The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is less than 100 points away from recovering the losses during the August reporting season, and at this rate, it will close the year with gains of over 20%!
The problem is that finding growth stocks at a reasonable price (GARP) is getting increasingly difficult as the market powers ahead.
GAPR shares sit between high flying stocks that are trading at a premium (think WAAAX) and so-called value stocks, which are trading at a big discount due to issues with their businesses or a challenged outlook.
GARP is the answer for those not willing to pay above the odds for good growth stocks and those loathed to touch shares with earnings risks.
There is one sector that could be a good hunting ground for GARP shares, and that’s in consumer discretionary as this sector has been one of the few shining lights during last month’s reporting season.
Here are the latest two stocks from the sector that have a “buy” recommendation from top brokers.
Dressed for success
The first is Premier Investments Limited (ASX: PMV), which reported a better than expected profit result last week and scored an upgrade by two brokers.
Macquarie Group Ltd (ASX: MQG) lifted its recommendation on the women’s apparel and stationery (Smiggle) retailer to “outperform” with a 12-month price target of $20 per share.
“Strong result in the context of challenging market conditions with execution first rate (costs, strategy),” said the broker.
“Smiggle’s growth trajectory has surprised with earnings visibility improved. On 11.7x NTM EV/EBIT (ex-equity stakes); PMV trades at -23%/-5% market/peer [discount] despite a stronger growth outlook with upside risk.”
Bell Potter also upped its rating on the stock to “buy” from “hold” as worries about the impact of Brexit on the Smiggle business receded and as the Peter Alexander delivered 13.3% sales growth underpinned by positive like-for-like sales and eight net new stores.
The broker has a 12-month price target of $20.80 on the stock.
Revving up for growth
Another stock worth buying is automotive dealership group AP Eagers Ltd (ASX: APE) with Morgans increasing its price target on the stock to account for its acquisition of Automotive Holdings Group Ltd (ASX: AHG).
“Over and above the A$13.5m of duplicated head office synergies, we think a bull-case tranche 2 program could be cA$109m (A$123m in total),” said the broker.
“However, the AHG transaction is large and extracting efficiencies is not an exact science – we therefore assume more conservative total synergies of A$90m (ie A$60m on top of the initial A$30m) over 5 years.”
Morgans also believes the combined entities will be under-geared, which could pave the way for a capital return to shareholders, and that car sales could have passed a cyclical low.
The broker lifted its price target to $15.55 from $12.56 per share and reiterated its “add” recommendation on the stock.
Where to invest $1,000 right now
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Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
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The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Premier Investments 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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