Top broker upgrades these two ASX stocks to “buy” amid the market roller coaster ride

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index defying expectations to jump 0.6% in early trade. This is a bullish sign and if you are hunting for bargains, UBS has two new suggestions.

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Talk about the iconic Aussie battler! Our market is fighting back this morning against the gloom that was cast by the big falls on Wall Street overnight.

This isn’t enough to keep us down with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index defying expectations to jump 0.6% in early trade with the Bravura Solutions Ltd (ASX: BVS) share price, Appen Ltd (ASX: APX) and Aristocrat Leisure Limited (ASX: ALL) share price leading the gains.

If the gains can hold (and even if the index closes flat), it will be a very bullish sign as it will show cashed up investors are eager to buy discounted stocks on any market weakness.

If you are wondering which bargains to target, UBS has two suggestions for you as the broker has just upgraded its recommendation on these two ASX shares.

Mining for Value & Dividends

The first is base metal miner Independence Group NL (ASX: IGO) which got pushed up to a “buy” from “neutral” as the broker believes the circa 20% sell-off in the stock since July is overdone.

The IGO share price isn’t responding to the upgrade as it hovers at breakeven at $3.85 this morning but this gives investors more time to buy the stock for its growth and rising dividends.

“We think the share price decline has created an opportunity to get exposure to a high quality, low cost nickel producer at an attractive valuation,” said UBS who also upgraded its price target on the stock to $4.50 from $4.25 a share.

“We think the share price is now pricing in a ~US$5.50/lb long-term nickel price (vs our US$6/lb forecast) and a 5% discount rate on Tropicana. Independence Group is trading on a 15-20% FCF yield for FY19-21e and is net cash.”

The strong anticipated cashflow should allow the miner to significantly bolster its dividend payment in FY20 with UBS predicting a dividend of 11 cents a share that year compared to 4 cents in FY19 and the 3 cents per share it paid the year before.

Small Gem

Meanwhile, the Autosports Group Ltd (ASX: ASG) share price jumped 2.7% this morning to $1.15 following UBS’s upgrade to the small cap stock yesterday to “buy” from “neutral”.

It’s a more controversial call in my view given falling sales in the automobile market – particularly at the luxury-end where Autosports group focuses on.

But UBS believes Autosports share price valuation has gotten too cheap to ignore.

“While we expect ASG’s FY19E earnings to be materially impacted by the weaker market (FY19E NPAT -10%), we believe there are signs of things not getting worse,” said UBS.

“After adding full-year revenues from FY18 acquisitions and assuming no acquisitions in FY19E, we estimate that ASG’s new car revenues could fall ~8% and still meet UBSe revenue forecasts.”

The broker has a $1.40 per share price target on the stock.

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Motley Fool contributor Brendon Lau owns shares of Aristocrat Leisure Ltd. The Motley Fool Australia owns shares of Appen Ltd and Bravura Solutions Ltd. 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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