7 of Morgans’ best Aussie stock ideas

With the start of a new financial year, broker and wealth management firm Morgans has released its updated list of best ideas from the ASX. Skewed in favour of small-caps, the full list of 32 companies features seven large-caps, five mid-caps and 20 small-cap names.

“As interest rates normalise, earnings quality, market positioning and balance sheet strength will play an important role in distinguishing companies from their peers,” writes analyst Andrew Tang in the report’s preamble.

“We think stocks will continue to diverge in performance at the market and sector level, and investors need to take a more active approach than usual to manage portfolios.”

To bring you the most compelling insights, I’ve pulled out some of the companies that are the most followed on Market Index. Here’s what Tang had to say about some of those companies from the bigger end of the borse:

Woodside Energy (ASX: WDS)

• Market Index Broker Consensus: HOLD (1 Buy, 2 Hold, 1 Sell)

Tang acknowledges the oil and gas major’s share price has been under pressure in recent months – the stock declined more than 18% in FY24, having pulled back most recently because of slow approvals at Woodside’s flagship offshore gas project. Woodside has also suffered due to oil price volatility.

But Tang emphasises the high quality of Woodside’s earnings and believes that the above issues are now moderating.

“We see now as a good time to add to positions. Increasing our conviction in our call is the progress WDS is making through the current capex phase, while maintaining a healthy balance sheet and healthy dividend profile,” he says.

“WDS still has to address long-term issues in its fundamentals (such as declining production from key projects NWS/Pluto), but will still generate substantial, high-quality earnings for years to come.”

To read more about Woodside, check it out on Market Index here.

CSL Limited (ASX: CSL)

• Market Index Broker Consensus: BUY (2 Buy, 1 Hold, 0 Sell)

Regularly cited as one of the ASX’s highest quality companies, the biomedical firm has seen some share price weakness more recently. However, Tang and his team continue to view CSL as a key portfolio holding and nominate it as their pick of the local healthcare sector.

Morgans sees “double-digit recovery in earnings growth as plasma collections increase, new products get approved and influenza vaccine uptake increases around ongoing concerns about respiratory viruses, with shares trading at 25x, a substantial discount (20%) to its long-term average.”

To read more about CSL, check it out on Market Index here.

Coles Group (ASX: COL)

• Market Index Broker Consensus: BUY (4 Buy, 1 Hold, 1 Sell)

Within the consumer staples sector, Tang says the ongoing scrutiny of cost-of-living pressures – including a parliamentary inquiry into grocery prices – has weighed on investor sentiment. But he believes this, combined with several other factors, only adds to the opportunity for investors.

“We believe [this] creates a good buying opportunity in COL. While Liquor sales remain soft, we expect the core Supermarkets division (~92% of earnings) to continue to be supported by further improvement in product availability, reduction in total loss, greater in-home consumption due to cost-of-living pressures, and population growth,” Tang says.

To read more about Coles, check it out on Market Index here.

Best ideas in ASX mid-caps

Among mid-caps – those companies sitting in the lower half of the ASX 200 in terms of market cap – here’s what Tang had to say about your most-followed stocks:

NEXTDC (ASX: NXT)

The data centre firm has so far been one of the local market’s biggest beneficiaries of the AI mega-theme, its share price gaining more than 45% in FY24. And Tang sees little sign of this slowing any time soon, anticipating a strong earnings result for the 12-month period, albet with “some upside risk to guidance.”

“Structural demand for cloud and co-location remains incredibly strong. NXT’s new S3 and M3 data centres are now open. Consequently, we expect significant new customer wins over the next six-to-twelve months,” Tang says.

“Sales should drive the share price higher. NXT looks comfortably on-track to generate over $300m of EBITDA in the next three to five years.”

To read more about NEXTDC, check it out on Market Index here.

Washington H Soul Pattinson (ASX: SOL)

The diversified conglomerate, with operations across listed equities, private equity, property and other asset classes, is widely favoured for its long history of strong dividends. Looking across a 20-year period, Tang notes the firm has delivered a total shareholder return of 12.5% – versus 9% from the All Ords. SOL has also consistently increased its dividend distributions over this period.

“In our view, SOL’s management team continues to deliver both organic and inorganic growth over the long term. We continue to like the SOL story, particularly its track record of growing distributions,” Tang says.

To read more about Washington H Soul Pattinson, check it out on Market Index here.

Best ASX small-cap ideas

In the ASX small-cap universe, these are Morgans’ view on some of your most-followed companies:

Inghams Group (ASX: ING)

In these more straitened times, chicken consumption has held up more strongly than other types of meat. But this isn’t fully reflected in the share price of Inghams, according to Morgans, which believes the stock is undervalued on its current PE multiple of 11 x, “especially for what is a market leader, with a vertically integrated operating model and assets that are difficult and costly to replicate.”

Tang emphasises Inghams’ large poultry exposure,”the affordable, healthy, sustainable and growth protein,” alongside the firm’s “attractive fully franked dividend yield”.

To read more about Inghams, check it out on Market Index here.

Flight Centre (ASX: FLT)

• Market Index Broker Consensus: HOLD (1 Buy, 1 Hold, 1 Sell)

The flights, tourism and accommodation company has seen its share price surge more than 14% since late May. Flight Centre has “the greatest risk, reward profile of our travel stocks under coverag,” says Tang.

“The risk is centred around execution given its changed business model, while the reward is material if FLT delivers on its 2% margin target. If achieved, this would result in material upside to consensus estimates and valuations.

“With greater confidence in the travel recovery and the benefits of Flight Centre’s transformed business model already emerging, we think the company is well placed over coming years,” he says.

To read more about Flight Centre, check it out on Market Index here.