19 ASX stocks that should be on your radar

Please note this interview was filmed on 3 March 2025

Another reporting season is in the books, so it’s time again to sit down with the Yarra Capital Management Equities team to discuss the key takeaways and, more importantly, what lies ahead.

I was joined by Marcus Ryan, Michael Steele, and Joel Fleming, who represent the entire market cap spectrum, from micro to large caps. Below is a summary of the key themes and stocks discussed but, if you want the full experience, make sure to watch the video.

Key Themes

#1 - Cost containment & margin strength:

• According to Ryan, one of the key highlights of the season was that many companies demonstrated strong cost control, leading to better-than-expected margins despite only 10% of ASX 200 companies beating sales expectations.
• This trend was evident across various sectors, including resources and building materials. Boral, now within Seven Group (ASX: SGH), exemplified this improvement.

#2 - Large-cap sector performance:

• Banks: After strong performance over the past 12 months, banks declined around 4.8% post-reporting season. Valuations remain high at 18 times forward earnings (historically 13x), with growing competition and margin pressure raising concerns.
• Resources: The sector’s performance was mixed. Iron ore stocks like BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO) held steady, but future returns will be largely dependent on Chinese demand signals. Gold stocks, such as Northern Star (ASX: NST) and Evolution Mining (ASX: EVN), performed well, while lithium stocks suffered significant declines due to weak demand.
• Infrastructure & Utilities: APA Group (ASX: APA) and Transurban (ASX: TCL) were highlighted as attractive investments. APA benefits from increasing domestic gas demand, offering nearly an 8% dividend yield.
• Healthcare: While the sector underperformed overall, healthcare equipment and services stocks like ResMed (ASX: RMD) and Ansell (ASX: ANN) were identified as strong opportunities due to long-term demand and discounted valuations.

#3 - Small & micro-cap insights:

• Small caps are expected to grow earnings at ~10% per annum, a significant improvement from recent years, noted Steele.
• Domestic cyclicals: Eagers Automotive (ASX: APE), Maas Group (ASX: MGH), and Vulcan Steel (ASX: VSL) were noted as stocks with potential earnings upgrades due to macroeconomic improvements.
• Micro-caps: The sector remains inefficient, with many companies undervalued according to Fleming. Stocks such as Energy One (ASX: EOL) and Monash IVF (ASX: IVF) were identified as standouts.

#4 - Valuations across market caps:

• Small caps have underperformed large caps by 30% over the last three years, making them historically cheap relative to large caps.
• Large caps are trading at a 20% premium to long-run averages, driven by high valuations in banks (+40%) and industrials (+30%), while resources trade at a 10% discount.
• Select quality large caps trading below mid-cycle levels include Sims (ASX: SGM) and Reliance Worldwide (ASX: RWC). Copper-exposed stocks, such as BHP Group (ASX: BHP) and Sandfire Resources (ASX: SFR), remain attractive according to Ryan.

#5 - Volatility & macroeconomic risks:

Volatility was another theme of reporting season and is likely to carry forward, as markets deal with megatrends such as AI, tariffs, inflation, and – increasingly – politics.

• Tariffs & Trade Risks: The US’s 25% steel tariffs will potentially benefit BlueScope Steel (ASX: BSL) according to Ryan, due to its US-based operations but pose challenges for Fisher & Paykel (ASX: FPH), which imports from Mexico.
• Interest Rates & Housing Exposure: Australian housing-exposed building material stocks outperformed due to expected rate cuts, while US-focused peers struggled.

Outlook

While large caps face valuation concerns, opportunities exist in underappreciated segments such as infrastructure, domestic cyclicals, and healthcare services. Small and micro-caps present significant upside potential, particularly in improving macroeconomic conditions. Volatility remains a factor, but companies with strong management and diversified operations are best positioned to navigate risks.

Time codes

0:30 - Characterising the season
0:56 - What were the major themes?
1:56 - Highlight of the season
2:40 - Lowlight of the season
3:09 - Large cap themes and stocks to watch
6:48 - Small cap themes and stocks to watch
9:04 - Micro cap themes and stocks to watch
11:43 - Valuations - where are they now and how to navigate them
15:33 - Volatility - key drivers and stocks riding the wave well

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