2 ASX shares rated as strong buys by brokers

Metcash and Austal are two ASX shares that brokers really like at the moment.

| More on:
ASX shares upgrade buy Woman in glasses writing on buy on board

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are a number of ASX shares that many brokers like the look of.

If multiple brokers all think that a business is an opportunity, then it could be worth thinking about if that business is an investment idea There's also potential for all of the brokers to all be wrong at the same time.

Here are two ASX shares that are highly rated by brokers:

Metcash Limited (ASX: MTS)

Metcash is currently rated as a buy by at least three brokers.

One of the brokers that likes Metcash is Credit Suisse, which has a price target of $4.16.

The broker is paying attention to how the non-food earnings of the business are growing, particularly the hardware segment.

The ASX share recently reported its FY21 result. It reported revenue was up around 10%, with group underlying earnings before interest and tax (EBIT) up 19.9% and underlying net profit up 27.1%.

Hardware saw a stronger growth with sales growth of 24.7% to $2.6 billion with "significant" growth in DIY sales and a return to growth in trade. Online sales went up 122%. Hardware EBIT increased 61.5% to $51.8 million with the EBIT margin increasing 130 basis points to 5.3%.

Metcash increased its ownership of Total Tools from 70% to 85% for an acquisition cost of $59.4 million.

The broker also pointed to the higher dividend payout ratio, the buyback and attractive valuation as reasons to like Metcash.

According to Credit Suisse, Metcash is valued at 15x FY22's estimated earnings.

Austal Limited (ASX: ASB)

Austal is a shipbuilding business. It's currently rated as a buy by at least three brokers.

One of the brokers that likes the shipbuilder is Credit Suisse. The broker points to success with US contracts as a reason to be positive. It has a price target of $2.75, which suggests a potential upside of more than 30% over the next 12 months.

For example, it recently announced it had been awarded a US$44 million Littoral Combat Ship (LCS) contract modification.

The ASX share also announced that it had been awarded a US$44 million contract modification for the design, procurement, production implantation and demonstration of autonomous capability on Expeditionary Fast Transport (13), the future USNS Apalachicola.

In terms of guidance, Austal said a couple of weeks ago that it's expecting to generate FY21 EBIT of between $112 million to $118 million. That was a reduction of guidance due to delays experienced on programs and associated costs caused by COVID-19 related border closures, travel restrictions and resourcing challenges that are impacting Austal shipbuilding operations in Australia and the Philippines.

According to the Credit Suisse estimates, Austal is valued at 9x FY22's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Austal Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Silhouettes of nine people climbing a steep mountain to the top at sunset, and helping each other along the way.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors had a wild ride this Thursday.

Read more »

Two men in hard hats and high visibility jackets look together at a laptop screen at a mine site.
Gold

Down 50% in a year, time to pounce on this beaten-down ASX 200 gold stock?

A leading expert offers his verdict on this beaten-down ASX 200 gold miner.

Read more »

A view of competitors in a running event, some wearing number bibs, line up together on a starting line looking ahead as if to start a race.
Best Shares

Best ASX 200 share of each market sector in FY25

Did you own any of these ASX 200 winners in FY25?

Read more »

children and teacher in childcare education setting
Broker Notes

Why did Macquarie just re-rate G8 Education shares?

G8 Education shares are down 23% this year.

Read more »

IPO written in yellow and stuck in the air.
IPOs

End of the IPO drought: GemLife listing one of the biggest of the year

The GemLife IPO is the third major ASX listing in less than a month.

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Share Market News

Why brokers says these ASX dividend stocks are top buys for income investors

Want an income boost? Take a look at these stocks that brokers rate as buys.

Read more »

A man looking at his laptop and thinking.
Broker Notes

After crashing more than 21% yesterday, does Macquarie rate Helia shares a buy?

Should I buy the big dip on Helia shares? Here’s Macquarie’s latest share price forecast.

Read more »

Happy work colleagues give each other a fist pump.
Broker Notes

Buy this ASX 200 share that is having a 'milestone year'

Bell Potter has good things to say about this high-flying stock.

Read more »