After a strong run over the past six months the ASX 200 pulled back during April as investors became concerned about the prospects for interest rates in the face of stubborn inflation. 

Investment success over the long-term means finding great companies that are trading at attractive valuations.

When buying shares, it is more than just buying a name on a screen. Rather, they’re buying partial ownership in companies. As such, we think it’s important to understand a company’s fundamentals before purchasing its shares.

This approach can help you no matter what your goal or selection criteria is, by helping you look beyond potential noise caused by short-term factors and hype, and find quality shares to invest in long-term.

Want to learn more about investing? Take our free foundations of investing course to learn how to meet your investment goals. 

It boils down to four basics:

  1. Having an intimate knowledge of the company’s sustainable competitive advantages or moat
  2. Determining what its shares are worth
  3. Understanding the inherent risk in the business as represented by the uncertainty rating
  4. Only buying the stock when there’s a significant margin of safety in doing so

For more information listen to our 3-part series on finding great shares on our podcast Investing Compass.

There have been large moves in some share prices during earningsn season and as a result, we’ve made quite a few changes to our best ideas list. Overall, with the market at record highs, we are no longer are awash with cheap options. The market is close to fairly valued with the median price / fair value for our coverage at 0.96, a modest 4% discount. We’re still seeing larger-cap stocks more richly priced. 

Top shares in each ASX sector

Here’s our top picks for each sector.

  1. Basic materials: Newmont Mining (NEM)
  2. Communications: TPG Telecom (TPG)
  3. Consumer cyclical: Dominos Pizza (DMP)
  4. Consumer defensive: A2 Milk Company (A2M)
  5. Energy: Woodside (WDS)
  6. Financial services: ASX (ASX)
  7. Healthcare: Healius (HLS)
  8. Industrials: Aurizon Holdings (AZJ)
  9. Real estate: Dexus (DXS)
  10. Technology: FINEOS (FCL)
  11. Utilities: Genesis Energy (GNE)

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Newmont Mining - Basic Materials

  • Star rating: ★★★★
  • Fair Value: $76
  • Uncertainty: Medium
  • Economic moat: None

After no-moat Newmont lowered guidance when it released 2023 results, we anticipated a better 2024 for the company. So far this is the case, with the first quarter in line with our expectations. Adjusted EBITDA of USD 1.7 billion increased 71% from 2023. Higher prices, along with increased sales volumes driven by the acquisition of Newcrest in November 2023, more than offset higher unit costs. Adjusted net profit after taxes of USD 630 million roughly doubled. However, because of the increased share count due to the Newcrest purchase, per-share amounts are a more accurate portrayal of its performance. Adjusted EPS of USD 0.55 rose 38% compared with the first quarter of 2023 and is broadly in line with our 2024 EPS estimate of USD 2.36. We continue to forecast 2024 attributable gold sales of about 6.9 million ounces. Sales volumes are likely to be weighted to the second half of the year as its Peñasquito, Ahafo, and 40%-owned Pueblo Viejo mines increase production after various travails last year. The USD 0.25—about AUD 0.38—per share dividend payable in June is down from the USD 0.40 (AUD 0.62) paid last year but in line with its updated quarterly dividend policy. We forecast 2024 dividends of USD 1 per share, or about AUD 1.54, for a 2.3% forward yield.

Newmont reiterates guidance, and we retain our fair value estimate of USD 51 per share. The solid result was likely the main driver of the 12% rise in its shares after earnings, but they remain about 15% below fair value. We think much of the discount is due to investors’ skepticism that Newmont can reduce its elevated unit costs, which sit roughly in the middle of the industry’s gold curve. However, if the company continues to report solid results, it will likely help further narrow the discount. To that end, we continue to forecast sales volumes rising to roughly 8.5 million ounces midcycle from 2028, which will likely in turn drive some improvement in unit costs.

TPG Telecom - Communications 

  • Star rating: ★★★★★
  • Fair Value: $6.60
  • Uncertainty: Medium 
  • Economic moat: Narrow  

Just eight months after giving up on a regional mobile network-sharing arrangement with Telstra, TPG Telecom has hooked up with Optus to do the same. It is the same Optus that demonized the initial TPG-Telstra proposal on competition grounds and convinced the regulator to veto the deal.

The structure of the new Optus proposed deal is so similar that the announcement resembled a copy-and-paste job from the Feb. 21, 2022 one trumpeting the TPG-Telstra regional venture. There were only two significant differences.

First, the amount payable by TPG to access the bigger partner's regional mobile infrastructure: AUD 1.59 billion over 11 years (AUD 145 million per year on average) to Optus versus $1.6 billion to $1.8 billion over 10 years ($160 million to $180 million per year) to Telstra. Second, TPG's regional partner this time is Optus and not Telstra, an industry gorilla that has been a nemesis of the Australian Competition and Consumer Commission since deregulation in 1997.

The net economic value to TPG over the life of the deal is not material enough at this stage to obsess over. The overarching logic of the partnership remains the same: to allow Optus to utilize TPG's excess mobile spectrum to improve capacity in return for granting TPG access to Optus' mobile network assets to improve TPG's regional presence. By virtue of this arrangement reducing operating and capital cash outlay of AUD 575 million to AUD 675 million over the 11-year period, TPG hopes to become a serious third player in regional markets where its mobile revenue share is less than 10%. It is also likely to allow TPG to compete on a more equal footing with Telstra and Optus for metropolitan mobile customers and enterprises who value national coverage, with TPG's population coverage to improve from 96.0% to 98.4%.

At this stage, we retain our $6.60 fair value estimate for narrow-moat-rated TPG, and await the outcome of the regulatory circus that is the ACCC approval process.

Dominos Pizza - Consumer Cyclical 

  • Star rating: ★★★★
  • Fair Value: $61
  • Uncertainty: High 
  • Economic moat: Narrow 

The full potential of Domino’s businesses in Japan and France, both large markets in its portfolio of 12 countries, is unlikely to be unlocked in the near term. Management expects it unlikely that the store count in those jurisdictions will grow in fiscal 2025 as franchisee profitability must recover first before store growth can resume. While the firm maintained its long-term target of nearly doubling its global store footprint, timing is subject to a recovery in sales growth. We trim our outlook for near-term profit margins and new stores, with our fiscal 2025 earnings per share estimate declining by 11% to 1.88.

We believe these challenges and weaker trading conditions in some other markets are weighing on investor sentiment. Nevertheless, we believe narrow-moat Domino’s growth potential is unaffected, and our long-term earnings outlook is virtually unchanged.

At current prices, shares trade at a material discount to our unchanged AUD 61 per share fair value estimate. We forecast an earnings compound annual growth rate of 21% for the next five years, underpinned by its global store rollout. We forecast the network to grow to 6,200 stores by fiscal 2033, below management’s long-term target of 7,100. Hitting management's target by 2033 would lift our valuation by about 11%.

Japan is the country of interest. Domino’s rapidly expanded its Japanese store network during covid-19, when sales boomed. The network grew to over 1,000 stores from 600 stores in June 2019. However, the expansion is coming with severe growing pains, with many of the network stores immature and still establishing themselves in their respective markets. Increasing average weekly order counts is the key driver in improving the performance of those stores. Domino’s intends to accelerate store maturity and franchisee profitability by increasing marketing spending. We expect store growth to recover in Japan, but greater marketing costs will weigh on near-term profit margins.

A2 Milk Company - Consumer Defensive 

  • Star rating: ★★★★
  • Fair Value: $7.40 
  • Uncertainty: High 
  • Economic moat: Narrow 

A2 Milk is outperforming in a declining market. A2 Milk’s total infant formula sales lifted about 2%, despite double-digit declines in both value and volume in the broader Chinese market. The new registration process is proving highly disruptive, and births continue to decline. But we forecast fiscal 2024 revenue growth of about 5% for A2 Milk and expect the company to capture more share as increasing premiumization partially offsets falling births in China. Underlying earnings before interest, taxes, depreciation and amortisation ("EBITDA") for first half fiscal 2024 rose 5% on the previous corresponding period, or PCP, to NZD 113 million. We maintain our full-year forecast of NZD 231 million EBITDA—about 5% higher than fiscal 2023. Despite the double-digit rise in A2 Milk shares on the back of the result, it remains undervalued. We think the market is overly pessimistic on the pricing and volume outlook for Chinese infant formula and underappreciates the strength of the A2 brand in China, which underpins the firm’s narrow economic moat.

Woodside - Energy

  • Star rating: ★★★★★
  • Fair Value: $45.00 
  • Uncertainty: Medium 
  • Economic moat: None 

No-moat Woodside's shares are down 24% from September 2023 highs and, at about AUD 29, are materially undervalued, in 5-star territory. We think the share price is at odds with solid progress being made on growth projects.

Positively, the Scarborough/Pluto T2 project progressed to 62% completion by the end of the first quarter of 2024, up from 55% at end-December 2023. Drilling of production wells has begun, the first modules of the liquefied natural gas train have been delivered to the site, and initial LNG cargoes remain on schedule for 2026. And in Senegal, the Sangomar project is 96% complete, with first oil slated for mid-2024. Scarborough/Pluto T2 and Sangomar comprise 12% and 3% of our Woodside fair value estimate, respectively. The former is perhaps counterintuitively lower than its more than 30 million barrels of oil equivalent per day net annual production increment might imply, reduced by the capital expenditure still ahead. Sangomar is expected to add a net 10 mmboe, but as an oil project with a much shorter life span compared with long-lasting LNG projects.

During the quarter, Woodside announced sale of 15.1% in the Scarborough joint venture to JERA, an entity owned 50/50 by Japanese utilities Tokyo Electric and Chubu Electric. It reduces Woodside’s stake to 74.9% in return for USD 1.4 billion cash, with completion expected in the second half of 2024. JERA has also agreed to purchase six LNG cargoes per year for 10 years from 2026, about a third of its equity production share.

The purchase price was broadly in accord with our modeling and neutral for our unchanged fair value estimate of AUD 45 per share. But the added certainty of homed LNG cargoes is a positive. And in conjunction with USD 880 million in anticipated proceeds from the prior sale of 10% in Scarborough to LNG Japan, Woodside’s balance sheet could be all but ungeared by the beginning of 2025 all else equal, an amazing feat given considerable expansionary capital expenditures.

ASX - Financial Services

  • Star rating: ★★★★
  • Fair Value: $75.00 
  • Uncertainty: Low 
  • Economic moat: Wide

We expect Australian Securities Exchange's near- and medium-term strategic focus to be on protecting its economic moat in cash equity clearing and settlement. ASX has long been protected from competition through various exclusive licences to clearing and settlement, which we consider a source of its economic moat, based on intangibles. However, over the past decade, ASX has faced increasing calls from the federal government, regulators, and industry bodies for more competition. In response to these calls, ASX attempted to deliver a world-leading new clearing system, based on blockchain. However, after several years of delays and cost overruns, this project has been shelved, which has renewed discussion on opening up the clearing and settlement market to more competition.

ASX, we believe, will therefore focus on trying to demonstrate to the federal government, regulators, and industry bodies that it is capable of maintaining smooth operations of Australia’s financial infrastructure, including by increasing spending on its various systems. Regardless of the potential regulatory outcome, cash equity clearing and settlement make up only around 15% of ASX’s revenue. Moreover, we believe that even if cash equity clearing and settlement would be opened up to competition that ASX’s business would remain well protected due to network effects inherent in ASX’s clearing business. We therefore do not expect significant changes to ASX’s cash equity clearing and settlement market share or margins in the foreseeable future.

Healius - Healthcare

  • Star rating: ★★★★★
  • Fair Value: $3
  • Uncertainty: Medium 
  • Economic moat: None

Top pathology providers are significantly undervalued. Shares in narrow-moat Sonic Healthcare, no-moat Healius, and no-moat Australian Clinical Labs have fallen by roughly 60% on average since the beginning of 2022 and now trade at an average 35% discount to our fair value estimates of $32.00, $3.00, and $3.50, respectively. Within the healthcare sector, pathology stocks screen attractively. The subsector trades at an average price/fair value estimate of 0.65 versus the healthcare sector average of 1.11. Our special report, 'Pathology Providers Are Down but Not Out,' published on May 13, 2024, delves deep into the key drivers supporting our forecast margin recovery for the industry.

Elevated higher-margin coronavirus testing was never going to last forever, but it appears pathology providers have fallen out of favor with the market, with margins now below prepandemic levels. While the market doubts a return to prepandemic profitability, we see several reasons to expect a stronger recovery than market consensus: increased pricing, stabilizing costs, and scale benefits. Our fiscal 2028 operating margin forecasts for Sonic, Healius, and Australian Clinical Labs are 14%, 12%, and 11%, respectively, versus operating margins of 12%, 8%, and 4% in fiscal 2020 before material coronavirus earnings. The three main pathology providers, with over 80% combined market share, are well-positioned to benefit from industry trends.

Long-term volume growth drivers are intact. In the near term, we expect elevated volume growth as patients return to routine diagnostic testing and general practitioner attendances recover on new bulk billing incentives. We forecast a five-year revenue compound annual growth rate of 5% for the pathology industry, with roughly two-thirds from expected volume growth and the rest from pricing. Demand is driven by population growth, aging demographics, higher incidence of diseases, wider adoption, and a higher number of tests available.

Aurizon - Industrials 

  • Star rating: ★★★★
  • Fair Value: $ 4.70 
  • Uncertainty: High 
  • Economic moat: Narrow 

The shares of narrow-moat Aurizon offer an attractive yield, underpinned by high-quality rail infrastructure and haulage operations. Considerable downside is priced into the shares, and our analysis suggests that risks for investors are skewed to the upside. Haulage volumes were weak in fiscal 2023 because of wet weather, but the outlook is for volumes to recover, haulage tariffs to rise with the Consumer Price Index, and as the regulated rail track is allowed higher returns. We think environmental concerns are overblown, providing an opportunity for investors to buy a better-than-average-quality company at a discount. Aurizon largely hauls coking coal from globally competitive mines. A commercially viable alternative to coking coal to make new steel is still a long way off.

Dexus - Real Estate

  • Star rating: ★★★★★
  • Fair Value: $10.80 
  • Uncertainty: Medium 
  • Economic moat: Narrow

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

The high-quality portfolio should see Dexus perform better than most. More than half the portfolio is rated Premium by Property Council of Australia guidelines and most of the rest is A-grade. Dexus' portfolio has held up relatively well in major downturns compared with rivals with lower-quality portfolios. Office faced challenging conditions from 2020-23, with pandemic lockdowns followed by rising interest rates. In those years, Dexus reduced rents on the small portion of leases that expired, but occupancy remained high.

FINEOS - Technology 

  • Star rating: ★★★★
  • Fair Value: $3.10 
  • Uncertainty: Very High 
  • Economic moat: Wide 

Wide-moat Fineos’ margins are improving, as evidenced by positive free cash flow generation in the March quarter of 2024. This follows three consecutive quarters of negative free cash flow since June 2023.

This improvement is partly due to March being a seasonally strong quarter for cash collections. However, it also reflects Fineos’ ability to scale earnings through enhanced product cross-selling and noncore cost reductions. Cash receipts in the March quarter improved from the previous three quarters despite reductions in product manufacturing, marketing, and staff costs relative to the previous corresponding period. This is an improvement from the PCP, where increased cash receipts necessitated rising expenses.

We retain our fair value estimate of $3.10 per share, based on Fineos generating positive, maintainable free cash flows within its targeted six months to June 2024. We also expect the firm to be self-funding after that. Our longer-term expectations are revenue growth of around 10% per year and operating margin expansion to around the midteens by 2033. Shares currently trade at a material discount to our fair value.

The revenue outlook remains supportive, underpinned by product up/cross-selling, new client wins, and expansion into new markets. Successful product implementations, highlighted in subsequent case studies from its clients, support new business wins by overcoming prospective clients’ aversion toward switching providers. Product implementation for Guardian Life, a major client, remains on track for completion in 2024. New York Life, Fineos’ largest client, will expand its usage of Fineos across other business lines, with entry into the US voluntary benefits market slated for 2024.

The March quarter also saw some anomalies that will likely normalize, potentially improving future cash flow performance.

Genesis Energy - Utilities 

  • Star rating: ★★★★
  • Fair Value: $2.50 
  • Uncertainty: High 
  • Economic moat: Narrow

Narrow-moat Genesis Energy had a stellar fiscal 2023 as its hydroelectric schemes benefited from heavy rainfall in the North Island. In the fiscal year to date, rainfall has been more modest, and we estimate earnings are tracking broadly in line with our prior expectations. We maintain our view that Genesis can achieve its EBITDA guidance of NZD 430 million for fiscal 2024 and NZD 500 million for 2025. We keep our NZD 2.70 per share fair value estimate and consider the stock slightly undervalued.

Hydro generation fell 24% in the fiscal year to date due to reduced rainfall, largely reverting to a normal year. This forces the firm to rely more heavily on its costly gas- and coal-fired power stations, with the total cost of generation rising 56%.

Higher generation costs were partly offset by rising electricity prices. Wholesale electricity prices remain elevated, which we expect to persist in the medium term, with electricity futures averaging NZD 160 in the North Island and NZD 121 in the South Island between calendar years 2025 and 2027. Tight wholesale markets are leading retail prices upward. Commercial and industrial prices for Genesis in the first nine months of the fiscal year were up 19% year on year while mass market prices were up 4%, and we expect further solid price growth in coming years as high wholesale prices flow through.

As we anticipated, Kupe’s year-to-date performance has been muted across oil, gas, and liquefied petroleum gas. Production for all segments fell by double-digit percentages on the previous corresponding period, due to delays in commissioning new wells and scheduled maintenance outages. As the Kupe field naturally depletes and as New Zealand's ambitious renewable energy targets near, capital retained from the reduced dividend payout ratio is being deployed to fund Genesis’ renewable transition. Positively, its Lauriston solar farm joint venture is on track for first generation in late 2024, though it is small in the scheme of things.

Want to learn more about finding shares to buy? Read our checklist for valuing a share.