Our market has recorded its sixth consecutive day of losses that has seen 200 points, or around $57 billion, wiped off the value of the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.
As ugly as that is, they say you shouldn’t let a good market sell-off go to waste as these dips can often represent a nice buying opportunity.
But bargain hunters should sit on their hands as I don’t think we have seen the bottom of this market rout, although there may be one exception if Morgan Stanley is on the money.
The broker is urging investors not to wait and buy Lendlease Group (ASX: LLC) as it believes there is a 70% to 80% chance that the share price of construction and engineering group will bounce higher in the next 60 days.
“This is because the stock has traded off recently, making short term valuation much more compelling,” said Morgan Stanley.
“LLC currently trades on 13.2x FY19e EPS [earnings per share], broadly in line with its LR [long-run] average and at a ~30% discount to peer multiples.”
This discount is not justified, particularly after management addressed some of the doubts the broker had following the company’s profit results last month and after it confirmed that momentum from its real assets business remains strong.
Some of these doubts include the loss from Lendlease’s Australian construction division and revaluations in its investment management business.
“We see the re-commencement of its buyback post DRP [dividend reinvestment plan] neutralization in the next two weeks as a key catalyst, highlighting management’s confidence in its earnings trajectory, free cash flow generation and value in the stock at today’s levels,” added Morgan Stanley, which has a $23.05 price target on the stock.
I am bullish on the longer-term outlook for Lendlease as well. The company is nicely leveraged to the infrastructure construction boom and its international expansion helps diversify the risk of a slowdown in the Australian residential market.
Lendlease isn’t the only stock that is leveraged to the infrastructure boom. I am also a big fan of Downer EDI Limited (ASX: DOW), while Cimic Group Ltd (ASX: CIM) shares strong similarities to Lendlease.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.