The irrational bear market has thrown investors many false dawns over the past 2 months. We have had many false starts and bear rallies, all traps for new players. Nonetheless it has created some of the most extraordinary value investing opportunities in my lifetime. Many companies that are almost totally unaffected by the pandemic have seen share prices slashed in blind panic. 

For example, the Evolution Mining Ltd (ASX: EVN) share price has rocketed up ~60% since its low point on 16 March. IDP Education Ltd (ASX: IEL) is a company that is marginally impacted. Yet after being over sold dramatically, the IDP share price has risen by 41.4% since 23 March. Lastly, the mighty Afterpay Ltd (ASX: APT) share price has risen by 350.6% from its low point on 23 March.

These are not normal returns, just as these are not normal times. However, there are still opportunities in the S&P/ASX 200 Index (INDEXASX: XJO). The 3 ASX 200 shares below are set to see a significant rebound as restrictions start to relax. 

Value investing opportunities

Santos Ltd (ASX: STO) has shown itself to be a well managed company with a strong chance of emerging from the oil crisis as a productivity leader. The Santos share price has already risen by ~79% from its low point on 19 March. Yet its price-to-earnings (P/E) ratio is still 6 points lower than its 10-year average P/E at 9.9.

The Santos share price still has a way to rise. By my calculations it needs to rise another 61% to meet average 10 year P/E levels. That doesn’t factor in the huge productivity gains the company has made over the past 2 months. This is a prime candidate for value investing.

The Bank of Queensland Limited (ASX: BOQ) share price has dropped by 33% year to date, giving it a P/E ratio of 7.7. This is 3 points lower than the 10-year average. To get back to this level, the bank’s share price will need to rise by 51%.

The bank also has good dividend stability of ~95% despite the present deferral. At the current price, the trailing 12-month dividend yield is 13.4%, placing the company as one of the better paying dividend shares. I believe this bank is a good candidate for value investing. Its share price is likely to see a jump over the next 3 – 6 months as the pandemic eases.

The BHP Group Ltd (ASX: BHP) share price has risen 25% from its low point on 16 March. It has another ~17% before equalling its 10-year P/E ratio. However, I don’t think the market has fairly valued the company’s future earnings.

BHP has 4 things in its favour. First, the low Australian dollar increases the value of every tonne of product sold in USD. Second, the iron ore market has withstood the impacts of COVID-19. Third, BHP is the third largest producer of copper, a commodity soon to see a price increase.

Lastly, the company has no exposure to aluminium, unlike mining stablemate Rio Tinto Limited (ASX: RIO). Aluminium is likely to see further price falls without high car manufacturing volumes. 

More reading

• The latest ASX shares to be downgraded by top brokers
• Is the Altium share price a buy?
• ASX 200 starts the week strongly, up 1.3%
• Start your week off with these 3 top Warren Buffett quotes
• Morgans warns investors to sell these ASX 200 shares in the rally

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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 3 cheap ASX 200 shares for value investors appeared first on Motley Fool Australia.

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The Australian economy is emerging from the dreaded COVID-19 lockdown and the optimism is firing up the share market!

The S&P/ASX 200 Index (Index:^AXJO) jumped 1.3% on Monday with all sectors finishing in the black, although the runup in share prices is forcing some brokers to downgrade some ASX shares.

Bad news around the corner

One of the latest stocks to be hit with a recommendation downgrade is building supplies group CSR Limited (ASX: CSR).

Citigroup cut its rating on the stock to “neutral” from “buy” ahead of the group’s full year results tomorrow.

This probably explains the 4% plunge in CSR’s share price to $3.38 even as the broader market rallied. This makes CSR the second worst performer on the ASX 200 today after Graincorp Ltd (ASX: GNC), which fell 4.2% to $3.45.

Earnings hit from construction

Citigroup is expecting CSR to post a 40% drop in underlying net profit to $111.1 million, which is 7% below consensus forecasts.

You can blame the downturn in building construction for much of the damage, although the challenging medium-term outlook for its aluminium business isn’t helping either.

“The outlook for CSR remains challenging, with top line headwinds in housing and aluminium businesses emerging,” said the broker.

“This creates a high level of earnings pressure medium term and drives our underlying NPAT downgrades of ~50% in FY21e and FY22e.”

Citi’s 12-month price target on the stock was lowered to $3.45 from $5.60 a share.

Running out of puff

Another to come under pressure today was the REA Group Limited (ASX: REA) share price.

Shares in the online property classifieds group fell 1.8% to $93.46 after Credit Suisse downgraded the stock to “neutral” from “outperform”.

The broker’s decision comes in the wake of the group’s quarterly earnings update that showed a 1% increase in revenue and 7% improvement in earnings before interest, tax, depreciation and amortisation (EBITDA).

The top-line missed Credit Suisse’s forecast of around 5% while EBITDA was roughly in line.

Fully priced

“Given ~7% price increases, this implies the benefit from depth penetration for the quarter was minimal,” said the broker.

“We lower our target price to A$94.50/share (prev A$94.80/share) to reflect the minor reductions to our forecasts.

“We continue to expect a recovery in volumes from the low point expected over the next few months, but given the recent rally in the stock, we view the recovery as appropriately priced in.”

On the flipside, if you are looking for undervalued stocks to buy for the post COVID-19 recovery, you should download the latest free report from the experts at the Motley Fool.

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More reading

• Is the Altium share price a buy?
• ASX 200 starts the week strongly, up 1.3%
• Start your week off with these 3 top Warren Buffett quotes
• Morgans warns investors to sell these ASX 200 shares in the rally
• Will high unemployment be the last straw for this ASX bull run?

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA 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.

The post The latest ASX shares to be downgraded by top brokers appeared first on Motley Fool Australia.

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