australia as well, which I think looks reasonably attractive after today’s sizeable decline.

But I would urge investors to approach both with caution and continue to maintain a balanced profile.

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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.

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