The S&P/ASX 200 Index (Index:^AXJO) is under pressure from profit misses from some leading stocks. But it isn’t all bad news as brokers upgraded their call on a number of ASX stocks.
But the Metcash Limited (ASX: MTS) share price is bucking the downtrend after Citigroup upgraded the stock to “buy” from “neutral”.
Stronger for longer triggers upgrade
Shares in the grocery distributor jumped 0.5% to $2.98 in the last hour of trade when losses on the ASX 200 deepened to 0.9%.
Citi believes the COVID-19 tailwinds that have lifted the Metcash share price, Woolworths Group Ltd (ASX: WOW) share price and Coles Group Ltd (ASX: COL) share price will persist for longer than many are expecting.
Social restrictions and lockdowns to contain the virus triggered panic buying of food and other household goods. Flattening the coronavirus curve or even finding a vaccine is unlikely to change the positive outlook for the sector over the medium term.
“The grocery outlook remains strong across the industry, with elevated sales growth; rational market conditions and earnings/dividend stability warranting an overweight position across Coles/Woolworths/Metcash,” said Citi.
The broker’s price target on Metcash is $3.50 a share.
Cleared for capital raise
Meanwhile, the embattled Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is likely to get some reprieve. JPMorgan upgraded the stock to “neutral” from “underweight” on the back of the airport’s $2 billion capital raise.
The SYD share price was badly hit by the collapse in the travel market from COVID-19, but that doesn’t change the fact that it’s a quality asset with monopolistic power.
Enough runway for a recovery
“The duration of the passenger downturn continues to be pushed out, and international likely requires a vaccine before it can find a new normal,” said the broker.
“Importantly, we believe the raising will ensure SYD doesn’t breach covenants, but we await a turn in passengers and earnings before becoming more bullish.”
The Sydney Airport share price is in a trading halt as it finalises its $4.56 a share cap raise. The stock last traded at $5.39 a share and will likely fall when it returns to the bourse, although I think it will find a base comfortably ahead of the offer price.
Another stock that got upgraded was the JB Hi-Fi Limited (ASX: JBH) share price. Credit Suisse lifted its rating on the electronics and whitegoods retailer to “neutral” from “underperform” as it takes a more positive view on the fiscal cliff issue.
The JBH share price outperformed during the COVID crisis as work-from-home restrictions fuelled demand for IT equipment.
Smaller than expected drop
The sector was facing a potential cliff as the support measures were initially meant to be withdrawn from September.
But the federal government is extending some of these wage support packages, although it will taper the payments through to March 2021. This means the cliff could turn out to be a relatively gentle slope instead.
Credit Suisse lifted its 12-month price target on the stock to $42.71 from $34.52 a share.
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Motley Fool contributor Brendon Lau owns shares of Telstra Limited and Woolworths Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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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