The only slim silver-lining to the market’s devastating plunge is that ASX stocks haven’t looked this cheap in four years.
As I wrote before, valuation won’t be the bull market’s undoing and valuation now won’t be its salvation.
But the big 30% bear market crash for the S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO) makes some stocks looking enticingly cheap.
Upgrades for the hardest hit sector
While it takes a brave investor to catch a falling knife and no one can tell when the selling pressure will abate, some brokers are wasting little time to upgrade their recommendation on some stocks to “buy”.
One of the hardest hit sectors is proving to be a good hunting ground. The analysts at Macquarie Group Ltd (ASX: MQG) upgraded two in the consumer discretionary sector even as panic about the explosion in COVID-19 cases outside of China rocks confidence.
Government stimulus to the rescue
The broker praised the federal government’s $17.6 billion stimulus package response to the coronavirus pandemic.
“The measures are front-loaded and nearly $11bn of support is expected to hit the economy before 30 June this year,” said Macquarie.
“This is equivalent to around ~2% of quarterly GDP and Treasury has estimated that it could provide support to economic activity of ~1½% of GDP (allowing for imports, increased saving and other leakages).
“The package is a very good start, and may help to avert a “technical” recession in Q2, but there is a real risk that ultimately it won’t be enough.”
Nonetheless, the broker believes that this is the time to be buying stocks like fast food chain Domino’s Pizza Enterprises Ltd. (ASX: DMP) and beverages supplier Coca-Cola Amatil Ltd (ASX: CCL). Macquarie upgraded both stocks to “outperform”.
Bargain hunters dream
Another stock to get upgraded by JP Morgan is NIB Holdings Limited (ASX: NHF) after shares in the private health insurer collapsed around 35% over the past month.
This puts the NHF share price at a significant discount to rival Medibank Private Ltd (ASX: MPL). The broker believes this is unjustified as both stocks are impacted by similar challenges and issues.
“The P/E [price-earnings] differential between NHF is now at ~8 P/E points (1 year forward) with NHF trading at about 12x and MPL trading at about 20x,” said JP Morgan.
The broker lifted its recommendation on NIB to “overweight” from “neutral” and put a price target of $4.64 on the stock.
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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Domino's Pizza Enterprises Limited and NIB Holdings 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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