February may be the shortest month of the year, but it’s also a good time to take a look at your share portfolio.
With the Christmas period fading into the distance and brokers back at work, February is a good time to consider how your portfolio is positioned to perform over the coming year. It may be time to shed ASX shares where the outlook is no longer positive or add promising ASX shares to your portfolio.
To help you do that, we’ve taken a look at 4 ASX shares that brokers have recently rated as buys.
ALS Limited (ASX: ALQ)
Goldman Sachs slapped a buy rating on ALS last week thanks to a favourable backdrop for industrial performance. ALS provides testing and inspection services to the mining industry, as well as equipment maintenance and quality assurance to the food and pharmaceutical industries. The ALS share price is currently $11.09, up 14.8% from a year ago.
ALS reported a decline in revenue of 8.9% in 1H FY21, with total revenue of $838.8 million for the half. This was attributed to the COVID-19 pandemic, with significant improvement reported in the second quarter. Nonetheless, the drop in revenue flowed through to profits which dropped by 48.1% to $70.3 million.
Improved performance is expected in the current half as earnings recovery is driven by a healthy macro and commodity pricing backdrop. ALS says its diversified portfolio of businesses and geographies have proven resilient during the pandemic, with its model leveraged to align cost base with client demand.
The ALS share price has remained largely flat since it delivered its first-half results in November despite healthy commodities pricing. Goldman Sachs views ALS as a clear beneficiary of a tightening mining services market and expects its minerals segment to drive an uplift in consensus estimates.
Carsales.Com Ltd (ASX: CAR)
Carsales.Com is the company behind the carsales.com.au website, the largest online automotive, motorcycle, and marine classifieds business in Australia. The company is due to release its results for the half-year ended 31 December 2020 next week.
2020 was a challenging year for the company. Immediate cost-saving measures were implemented as the pandemic took hold in line with reduced levels of customer activity. Net profit after tax fell 9% in FY20, but there have been tailwinds as customers embrace online shopping and show a preference for car usage due to concerns about using public transport. The Carsales share price tanked (along with most of the ASX) in March last year but is currently trading almost 12% up from where it was a year ago.
Goldman Sachs put a buy rating on Carsales earlier this month citing its underperformance since the announcement of vaccine efficiency. The broker acknowledges that the used car market’s sustainability is a key focus, but maintains an optimistic outlook, believing Carsales can deliver growth in earnings per share (EPS) of around 14%.
This will be driven by improving new car sales, the non-repeat of COVID-related dealer concessions, and ongoing cost discipline supporting margins. Exposure to international growth markets, including Korea, is also expected to drive increases in earnings.
Nearmap Ltd (ASX: NEA)
Nearmap shares took a tumble this week thanks to a report by short-seller J Capital. The Nearmap share price is nonetheless still up 13% from this time last year.
J Capital says Nearmap’s US business is suffering from competitive pressures. The short seller warned Nearmap could be dependent on capital raisings to fund operating losses in the US.
But a fortnight ago, Goldman Sachs upgraded Nearmap to a buy rating, citing the strong economic recovery expected for the US and Nearmap’s “market-leading” technology capabilities. J Capital, however, says Nearmap’s technology is not best in class, with a key competitor in the US having a better camera system.
Nearmap’s business is based on the capture of aerial images sold as a subscription service to businesses and government. Operating in the US, Australia, and New Zealand, Nearmap’s images are combined with artificial intelligence to deliver insights and location intelligence to users across various industries.
Despite rating Nearmap a buy, Goldman Sachs has downgraded its earnings forecasts due to more modest US growth forecasts and updated foreign exchange forecasts. Nonetheless, the broker says the impact of COVID on sales cycles should ease through 2021 and that Nearmap’s competitive advantages appear undiminished.
Megaport Limited (ASX: MP1)
Megaport is another ASX technology share with a recent buy rating. The company is a network-as-a-service provider that provides bandwidth to connect to cloud services and data centres.
Currently sitting above $14, the Megaport share price is up nearly 30% over the past year. In the first half of FY21, Megaport increased its annualised revenue 11% to $75 million, with revenue for the half up 39% from 1H FY20.
The company is benefitting from the acceleration of migration to public cloud infrastructure. Customers are choosing to move to public cloud infrastructure as COVID-19 forces them to confront the difficulties of managing on-premise infrastructure. Incremental revenues are expected to accelerate in 2021 as companies action long-term plans to migrate to the cloud.
Goldman Sachs rated Megaport a buy in January, noting that the number of services per customer continues to rise. Megaport is continuing to expand its product suite, broadening the services provided to customers. The more services customers use, the less likely they are to churn, resulting in improved customer lifetime value.
Megaport maintains a healthy cash position with $144 million in cash at the end of 2020. The focus in 2H FY21 is on revenue growth and achieving earnings before interest, tax, depreciation and amortisation (EBITDA) breakeven on an exit run-rate basis.
These 4 ASX shares all have recent buy ratings indicating they may be undervalued. If so, share prices should increase over the long term.
Investors seeking long term capital appreciation often look to undervalued shares, as well as those with long term growth prospects. While you should always do your own research before committing to buy ASX shares, these 4 ASX shares may warrant further exploration.
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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia has recommended carsales.com Limited, MEGAPORT FPO, and Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.