The market may be testing record highs but it isn’t all good news for investors as brokers have just downgraded these three ASX shares.
The S&P/ASX 200 Index (Index:^AXJO) jumped 0.4% in the last hour of trade and is within striking distance to its all-time high.
But some ASX shares are being left behind, like the National Australia Bank Ltd. (ASX: NAB) share price.
ASX shares copping a downgrade
The NAB share price shed 0.7% to $25.72 at the time of writing. It doesn’t help that Bell Potter downgraded the shares ahead of NAB’s quarterly results next month.
It’s not that the broker is expecting it to be a disaster. If anything, NAB’s outlook for the current financial year is positive thanks to falling impairment charges and cost cutting.
“On the other hand, there was minimal change to net operating income in every year,” said the broker.
“The key difference lies in FY21e with its 66% jump in cash earnings, and this falls to 5% in FY24e and onwards.”
Bell Potter cut its recommendation on the NAB share price to “hold” from “buy” with a 12-month price target of $27.50 a share.
Production risk triggers downgrade for this ASX share
Another ASX share that is on the wrong side of breakeven today is the St Barbara Ltd (ASX: SBM) share price.
The gold miner lost 1.7% to $1.72 in late trade after Citigroup downgraded the St Barbara share price to “neutral/high risk” from “buy/high risk” following the quarterly production update.
Lack of confidence
“FY22 prodn guidance relying heavily on replicating JunQ performance at Gwalia, raising concerns given past poor performance,” said Citi.
“Gwalia must consistently replicate JunQ to achieve bottom guidance 180koz. Costs to remain high $1710-1860/oz vs FY21a $1616/oz.”
The broker’s belief that the gold price has past its peak also isn’t helping. Citi’s 12-month price target on the St Barbara share price is $1.75 a share.
Gold’s outlook losing its shine
The broker noted that gold prices failed to rally even as the US 10-year inflation adjusted government bond (US 10y TIPS) yield hit new lows recently.
“US 10y TIPS have made new lows around -1.15% but gold is still failing to rally, trading around the [US]$1,800/oz mark,” said Macquarie.
“Without either a reappraisal of inflation or materially negative turn in the path of the virus (e.g. mutation which rendered current vaccines ineffectual), they also struggle to see gold building significant momentum.”
Against this backdrop and the fact that the West African Resources share price has outperformed recently, the broker decided that there isn’t enough upside left for the ASX miner.