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Why Western Areas is the top performing stock

The Western Areas Ltd (ASX: WSA) share price is topping the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) leader board in after lunch trade.

Shares in the nickel miner surged 4.1% to $2.81 while the Beach Energy Ltd (ASX: BPT) share price and Carsales.Com Ltd (ASX: CAR) share price followed in second and third place, respectively, with gains of a little over 3% each.

The WSA share price is outperforming after UBS upgraded the stock to “neutral” from “sell” as the broker revised its nickel price forecasts for 2020.

Modest upgrade, big impact

“We upgrade Western Areas as the share price has declined ~20% since Oct-19 and is now trading in line with our NPV [net present value],” said the broker.

“Western Areas is highly leveraged to the nickel price; we forecast a lift to US$8/lb by 2021e.”

UBS also increased its price target on the stock by 4% to $2.90 a share. That may not represent much upside for the stock but that may be enough to draw in new supporters as some believe the nickel price is set to outperform over the next 12 months, if not longer.

Turn in sentiment

This is largely because of the nickel ore export ban imposed by Indonesia. The ban came in sooner than expected and that sent shares in fellow nickel miner Independence Group NL (ASX: IGO) soaring. The stock is sitting on gains of nearly 63% since January.

Western Areas is seen as the poorer quality cousin and its stock has lagged behind. The upgrade by UBS certainly lifted sentiment towards Western Areas and explains why the its shares are running hard despite the lack of a valuation upside from the broker’s latest report.

Best stock in the sector

Surprisingly, the Northern Star Resources Ltd (ASX: NST) share price didn’t respond with that much enthusiasm even though UBS upgraded it to a “buy” from “neutral” in the same note. The broker also called the gold miner its most preferred stock in the sector.

The news was only enough to take the NST share price 1.3% higher to $9.92 at the time of writing even though there is significantly more upside for Northern Star.

“The share price has fallen ~25% since Jul-19, in part we think due to a loss of market confidence that the turnaround at Pogo is intact,” said UBS.

“We think, based on our recent site visit and the trajectory of leading indicators such as development rates, this turnaround is likely coming, but is 6-12 months behind management targets.

“We think this should become evident in the Mar-20 and Jun-20 quarterly production reports, and a management premium in the stock be restored.”

UBS increased its price target on Northern Star by 7% to $12 a share.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com 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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