The Motley Fool

Top broker predicting Metcash Limited (ASX:MTS) share price to beat Woolworths Group Ltd (ASX:WOW)

Forget Woolworths Group Ltd (ASX: WOW)! It’s the Metcash Limited (ASX: MTS) share price that’s set to outperform through to December, according to Morgan Stanley.

Metcash’s share price jumped 1.1% to $2.83 on Friday when the Woolworths and the Wesfarmers Ltd (ASX: WES) share prices slumped into the red even as the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index managed to clawback from losses to end 0.1% higher.

Morgan Stanley is telling investors to expect more of this outperformance as it is rating the probability of Metcash to beat the market over the next 45 days at 80% plus.

The bullish call comes on the back of Woolworth’s pleasing quarterly sales update that sent its share price jumping higher on Thursday.

One of the factors supporting sales growth at Woolies supermarkets is easing food price deflation as the prices of a range of groceries, such as meat, have been rising due to the drought.

Food prices are expected to keep rising in the interim and Morgan Stanley believes Metcash will be a bigger beneficiary of this than Woolies or Wesfarmers’ owned Coles supermarkets.

“Food inflation has accelerated in the recent quarter with both Coles and Woolworths reporting better than expected 1Q19 sales,” said the broker.

“We think MTS is the largest beneficiary of food inflation given it benefits from stock profits and generates the thinnest operating margins. We think the discounted valuation (11.7x FY19e P/E) with minimal debt is attractive.”

While Woolworths is recognised by many experts as being the best run listed supermarket, some, including Morgan Stanley, thinks the stock is too expensive as it is trading on an FY19 price-earnings (P/E) multiple of around 21 times.

Morgan Stanley has an “underweight” recommendation on Woolworths with a $23 a share price target and an “overweight” rating on Metcash with a price target of $3.90 a share.

But it isn’t only Morgan Stanley that is taking a bearish view on Woolies. Macquarie Group Ltd (ASX: MQG) is also urging investors to dump the stock despite its well-received quarterly update.

“Clearly there has been a market share shift in the last quarter – with both Food and Liquor sales (~85% of group earnings) slowing in 1Q19,” said Macquarie.

“While LFL sales growth appears to have stabilised at the end of the quarter, the market is paying for evasive operating leverage. At 21x we see little value in WOW.”

Macquarie had a price target of $27.91 on Woolworths.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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.

One ASX Stock For An Estimated $US22 Billion Marijuana Market

A little-known ASX company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming. To the tune of an estimated $US22 billion.

Cannabis legalisation is sweeping over North America, and full legalisation arrived in Canada in October 2018.

Here’s the best part: we think there’s one ASX stock that’s uniquely positioned to profit immensely from this explosive new industry… taking savvy investors along for what could be one heck of a ride.

AND, this is the first time The Motley Fool Australia has EVER put a BUY recommendation on a marijuana stock.

Simply click below to learn more on how you can profit from the coming cannabis boom.

Click here to find out more