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The S&P/ASX 200 Index (Index:^AXJO) is clawing back from earlier losses but there are some ASX stocks that are underperforming after getting slugged with a broker downgrade.
The top 200 stock benchmark jumped 0.5% in the last hour of trade after dipping into the red earlier this afternoon.
But not all shares are keeping their head above water.
The Iluka Resources Limited (ASX: ILU) share price tumbled 3% to $8.56 at the time of writing after JP Morgan cut its recommendation on the mineral sands miner to “neutral” from “overweight”.
The broker believes there’s a real risk management could disappoint when it hands in its full year profit report card in August.
“With no company update since it withdrew guidance and reduced zircon production settings from 280kt to 170kt, there remains plenty of risk around the outlook for ILU, in our view,” said JP Morgan.
“Our recent call with minerals sands experts, TZMI, confirmed the weakness in pigment, TiO2 feedstock and zircon markets is likely to keep prices under pressure until late CY21.”
The broker’s 12-month price target on Iluka is $8.90 a share.
Another stock to be hit with a downgrade is the Healius Ltd (ASX: HLS) share price. Shares in the medical services group fell 0.8% to $3.08 as Morgans downgraded its rating on the stock to “hold” from “add”.
The move stands in contrast with Credit Suisse’s decision to upgrade the stock to “outperform” yesterday following the group’s announcement that it was selling its medical centres for $500 million.
The deal sounds fair to Morgans and the broker noted that the outlook for Healius’ remaining pathology and diagnostic services divisions is getting better.
“While the operating environment is improving, we believe the transition to a specialist diagnostic and day hospital operator is far from complete, with areas of risk including: GP referrals (c25% of revenue for Pathology and Imaging); cost base optimisation; roll off of government funding; and growth initiatives with supportive capex/opex requirements,” said Morgans.
“We believe there is more work to be done before the platform provides significant clinical, operational and financial benefits to support future growth.”
Morgans price target on Healius is $2.96 a share.
3 “Double Down” Stocks To Ride The Bull Market
Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.
He’s so confident in their future prospects that he has issued “double down” buy alerts on each of these three stocks to members of his Motley Fool Extreme Opportunities stock picking service.
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Motley Fool contributor Brendon Lau owns shares of Iluka Resources Ltd. 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.
The post The latest ASX 200 shares to be downgraded by leading brokers appeared first on Motley Fool Australia.
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The Xero Limited (ASX: XRO) share price, like basically all other ASX shares, was hit during the early phase of the coronavirus pandemic. However, unlike some other Australian tech shares such WiseTech Global Ltd (ASX: WTC) and Altium Limited (ASX: ALU), it has since regained nearly all of those share price losses.
Over the past 12 months, the Xero share price has risen from $59.09 to now be trading $88.36. The upward trajectory in the Xero share price began in early 2017 when it was below $20. Since then Xero shares have really taken off.
Xero delivered strong recent financial results for the FY 2020 financial year. However, it did warn of uncertainty regarding the impact of the coronavirus pandemic.
So, are Xero shares an attractive buy right now?
Xero managed to deliver another very strong set of numbers for the 12 months ending 31 March 2020. Revenue increased by 30% to NZ$718.2 million, driven by a 2% increase in average revenue per user. Overall subscribers also grew strongly. They increased by 26% to reach 2.285 million.
Equally important was that Xero’s gross margin market continues to increase. It expanded by 1.6% to a very appealing 85.2%.
Earnings before interest, tax, depreciation and amortisation (EBITDA) grew strongly by 52% to reach NZ$139.17 million. Xero also managed to achieve a full-year net profit for the first time in its history.
All regions grew strongly. This includes its main Australian, UK, North American operations as well as other regions including Singapore, Malaysia and South Africa.
Xero is also fast gaining industry recognition. For example, it was recently recognized as a leader in technology research by IDC’s Vendor Assessment study for 2020. The study covered vendors in the worldwide SaaS and Cloud-Enabled Small Business Finance and Accounting applications markets for 2020.
The impact of the coronavirus pandemic on Xero up to the end of March seemed modest. However, Xero is yet to update the market on its more recent performance. While there is likely to be some recent impact, more favourable market conditions are looking more likely in the months ahead. Business confidence in Australia and New Zealand is now improving. This should see Xero’s growth getting back to more normal levels.
Despite its share price no longer being ‘technically’ cheap, I believe that Xero still has a significant potential to grow further over the next decade. I, therefore, think it is worthy of adding to your share portfolio. In particular, Xero is moving beyond just being a cloud accounting platform. Small businesses are now turning towards Xero to manage their entire business, not just their finances.
For more shares with long-term buy potential, take a look at the below Fool report.
3 “Double Down” Stocks To Ride The Bull Market
Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.
He’s so confident in their future prospects that he has issued “double down” buy alerts on each of these three stocks to members of his Motley Fool Extreme Opportunities stock picking service.
*Extreme Opportunities returns as of June 5th 2020
More reading
Phil Harpur owns shares of Altium, WiseTech Global, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Altium, WiseTech Global, and Xero. 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.
The post Why I think Xero shares are a great long-term buy appeared first on Motley Fool Australia.
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