Best 3 ASX Stocks to Watch in February 2021

Stocks and property markets rise, investors look optimistic

The optimism that capped off 2020 made its way to markets in 2021. Australian stocks have continued to move higher, with the ASX 200 benchmark eyeing the 7,000 point handle. At the time of writing the Aussie benchmark traded at 6,860.30 points.

As stocks rise, property prices have also trended higher across the country, breaking fresh all-time highs at the end of January. The average national dwelling value currently stands at approximately $583 thousand, with Sydney, Melbourne and Canberra continuing to be the priciest capital cities.

Commenting on some of the key dynamics impacting the local property market, CoreLogic’s Head of Research, Tim Lawless said:

‘Advertised supply levels are low while demand is strong. This is a seller’s market, but for some reason we are still seeing below normal vendor numbers across most markets.’

Mr Lawless continued by saying:

‘With sentiment rising and selling conditions favouring the vendor, it is reasonable to expect new listing numbers will rise as the year progresses which may help to temper housing market conditions.’

With stocks and property prices exhibiting bullish trends, we look at two companies leveraged to the property market, and one market darling that has continued to defy expectations over the last year.

REA Group share price: +0.73% YTD

Property advertising company REA Group has been a robust performer over the last year, rising approximately 37% in that period. While the stock was hit hard by the pandemic, as property prices flatlined and listings dried up, its share price performance has rebounded as COVID-19 induced mobility restrictions have been lifted and property market activity has improved.

Still, the company reported lower revenue, but higher net profits and dividends as part of its latest interim results release, highlighting the resiliency of the business. Listings increased 4% in the half.

UBS remains Neutral on the stock, though bumped up their price target from $130 to $155 in the wake of the recent H1 results, putting their price target closer in line with current market sentiment.

‘Investors have now priced in the benefits of future tailwinds such as a new listings recovery, and leads/international levers into the current share price,’ the investment bank pointed out.

News Corp share price: +25% YTD

Though a publisher of news, through both print and digital media mediums, over the years News Corp’s valuation has become closely tied to the success of REA Group. Why? News Corp not only owns the likes of the Wall Street Journal, the Australian and the New York Post, but also a hefty 61% stake in REA Group.

Looking at News Corp itself, the diversified publisher’s Q2 highlighted a slight decline in revenues but robust earnings growth. The company's CEO, Robert Thompson lauded these results, saying that 'The second quarter of fiscal 2021 was the most profitable quarter since the new News Corp was launched more than seven years ago.'

History was even made in the half, with the company reporting that its New York Post 'reported its first profit in modern times – a notable feat for what has been a chronic loss-making masthead founded in 1801 by Alexander Hamilton.'

Record-breaking results aside, according to analysts at UBS, some 67-75% of New Corp's value is derived from REA Group. Regardless of this, the Swiss Investment continues to like the stock, rating News Corp a Buy and slapping a $33.20 price target on the stock.

Despite this bullish outlook, the Swiss investment bank qualified this position, saying:

‘Near term quarterly earnings forecasts remain highly uncertain given the continued impact of COVID-19, and we highlight that NWS will invest in key growth areas (e.g. Move, Dow Jones) in the second half.’

Afterpay share price: +30% YTD

While competition has heated up in the buy now pay later space over the last few years, Afterpay has remained a leader in the sector, with the company backed by a strong management team and impressive growth.

And despite many fretting over valuation, the Afterpay share price has continued to rise, last trading above the $150 mark, on an implied market capitalisation of ~$44 billion. Plus, the stock is up close to 300% in the last year.

That hasn’t stopped brokers from liking the stock, mind you. Bell Potter analysts recently bumped up their price target on APT to $168, saying they had rolled their 'valuation forward, primarily impacting our average customer number’.

Bell Potter currently expects Afterpay's full-year FY21 revenue to hit $944.3 million, its earnings (EBITDA) to reach $97.4 million and its reported profits (NPAT) to come in at just $15.9 million.

This comes even as APT continues to trade on an astronomical set of multiples, last trading at 77x sales, according to Bloomberg.

With Afterpay set to report its interim results on February 25, having not reported operational performance data since October 2020, the stock will likely be closely watched by investors in the next few weeks. It will indeed be interesting to see how the market reacts to these results given the lofty growth expectations already priced into the stock.