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Best 3 ASX stocks to watch in September 2020

We examine three ASX-listed stocks currently favoured by UBS.

ASX 200 Source: Bloomberg

ASX 200 holds above 6,000 following August earnings

The ASX 200 has trended mostly flat over the last month – rising just 2.2% or around 130 points in that period – following an earnings season which saw around 75% of ASX-listed companies report a net profit after tax (NPAT), according to CommSec.

The ASX200 benchmark closed out Wednesday’s session at the 6063.2 point level (+1.84%).

Some companies, such as Fortescue Metals Group (FMG) posted record production and earnings figures, while others, such as Telstra (TLS) provided weak FY21 guidance and have traded softly in response.

We discuss where CommSec thinks the ASX will finish out 2020 here.

As uncertainty continues to dominate global markets, below we look at three ASX-listed stocks which UBS currently favours in the current environment.

Woolworths share price: the Covid-19 impact

Though Woolworths (WOW) posted strong sales growth as part of its FY20 release, the company has seen its share price struggle in the last month, falling around 2% in that period.

Looking briefly at the conglomerate’s full-year results, on a year-over-year basis, the company reported:

  • Group sales of $63,675 million, up 8.1%
  • Online sales of $3,523 million, up 41.8%
  • Group profits (NPAT) of $1,602 million, down 1.2%
  • Full-year dividends of 94 cents per share, down 7.8%

Commenting on how the pandemic has impacted the supermarkets giant – UBS analysts said:

‘We believe WOW will exit COVID-19 stronger, with higher share, richer data and an opportunity to expand share of customer wallets long term. This, coupled with recent investments (Marley Spoon, PFD) accelerates the shift to “Supermarket 2.0”.’

The investment bank currently has a Buy rating and a $43.50 price target on the stock.

YTD WOW is up ~5%.

Link share price, UBS: valuation attractive

Link Administration Holdings (LNK) has traded moderately higher in the last month, rising some 3% in that period. This comes after Link recorded declines across its key operational metrics as part of its fiscal 2020 results, with the record keeping technology and information solutions company reporting:

  • Revenue of $1.23 billion, down 3% or 12% on a statutory basis
  • Operating NPATA of $144 million, down 16% or 27% on a reported basis
  • Operating earnings (EBITDA) of $294 million, down 17% or 26% on a reported basis
  • Final dividend of 3.5 cents per share

Commenting on these results, UBS analysts noted that while earnings are likely to remain under pressure in fiscal 2021, the company's 2022 outlook appears strong.

Finding value at current price levels, the investment bank’s analysts pointed out that ‘While a new CEO starting 2021 may bring the prospect of an earnings reset, we believe the stock is cheap enough to own on 12.6x CY21E reducing to 9.8x CY22E.’

UBS reiterated their Buy rating while lifting their price target on Link from $4.65 per share to $4.80 per share in the wake of the FY20 release.

YTD LNK is down ~30%.

IDP Education share price: Demand remains robust

IDP Education (IEL) has seen its share price surge over the last month – rising in excess of 40% in that period – off the back of a stellar set of full-year (FY20) results. Overall, for fiscal 2020 and on a constant currency basis, the company reported:

  • Total revenues of $587.1 million, down 5%
  • Earnings (EBITDA) of $148.6 million, up 25%
  • Profits (NPAT) of $67.8 million, down 2%
  • No final dividend

These results, said Andrew Barkla, the company’s CEO and MD:

'Reflect strong momentum in the first of the half year, followed by a pivot towards disciplined capital management and product innovation in the second half.'

Analysts from UBS seemed equally impressed by these results, noting that:

‘Our long-term thesis remains intact, with IEL leveraging its digital capability to build a pipeline of applicants despite challenging market conditions. Demand remains strong and we believe IEL exits COVID-19 with significantly more market share.’

The investment bank currently has a Buy rating and a $21.00 price target on the stock.

YTD IEL is up ~10%.

How to trade ASX 200 stocks - long or short

Where do you stand: is this another case of an investment bank being overly optimistic or is UBS on the right track with the above ratings? 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) Woolworths using CFDs, follow these easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘WOW' 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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