The market has recovered most of the day’s loss but is still likely to finish the last day of the week in the red.
However, there’re two stocks that are bucking the trend and outperforming today after brokers upgraded their recommendations on the shares.
The two stocks are rail operator Aurizon Holdings Ltd (ASX: AZJ) and energy giant Woodside Petroleum Limited (ASX: WPL) with their share prices up 1.1% to $4.14 and 0.3% to $36.09 at the time of writing. In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is down 0.2% in the last hour of trade.
The rally in Aurizon’s share price will be a relief to shareholders who have witnessed the stock crash 18% over the past year.
The stock is still trading close to its two-year low although the optimists will point out that this means it has plenty of room to climb.
Credit Suisse believes the stock is cheap after its sell-off and has upgraded Aurizon to “outperform” from “neutral” with a price target of $4.50, although valuation isn’t the only reason to turn bullish on the company.
The Queensland Competition Authority (QCA) announced yesterday that it is considering changing the averaging period for the risk-free rate and if that happens, Credit Suisse notes that the WACC (weighted average cost of capital) will increase to around 5.73% from 5.41% in the draft decision.
A higher WACC will allow Aurizon to charge more to recover the cost of capital and that could see its earnings before interest and tax (EBIT) by circa $20 million a year.
There’s no guarantee that the QCA will change the risk-free rate period but the stock will likely jump higher on such news.
Given the valuation support touted by Credit Suisse, this bet might be worth taking.
Meanwhile, JP Morgan has upped its rating on Woodside to “neutral” from “underweight” after the stock dropped 8% over the past two weeks and after it released a reasonably upbeat quarterly production report yesterday.
“Woodside reported a solid September 2018 quarter, with production above our expectations,” said the broker who has a $37 a share price target on the stock.
“Overall, the company’s base business continues to perform, delivering higher production of 23mmboe and sales revenue of US$1,157 million in the quarter.”
The company’s key projects are also tracking well with its Browse and North West Shelf joint ventures entering the concept definition phase and its Greater Western Flank Phase 2 project reaching 98% completion (and it’s under budget too!).
This positions Woodside for a strong FY19, especially if oil prices continue to stay stubbornly high.
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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.