Our market is on maximum bullishness! Not only have we raced to a new record high this morning, but stocks that have copped a broker downgrade don’t seem to be fazed.
The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index added a further 0.5% to 7,077 at the time of writing as bulls continued to be emboldened by the trade deal struck between the US and China on Wednesday.
This is a time for investors to be on their toes as we have to be in extreme “greed” territory. This often occurs just before a painful market pull-back, although it’s anyone’s guess when the day of reckoning will arrive.
As it is, some stocks have overshot their fundamentals and leading brokers have downgraded these four ASX companies.
Attractive company at an unattractive price
One stock that is shooting past fair value is the Megaport Ltd (ASX: MP1) share price, according to UBS and JP Morgan. Both brokers downgraded their recommendation to “neutral” although that didn’t stop the stock from jumping 1.7% during lunch time trade to $11.01.
“The business continues to grow at an impressive rate, however we are conscious that the majority of 2Q20 KPIs did not record an acceleration in growth momentum from the previous few quarters,” said UBS.
“We like the business and the structural thematics – however we want to see tangible signs of an acceleration in KPI growth rates before getting more positive.”
JP Morgan expressed a similar view. The broker likes the stock but thinks the good news is already factored into its share price.
From buy to sell
Meanwhile, the Perseus Mining Limited (ASX: PRU) share price got downgraded by two notches by Credit Suisse.
The broker cut its rating on the gold miner to “underperform” from “outperform” even after the miner posted a good quarterly update.
But the stock is running above its fundamental valuation, in Credit Suisse’s opinion – not that it particularly matters to shareholders.
The downgrade isn’t hurting the Perseus share price. PRU rallied 2.1% to $1.08 at the time of writing, which is ahead of Credit Suisse’s target price of $0.93 per share.
Looking too rich
Others that may also have overshot on the upside are our listed fund managers. The sector posted improving trends in the December quarter, but Macquarie Group Ltd (ASX: MQG) reckons that the positives are already in the share prices.
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Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of MEGAPORT FPO. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended MEGAPORT FPO. 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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