There are a number of ASX stocks that are testing their record highs. While some look like they’ve overshot fundamentals, top brokers think some are still good value.
These well priced overachievers aren’t in the overheated tech space – so it doesn’t include the rocketing Afterpay Ltd (ASX: APT) share price.
The one that sticks out in my view is the James Hardie Industries plc (ASX: JHX) share price, which is hovering close to its record high.
Remodelling upside pushes James Hardie’s valuation
The building materials supplier’s recent positive update is driver, but it isn’t the only one. US data on home remodelling points to further potential gain for James Hardie.
“New data points from the NAHB Remodeling Market Index(RMI) and the Harvard Leading Indicator of Remodeling Activity (LIRA) suggest continued growth in the US remodeling sector,” said Morgan Stanley.
“In the third quarter, all components and subcomponents of the RMI were 77 or above (>50 equals a positive stance).”
Best placed ASX stock to buy
This is true across all project sizes, whether its for remodelling work worth over US$50,000 to those under US$20,000.
The LIRA was revised upward and is signalling a steady expansion through to the third quarter of 2021.
James Hardie is the best placed among ASX stocks to benefit from this thematic.
Woolworths share price to retest highs
Meanwhile, if you thought the Woolworths Group Ltd (ASX: WOW) share price is running out of puff after hitting its record high of $40.58 back in August, think again!
Shares in our largest supermarket chain may have pullback from its peak, but it’s returned to within striking distance to the high at $39.50.
It’s only a matter of time before it sets a fresh record, according to UBS. The broker listed five reasons why the Woolworths share price can head higher.
Five reasons to buy the WOW share price
The first is industry feedback, which suggests Woolies’ trading condition is better than what the market is expecting.
The second is the supermarket’s potential to deliver above consensus estimates. Brokers on average are tipping around a 4% like-for-like sales increase in the December quarter, but UBS thinks this is too conservative.
Further, Woolworths may also surprise on margins. While the group has shown little operating leverage during the COVID‐19 panic buying spree, this could change. UBS believes that lower wages growth and costs will enable the group to positively surprise.
The last two are UBS’s 12% plus forecast growth in Food earnings before interest and tax (EBIT) and possible capital management enticements. Management may have the spare cash to fund some capital management initiatives from the expected demerger of the Endeavour drinks business.
UBS is recommending the stock as a “buy” with a 12-month price target of $44 a share.
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The Motley Fool Australia owns shares of AFTERPAY T FPO 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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