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The latest 3 ASX buy recommendations by top brokers

Optimism is seeping back into the market with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index reversing early losses to trade 0.2% higher in after lunch trade.

Worries about the inverted yield curve and trade conflicts are taking a backseat and it feels like the path of least resistance for ASX shares is up despite the weak August reporting season!

It’s the “least dirty shirt” theory. Falling interest rates are trimming the returns from investments and the equity market looks to be the best asset class to make above average gains.

On that happy note, here are the latest three large cap buy ideas from leading brokers.

A good fibre diet

The James Hardie Industries plc (ASX: JHX) share price looks to be good value, according to Morgan Stanley, even though the stock has surged by more than 50% since the start of calendar 2019.

The broker reiterated its “overweight” recommendation on the stock with a price target of $25 a share and highlighted the growth potential of its Fermacell business ahead of the building material supplier’s European investor tour this week.

James Hardie bought Fermacell for €516.4 million in 2018, which gave it exposure to fiber gypsum, a product that competes directly in the European gypsum wallboard market.

Morgan Stanley estimates that fibre gypsum has a 5% market share, which means there’s space for Fermacell to grow sales is the market moves further towards fibre gypsum.

Upside to spot price

Meanwhile, Macquarie Group Ltd (ASX: MQG) is urging investors to buy Fortescue Metals Group Limited (ASX: FMG) after the iron ore miner issued US$600 million worth of a new high yield bond, which will be used to partially repay the US$1.4 billion term loan.

The bond issuance will lower total cost of Fortescue’s total debt burden but that isn’t the main reason to get excited about the stock.

“FMG is currently trading on a free cash flow yield of 16% using Macquarie forecasts. There is only marginal downside between our forecasts and a spot price scenario for FY20,” said Macquarie.

“However, for FY21 we note that the upside risk to earnings at spot is ~100%, translating for a free cash flow yield of 21%.”

Macquarie has a 12-month price target of $10.60 a share.

Positive outlook for insurance

Finally, the QBE Insurance Group Ltd (ASX: QBE) share price also got a boost after Citigroup reaffirmed its “buy” rating on the stock as it noted that expanding commercial margins and cost out programs suggested general insurance (GI) remained the most attractive part of the insurance sector.

“QBE still looks to be firmly on the road to redemption with attritional loss ratios continuing to improve,” said the broker.

“With its Cell Review and Brilliant Basics programs not even half way through and its cost savings program ongoing, there seems plenty of scope for further improvement.”

Citi has a $13.45 price target on the stock.

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Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc and Macquarie Group Limited. Connect with him on Twitter @brenlau.

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.

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