It's hard to keep the bulls at bay! The morning market sell-off reversed at lunch with the S&P/ASX 200 Index (Index:^AXJO) trading 0.7% higher in the last hour of trade.
It's not too late to join the party either. Leading brokers have just named three ASX stocks that are trading at a significant discount to fair value.
While it's the iron ore majors like Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) that have been dominating the spotlight in the sector, Goldman Sachs points to a lesser known buy idea.
New iron ore champ
The stock is Canadian miner Champion Iron Ltd (ASX: CIA). The broker initiated coverage on the stock with a "buy" recommendation and 12-month price target of $3.50 a share.
Champion's main asset is its 100% owned Bloom Lake iron ore mine in Northern Quebec. Management is aiming to double production to 15 million tonnes a year by the second quarter of 2023 and Goldman thinks is one of the lowest capital intensity iron ore expansions globally.
"Previous owner Cliffs had already spent US$1.2bn before Phase II was placed on hold," said the broker.
"Remaining capex requirements for CIA for the expansion from 8Mtpa to 15Mtpa is C$634mn (US$480mn) and equates to a capital intensity of just US$69/t."
That's well below the US$144 a tonne for Rio's IOCC expansion and US$118 a tonne paid by FMG for its Iron Bridge project.
Price target upgrade
Meanwhile, Morgan Stanley upgraded its price target on Charter Hall Group (ASX: CHC) by a massive 28.2% to $11.60 a share and reiterated its "overweight" call on the property group.
Not only is the group relatively unaffected by the COVID-19 pandemic, it's using the opportunity to acquire assets in the turmoil.
"One of the under-appreciated points about CHC is the expansion of its Funds Management margin – increasing from c.40% in FY15 to c.70% in FY19," said the broker.
This margin expansion is sustainable thanks to scale, a focus on lower-touch assets like triple-net properties and lower exposure to the troubled retail segment.
Trading at a discount to peers
Finally, Credit Suisse reiterated its "outperform" recommendation on the Healius Ltd (ASX: HLS) share price after it compared it to its closest rival Sonic Healthcare Limited (ASX: SHL).
The review comes in the wake of the sale of Healius' medical centres to a private equity consortium for $500 million. This will allow management to focus on turning around its underperforming pathology business.
"We estimate HLS pathology has on average, operated at ~300bp lower EBIT margin to SHL, yet this did widen in FY19 to ~400bp," said the broker.
"In our view, HLS is less profitable relative to SHL due to a larger collection centre footprint, higher rents and less complex test mix."
Credit Suisse thinks Healius can narrow this gap and pointed out that the stock's price-earning multiple is at a 10% discount to the ASX200 Industrials (excluding financials).
The broker's price target on the stock is $3.25 a share.
