This sell-off could prove to be the second buying opportunity for cashed-up investors and top brokers are recommending a handful of ASX stocks to buy today.
The S&P/ASX 200 Index (Index:^AXJO) tumbled 1% in the last hour of trade when it was trading just below breakeven earlier in the day.
Investors are increasingly fretting about a resurgence in the COVID-19 pandemic and escalating tension between US allies and China aren’t helping.
I am expecting further market weakness as we head into the August reporting season, but as I mentioned before, any big pullback should be treated as a buying opportunity.
ASX gold stock beating expectations
Those hunting for well-priced ASX stocks to buy might want to watch the St Barbara Ltd (ASX: SBM) share price.
Morgan Stanley reiterated its “overweight” recommendation on the gold miner after it delivered a better than expected production report.
Gold output in the June quarter of 109,000 ounces was around 8% higher than the broker’s estimate and performance from its Gwalia mine was particularly pleasing.
Morgan Stanley pointed out that Gwalia is key to lifting St Barbara’s gold production in FY21 and the broker has a 12-month price target of $3.85 on the stock.
Given that gold is in vogue during times of heightened uncertainty, St Barbara looks like a worthwhile addition to a share portfolio.
Robust loan applications
Meanwhile, the Australian Finance Group Ltd (ASX: AFG) share price is another worth watching. The mortgage broker recently released a pleasing update, which prompted Macquarie Group Ltd (ASX: MQG) to restate its “outperform” rating on the stock.
Despite the impact of the coronavirus on our property market, mortgage applications have jumped and is reflected in the group’s lodgement activity.
“Our previous forecasts assumed a 30% decline in the level settlement activity in 1H21 (set in mid Mar20 as COVID-19 uncertainty peaked),” said the broker.
“The level of lodgement activity in 2H20 has caused us to revise our settlement activity forecast.”
But the broker lowered its assumed conversion rate between lodgement and settlement of the loan to around 55% from the historical average of circa 65%. This is to account for the tougher job market, weaker consumer confidence and operational delays.
However, the negatives can’t outweigh the positives and Macquarie thinks the stock is cheap. It’s 12-month price target on AFG is $2.34 a share, which implies a near 50% upside if dividends are included.
Looking cheap for the long haul
Finally, the Aurizon Holdings Ltd (ASX: AZJ) share price is looking good value to Credit Suisse, which repeated its “outperform” recommendation on the rail operator today.
While falling demand for coal due to the impact of the coronavirus on economic activity is a headwind for Aurizon’s haulage business, this isn’t as bad as it seems.
Firstly, the drop in demand for Australian coal is less severe than elsewhere. Secondly, this earnings impact is relatively small to Aurizon.
Around 41% of Aurizon’s earnings before interest and tax (EBIT) is exposed to coal haulage, and of this, around two-thirds of earnings is from take-or-pay contracts. This means the rail operator gets paid by the customer even if its wagons are empty.
Credit Suisse’s 12-month price target on Aurizon is $5.55 a share.
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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Aurizon Holdings 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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