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Top brokers just upgraded these ASX stocks to “buy”

Valuations may be starting to look stretched as our market jumps to fresh record highs but this doesn’t mean you can’t find value buys on the ASX.

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index rallied 0.6% to a record high of 7,037 in after lunch trade and that means the index is up by more than 20% over the past 12-months.

But it may not be too late to partake in the merry-making. Leading brokers have just put these two ASX stocks on their “buy” list for 2020.

Earnings surprise

One of these is insurer QBE Insurance Group Ltd (ASX: QBE). Credit Suisse upgraded the stock to “outperform” from “neutral” even as doubts about the company’s ability to meet its Combined Operating Ratio (COR) guidance hangs over the stock.

The ongoing bush fires are also casting a shadow over the sector. Life as an insurer is sure tough!

But Credit Suisse doesn’t only believe management’s guidance is achievable, it thinks the COR could improve further in FY21 and beyond.

“We analyse the key earnings drivers in this report and are confident in the recovery potential of QBE’s earnings, ongoing balance sheet strength and consider any reserving risk manageable,” said the broker.

“While not cheap on a historical P/E context, delivery of expected earnings growth should see considerable share price upside from current levels.”

The QBE share price jumped 2.9% to $13.75 in the last hour of trade. Credit Suisse’s 12-month price target on QBE is $15 a share.

Reason to Humm

Another stock with good upside is the FlexiGroup Limited (ASX: FXL) share price. Shares in the consumer financing group surged 5.8% to $2.19 in afternoon trade after UBS upgraded the stock to “buy” from “neutral”.

The broker believes the Buy Now, Pay Later (BNPL) space is hot and that FlexiGroup’s Humm brand can help it mimic some of the success enjoyed by sector leader Afterpay Ltd (ASX: APT).

“Our scenario analysis suggests potential for ~38% upside to FY24E NPAT from Humm (upside scenario) and new products (not priced in to UBSe),” said UBS.

“In our view, FXL’s simplified brand strategy (from 23 to 4 brands) makes sense and should help drive cost-out.”

While FlexiGroup is no leader in BNPL, it has some advantages over its rivals. UBS believes Humm differentiates itself by mainly targeting non-retail merchants with higher average transaction values than its peers.

The broker also noted that FlexiGroup’s Wiired Money and Bundll offerings are unique as they target under-serviced BNPL opportunities.

UBS’s 12-month price target on the stock is $2.30 a share.

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Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup 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.