The S&P/ASX 200 Index (Index:^AXJO) bounced back from yesterday's sharp sell-off and ASX stocks that are on brokers' latest buy list are outperforming.
The lack of any major negative surprises from the reporting season and signs of optimism in the fight against COVID-19 means equities are well placed to keep running ahead.
One stock that Goldman Sachs is sure will keep rising is the Lendlease Group (ASX: LLC) share price.
Conviction buy candidate
Shares in the construction and property group jumped 1.9% to $12.10 at the time of writing, but it's still down by 33% since the start of 2020.
But it may not be lagging for long as Goldman reiterated its "buy" recommendation on the stock, which is also on its "conviction list" as it believes Lendlease is about to re-rate.
New strategy to unlock value
The group is aiming to get an 80% plus lift in its annual rate of development production. The earnings benefit from this will come from its Investments business in the form of faster funds under management (FUM) formation and greater cornerstone investments.
This is opposed to stronger development profits or return on invested capital (ROIC).
Management will also create additional core-plus and value-add funds and lower its exposure to peripheral businesses (e.g. US telco tower and retirement assets).
Further, Lendlease is removing non-cash mark-to-market movements from its core operating profit measure.
Re-rating opportunity
"All of these moves should in our view help to reframe investor perceptions of LLC," said Goldman.
"The Group is already a leading manager of Real Estate assets, with A$36bn of FUM globally and arguably unrivalled product creation capabilities.
"In the past however, we believe the value of LLC's high quality investment management platform has been obscured by its 'lumpy' development profit contributions, relatively low level of earnings visibility from period to period, and exposure to higher risk Engineering earnings (and losses)."
The broker's price target on the stock is $16.37 a share.
Lower risk profile to trigger uplift
Another stock that is expected to benefit from a re-rating is the Cleanaway Waste Management Ltd (ASX: CWY) share price, according to Morgan Stanley.
The company posted a pleasing full year profit result and the broker sees further upside in the stock from a de-risking.
"We view CWY's business resilience and growth opportunities as appealing, and its risk-adjusted return potential is in the top quartile of our utilities and infrastructure coverage," said Morgan Stanley.
Better than its peers
Cleanaway revenue is less impacted by COVID-19 than its peer Bingo Industries Ltd (ASX: BIN). It also has greater ability to cut costs and its earnings are getting increasingly more defensive.
"We estimate that CWY earned ~28% of revenue and 37% of EBITDA from long-term municipal contracts or infrastructure assets in FY20," added the broker.
"Over FY21-22, these utility/infrastructure earnings are likely to grow."
Morgan Stanley's 12-month price target on Cleanaway is $2.78 a share.
