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Best 3 ASX stocks to watch in August 2020

We examine three ASX-listed stocks that Citibank currently has Buy ratings on.

ASX Source: Bloomberg

ASX 200 rebounds, opportunities remain according to analysts

Australian equity markets have performed strongly in the last three months – with the ASX 200 benchmark rising over 13% – as investors, to a degree, look to shake off the economic concerns created by the coronavirus.

In saying that, investors and traders will soon have better visibility on the true impact of the coronavirus – with many high profile Australian company’s set to report their full-year results in August.

Mind you, despite the uncertainty heading into this latest round of corporate earnings, analysts have remained optimistic on a number of highly visible, individual securities. With that in mind, below we look at three ASX-listed stocks that analysts from Citibank currently have Buy ratings on.

Insurance Australia Group (IAG) share price: the best offence is a strong defence

Multinational insurance giant Insurance Australia Group (IAG) has seen its share price face sustained selling pressure over the last three months, falling close to 30% in that period.

Most recently the insurance company provided the market with an update regarding its full-year, FY20 results, set to be released on 7 August. Here IAG said it expects to report gross written premium growth of around 1.1%, against a reported insurance margin of 10.1%. Disappointingly for income focused investors, the company also noted that it would not be paying a final dividend.

In spite of this, analysts from Citibank remain optimistic on the stock due to its defensive qualities, recently reiterating their Buy rating, though lowering their price target from $6.60 to $6.15.

‘With general insurance also a more defensive revenue stream in this environment (it is largely non-discretionary spend), a still reasonably supportive premium rate environment and IAG the higher quality pure play in the sector, we look through the near term uncertainty,’ the investment bank said.

At IAG’s closing price on Tuesday, Citi’s price target implies upside potential of around 22%.

Aristocrat share price: looking through the near-term

Aristocrat Leisure (ALL) has seen its share price lag the broader market in recent times, with the company in May reporting that the coronavirus pandemic was having a material impact on its business operations. Here and for the six months ending 31 March, the gambling giant reported that its land-based revenues fell 6%, while its digital revenues rose an impressive 19%.

Aristocrat's CEO, Trevor Croker noted that, 'in digital, we will accelerate execution of our portfolio-based growth strategy as we further mature and scale the organisation.'

Ultimately, while the short-term outlook remains one mired by uncertainty for Aristocrat, analysts from Citibank remain optimistic on the stock, reiterating their Buy rating and $30.10 price target, in a recent note.

In saying that, though Citi remains bullish overall – the investment bank posited that the June quarter is likely to represent a difficult one for Aristocrat, with research suggesting that unit sales fell sharply across the market during that period.

In spite of that, Citi said:

‘We expect investors are likely to look through the short-term earnings risks from the US land-based business given the strength of the Digital business and the balance sheet.’

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Baby Bunting share price: Citi’s Buy thesis

Unlike Aristocrat and IAG, the Baby Bunting Group (BBN) share price has performed strongly in the last three months, rising ~35% in that period, trading at $3.590 per share, by the market close on Tuesday.

These impressive share price gains look to be underpinned by strong growth in the underlying business, with BBN last week providing the market with a healthy preliminary set of unaudited FY20 results. Here, the company said it expected to report full-year sales of ~$405 million, against earnings (NPAT) of between $9.5-10.5 million. Elsewhere, the company also said it expected to report an expansion in its gross profit margins, expected to hit 36.2% (+120 basis points), on a year-over-year basis.

In response to that announcement, Citi analysts bumped up their FY20 sales estimates on BBN, but left their rating (Buy) and price target of $3.60 per share unchanged.

How to trade ASX stocks

Where do you stand: is this another case of an investment bank being overly optimistic or is Citi on the right track? Wherever you stand, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Aristocrat Leisure using CFDs, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter 'Aristocrat Leisure' or 'ALL' in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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