Our market may have bouncing from yesterday's sell-off, but there are some ASX shares that are left behind after getting downgraded by leading brokers.
The S&P/ASX 200 Index (Index:^AXJO) jumped 0.5% in after lunch trade with most sectors apart from Energy gaining ground.
But the optimism failed to reach the A2 Milk Company Ltd (ASX: A2M) share price after Morgans cut its rating on its shares.
Left on the shelf
The broker did a channel check and doesn't believe the milk products company's sales have improved materially.
"E-commerce platform pricing in China doesn't appear to be materially improving," said Morgans.
"And in Australia we have noticed that the retailers and pharmacies are discounting stock to clear aging inventory."
No use crying over spilt milk
The company's other nutritional products that traditionally have strong appeal to Chinese consumers are also being discounted.
Worsening relations between Australia and China after the federal government revoked Victoria's Belt and Road agreement with the Asian giant is fanning the flames of animosity.
Such tensions will only hurt ASX shares like A2 Milk who have an overdependence on the Chinese consumer.
Another profit downgrade could be on the cards
"We can't rule out the possibility of a fourth downgrade from A2M," added Morgans.
"To us, the fact that stock is being discounted, is slow to sell and is aging, would suggest that A2M has potentially a larger inventory issue than it has previously estimated."
The broker downgraded the A2 Milk share price to "hold" from "add" with a 12-month price target of $8.34 a share.
The A2 Milk share price fell 1.2% to $7.62 at the time of writing.
Broker downgraded due to lack of upside
Another ASX share that lost favour with investors today is the Amcor CDI (ASX: AMC) share price.
The analysts at Macquarie Group Ltd (ASX: MQG) cut their recommendation on the packaging giant to "neutral" from "outperform" ahead of its quarterly result on 5 May.
"Raw materials are a key focus and have continued to push higher," said the broker.
"AMC has baked some raw mat inflation into FY21 guidance, however costs have increased further, exacerbated by the US freeze in Feb."
When good isn't good enough
The good news is that rising costs shouldn't be enough to stop Amcor from achieving its 10% to 14% earnings per share growth guidance.
However, Macquarie noted that inflation removes any chance of the group achieving a better-than-expected result.
No post-COVID kick
What's more, the COVID-19 recovery trade isn't expected to have any positive impact on the Amcor share price either.
Macquarie prefers backing stocks with greater cyclical recovery prospects.
The Amcor share price fell 0.4% to $15.18 in the last hour of trade. The broker's 12-month price target on Amcor is $16.09 a share.
