Editor's Note

The month of January is an interesting one in Australia’s corporate calendar.

With the surprises of ‘confession season’ largely out of the way – or so it’s hoped – January is often a quieter month for equities as investors take time off over summer. A so-called calm before the storm of February’s interim reporting season.

It’s also a month that investors use to take stock and reflect on the previous year, and to set up their financial goals for the year ahead.

Already this month, we’ve released a range of outlook articles – from our best ASX stock picks for 2023 to the outlook for housing in terms of both property prices and rental returns; what to expect from US and global markets; and the themes worth watching this year.

We’ve got plenty more in the pipeline, from retirement tips and tools to your annual financial to-do list, so watch this space.

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Here’s a look back at how the year panned out for the ASX-listed companies covered by Morningstar’s analysts.

A look back at 2022

No doubt, 2022 was a year defined by volatility and high inflation. But despite significant falls in overseas markets – the S&P 500 shed 19% for the year and the tech-heavy Nasdaq plunged 33% – Australian shares fared much better with the S&P/ASX 200 down 5.5% over the year. The ASX All Ordinaries Index fell 7.2%.

The year produced some significant losses on individual stocks, but 2022 also saw some stocks that were big winners among the names covered by Morningstar’s equity analysts.

That was especially the case among energy stocks that surged on the back of rising oil prices. On the flip side, the shift away from growth stocks saw buy-now-pay-later players tank.

The best performers

Energy and commodity stocks stole the show in 2022, with 6 of the top 10 best-performing stocks of 2022 in Morningstar’s ASX-listed coverage coming from these sectors.

Global energy markets were thrown into chaos last year, with the war in Ukraine – and the ensuing energy crisis – causing coal, oil and gas prices to skyrocket.

Whitehaven Coal (WHC) was the best performing stock of 2022, jumping 236% over the year to December. New Hope (NHC) followed with a 166% annual gain. Morningstar director of equity research Mathew Hodge says both Whitehaven and New Hope have benefited from continued elevated thermal coal prices and a weaker AUD/USD rate.

The energy sector is highly correlated to the performance of oil and gas prices. While oil prices have declined 35% from their US$124 high in March, they still remain around US$80 a barrel. The last time prices were this high before the COVID pandemic was in October 2014.

Exploration and production (E&P) companies were among the best-performing stocks within the sector. These companies are responsible for extracting oil and gas, and as a result, are the most sensitive to oil prices compared with the rest of the supply chain, says David Meats, Morningstar’s director of equity research for energy and utilities.

Shares in 4-star rated Woodside Energy (WDS) rose more than 50% over the year, the best performing energy stock in 2022, and third place overall.

In Morningstar’s 2023 Outlook Report, senior equity analyst Mark Taylor says despite share price appreciation, value still exists.

No-moat Woodside Energy is currently trading around a 20% discount to Morningstar’s fair value estimate of $43.00.

“Of the three Australia-based oil and gas producers we cover, Woodside has the greatest exposure to global prices and has benefited most from international events,” Taylor says.

The worst performers

The worst-performing stock of 2022 was buy-now-pay-later company Zip Co (ZIP), which lost almost 90% of its value over the year as high-growth, loss-making companies fell out of favour with investors.

In fact, fintech companies represented a hefty share of the worst performers, with EML Payments (EML) down 82%, Fineos (FCL) shedding 69%, while Tyro Payments (TYR) and Xero (XRO) more than halved.

Magellan (MFG) lost more than 60% of its value following a troubled year for the fund manager, during which it lost billions in funds under management. A series of “subpar execution” at Magellan during the year nullified Morningstar’s prior reasons for “assigning Magellan an economic moat,” equity analyst Shaun Ler says.

“We also don’t believe Magellan can restore and maintain its competitive strengths to their previous levels” Ler says.

“The strength of Magellan’s heritage brand—which was core to our prior moat rating—has eroded and a return to its heyday is unlikely.”

While Kogan (KGN) shares fell 63% in 2022, the stock holds a 5-star rating and has made its way onto Morningstar’s global best ideas list – available to Investor subscribers.

“Shares in no-moat Kogan trade at a significant discount to our fair value estimate,” Morningstar director of equity research Johannes Faul says.

“We ascribe the current weakness in the share price to a material moderation in sales growth and earnings declining from boomtime levels, as well as the temporary suspension of dividends," Faul says.

“We anticipate profit margins to expand as marketing expenses as a percentage of gross sales are scaled back and top-line growth reignites in fiscal 2023 after exceptionally strong coronavirus-induced sales growth is fully lapped.”