The market might be suffering from a seizure today but that hasn’t stopped leading brokers from upgrading some ASX stocks to “buy” today.
Losses on the S&P/ASX 200 Index (Index:^AXJO) deepened with the index shedding around 2.5% in the closing moments of trade.
There was blood everywhere with every sector posting losses at the time of writing.
A clean upgrade to buy
However, one ASX stock that’s bucking the trend is the GWA Group Ltd (ASX: GWA) share price. Shares in the bathroom fittings and fixtures group jumped 6.7% to $2.85 in late trade, making it the third best performer on the ASX 200.
GWA’s outperformance comes on the back of two broker upgrades. Credit Suisse noted that work-from-home consumers are spending up on renovations and home improvement projects.
“Google Trends show ‘bathroom renovation’ searches up 50- 60% in May-July vs pre-COVID,” said the broker.
However, it noted that demand was stronger for lower margin bathroom fittings as opposed to the more profitable sanitaryware products.
Nonetheless, GWA is still looking cheap as its stock has lagged the market and demand for its products from commercial constructions is strong.
The broker upgraded the stock to “outperform” from “neutral” with a 12-month price target of $3.05 a share.
Second upgrade for this ASX stock
Credit Suisse isn’t the only one turning bullish on GWA. Goldman Sachs also upgraded the stock to “buy” from “neutral”.
“We recognise the macro outlook for GWA remains challenged with the residential construction cycle to remain under pressure over the coming 12 months,” it said.
“However, GWA has a strong market position, the capacity to drive operational efficiencies to buffer against revenue pressures, and a balance sheet robust enough to withstand this period of weakness.”
Goldman’s price target on GWA is $3.25 a share.
Another ASX stock upgraded to buy was the Seven West Media Ltd (ASX: SWM) share price. Macquarie Group Ltd (ASX: MQG) lifted its rating on the stock to “outperform” from “neutral” as it sees a 70% upside for the stock.
Seven West isn’t without its challenges though. The COVID-19 crisis exacerbated the downtrend in advertising and there’s a high level of uncertainty in the outlook for ad spend in this recessionary environment.
But Macquarie points to a number of positive to offset the headwinds.
ASX stock upgraded for looking cheap
“From a ratings perspective, SWM recently had its best week in two years following the resumption in AFL and initial success of Big Brother,” said the broker.
“Sport continues to be key from a ratings standpoint and will help attract advertisers when ad markets improve.”
Macquarie’s price target on the stock is 17 cents a share.
The new code of conduct announced by the federal government today is another positive, in my view, and isn’t captured in Macquarie’s upgrade.
The code will force Facebook, Inc. Common Stock (NASDAQ: FB) and Google’s parent company Alphabet Inc Class C (NASDAQ: GOOG) to pay traditional media companies for using their content on the social media platforms.
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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 and Super Retail Group 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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