Our market feels like it’s stuck in a holding pattern as investors wait for a trigger that would set the direction for equities over the coming months.
Investors should use this quiet time to hunt for bargains, particularly on days like this when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is taking a step back as it sheds 0.4% of its value in late afternoon trade.
There are two stocks that investors can put on their radar as they have just been upgraded to a “outperform” by Credit Suisse.
The first is insurer QBE Insurance Group Ltd (ASX: QBE) – a stock that has been underperforming for years.
However, there have been signs that the stock is finally turning a corner and that’s why I bought QBE several months ago.
One of these reasons is the higher premiums that QBE is managing to push through. What’s more, the price increases are sticking and that’s impressed Credit Suisse.
“To date, this has exceeded our expectations and we have reassessed our earnings growth opportunity for QBE in coming years,” said the broker.
“A more optimistic view on premium rates also assists QBE in delivering cost-out initiatives. Historically, such cost savings have been offset by margin contraction elsewhere and hence bottom-line profit rarely benefited.”
Not this time, though. Credit Suisse has lifted its underlying profit estimates for the group and this has led to an increase in its target price for the stock to $13 from $11 a share.
The second stock that’s been upgraded by the broker is Worleyparsons Limited (ASX: WOR). Worleyparsons’ share price has taken a beating since it announced a capital raising and the acquisition of Jacobs Engineering Group Inc.’s Energy, Chemicals and Resources division (Jacobs ECR).
Investors had been concerned that its largest shareholder Dar Group wouldn’t take up its full entitlement to the cap raise but that turned out to be a needless worry.
“Dar Group’s intention to take up 100% of its entitlements despite the share price trading ~10% below the entitlement price delivers a vote of confidence in the deal and in the sector outlook,” said the broker who has a $17.60 price target on the stock.
“If it has not happened already, the market will start pricing FY20 earnings (or FY21 for those with a longer-term investment horizon) and on our numbers this prices WOR at just 17x and 16x, respectively—modest multiples in a sector that appears to have bottomed.”
I couldn’t agree more!
QBE’s share price jumped 0.8% to $11.44 while Worleyparsons’ share price fell 1% to $15.02 at the time of writing.
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Motley Fool contributor Brendon Lau owns shares of QBE Insurance Group Ltd. and WorleyParsons Limited. 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.