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These 3 ASX shares are better bets than the Melbourne Cup

Punters are at the ready for the Melbourne Cup with hot favourites like Finche, Cross Counter, Vow And Declare looking well placed to take the coveted prize (and provide a decent payoff to those looking for a wager).

But you are probably better off putting your money in the share market as the race that stops a nation won’t be able to hold back the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index. Our markets are tipped to race higher after US equity indices hit new record highs overnight.

The positive sentiment is likely to push our market into the black and top brokers have highlighted three potential winners with 20% plus expected returns for your betting scoreboard.

A bet worth making?

One stock that may be more rewarding than the Melbourne Cup is wagering and lotto group Tabcorp Holdings Limited (ASX: TAH).

While the company will reap the benefits from those betting on horses during the week, that isn’t the big reason why UBS is urging investors to buy the stock.

The broker believes that its app gained the most downloads of all its rivals in the September quarter.

“We estimate that Tabcorp’s wagering app download share was 21% in the SepQ, up +3% y/y and placing the app as the number one download share taker in the period,” said the broker. “Sportsbet remains the most downloaded app with 34% share, +1% in the period.”

UBS’ 12-month price target on the stock stands at $5.90 per share.

Iron is gold

Another potential outperformer worth looking at is the Rio Tinto Limited (ASX: RIO) share price. The stock may have jumped higher in recent days but there’s still around a 20% upside for punters based on capital gains and dividends.

The analysts at Macquarie Group Ltd (ASX: MQG) noted that the high iron ore price will continue to drive the iron ore miner’s “earnings upgrade momentum” and that its free cash flow yield will jump to around 9% based on the spot price for the commodity.

The broker rates the stock as “outperform” with a 12-month price target of $104 a share, but there is scope for this to increase. Rio Tinto said that debottlenecking at its Pilbara mine increases its output capacity to 360 million tonnes a year.

However, Macquarie is choosing to err on the side of caution and is keeping its long-term forecast of 340 million tonnes a year. If Rio Tinto hits its target, the broker will have to lift its valuation on the stock (all else being equal).

Go small for bigger returns

Investors looking for an even bigger payout will have to look at the smaller end of the market to get their kicks.

One minnow that has caught the eye of Bell Potter is the Citadel Group Ltd (ASX: CGL) share price. The software and IT services group reiterated its FY20 guidance and Bell Potter estimates that there is a close to 60% total upside for the $175 million market cap stock over the next 12-months.

“The company said 1QFY20 revenue was in line with expectations and added that deferred contracts from 4QFY19 in the Government/Defence and Tertiary Education sectors have now been confirmed and will contribute to FY20 and beyond,” said the broker.

“Citadel also flagged it expects to execute at least one bolt-on acquisition in the near term and this will be a SaaS business in the eHealth sector.”

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Motley Fool contributor Brendon Lau owns shares of Rio Tinto Ltd. Connect with him on Twitter @brenlau.

The Motley Fool Australia has recommended Citadel Group 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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