The S&P/ASX 200 Index (Index:^AXJO) is clawing its way back from the abyss, but any bounce could be an opportunity to sell shares that have just been hit by broker downgrades.
The top 200 benchmark is trading 1.7% lower in after lunch trade but that’s only around half of what it lost this morning.
The sharp sell-off was triggered by fears of a second wave of COVID-19 infections in the US and I think any pullback is an opportunity to buy as I don’t see the market returning to its March bear market low.
But not all popular stocks should be on your watchlist, not according to some leading brokers who just downgraded these two ASX shares to “sell”.
Paying more than full price
One that got its recommendation cut by Credit Suisse is JB Hi-Fi Limited (ASX: JBH). The broker lowered its rating on the electrical and white goods retailer to “underperform” from “neutral” today even after management’s positive trading update.
But Credit Suisse is urging investors to take the opportunity to take profit after JB Hi-Fi sales benefited from stay and work at home restrictions to curtail the pandemic.
While the retailer is seen as a quality stock given managements propensity to under promise and overdeliver, the broker pointed out that it’s trading on a significant premium to peers like Harvey Norman Holdings Limited (ASX: HVN) and its own historical multiples.
The broker also believes that FY21 earnings are “very likely” to be lower despite the tailwinds and it sees its sell recommendation on the stock as a relatively low risk call.
Credit Suisse’s 12-month price target on the stock is $34.52 a share.
Meanwhile the Webjet Limited (ASX: WEB) share price crashed 6.8% ahead of the close to $3.90 after Morgan Stanley downgraded the stock to “underweight” from “equal weight”.
The broker made the cut as it pointed out six reasons why it preferred Corporate Travel Management Ltd (ASX: CTD) over the online travel agent.
For one, Corporate Travel looks to be better priced than Webjet based on market cap and enterprise value.
The corporate travel group’s cash burn is also lower than Webjet and its exposure to the collapse Virgin Australia airline is smaller.
Further, CTD’s earnings are expected to recovery quicker than Webjet’s as more of its bookings are for domestic travel.
Morgan Stanley also prefers CTD for its direct relationship with its business customers while Webjet is used more as a price comparison service.
Lastly, the broker thinks CTD is better placed to acquire a bargain. The group has access to capital and a long list of potential takeover targets.
Morgan Stanley’s price target on Webjet is $3.30 a share.
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Motley Fool contributor Brendon Lau owns shares of Webjet Ltd. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. 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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