Morningstar's best stock ideas for March

Not seeing a lot of value in your grocery, petrol, rent or mortgage bills at the moment? Fear not, there’s still value to be found on the ASX and Morningstar has shared their top picks for the month. There are 13 picks – and whether or not this is a lucky 13 might depend on your take.

Two of the names are contrarian picks, with the broker consensus deeming them SELLs, but otherwise, the calls are in line with the sell-side community.

There are a range of themes surrounding the picks, with some miners in the mix.

Sources: Morningstar, Market Index as at 6 March 2024

The contrarian picks

ASX (ASX: ASX)

Australia’s primary national securities exchange may be listed as a SELL in broker consensus but has been effectively acting as a monopoly. While there is a new contender in the field in the form of CBOE, ASX’s dominant positioning is unlikely to shift any time soon as CBOE’s acceptance onto trading platforms has been gradual.

Morningstar’s rationale for its inclusion in the list links to its dominant status offering essential financial services infrastructure.

“Despite the deteriorating regulatory environment, we believe the business is well protected by its wide economic moat based on network effects and intangibles. We also believe the energy transition is an underappreciated tailwind,” said Morningstar analyst Roy Van Keulen.

Wavestone Capital’s Henry Hill spoke last year to Livewire’s Chris Conway on the prospects of the ASX, similarly pointing to the ASX’s monopoly status despite a range of issues, such as interest rates hitting revenue, or elevated costs.

Lendlease (ASX: LLC)

There’s no question it’s been a challenging few years for property developers, given supply constraints driving up prices. Can Lendlease turn things around?

Lendlease recently disappointed expectations with losses for the first half of 2024 and downgraded guidance for the full year. Shares have dropped 20% in the past 12 months.

Morningstar analyst Alex Prineas argues that the market is overly pessimistic about the prospects of the business.

“Lendlease securities trade near net tangible assets. We think this is overly pessimistic, given that much of the group’s EBITDA comes from intangible sources of income in its development construction and investment businesses that are excluded from net tangible assets,” Prineas said.

Plato’s Dr Don Hamson recently referenced it as a company with many red flags and they have avoided it. Late last year, Atlas Funds Management’s Hugh Dive suggested it still has some promise, perhaps as a takeover target.

“Currently, the quality of the business is a lot higher. They’ve got rid of engineering, which was a never-ending source of torment for investors, and they also have a funds management business of $48 billion in property funds being largely undervalued by the market,” said Dive.

Lendlease has been heavily shorted in the past 12 months and remains in the top 10 most-shorted stocks as of February 2024.

The ‘STRONG BUYS’

Santos (ASX: STO)

It’s fair to say Santos has been in the news a bit, especially as the much-touted merger discussions with Woodside (ASX: WDS) fell through. But there’s much to like for Santos according to Morningstar.

“A solid balance sheet and low costs, including a freight advantage to Asia, mean the company is well placed to weather any cyclical low prices. But crude and liquified natural gas prices are strong now, and gas has a growing role to fuel the world, including to complement increasing renewable energy production,” said Morningstar analyst Mark Taylor.

Off the back of Santos’ recent results, Lazard Asset Management’s Aaron Binsted was bullish on the company’s prospects and views it as a BUY.

“Just to look at the backdrop, China's building more gas-fired power plants over the next two years than 100% of the UK, and volumes are going to grow 50%, to 2040. So it's a structural growth market. That's a really nice backdrop for Santos who has privileged assets close to end markets,” Binsted said.

Medallion Financial’s Michael Wayne also pointed to Santos as showing promise on a five-year basis for its dividend growth profile.

“As that CAPEX profile starts to taper off, as things like the buybacks start to taper off as well, this business will be generating a fair amount of free cash flow from their production, and off the back of that free cash flow management is committed to paying out a large chunk, 40%, 50%, of that free cash flow in dividends per year,” says Wayne.

Ventia Services Group (ASX: VNT)

Infrastructure company Ventia could have more promising prospects than much of the market is tipping – though brokers are positive on it.

Morningstar analyst Mark Taylor said, “We like the relatively defensive revenue streams with maintenance cash flows comparatively resilient to external shocks. Business capital requirements are low, expected at less than 1% of revenue.”

He also pointed to tailwinds like population growth and environment regulations as being supportive of growth for Ventia.

Fidelity’s Casey Mclean also discussed it last year in an episode of Views from the Top, noting the ability of the company to pass through inflation costs in its contracts which are largely cost-plus or schedule of rates.

“Ventia is a good example of a company that’s going to benefit from services inflation, especially given the constraining factor for them has been labour. At the margin level, it’s getting easier. They’re seeing turnover levels reduced. The number of applicants for job openings are increasing as well,” said Mclean. 

And over to you, do you see these as value picks or are you avoiding them in your portfolio? Let us know in the comments.