Some ASX stocks that have missed out on the recent market recovery are starting to look too cheap to ignore, according to leading brokers.
Investors seem to have forgotten about these laggards even as market sentiment improves and the S&P/ASX 200 Index (Index:^AXJO) looks poised to record gains every day this week.
The bulls have been emboldened by stimulus talk in the US and the growing prospect of a clean Biden victory over Trump.
Potential turnaround prompts “buy” recommendation
But it seems that the Sims Ltd (ASX: SGM) share price didn’t get an invite to party with the stock falling 22% since the start of 2020.
Weak scrap metal prices are the primary reason but Citigroup sees light at the end of the tunnel. The broker believes the scrap market is turning and it reiterated its “buy” recommendation on the Sims share price.
“While HRC scrap spreads are now ahead of LT averages, scrap is cheaper than iron ore/coking coal for BOF-based steel producers,” said Citi.
“Turkey scrap is US$76/t cheaper than raw materials for European BOF operators compared to a LT discount of just US$13/t implying +US$60/t upside to scrap prices once EU steel production ramps back up.
“Likewise, US scrap is ~US$60/t cheaper than Brazilian export pig iron.”
The broker’s 12-month price target on Sims is $9.50 a share.
Strong balance sheet and improving outlook
Meanwhile, the Emeco Holdings Limited (ASX: EHL) is in a deeper hole after coming out of its recent capital raising. Shares in the heavy machinery company slumped 60% since January and Macquarie Group Ltd (ASX: EHL) reckons this is a good time to buy the stock.
The cash injection lowers Emeco’s leverage to 0.9 times, which is the lowest it has been since it floated on the ASX in 2006.
“There is strong demand in gold and iron ore with bidding activity high in the rental business and opportunities to grow the number of fully maintained project sites,” said Macquarie.
“EHL is now strongly placed to capitalise on growth opportunities and has flexibility to navigate the current softness in coal.”
Macquarie rates the stock as “outperform” and its 12-month price target is $1.15 a share.
Possible quick recovery
The Coca-Cola Amatil Ltd (ASX: CCL) share price lost its fizz this year but Goldman Sachs thinks its upside is underappreciated.
Unlike other consumer staples stocks, the COVID-19 pandemic delivered a bigger blow to the beverages group. Coca-Cola Amatil’s sales are largely by dine-in customers and social restrictions have forced food outlets to only offer takeaway.
The company went on a cost cutting drive to survive COVID and the broker thinks the market is underestimating the potential quick recovery.
“Our forecasts for CCL in the short term remain conservative when adjusted for the expected cost savings in FY20,” said Goldman.
“Additionally, in the medium term, our forecasts offer potential upside if the longer term cost savings were to materialize.”
Goldman is recommendation the stock as a “buy” and its 12-month price target on the CCL share price is $10.60 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. 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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