Every month, analysts at Morgans pick out their best ASX share ideas.
These are the ASX stocks that the broker thinks offer investors the highest risk-adjusted returns over a 12-month timeframe. Morgans also highlights that they are supported by a higher-than-average level of confidence.
Among its best ideas for October are the two ASX shares listed below. Here's what the broker is saying about these top stocks this month:
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MA Financial Group Ltd (ASX: MAF)
The first ASX share that has been given the thumbs up by the broker is MA Financial.
It is a diversified financial services company that specialises in managing alternative assets, lending, corporate advisory, and equities. Morgans notes that it has a strong focus on growth.
The broker feels that its valuation is still reasonable despite rising strongly since early August. Particularly given its belief that its earnings are at a cyclical low and could improve markedly in the near future. It said:
Despite some recent share price strength MAF is still on 15.0x 12mf PE. Importantly, we believe that earnings number is a cyclically depressed number given the weakness in transactional business. The key drivers here being: an expected higher revenue margin and the benefit of recent flows in Asset Management, a halving of investment spend, MA Money becoming earnings break-even, and an uplift in corporate advisory.
Management noted that MA Money remains on track to achieve break-even profitability by October, and the company is about hitting its A$4bn loan book target by FY26. While all this has been going on, the company has built up an impressive and more recurring funds management and lending businesses.
Lottery Corporation Ltd (ASX: TLC)
Another ASX share that Morgans has on its best ideas list is Lottery Corporation. It is the company behind lotteries such as Powerball and Keno, as well as online lottery platform, The Lott.
The broker highlights Lottery Corporation's strong free cash flow generation, attractive valuation, and stable business model as reasons to be positive. It said:
TLC's FY24 result was impressive, driven by a favourable year for Lotteries and strong active customer growth. Despite lapping a record period of growth in Lotteries, we remain positive on the stock as current lottery volumes continue to perform well. The company mentioned that Saturday Lotto will be the next game to receive an update, which should benefit the base game divisions significantly and likely come with a price increase, offsetting some recent softness.
Additionally, TLC reported a leverage ratio of 2.5x, below the guided range of 3-4x, and has expressed interest in renewing the VIC licence. Based on our estimates, TLC is set to deliver a 4.5% FCF yield and a 4% dividend yield in FY25. The stock trades in line with its historical valuation ranges and we view it as a solid option for investors seeking stability.
