The silver-lining to the coronavirus-inspired market crash is the growing number of broker recommendation upgrades.
It feels like a distant memory, but the S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO) was trading at a record high barely a month ago and brokers were struggling to justify the lofty valuations of their favourite stocks.
The bear market certainly changed that with the number of upgrades outpacing the number of downgrades in the last week or two even as a swath of ASX companies withdraw or cut their earnings guidance.
A buy to bank on
One company that has yet to change its guidance but is widely expected to is Macquarie Group Ltd (ASX: MQG).
The investment bank is what we consider a high-beta stock, which means the Macquarie share price moves more than the broader market. This is because the bank's income is tied to the performance of markets.
But Credit Suisse reckons the bad news is more than priced into the stock and upgraded Macquarie to "outperform" from "neutral".
Risks more than priced in
"The impact of COVID‐19 has seen markets activity significantly impacted in the second half of MQG's all‐important 4Q20," said the broker.
"We see further risk to FY21 given annuity businesses are likely to start from a lower base and performance fees are likely to fall given asset price deflation. This environment is likely to see increased impairments."
For these reasons, Credit Suisse lowered its earnings forecast for the group by between 10% and 20% for FY20 and FY21.
But despite the earnings risk, the broker considers the bank a quality business that would rebound quickly. It's price target on the stock is $110 per share.
Looking more appetising
Meanwhile, the Domino's Pizza Enterprises Ltd. (ASX: DMP) share price is getting a boost after UBS upgraded the stock.
Shares in the fast food chain jumped 4.9% to $52.70 in after lunch trade as the company is well positioned to benefit from the wide-sweeping quarantine restrictions imposed in several countries.
Demand for its pizza delivery service is likely to increase as people are stuck at home.
"We upgrade DMP to Neutral with the view near-term earnings risk from COVID-19 is manageable; balance sheet is solid; and DMP will benefit longer-term via the accelerating shift to delivery," said UBS.
The broker's price target on Domino's is $51 a share.
