The Christmas Grinch is rearing its head and threatening to ruin the festive season for investors. But don’t let this big pullback go to waste as ASX shares have one of the best 2020 outlooks among all other asset classes.
The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index slumped 1.4% ahead of the market close – taking its two-day tumble to 3.5%.
We may not have seen the end of the pull-back just yet but it’s unlikely to mark the start of a painful market correction.
This presents an opportunity for investors to buy some quality ASX stocks and top brokers have picked the latest three to add to your Christmas stockings.
Upgrade to fuel this ASX stock
One that is looking attractive is the Santos Ltd (ASX: STO) share price after Citigroup upgraded the gas producer to “buy” from “neutral”. The broker also lifted its price target to $8.90 from $8.47 a share.
“The implied oil price to justify the current share price is an undemanding US$53/bbl [barrel],” said Citi.
“Looking out to 2025 sees production grow >50%, ROIC expand +550bps, and a ~14% EBITDAX CAGR. STO is the only large cap E&P with the balance sheet to comfortably execute on its growth capex aspirations, while still paying a ~5% dividend yield.”
The broker calls Santos its top pick for the sector.
Striking a winner
The latest ASX 200 stock to score an “outperform” rating from Credit Suisse is the Bingo Industries Ltd (ASX: BIN) share price.
The broker initiated coverage on the waste management company as it believes it’s a high-quality business with industry leading margins, exposure to building construction recovery, defensive earnings and structural growth opportunities.
“We value Bingo shares based on a 25x P/E multiple, 19x EBIT and 12x EBITDA,” said the broker.
“Bingo enjoys industry leading margins (~30% EBITDA and ~19% EBIT), in line with North American peers that trade on similar multiples to those that we use for Bingo.”
Credit Suisse’s price target on Bingo is $3.40 a share.
The good oil
The stock was hammered after it issued a shock profit warning due to adverse weather conditions but investors should keep their eye on the prize – that being the omega-3 enriched seed product.
The market opportunity for omega-3 is tipped to double over the next decade. Each 1% share of future supply deficit in the fish oil market results in $8.5 million of expected earnings before interest, tax, depreciation and amortisation.
“Importantly [regarding] Omega-3, NUF has a first mover and cost advantage over peers in what is a substantial potential market opportunity,” said Macquarie.
“We estimate $0.90-1.00ps [per share] of associated value based on our [forecast] earnings.”
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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited and Nufarm Limited. 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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