Our market went into a freefall on Thursday with ASX big bank stocks leading the tumble. But these aren’t the only stocks to come under pressure as leading brokers downgraded two others to “sell”.

The S&P/ASX 200 Index (Index:^AXJO) fell 3.1% as it slipped below the psychologically important 6,000 mark with every sector dropping into negative territory.

We could see a few more days of weakness given the market’s big rebound from its COVID-19 low, but I don’t see the ASX 200 dropping back into a bear market.

While investors could see the weakness as a buying opportunity, brokers think you should be avoiding these two ASX stocks.

Cold chill from US mortgage business

The first is share registry services group Computershare Limited (ASX: CPU) as Citigroup downgraded its recommendation on the stock to “sell” from “neutral”.

“Our Deep Dive into CPU’s second largest business (US mortgage servicing) highlights several near-term challenges, all the more so if, as we expect, refi picks up again,” said Citigroup.

“There is the allure of potential positives down the track, but these are of uncertain size and likely some time away.”

Negatives outweigh positives

The positives the broker is referring to is earn one-off fees and the potential for higher margin sub-servicing work on non-performing loans. Around 8.5% of US mortgages are on a loan holiday.

But the upside may not eventuate until the second half of FY21 at the earliest and Citi pointed out that the tailwinds are hard to quantify.

In the meantime, revenue growth from Computershare’s US mortgage servicing division is expected to slow from around 20% CAGR over the last four years to about 6%.

The Computershare share price crashed 8.1% to $12.88 today. Citi’s price target on the stock is $12 a share.

In a hole

Another stock that took a hit from a broker downgrade was the South32 Ltd (ASX: S32) share price.

The stock lost 4.4% to $2.19 after Macquarie Group Ltd (ASX: MQG) lowed its rating on the miner to “underperform” from “neutral”.

The broker believes the downside risks to South32 is intensifying with most of its key commodities trading under Macquarie’s forecasts.

Earnings disappointment to come?

“The downside risk is headlined by hard coking coal which is trading 26% and 33% below our FY21 and FY22 estimates, respectively,” said the broker.

“Most other commodities and operating currencies are also trading well below our forecasts. Only manganese offers material upside risks to our FY21 assumptions.”

Macquarie’s 12-month price target on South32 is $1.90 a share.

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited and South32 Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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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If you’re looking to add a few ASX 200 blue chip shares to your portfolio in June, then the three listed below could be worth considering.

I believe these blue chip shares have the potential to generate solid returns for investors over the next few years. Here’s why I would buy them:

Commonwealth Bank of Australia (ASX: CBA)

The first blue chip share to consider buying is Commonwealth Bank. I think it would be a great option for investors that don’t already have exposure to the banking sector. This is because I believe it is the highest quality bank in Australia and well-positioned for growth once the headwinds it is facing ease. And with its shares offering an estimated fully franked yield of at least 5% in FY 2021, it is also a handy source of income in this low interest rate environment.

Goodman Group (ASX: GMG)

Another ASX blue chip share to consider buying is Goodman Group. It is an integrated commercial and industrial property group with a high quality portfolio of assets. I’m a big fan of Goodman because its properties are exposed to industries benefiting from structural tailwinds like ecommerce. Given how these assets are likely to be in demand for many years to come, I believe it is well-positioned for solid long term growth.

SEEK Limited (ASX: SEK)

A final ASX blue chip share to consider buying is SEEK. While times are hard now, I think the job listings giant could still be a market beater over the next decade. This is due to the quality of its ANZ business and its growing China-based Zhaopin business. The latter contributed 47.8% of total revenue during the first half of FY 2020. This compares to the ANZ business, which accounts for 25.6% of its revenue. Given how lucrative the China market is, I’m confident Zhaopin can drive strong growth for SEEK for many years to come.

More reading

• ASX 200 drops 3%, Webjet share price sinks
• Fundie sees trouble ahead for ASX bank dividends
• ASX bank share prices tumble as they aren’t out of the COVID-19 woods yet
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• 3 ASX shares to buy now with $10,000

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended SEEK 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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The MGM Wireless Limited (ASX: MWR) share price had a gloomy day on the market on Thursday after shares resumed trading for the first time since late May.

MGM Wireless is a micro-cap ASX tech share that designs and develops technology, software and wearable devices to enhance communication between families, schools, and society.

The company’s multichannel communication solutions enable schools to communicate with parents and caregivers using their preferred medium. These solutions are used by more than 1,400 schools and 1.7 million parents.

What’s going on with MGM Wireless shares?

MGM Wireless requested the voluntary suspension of its shares in late May pending an announcement of a significant new customer contract and capital raising.

The company revealed details of the capital raising last week on 5 June, announcing its intention to raise up to $1.5 million via a share purchase plan (SPP).

The SPP will be priced at 10.75 cents, representing a 23.2% discount to the last trading price of MGM shares on 22 May.

MGM Wireless will use the capital raised from the SPP primarily to accelerate the growth of its Spacetalk business.

Spacetalk is a children’s smartwatch sold in Australia, New Zealand and the UK through leading retailers like Officeworks, JB Hi-Fi Limited (ASX: JBH) and Kogan.com Ltd (ASX: KGN). 

MGM Wireless is aiming to scale-up growth and progress towards potential “company-changing deals” for Spacetalk and new product releases.

With this, the company detailed two new products set to be released this month: a new model watch specifically for seniors and a new model children’s watch.

MGM Wireless believes the revenue growth for its seniors watch could match or exceed the growth it has experienced with Spacetalk. In this way, the seniors watch creates the opportunity to double the rate of the company’s overall revenue growth.

New customer contract update

As we touched on earlier, MGM Wireless requested its shares be suspended pending the announcement of two developments: the capital raising and a “significant new customer contract”.

While the capital raising was announced last week, details of the contract came today, allowing MGM Wireless shares to resume trading.

The company advised that the contract is currently progressing through the final stages of the customer’s authorisation and contract execution process.

However, the requirements of these final stages and COVID-19 logistical issues have reportedly caused the sign-off to take longer than expected.

MGM Wireless noted it will inform the market immediately once it is in a position to make an announcement regarding the outcome of this customer contract.

More reading

• Why the Webjet share price isn’t a bargain buy
• These ASX shares are the best way to invest overseas
• Why is the A2 Milk share price underperforming?
• What today’s ASX 200 selloff tells me
• HRL Holdings share price flies 20% on consensus-beating earnings guidance

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. 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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