Our market is likely to start this holiday-shortened week on a downbeat note on reports that the coronavirus is spreading to more countries, including Sydney and Melbourne.
Share market futures are suggesting a weak open for Wall Street as the ASX shuts for Australia Day. It looks like the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index will have to cede more ground after hitting a record high of over 7,100 points only last week.
The sell-off from the SARS-like scare is likely to deepen as it’s almost guaranteed we will see more cases of the virus and deaths. But if history is any guide, investors should be using the sell-off as a buying opportunity.
This doesn’t mean you should be rushing to pump money into the market. I think the buying window won’t be closing anytime soon. But if you are on the hunt for ASX-stocks that leading brokers think are cheap, read on!
Falling into the bargain bin
You don’t have to wait for a mega sell-off to buy Cimic Group Ltd (ASX: CIM). The construction giant’s shares already tumbled nearly 20% after announcing a big write-down as it withdraws from its Middle East joint venture, BICC.
It didn’t help that management said it would suspended paying a dividend either given that CIMIC will have to take a $700 million cash hit in 2020.
“CIMIC’s decision to exit BICC removes an overhang on the stock which has been a known issue to the market for quite some time,” said Credit Suisse.
“While the cost of exit is higher than expected (7% of market cap), we think the extent of the selloff in the shares provides a buying opportunity.”
Credit Suisse upgraded CIMIC to “outperform” from “neutral” with a target price of $35 a share.
The RESMED/IDR UNRESTR (ASX: RMD) share price may be outperforming the market as it surged to a near record high, but this doesn’t mean the sleep disorder treatment device maker is overvalued – at least not according to Morgan Stanley.
While many might think that ResMed overshot its fundamentals following its over 80% surge over the past year, the broker thinks upcoming changes to US Medicare reimbursement rates is a positive for the company.
The next round of changes to the reimbursement rate will be known in mid-2020 and Morgan Stanley sees upside to ResMed’s resupply revenue.
The broker reiterated its “overweight” call on ResMed and upgraded its price target by around 20% to $24.30 a share.
Waiting for a recharge
On the flipside, one market laggard that’s looking like a bargain to JP Morgan is lithium miner Galaxy Resources Limited (ASX: GXY).
The broker reaffirmed its “overweight” recommendation on the stock after Galaxy posted its latest quarterly production report.
The plunging price of the commodity is clouding the stock but JP Morgan thinks this is the time to be buying the stock as some of its peers will soon fall over, lowering supply to the market.
JP Morgan put a $1.30 per share price target on Galaxy.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. 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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