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Why Alumina and Stockland share prices could outperform in coming weeks

Race

The Alumina Limited (ASX: AWC) share price and Stockland Corporation Ltd (ASX: SGP) share price are likely to outperform even as doubts emerge on the short-term direction for the S&P/ASX 200 Index (Index:^AXJO).

The bullish take on both stocks come from Morgan Stanley, which is predicting that their share prices will rise in absolute terms over the next 60 days.

If the broker’s prediction is right, it would be a welcomed relief for shareholders as the aluminium producer and property group have underperformed since the COVID-19 outbreak.

The disruption to the global economy has weighed on the price of alumina, while pressure on residential and retail properties have put real estate stocks in the sin bin.

But this may be about to change.

Set for a rebound

“The alumina price is bouncing off support levels, with AWC offering a clean exposure (CY20e 5% aluminium revenue exposure),” said the broker.

“We expect unprofitable alumina producers to exit the market, given the ease of shutting and restarting refineries.

“We think 2020 will provide the low-point for alumina input costs, and cost inflation could help to buoy prices.”

Dividend looks safe

While no one believes the price of the commodity is set to surge, Morgan Stanley believes it will hover somewhere below the marginal cost of production of Chinese smelters, which is estimated at around US$285 a tonne.

At that price, Alumina is well placed to generate a decent dividend for investors at around 4.5% in calendar 2020 and 3.4% the following year.

It’s not a big dividend but it’s enough to compensate investors to hang on to the stock in anticipation of the alumina price recovery.

Morgan Stanley estimates there is a 70% to 80% chance that the Alumina share price will rise in the next two months. The broker’s recommendation on the stock is “overweight” (or “buy”) with a $2.05 a share price target.

HomeBuilder stimulates Stockland

Meanwhile, Morgan Stanley is tipping a 60% to 70% chance that the Stockland share price will trend in the same direction over a similar period.

This is thanks to the recently announced $688 million HomeBuilder grant from the federal government.

The grant gives eligible new home buyers a $25,000 handout for properties that are worth under $750,000.

Well placed to benefit

“This is in SGP’s sweet-spot,given 70-80% of its products are sold to owner-occupiers/First Home Buyers,and its properties are at the affordable end (eg Sydney house & land entry price c.A$720k),” said Morgan Stanley.

“This will be a material positive for SGP’s FY21 outlook as we transition out of COVID-19.”

The broker recently upgraded Stockland to “overweight” with a price target of $4.30 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 no position in any of the stocks mentioned. 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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