The S&P/ASX 200 Index (Index:^AXJO) surrendered its morning gains to trade flat. But these three ASX stocks are on a high after being upgraded by brokers to “buy”.
The Iluka Resources Limited (ASX: ILU) share price surged 3.7% to $5.31 on Monday. This makes it the third best performer on the ASX 200 after the Coca-Cola Amatil Ltd (ASX: CCL) share price and Idp Education Ltd (ASX: IEL) share price.
Upgraded to buy based on attractive peer valuation
Investors got excited about Iluka after Citigroup upgraded the stock to “buy” from “neutral”. The move comes after the broker reviewed its valuation on the mineral sands miner following the spin-off of Deterra Royalties Ord Shs (ASX: DRR).
Citi noted that the market is valuing the remaining Iluka assets at $1.67 billion before today’s share price surge, or $5.12 a share.
This is too low as the broker reckons fair value is $6.20 based on peer valuations.
Building to an upgrade
Another stock that outpaced the market today is the CSR Limited (ASX: CSR) share price. Shares in the building materials supplier gained 2.8% to $4.72 after Credit Suisse lifted its rating on the stock to “outperform” from “neutral”.
The outlook for non-residential construction is improving and that means the expected volume declines are all but reversed.
“We increase our segment weighted market forecast a cumulative ~10% to FY23 (-9% and -2% YoY in FY21 and FY22, respectively), and assume that CSR outperforms this by ~5%,” said the broker.
“This compares to [an estimated] ~3% outperformance in FY20, and 5-yearr average of ~7%.”
What’s more, detached housing construction is rebounding thanks to the government’s Homebuilder grant. This segment accounts for 51% of CSR’s revenue.
Credit Suisse upped its 12-month price target on the CSR share price to $5.30 from $4.10 a share.
Legal headwind not much of a challenge
Finally, the Mineral Resources Limited (ASX: MIN) gave shareholders a reason to smile following a bout of recent weakness. The MIN share price jumped 2.8% to $25.61 but it’s still well down from the near $30 peak it hit last month.
A legal challenge by Fortescue Metals Group Limited (ASX: FMG) is the main driver for the weakness.
Mineral Resources intends to acquire the Wonmunna Iron Ore Project from Australian Aboriginal Mining Corporation (AAMC) but FMG is trying to get the court to declare the Wonmunna mining leases invalid.
But Bell Potter isn’t concerned as it upgraded the stock to “buy” from “hold”.
“Incorporating Wonmunna has increased our FY21 EPS forecast by 2.6% and by 6.6% in FY22, resulting in our price target increasing from $28.10 to $28.50,” said Bell Potter.
“We have upgraded our recommendation to Buy, noting the pull back in the share price from >$30 to <$25, resilient iron ore pricing, plus potential new projects to increase Iron Ore exports from 20Mt in FY21 to >70Mt within 5 years.”
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Returns As of 6th October 2020
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