Today, the S&P/ASX 200 Index (ASX: XJO) is again moving higher, up 1.1% at the time of writing to 5,835.8 points. It could be, that after weeks of flatlining, this ASX 200 bull market is now set to break the psychologically important 6,000-point barrier. If it succeeds in doing so, it will be for the first time since early March.

What an incredible run this has been too. Since 23 March, the ASX 200 has now rallied over 28%.

But one ASX fund manager isn’t too keen on piling into this ASX 200 bull market. On the contrary, Scott Haslem of Crestone Wealth Management is starting to see some stretched valuations in the market. This is something that doesn’t herald good times ahead.

According to reporting in today’s Australian Financial Review (AFR), Mr Haslem is ‘holding back’ from chasing this bull market for 2 reasons.

Confessions of a nervous ASX fundie

Firstly, he believes valuations are starting to get ahead of themselves.

“The rally is a rational response to the improving economic backdrop”, the AFR quotes Haslem as stating. “The issue is what price you want to pay for that rationality.”

Of course, the unprecedented monetary policy that governments around the world are executing, including both here and in the United States, makes it difficult to say that shares are overvalued per se. But a 30% rally in just over 2 months is definitely worth examining.

Secondly, Haslem is worried markets haven’t fully priced in the earnings hit that coronavirus is yet to unload on the ASX. Companies across the board have had to increase their costs dramatically in order to implement social distancing rules. This is almost certain to impact their profitability and, therefore, their share prices. 

“The likely persistence of social distancing – and rightly so – is likely to slow the revenue of these companies,” Haslem stated. “And then other behaviours are going to have to change to adjust to the new environment, and that’s going to add additional cost to doing business…” He went on to say “Boards and companies are going to have to be looking for multiple supply chains for each component, and that’s going to add to costs.”

Haslem is worried about companies getting hit with a ‘double whammy’. Not only are revenues likely to be subdued for some time among many ASX businesses, but these new costs are likely to be semi-permanent. These means a continuation of burning the earnings candle at both ends.

Should ASX investors be worried?

I think Mr Haslem makes some good points here. There’s no doubt now that this ASX 200 bull market is pricing in a strong and rapid recovery for our economy, as well as arguably for the global economy.

That leaves very little wiggle room on share pricing if things don’t pan out that way.

But does this mean we should sell out of all shares? No, not in my view anyway.

I think the best course of action an ASX investor can take today is to reassess their portfolio. Make sure it consists only of companies you have long-term faith in. Additionally, making sure there’s a significant cash position available to take advantage of any future market downturns is also important. This can provide you with peace of mind if another crash does come, as well as some firepower to take advantage of lower share prices.

More reading

• Why now could be a better time to buy the underperforming CSL share price
• ASX 200 up 2.4%: Blackmores raises $92m, big four banks jump, Nearmap rockets
• The next looming test for the ASX 200 bull market is just round the corner
• Why you shouldn’t fear an ASX share market crash
• Where will the Telstra share price be next year?

Motley Fool contributor Sebastian Bowen 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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On Wednesday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three that have just been given sell ratings are listed below.

Here’s why these brokers are bearish on them:

Ansell Limited (ASX: ANN)

According to a note out of Macquarie, its analysts have retained their underperform rating but lifted the price target on this health and safety products company’s shares to $30.40. Although the broker believes Ansell is well-positioned to benefit from increasing demand for personal protective equipment, it has concerns over capacity constraints. It doesn’t believe the market is factoring this into its current valuation and thus believes its shares are overvalued. The Ansell share price is trading at $34.47 this afternoon.

Blackmores Limited (ASX: BKL)

A note out of Credit Suisse reveals that its analysts have retained their underperform rating but lifted their price target on this health supplements company’s shares to $65.00. The broker appears to support the company’s decision to strengthen its balance sheet. It also notes that Blackmores has reaffirmed its profit guidance for FY 2020. However, this isn’t enough for a change in rating. The broker retains its underperform rating on valuation grounds. The Blackmores share price is up 1.5% to $80.10 on Thursday.

Sonic Healthcare Limited (ASX: SHL)

Analysts at UBS have retained their sell rating but lifted their price target on this healthcare company’s shares to $25.10. The broker has been analysing pandemic testing data and believes that testing rates have already peaked in Australia. It also notes that testing rates have flattened in the UK and growth expected to slow in the United States. This could mean Sonic doesn’t benefit as greatly as the market was expecting from testing activities. The Sonic share price is trading at $29.15 this afternoon

More reading

• Why ANZ, Blackmores, IDP Education, & Nearmap shares are racing higher
• ASX 200 up 2.4%: Blackmores raises $92m, big four banks jump, Nearmap rockets
• Why the Blackmores share price is charging higher today
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 edges down, bank share prices fly

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia has recommended Ansell Ltd. and Sonic Healthcare Limited. 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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Despite a tsunami in taxpayer-funded stimulus measures to combat the coronavirus, Australia’s economic recovery is shaping up to be more of a protracted affair than a 45 degree angle snap-back. While interest rates, at close to zero, support the likelihood of a sharper V-shaped economic recovery – don’t hold your breath.

But the good news is that the recovery we’re most likely to experience will look less like a U or W-shaped recovery, and more like the Nike ‘swoosh’. The swoosh is akin to a Goldilocks-type bounce-back – not too hot, yet not too cold. A swoosh-shaped recovery bodes well for these 3 ASX 200 shares that remain seriously oversold since the beginning of the year.

McMillan Shakespeare Limited (ASX: MMS)

A decline in underlying net profit of 21.7% at half-year, plus challenging market conditions, compounded by the coronavirus, have seen the McMillan Shakespeare share price tumble to $9.03. That’s 42% lower than the $15.70 it was trading at in late November.

The professional services firm is a market leader in novated leasing, asset management and related financial products and services. But with so much of the workforce currently receiving the government’s Jobkeeper wage subsidy, it isn’t a great time to be offering these types of services. However, during its COVID-19 update on 8 April, the company expected to see its salary packaging activity go higher on the back of state governments increasing the size of the health workforces.

While the company has withdrawn earnings guidance for FY20 in light of the COVID-19 shutdown, the current MacMillan share price represents a 17% discount to Morningstar’s fair valuation of $10.18. Based on a P/E ratio of 12 (at the time of writing), the stock is trading on a discount to its sector peers (14.5) and the overall market at around 15.9.

As with all stocks right now, lack of clarity coming out of the pandemic is a little unnerving. But with McMillan’s net debt at around 42% of its market cap, the company’s balance sheet looks well positioned to emerge from the downturn ready to capitalise on new opportunities.

Southern Cross Media Group Ltd (ASX: SXL)

The Southern Cross Media share price declined 9.4% last week, but the media company (formerly Macquarie Media Group) – which is responsible for brands including 2Day FM, Triple M and the Hit Network – is already up 66% this week to $0.25 (at the time of writing).

This is great news for shareholders who recently witnessed a 244% increase in Southern Cross’ existing shares on issue. This was following a $169 million equity raising early May, issued at a whopping 45.5% discount. The company has also renegotiated its bank loans and plans to draw an extra $57 million from its existing debt facilities.

The expanded war chest will be kept on its balance sheet to improve liquidity, and reduce its net debt position. At the end of 2019, the company had just $22.5 million in cash on hand and $353 million in drawn down debt. With current liabilities ($81 million) equal to 6% of its total assets, the company looks well positioned to trade through the crisis and rebound during the recovery. The fundamentals of the company’s business remain sound, and the consensus recommendation on the stock is a strong buy, with Morningstar putting fair value at around $0.34.

AP Eagers (ASX: APE)

Dragged lower by the coronavirus mass sell-down, which accentuated the slowdown in car sales, the AP Eagers share price is trading around 24% lower than its pre-COVID-19 price of $9.01.

The auto dealership group’s growth-by-acquisition strategy over the past 20 years has been impressive. Since then, it has boosted sales revenue from $500 million to $5.8 billion. Assuming April marks the low-point – with sales down 48.5% on the previous April – an upswing in car sales could mirror the recent boom in Australia’s home improvement market. What will help the company capitalise on the market’s recovery is the underlying strength of its balance sheet, which includes $270 million in cash, and undrawn corporate debt facilities.

Together with a further $122 million OEM working capital, AP Eagers has available liquidity of $392 million. The consensus recommendation on the stock is a moderate buy, and at $6.81 it is currently trading at a 26% discount to Morningstar’s fair value of $9.24.

More reading

• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower
• The one sector that could experience a V-shape COVID-19 recovery
• ASX 200 Weekly Wrap: ASX rallies on mining highs
• These were the worst performing ASX 200 shares last week
• Can we value ASX shares with P/E ratios in 2020?

Motley Fool contributor Mark Story 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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