The S&P/ASX 200 Index (Index:^AXJO) lost ground this week despite the nice bounce on Friday. But the pullback gave brokers an opportunity to upgrade some ASX stocks.
The top 200 benchmark jumped 1.5% today but still lost close to 1% on the week as fears of a second wave of COVID-19 infections gave bears the upper hand.
We are probably going to be stuck in a relatively tight trading range until we get a clearer picture on the coronavirus risk and earnings outlook.
But this doesn’t mean that individual stocks can’t outperform in this environment.
Shares on fire
One stock that can run higher is the Sandfire Resources Ltd (ASX: SFR) share price. The copper miner surged 5.8% to $5.12 after UBS upgraded the stock to “buy” from “neutral”.
The jump stands in contrast to its recent underperformance. Sandfire’s share price fell around 20% since the start of the year and is a big driver behind the broker’s change of heart.
The other factor is UBS’s more optimistic outlook for the copper price in 2020.
Copper price upgrade
“At the end of 2020Q1 we forecast a sharp copper price decline in Q2 due to a contraction in demand from the impacts of COVID-19,” said UBS.
“However, COVID-19 also impacted mine supply and the scrap trade which was greater than the downshift in demand.
“The copper price has been higher in Q2 than we expected and there is no evidence of large market surpluses.”
While the short mine-life for Sandfire’s DeGrussa project was another factor that kept UBS from taking a more positive view on the stock, it believes this risk is reflected in its current share price.
The broker’s 12-month price target on Sandfire is $6 a share.
Price rise no bubble
Meanwhile, the Redbubble Ltd (ASX: RBL) share price got a further boost today after Goldman Sachs upgraded its recommendation on the stock to “buy” from “neutral”.
The online printing services group recently issued a positive trading update that was well ahead of expectations. The company is well placed to benefit from the big shift towards e-commerce from stuck-at-home consumers avoiding the virus outbreak.
“This acceleration in momentum across revenue growth driven by strong customer growth, product expansion and artist additions is likely to provide the opportunity for RBL to drive stronger operating leverage in coming years,” said Goldman.
“Furthermore, valuation metrics of RBL’s peers have substantially expanded since our last update. The combination of these factors leads to a material upgrade to our earnings estimates and valuation for RBL.”
The broker’s 12-month price target on Redbubble is $2.35 a share.
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