Now that the new financial year is in full swing, ASX shares continue their ascent, with the S&P/ASX 200 Index (ASX: XJO) marching to new all-time highs on Tuesday.
Brokers are in full swing too. Citi has rated three ASX shares as buys in various reports to clients this week.
Here's a closer look at what the broker said and what it could mean for investors.
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Nickel Industries Ltd (ASX: NIC)
Nickel Industries is the first stock Citi upgraded to a buy this week. Analyst Kate McCutcheon noted the nickel player's share price dropped 14% over the past 10 weeks, creating an attractive entry point.
The analyst sees positive earnings per share (EPS) growth from consensus upgrades and believes the company's H1 FY24 earnings before interest, tax, depreciation and amortisation (EBITDA) trough is "now cleansed", according to The Australian.
The ENC HPAL project, in which it owns 55%, is also ahead of schedule. First production is expected in the third quarter of CY25. McCutcheon says that most consensus estimates haven't yet factored in ENC to the company's pre-tax earnings.
Citi also believes the market's cost expectations for NIC's newer rotary kiln-electric-furnace (RKEF) projects, Oracle Nicke (ONI) and Angel Nickel (ANI), are too high.
NIC is a bottom quartile producer and has demonstrated profitability through cycle with committed production growth to capture pricing upside.
With nickel sub 17,000 a tonne, nickel production cuts, should support sentiment/price. NIC is now the only pure-play nickel producer left on the ASX.
Citi has set a target price of $1.05 for the ASX share. Bell Potter also rates the stock a buy with a $1.54 price target.
These targets represent an upside potential of 22% and 78% from the current price of 80.6 cents per share, respectively.
CAR Group Ltd (ASX: CAR)
Citi sees significant potential in CAR Group. The broker upgraded its rating to buy and increased its target price on the ASX share to $39.80.
At the time of writing, stock in CAR Group —formerly known as Carsales.com — is fetching $35.70 apiece, up nearly 15% this year to date.
Analyst SIraj Ahmed said the bank expects double-digit earnings growth from CAR over the medium term.
Ahmed projects that FY24 earnings per share (EPS) growth should accelerate to 17% from 13.2% in FY23. CAR's international business, particularly in Brazil and the US, should benefit from rate cuts, he also noted.
While another RBA rate rise and weakening demand are risks to the Australian business, we see Car Group having a very strong position and expect it to deliver solid growth even in a tough environment.
Potential bolt-on mergers and acquisitions (M&A) could further boost growth, especially in the US, Ahmed says.
Citi values the ASX share at $39.80 apiece, implying an 11.7% upside from the current price.
BlueScope Steel Ltd (ASX: BSL)
Citi's Paul McTaggart also upgraded BlueScope Steel to buy from the firm's previous neutral rating.
He expects US steel prices have hit their lows and will rise post-Northern summer. McTaggart also noted that US monetary conditions are set to turn expansionary, which could benefit BlueScope.
We think US steel prices are now near their lows with a post Northern summer uptick expected and with US monetary conditions set to turn expansionary.
We trim our target price to $23.70 from $24 but raise our rating to Buy as we look through near term earnings weakness and likely consensus earnings downgrades.
Despite trimming FY25 earnings before interest and tax (EBIT) to $1.11 billion due to falling export spreads, Citi sees EBIT lifting to $1.73 billion by FY27.
Shares in the ASX mining stock are currently swapping hands at $21.41 apiece, meaning Citi's price target implies around 11% upside potential.
ASX shares Foolish takeout
Citi's positive outlook on Nickel Industries, CAR Group, and BlueScope Steel suggests it sees strong growth potential in each of these ASX shares.
Investors looking to diversify their portfolios with promising ASX stocks may find these upgrades compelling. As always, consider your investment goals and risk tolerance before making any decisions.
