The latest ASX shares that brokers have just upgraded to “buy”

There’s no stopping the bulls! The ASX surged to a two-and-a-half month high in after lunch trade despite brewing geopolitical tensions threatening to overtake the COVID-19 pandemic as a major source of contention.

The S&P/ASX 200 Index (Index:^AXJO) jumped 2.4% to 5,753 at the time of writing. If it finishes at this level, it would mark it highest close since March 10.

Warnings of overstretched valuations and trade protectionism between China and the US and its allies can’t stop our market from entering into bull territory.

If you missed the big 25% bounce from the bear market low in March, it might not be too late to join the party as brokers have only just upgraded these ASX shares to “buy”.

Turning point

The first is Smartgroup Corporation Ltd (ASX: SIQ). Shares in the novated leasing group jumped 9.3% to $6.40 at the time of writing after Morgans upgraded the stock to “add” from “hold”.

Positive news from industry peer Eclipx Group Ltd (ASX: ECX) and anecdotal signs of a recovery in the automotive sector gave the broker enough reason to lift its recommendation on Smartgroup.

“The clearest data point has been from ECX, which recently reported novated lease orders (as at mid-May) were down ~35% on pre-Covid levels, having recovered from down ~60% in April,” said Morgans.

“Historically, SIQ’s novated volumes have been less volatile given a higher skew to Government and Health sectors.

“In addition, ECX has shown a very strong week to week recovery in its fleet end of lease car sales (recovered to within 4% of pre-Covid levels).”

The broker’s price target on Smartgroup is $6.95 a share.

Dropping into the “buy” zone

Another stock racing higher today is the Insurance Australia Group Ltd (ASX: IAG) share price. Shares in the insurer jumped 3.2% to $5.80 as IAG became the latest stock to be added to Credit Suisse’s buy list.

The broker upgraded its rating on IAG to “outperform” from “neutral” after its shares lagged the market by around 14% over the past two months.

The sell-off could be overdone. Not only are the earnings risk priced into the stock, but increases on insurance premiums and very low (sometimes negative) bond yields could trigger a rebound.

“We previously considered IAG a defensive stock in the current environment but struggled with valuation,” said the broker.

“Post a recent share price pullback and the stock trading at a 10% PE discount to the market, from 0-20% premium in recent years, we now consider IAG at an attractive entry price.”

Credit Suisse’s price target on IAG is $6.40 a share.

More reading

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• Leading brokers name 3 ASX 200 shares to sell today
• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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