The worry is that the looming global recession triggered by the COVID-19 pandemic isn’t priced into the market.
But this hasn’t stopped our leading brokers from upgrading a number of stocks to their “buy” list.
There are two other ASX stocks that also got just upgraded.
So-fa so good
One is embattled furniture retailer Nick Scali Limited (ASX: NCK). The analysts at Macquarie Group Ltd (ASX: MQG) changed the rating on the stock to “outperform” and that triggered a 7.4% jump in the Nick Scali share price to $4.66 today.
The broker turned bullish on the retailer after reviewing trading conditions, costs savings, property holdings and unlisted competitor operating margins.
What Macquarie found after visiting furniture shops in Sydney was that foot traffic improved significantly over the past two weeks.
“Nick Scali remains a very well-managed business with category leading margins, meaningful property ownership and an opportunity to pick up market share on the other side of this crisis,” said the broker.
“Trading on ~11x (PE) trough earnings and strong balance sheet supported by property holdings, NCK provides exposure to an eventual recovery with lower risk relative to direct peers.”
Macquarie’s 12-month price target on Nick Scali is $5.20 a share.
Shut up and take my money
Meanwhile, UBS upgraded its recommendation on fast food franchisee Collins Foods Ltd (ASX: CKF) to “buy”.
Management issued a better than expected trading update yesterday, which makes the KFC operator one of the better performing fast food companies in the world.
The broker highlighted four other tailwinds that can drive the stock even higher. Australia’s growing love affair with takeaway and delivery food during the coronavirus lockdown is only but one.
When restrictions are eased, Collins Foods’ KFC outlets are likely to be benefit as well as people start moving around socially.
The return of domestic car-based tourists will also likely be calling in on the convenience food chain, while falling household budgets due to the recession will prompt consumers to turn to cheaper restaurant options.
“CKF is trading on a FY21E PE (ex AASB /depressed earnings) of 21.3x, (vs global peer median of 26.1x), which falls to 17.6x in FY22E,” said UBS.
“In our view, this is not overly demanding given the defensive qualities, combined with growth from continued store expansion opportunities.”
The broker’s price target on the stock is $8.95 a share.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods 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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