Best 5 ASX stocks to watch in April 2020

As defined by Aditya Kaul in 2017, a 'flight-to-quality is a financial market phenomenon that describes the systematic flow of funds from riskier to safe assets.'

ASX 200 & the Icarian investor

As the flight-to-quality ramps up, equity markets continue to get sold-off at a rapid click.

In the last month alone, the ASX 200 benchmark has crashed close to 35% and currently trades around the 4,690 point mark.

All of this is not to say that there are no opportunities for traders and/or investors – only that in the current climate – there are elevated levels of risks in play. With that in mind, below we look at five ASX stocks that Macquarie Wealth Management (MWM) currently has Outperform ratings on.

A brief breakdown of Macquarie’s current price targets, as well as the implied potential upside on these still-favoured stocks is contained in the table below:

Company

Price Target

Implied upside*

Wesfarmers

$40.20

+31.1%

Fortescue Metals Group

$12.40

+27.8%

Santos

$8.60

+156.7%

Dominos

$66.10

+28.5%

Cochlear

$220.00

+32.9%

*Based on market data as of 13:54 AEDT, 24 March.

How to trade top ASX stocks

Where do you stand: is this another case of an investment bank being overly optimistic or is Macquarie on the money here? 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) Wesfarmers, using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘WES’ or ‘Wesfarmers’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

Wesfarmers share price: the power of momentum

As panic selling across markets persist, Macquarie has retained its Outperform rating on Wesfarmers, noting that across the first half and thus far into the second half of FY20, there has been strong momentum across the Bunnings, Kmart and Officeworks franchises.

Ultimately, while the short-term outlook may remain mixed, Macquarie believes that the conglomerate remains ‘a strong bet throughout the crisis, with a strong balance sheet and relatively resilient mix of businesses.’

Santos share price: oil markets remain problematic

Even though the oil price war between Saudi Arabia and Russia has seen WTI and Brent Crude prices collapse, Macquarie continues to see upside across Australia’s large-cap gas and oil sector.

Indeed, though the investment bank does note that weaker oil prices will invariably put pressure on Santos’s balance sheet and earnings outlook, MWM nonetheless notes that ‘the company remains in control of its portfolio, with STO continuing to expand its production profile, targeting 120mmboe by 2025, while at the same time driving down costs.’

FMG share price: cash is still king

As a pure-play iron ore miner, the fact that iron ore prices have held up so well in the last two months has likely contributed to positive sentiment around FMG’s share price; with the 62% Fe Fines iron ore spot price currently trading around the US$85 per tonne mark.

With that in mind and as Macquarie notes, ‘given the stable iron-ore price environment, FMG’s earnings multiples under a spot price scenario look attractive with free cash flow yields now around 20%.’

Lastly, in a potential positive for income-focused investors, MWM further points out that: ‘We expect FMG to return the bulk of free cash flow in dividends and with a potential yield of 20% we reiterate our Outperform rating.’

Dominos share price: elevated from treat to staple

As the coronavirus (Covid-19) crisis upturns conventional social dynamics, Macquarie sees Dominos’s fast, cheap and relatively tasty pizza as a modest benefactor. MWM believes Dominos will see top-line growth of ~44% in FY20.

‘We continue to view DMP as more of a staple in these times, with the stock remaining defensive as consumers stay home and are more likely to order in.’

Cochlear share price: take a medium-term view

Centrally, though Cochlear has withdrawn its FY20 guidance and MWM has lowered its revenue and earnings estimates on the stock, the investment bank continues to see medium-term potential for the medical device company.

‘Over the medium-longer term, we see opportunities for growth given a lack of penetration within the addressable market (adults with moderate-profound hearing loss) as well as potential for market share gains following the recent recall from Advanced Bionics.’

At the time of writing Cochlear was trading at $164.09 per share.

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