The S&P/ASX 200 Index (ASX: XJO) share segment of the market is a very useful hunting ground for finding opportunities that are leaders in their sector and potentially undervalued.
Investing in the industry leader can be very beneficial because of the (typically) strongest profit margins and their brand power to attract more customers/subscribers.
Experts from the broker UBS have outlined why they like a few different ASX 200 shares. Let's look at why the stocks have been buy-rated and how much they could rise.
Lottery Corporation Ltd (ASX: TLC)
UBS described Lottery Corporation as a business that operates lotteries and Keno products in Australia. It is exclusively licenced to operate all of Australia's state lotteries except Western Australia (with Lotterywest). Lottery Corporation distributes through approximately 4,000 retail outlets nationally, as well as digital channels.
The broker said the ASX share has established a reliable track record of innovations each year across the game portfolio to "at least keep games attractive to players but also contribute incremental" operating profit (EBITDA).
UBS notes that the company's management "remains confident in launching changes to Saturday Lotto pricing and division payouts in May this year". Lottery Corporation also expects to lift the Lotteries retail commission.
The broker is estimating an annual benefit to operating profit (EBITDA) of $23 million with a "small part period benefit in FY25 and the remainder reflected in FY26".
The experts also noted the ASX 200 share is hoping to update Powerball next year, and the broker expects pricing may be the primary 'target'.
According to UBS, Lottery Corporation shares are trading at 24x FY26's estimated earnings. The broker rates the company as a buy, with a price target of $5.80. That implies a possible rise of around 20% over the next year.
REA Group Ltd (ASX: REA)
UBS says REA Group is a real estate online advertising business. Its main site is realestate.com.au. It also has other Australian property-related businesses, including realcommercial.com.au, flatmates.com.au, PropTrack, Mortgage Choice, and more. It also owns most of REA India.
The broker recognises there are difficulties in the short term, such as headwinds from a geographic mix, the fact that the FY25 second half will be comparing against strong volumes in the FY24 second half, and potential deferrals of listings because of elections and consecutive public holidays.
However, UBS sees the longer-term benefits of "creating a more immersive portfolio and increased penetration of the luxe depth product" in FY26 and FY27.
The broker rates the ASX 200 share as a buy because of its business quality, longer-term growth opportunity, and strong track record.
UBS rates REA Group shares as a buy with a price target of $294. That implies a possible rise of close to 30% over the next year. It's valued at 44x FY26's estimated earnings.
