Investment analysts are always on the lookout for opportunities to buy ASX shares, and there are plenty of companies worth buying.
The market is generally good at assessing the current worth of businesses based on current company-specific information and broader economic conditions.
However, sometimes, the market can be too pessimistic about a business or undervalue how much growth it may achieve in the coming years. That's usually how particular ASX shares can deliver stronger returns than the market average.
Let's take a look at two ASX shares that UBS is optimistic about.
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Zip Co Ltd (ASX: ZIP)
Zip is one of the larger buy now, pay later businesses in Australia and the US.
UBS rates the company a buy with a price target of $3.40. A price target is where the analysts think the share price will be 12 months from the time of the investment call. That implies a possible rise of close to 20% in the next year.
UBS was pleased to see Zip's recent upgrade to its cash operating profit (EBITDA) guidance to $160 million, which was an increase of 5% compared to the previous guidance of $153 million. This improvement was thanks to a strong US performance. Both April and May 2025 saw total transaction value (TTV) year-over-year growth of 40% in US dollars, which was stronger than the market was expecting.
The broker was impressed by the fact that the ASX share has accelerated US customer growth, but the credit loss performance has remained unchanged. In UBS' view, this leaves capacity to "invest harder into marketing in the US to generate greater net new customer growth from here", which supports the growth outlook.
UBS also noted that every rate cut equates to an incremental $5 million earnings boost thanks to a lower interest cost.
The broker is forecasting the business could reach positive profitability during FY26 with $38 million of net profit after tax (NPAT). By FY29, it could make $167 million of NPAT.
Challenger Ltd (ASX: CGF)
Challenger is a financial institution; it's the leading annuity provider in Australia, helping retirees turn lump sums into guaranteed income.
UBS currently has a buy rating on the business and a price target of $9.15, implying a possible rise of 13% from its current level.
The broker said APRA has proposed changes to annuity capital requirements that are aimed at "reducing the capital intensity and pro-cyclicality which exacerbates impacts during market downturns."
UBS believes this could lead to sizeable capital relief and return on equity (ROE) benefits for Challenger, before considering the potential for partial reinvestment into driving stronger annuity demand. The broker thinks there's significant scope for the Challenger share price to re-rate on a price to book ratio basis back towards other regulated capital-intensive ASX financial shares, suggesting "compelling value upside from here".
Commenting on the tailwind of the superannuation system for Challenger, UBS said:
CGF's growth appears well underpinned as Australia's Super system enters the retirement phase, supporting a mix shift towards longer-duration longevity risk products, which should see maturity rates reduce and sustain annuity book growth of ~6.5% CAGR vs 3.5% over the past 5 years.
The broker is forecasting a net profit of $451 million for Challenger in FY25, which could reach $599 million by FY29.
