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Top brokers just upgraded these two ASX stocks for 2020

The market reprieve from the coronavirus scare didn’t last long. The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stumbled into the red after trading higher in the morning.

The headlines about the growing risk of a SARS-like pandemic isn’t helping sentiment, although the silver-lining is that investors aren’t panicking – at least not today.

This reaffirms expectations that the market sell-off from the virus may be reasonably short-lived. The indiscriminate selling in the past few days have created pockets of value and there are two ASX stocks that just got upgraded by leading brokers.

A bank stock on the “buy” list

UK-bank V MONEY UK/IDR UNRESTR (ASX: VUK), which is more popularly called Virgin Money, is one that got upgraded.

Morgans lifted its recommendation to “add” from “hold” following the release of its first quarter trading update.

While Virgin Money’s mortgage book declined because it refused to compete aggressively with competitors trying to hit year-end targets, the loss was partially offset by a 2.5% increase in business lending and 3.7% growth in personal lending over the quarter.

“The NIM [net interest margin] for 1Q20 was 160bps, unchanged from 4Q19,” said Morgans.

“While mortgage competition appears to remain intense, we believe the NIM is being supported by a change in mix of the loan book towards business lending and personal lending.”

More upside than downside

The downside is that the lender’s credit risk profile will increase and Virgin Money’s CET-1 capital adequacy ratio fell to 13.1% from 13.3% at the end of FY19.

But it’s the diminishing hard Brexit and Payment Protection Insurance (PPI) risks that won Morgans over. What’s more the favourable exchange rate is also giving the stock a boost with the broker increasing its price target to $4.23 from $3.08 a share.

Treasury Wines looking oversold

Meanwhile, there’s a silver lining in the Treasury Wine Estates Ltd (ASX: TWE) share price crash yesterday.

Credit Suisse upgraded the stock to “neutral” from “underperform” after it noted that the stock is now back at fair value and is trading at a big discount to its peers.

The alcoholic beverages group issued a profit warning yesterday as cheap wine in the US impacted on its sales.

Too much bad news in the share price?

“TWE FY20 EBITS guidance is 5%-10% growth vs FY19 and excludes a 2H impact from coronavirus,” said the broker.

“Our model is below TWE guidance reflecting 4% Group EBITS growth.

“COGS pressure will be most acute in FY20, in our view. FY21 may see COGS/case rise optically due to strong mix shift but the 2018 California vintage and the 2018 Australia vintage should mitigate COGS pressures in masstige and luxury product classes.”

Credit Suisse’s price target on Treasury Wine is $12.80 a share.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates 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.