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Top brokers upgrade these 2 ASX large-cap market darlings to “buy”

Our market has defied expectations of a weaker opening this morning with a number of popular large-cap stocks bouncing back from the recent sell-off that sent the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index dropping into “correction” territory.

But the top 200 stock index is fighting back with a 0.8% gain at the time of writing with the CSL Limited (ASX: CSL) share price, Altium Limited (ASX: ALU) share price and A2 Milk Company Ltd (ASX: A2M) share price outperforming the market.

It’s not only these market darlings that have been a hot favourite of investors over the past year or two that are finding favour today.

Sleep disorder treatment company ResMed (RESMED/IDR UNRESTR (ASX: RMD)) is among the top five best performers on the ASX 200.

The ResMed share price rallied 2.6% gain to $14.63 and that’s probably thanks to a recommendation upgrade by Credit Suisse to “outperform” from “neutral” following the company’s quarterly result announcement last week (click here to read my take on the result).

ResMed is taking market share for both masks and devices in the US with earnings before interest and tax (EBIT) jumping 13% above Credit Suisse’s forecast to 28% compared to a year ago while devices sales to the rest of the world jumped 20%.

“Both RMD and its competitor reported double-digit growth in US masks in 1Q19, suggesting the market is growing ahead of historical rates (high single-digits), with a further acceleration in re-supply,” said the broker who has pegged a $15.10 price target on the stock.

“While we remain cautious of competitors taking share with new product launches, RMD’s recently launched F30 minimal contact full-face mask should limit share shift in future quarters.”

Another market darling that has fallen out of favour with investors recently is Carsales.Com Ltd (ASX: CAR) and commentary at its annual general meeting last week isn’t helping with management changing its outlook for its core domestic business to “moderate” instead of “solid”.

The online automotive classifieds business blamed weakness in display advertising and its financial services business Stratton for the downbeat assessment.

However, the 20% retreat in the Carsales.com share price over the past nine months has pushed the stock into the “buy” zone, according to Macquarie Group Ltd (ASX: MQG), which has upgraded its rating on the stock to “outperform” from “neutral”.

“Against that backdrop and cognisant of the nearer-term macro concerns, we have upgraded to Outperform,” said Macquarie.

“As discussed in previous research, we see broad-based earnings drivers for the business—including increased take-up of Premium/Promote products to drive the Core; as well as from International assets. The implied 1-year forward earnings multiple of 21.2x is an improved entry point for investors, vs 25.8x when we downgraded in February on valuation grounds.”

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of A2 Milk and Altium. The Motley Fool Australia has recommended carsales.com Limited and ResMed Inc. 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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