Broad-based buying has sent the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index soaring higher today but don’t be fooled into thinking that everything looks good value in this market.
I am not trying to sound too pessimistic as the world falls towards a near-zero interest rate environment, which is almost always good news for risk assets.
But if you are wondering what stocks you should sell or avoid as we head into next month’s reporting season, it could be useful to heed the latest ASX 200 shares that got knocked on the head with a “sell” recommendation by top brokers.
Slippery earnings slope
One to avoid is the Woodside Petroleum Limited (ASX: WPL) share price with JP Morgan reiterating its “underweight” rating on the oil and gas producer as it warns the stock is facing significant market downgrades of 15% to 20% after the release of its quarterly update.
“Woodside’s quarter was clearly impacted by the extended turnaround at Pluto which saw production and sales volumes decline 20% from the prior period,” said the broker who has a $33.70 per share price target on the stock.
“Furthermore, weak LNG realized prices meant that revenue fell 40%. Based on the company’s income tax guidance, we have estimated NPAT for the interim period will be US$497-$630 million. This was well below our prior forecast of US$741 million.”
Building to a downgrade
There’s further downside risk to the Cimic Group Ltd (ASX: CIM) share price even after its big crash yesterday on its poor first half profit results, warns Credit Suisse which cut its recommendation on the stock to “underperform” from “neutral”
The building construction group reported an interim net profit of $367 million that was 10% below what the broker was expecting, although the profit miss isn’t the only worrying thing about the stock.
“CIMIC’s dream run of very high cash conversion came to an end with cash conversion stepping down to 52% for 1H19, compared to levels of 112% on an annual basis since 2014,” said Credit Suisse as it slashed its price target by $11 a share to $35 a pop.
“Management said the weaker conversion was due to a change in the business mix with large infrastructure projects completing and a higher proportion of alliance style contracts where there is less opportunity for early cash receipts.
“We expect a lower level of cash conversion to persist, compared to the elevated levels of recent years.”
The Alumina Limited (ASX: AWC) share price may have rallied 2.5% to $2.24 in after lunch trade, but it’s still stuck in at the bottom-end of its 52-week trading range.
The stock could be testing new one-year lows soon as Macquarie Group Ltd (ASX: MQG) reiterated its “underperform” call on the stock following its quarterly production update.
While its alumina and bauxite production were about what the broker was expecting and short-term cost relief is at hand with lower power and caustic soda prices, the broker warns falling alumina prices are a concern.
“We have adjusted our dividend assumptions, reducing dividend yields to 6.5% and 7.5% for CY19 and CY20,” said Macquarie.
“The material decline in spot alumina prices has increased the downside risk to our forecasts. Running spot prices generates ~20% lower earnings and dividends for CY19 compared to our base case forecasts.”
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The Motley Fool Australia owns shares of and has recommended Macquarie Group 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.