South32 shares have almost doubled in a year. At current valuation levels, more and more brokers are starting to turn against the stock.
Those brokers, including Morgans, MPC Markets and others, have also issued fresh ratings on two other ASX stocks this week.
Between the three, one has run too hard, one is caught in a housing downturn, and one is rebuilding itself.
Here's what the brokers had to say
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Hold: South32 shares
South32 Ltd (ASX: S32) shares have gained 96% over twelve months, which values the miner at roughly $23 billion.
Morgans has downgraded to a hold, arguing the earnings upcycle is now reflected in the price.
The broker noted the stock has outperformed even the pure copper producers.
To explain the rally, investors need look no further than the FY26 numbers.
Underlying revenue rose 7% to US$8,108 million and underlying EBITDA jumped 28% to US$2,462 million.
Underlying earnings after tax climbed 55% to US$1,032 million, with the operating margin widening 4.7 percentage points to 31.0%.
The final dividend more than doubled to US5.4 cents, taking the full-year payout to US9.3 cents fully franked.
Net cash reached US$283 million and free cash flow grew 136% to US$610 million.
Chief executive Matt Daley said of the year:
We're repositioning South32 as an upstream, base metals-focused company, primed for growth, and transforming into a simpler, stronger business.
Sell: Australian Finance Group
Australian Finance Group Ltd (ASX: AFG) finds itself in the opposite situation.
The mortgage aggregator closed near $1.435 at the start of the week, down almost 49% over twelve months and near a 52-week low.
MPC Markets sees more downside than upside from here, pointing to the slowing property market.
Home loan applications have fallen sharply since the May federal budget, and AFG's earnings follow that volume directly.
The frustrating part is that the business itself performed.
FY26 net profit after tax rose 39% to $49 million, with underlying profit up 33% to $54 million. Residential settlements grew 18% to $75 billion and the loan book expanded 30% to $7.1 billion.
More than 4,300 brokers now write roughly one in nine Australian mortgages through the group.
At 8.55 times earnings and a 5.94% yield, a housing downturn is already reflected in the price, potentially presenting an opportunity for investors who take a contrary view on the housing market.
Buy: Magellan Financial Group
Magellan Financial Group Ltd (ASX: MFG) is the contrarian call of the three.
Morgans remains constructive despite trimming its price target, and the reason is the Barrenjoey merger.
The merger was completed on 1 July. In this transaction, the investment bank contributed $112 million of operating profit after tax in FY26 at a 32.9% return on equity.
However, the headline numbers still look ugly.
Statutory net profit after tax of $146 million was roughly half the prior year.
Standalone Magellan revenue fell 12% to $291 million, and combined funds under management were $41 billion at 30 June.
Shareholders received a fully franked second-half dividend of 25.5 cents, an 80% payout, with a 60% to 90% range targeted from here.
The group intends to rebrand as Barrenjoey, subject to a shareholder vote at the annual general meeting in October.
Foolish takeaway
I think the Morgans' view on South32 shares is fair.
A 96% gain and a doubled dividend is what a commodity peak often looks like. The balance sheet is in excellent condition either way.
Australian Finance Group looks cheap yet very risky, since nothing improves for a mortgage aggregator until applications recover.
Magellan is the most interesting of the three, because the market is still valuing the company as a fund manager, instead of an investment bank. This could provide an opportunity for investors looking for bargain deals on the market.
