There are some ASX shares that a market expert thinks are top picks for 2021.
James Gerrish from Market Matters has identified some businesses that could be worth watching this year.
Market Matters are very bullish about shares and the overall ASX in 2021. Here are three of those picks:
Commonwealth Bank of Australia (ASX: CBA)
Mr Gerrish's low risk pick in the banking sector is CBA. He acknowledged that the biggest bank isn't an earth-shattering pick. Market Matters thinks that bank prices could rally for at least the next six to twelve months. Mr Gerrish thinks the CBA share price could rise back to the mid-$90s.
One of the points for banks is that they borrow for the short-term and lend for the long-term. CBA is benefiting from a steepening yield curve at a time when loan growth is likely to surge.
As a reminder, FY20 statutory net profit after tax (NPAT) dropped 12.4% to $9.63 billion and cash NPAT declined 11.3% to $7.3 billion. The net interest margin (NIM) declined by another 2 basis points to 2.07% because of the impact of lower interest rates.
The latest financial result was the FY21 first quarter trading update which showed that CBA generated $1.9 billion of statutory NPAT and $1.8 billion of cash profit, down 16% on the prior corresponding period. CBA said that income was stable, but expenses (excluding customer remediation) were up 2%. In that latest quarter, the CET1 ratio continued to strengthen as it grew 20 basis points to 11.8%.
Looking at the Commsc earnings estimates for CBA shares, it's valued at 21x FY21's estimated earnings.
Lendlease Group (ASX: LLC)
Mr Gerrish said that Lendlease is in the sweet spot as property values rebound strongly and governments focus on infrastructure development. The target share price for Lendlease over the next 12 months is $17, which is just over 30% higher than the current Lendlease share price.
The FY20 result was heavily disrupted by COVID-19 impacts. The FY20 bottom line was a statutory loss after tax of $310 million. The core business delivered a net profit after tax of $96 million, though the second half of FY20 saw a net loss of $202 million. The core business has a development pipeline of $113 billion, which is up 48%. One of the key projects is the San Francisco Bay area project which is a $21 billion deal with Google to develop three of the internet giant's major districts in the San Francisco Bay area over 10 to 15 years into mixed-use communities.
It recently completed the sale of its engineering division, though it kept the Melbourne Metro project – amending documents have been signed to deliver the tunnels and stations.
According to Commsec, the Lendlease share price is valued at 23x FY21's estimated earnings.
Monadelphous Group Limited (ASX: MND)
Mr Gerrish said that Monadelphous, which is skewed towards engineering and construction in the mining sector, had an initial $13 price target but the strong pipeline of work brings a potential share price of $18 into play. At a current price of just over $14, that suggests room for growth of almost 30%.
Monadelphous recently announced it had secured new construction and maintenance contracts with both Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) with a combined value of approximately $60 million.
There is a three-year master services contract with Rio Tinto for the delivery of sustaining capital projects across various mine sites and port operations through the Pilbara region in Western Australia. There's another three-year contract with Rio Tinto to provide mechanical, electrical and access maintenance services for fixed plant shutdowns at Rio's Gove operations in the Northern Territory.
The BHP contract is a 12-month extension to its existing mechanical and electrical maintenance, shutdown and project services across BHP's WA nickel operations.
According to Commsec, it's priced at 23x FY21's estimated earnings.
