It's getting harder to find value buys on the S&P/ASX 200 Index (Index:^AXJO) as the market has a tendency to bounce on dips.
The ASX 200 recovered from its morning sell-off to finish up 1.4% with even Westpac Banking Corp (ASX: WBC) rallying an impressive 3% despite its poor results and dividend suspension.
Why buy the dips
This reinforces my view that there's a lot of money waiting on the sidelines. Many were predicting a big second drop for the ASX due to the ongoing carnage caused by COVID-19 crisis.
But there's a growing sense of FOMO (fear of missing out) as the market doesn't seem like it wants to retreat, at least not be enough to make bargain hunting an easy exercise.
The good news is that there are some beaten down stocks that look good value even in this market.
Still shipshape despite setback
The one that I am bullish on is shipbuilder Austal Limited (ASX: ASB). The stock crashed by 20% on Friday after it lost out on a lucrative contract to build Guided-Missile Frigates FFG(X) for the US Navy.
Austal did get a consolation prize of sorts. It was awarded a $324 million contract to build six patrol boats for the Royal Australian Navy. This is the largest Australian contract that the company has every received.
The FFG(X) would have been a bigger deal and investors couldn't mask their disappointment, but Goldman Sachs believes the stock is good value even without the additional US Navy work.
Defensive buy
"We viewed Austal as unlikely to win the FFG[x] program from a technical design perspective and include zero contribution from the program in our forecasts or valuation," said the broker.
"Our forecasts instead call for current LCS + EPF awards to sustain earnings through FY22/23E with additional Unmanned and EPF contracts to bolster the backlog from there-on."
"We would recommend investors use any weakness as an opportunity to add exposure to what we view as among the most defensive and highest quality names under our coverage."
Austal is on Goldman Sach's conviction buy list with a 12-month price target of $3.83 per share.
Down but not out
Another embattled ASX stock that is Reliance Worldwide Corporation Ltd (ASX: RWC), according to JP Morgan.
The stock nearly halved its value since February 21 due to weak demand for its plumbing products. Management warned that demand in North America is likely to deteriorate further even as it posted a better than expected March quarter update, but this isn't worrying JP Morgan.
The broker reiterated its "overweight" recommendation on the stock with a price target of $3.20 a share.
