Market bulls have gained the upper hand with the S&P/ASX 200 Index (Index:^AXJO) jumping 1.8% today.
The world appears to finally be in control of the COVID-19 pandemic and investors are willing to look past the recession and into the recovery.
But investors shouldn’t get ahead of themselves. The fact that the big four banks have finished the session at their intraday lows shows the rebound remains vulnerable.
If you are looking for ASX shares that might hold their ground better, here are the latest buy ideas from leading brokers.
One stock that UBS is backing is Graincorp Ltd (ASX: GNC). The broker just reiterated its “buy” call on the grain handler as it believes the risk-reward is favourable after management posted a better than expected profit result.
There are also signs that the drought is breaking in parts along the eastern seaboard where Graincrop focuses on. This bodes well for our winter crop.
Further, the group’s balance sheet looks healthy with net cash of $5 million from its core businesses post demerger of UMG and divestment of the Bulk Liquid Terminals.
UBS’ 12-month price target on Graincorp is $4.50 a share.
Turning a corner
Meanwhile, Morgans reaffirmed its “add” recommendation on Superloop Ltd (ASX: SLC) after the broadband services company’s latest trading update.
The broker thinks Superloop is at a turning point after struggling with operational issues over the past year or so.
“Both 1H20 and 2H20 results, ex the COVID-19 overlay which is clearly not management’s fault, have been in-line with our expectations,” said Morgans.
“This implies that after several years of being in an earnings downgrade cycle, FY20 looks to be the base year, from which to grow.”
The broker’s price target on the stock is $1.30 a share.
Another stock for the watchlist is medical diagnostic group Sonic Healthcare Limited (ASX: SHL). Citigroup highlighted the stock as a “buy” after running several COVID-19 test scenarios.
The stock fell out of favour at the start of the pandemic because investors were worried that what it will make from running COVID-19 tests will not be enough to offset the drop in demand for its traditional services.
The broker estimates that the total market opportunity in the US alone from coronavirus testing stands at around US$6 billion for the six months to the end of calendar 2020.
“Assuming a SHL market share of 5%, it would increase group 1H21 revenue/EBITDA/NPAT by up to 13%/31%/63% over our baseline forecasts of ‘business as usual’, all else equal,” said the broker.
While there are some caveats to the forecast, the broker believes Covid-19 testing could provide a significant cushion against a drop in the base business.
“Under the 5% mkt share scenario the group’s global revenue would have to decline by 13% in 1H21 to offset the contribution from US Covid-19 testing,” explained Citigroup.
The broker’s 12-month price target on Sonic is $32.50 a share.
5 stocks under $5
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Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of SUPERLOOP FPO. The Motley Fool Australia has recommended Sonic Healthcare 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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