Young & Invested: Three undervalued stocks owned by Australia’s wealthiest investors
Is popularity a compelling investment thesis?
Mentioned: Woodside Energy Group Ltd (WDS), Telstra Group Ltd (TLS), ResMed Inc Chess Depository Interest (RMD)
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 81
Last week I wrote about some of the ETFs showing up in the portfolios of SMSFs. These are portfolios with an average balance hovering just under $2 million.
Judging by the article’s engagement, a lot of readers are either deeply interested in what wealthy people own or enjoy outsourcing investment advice to strangers. I suspect it’s a bit of both.
When we buy ETFs, we’re buying a basket of companies, which means we’re making fewer bets on individual businesses. Therefore, the consequences of being wrong are much less severe. However, looking at individual stocks is another story entirely.
This week I’m revisiting the latest Class Annual Benchmark Report, which illustrates how the SMSF landscape is changing, along with revealing some of the most popular holdings in these portfolios.
Though it’s important to note that I don’t think we can reverse-engineer success with a holdings table and a spare afternoon. But it does give us a good idea about how wealth has been built over time and how that is evolving.
Are wealthy portfolios changing at the ASX level?
Taking the rankings at face value, it’s easy to conclude that very little has changed. BHP remains the most widely held stock in SMSFs and Woodside remains the second.
The major banks continue their stranglehold and CSL, Wesfarmers and Telstra are all still firmly entrenched in the ASX investor psyche. But almost every major holding became less popular.
Despite these declines, the leaderboard barely moved. It’s much too early to suggest that wealthy investors are abandoning the domestic heavyweights. But we also can’t say that they’re enthusiastically adding to them.
Other findings from the report indicate that incremental capital may be moving towards ETFs, as younger SMSF investors appear far more globally focused than previous generations.
Of course, this raises the obvious question of whether the portfolios that built wealth in the past are still relevant today.
Three stocks where ownership and valuation overlap
While I don’t think popularity is a compelling investment thesis, some of the long-standing favourites at top of SMSF holdings also happen to be trading below our fair value estimates.
These are companies that have earnt their place in portfolios built over decades, yet our analysts still believe the market is underestimating their prospects. These are fundamentally different perspectives.
I’m usually reluctant to read too much into what other people own. A holding can survive in a portfolio for many reasons ranging from continued conviction to CGT avoidance. Very few companies earn a permanent place in SMSF portfolios and even fewer may still offer attractive returns from here.
Woodside Energy Group Ltd WDS
- Economic moat: None
- Fair value estimate: $44 per share
- Share price: $32.18
- Uncertainty rating: Medium
- Price to fair value: 0.73
Woodside is unique among Australian energy companies in that it has successfully managed the development of liquid natural gas projects for more than 40 years. This is unparalleled domestic experience at a complicated and expensive task.
A lack of earnings growth and valuation comparisons made to midterm peer earnings have the market questioning whether Woodside is worth the bet. We disagree. We expect Woodside to grow revenue by over 30% by 2030 as major new projects come online. Near-term earnings multiples should not be mistaken for the longer-term payday multiples that are likely to prevail.
The market remains overly bearish with the energy transition casting a pall over hydrocarbon demand. But significant investment is required in most demand scenarios to backfill natural decline. An investor needs to be satisfied that strong revenue growth will indeed materialise and that the balance sheet can support that growth. We think recent historical stagnation is a thing of the past. The key is for growth projects to be commissioned on schedule and budget.
Woodside has three major growth projects under construction after more than a decade of stagnation. Woodside is a comparatively small company in the global context, meaning relatively large capacity additions, like LNG trains, can be material to fair value. Of course, high spending now crimps near-term free cash flows, but rewards come later. Off the back of this, we forecast Woodside free cash flows greater than USD 7.0 billion after 2030, around 300% higher than in 2025.
Ultimately, our fair value estimate hinges on two key assumptions. One is a nominal Brent crude price of USD 68.50 per barrel from 2028. And the second is successful 50% volume growth to 300 mmboe by 2030.
Telstra Group Ltd TLS
- Economic moat: Narrow
- Fair value estimate: $5.40 per share
- Share price: $4.65
- Uncertainty rating: Low
- Price to fair value: 0.86
Telstra is the largest telecommunications services provider in Australia. It has dominant market share in each service category and customer segment and enjoys cost advantages. While competition is robust, our analyst believes that Telstra’s mobile market share is likely to prove resilient.
The company trades roughly 15% below our assessment, with investors perhaps fixated on the durability of mobile earnings, especially in light of satellite and customer defection risks. While satellite’s threat is real, its medium-term impact is more likely to be on perception (hence its stock multiple), rather than its earnings.
Despite the mobile network outage in July this year, the customer and earnings impact is indiscernible. Telstra lifted fiscal 2026 underlying EBITDA after leases by 4% which met guidance. Mobile users which are 60% of the group’s earnings growth, notably rose 2% with average revenue per user up 4%. Things are also moving fast on costs, with underlying operating costs falling 3%.
As more people work from home and technology becomes more embedded in our lives, demand by Telstra customers for greater capacity (from the corporate sector), higher speed and/or data allowance tiers (from mobile and broadband consumers), and greater connectivity in general is likely to grow.
However, the revenue impact in the near term is unlikely to be material and may be offset by higher costs of servicing this demand and maintaining the network to satisfy this demand. In a relative sense, Telstra’s earnings are more resilient than those in most other sectors, with its solid balance sheet and liquidity position providing further comfort.
Our fair value estimate of $5.40 per share implies a forward fiscal 2025 enterprise value/EBITDA of 8.5 and a dividend yield of 3.9%. We forecast return on invested capital to reach 11% in the long term, exceeding the cost of capital of 6.5% and underpinning Telstra’s narrow economic moat rating.
ResMed Inc Chess Depository Interest RMD
- Economic moat: Narrow
- Fair value estimate: $43 per share
- Share price: $32.94
- Uncertainty rating: Medium
- Price to fair value: 0.77
ResMed famously commercialised the CPAP device, intended to treat obstructive sleep apnoea. We think the company has a long growth trajectory as the sleep apnoea market remains significantly underpenetrated while expanding strongly.
The company grew earnings per share by 17% in fiscal 2026, with management guiding for 12-14% in fiscal 2027. This implies revenue growth of about 6-8% which meets our forecast. We expect revenue to accelerate, averaging 8% a year to fiscal 2030 as wearables pull undiagnosed patients into treatment.
The shares are currently undervalued as the market overstates how much GLP-1 weight-loss drugs will erode demand. Sleep apnoea is driven by age, sex, and anatomy as well as weight. Remission after major weight loss is usually partial, and most patients stop the drugs within a year.
Additionally, fewer than one in five US sufferers are even diagnosed, leaving an enormous runway for growth. With the Apple Watch cleared to flag suspected sleep apnoea, there should be a significant counterbalance to the GLP-1 threat.
The business is also lifting prices, whereas in the past it has preferred to grow margins through volume. Charitably, this is ResMed flexing pricing power, supporting our view that a brand intangible underpins its narrow moat. Its cloud-connected devices drive higher patient adherence than rivals, supporting the resupply of machines and masks that anchor group revenue.
Concluding thoughts
Having spent the better part of a thousand words showing what wealthy SMSF investors own, I should warn that this isn’t a shopping list. I can acknowledge the irony in ending an article like this with a warning against doing exactly what is implicitly encouraged. In my defence, listicles remain one of the few things on the internet more powerful than common sense.
Though it’s easy to see how people make the leap. If wealthy investors own these companies and some are undervalued, perhaps the rest of us should own them too. It sounds logical until you spend more than five minutes thinking about it. And I have a few issues with the reasoning.
Investing is a process, however portfolio holdings are just a snapshot of a point in time. And because we’re discussing SMSFs, the majority are not freshly constructed portfolios. The average SMSF that wound up in FY25 had been operating for over 18 years. Over those two decades, there would be positions that survived the mining boom, the GFC, Covid-19 and significant fluctuations in interest rates.
These positions look identical from the outside but could represent entirely different investment decisions. For example, if we look at Commonwealth Bank, multiple investors can arrive there through completely different paths. One believes it’s attractively valued and is actively buying, while the other may think it’s expensive but is reluctant to trigger a large CGT bill. Some are simply relying on it for income.
Most SMSF investors are also solving different problems from the rest of us. A retiree drawing income is not necessarily trying to maximise long-term wealth. Someone in their seventies may care more about tax efficiency, estate planning and reliable income. Conversely, a younger investor with decades until retirement is solving an entirely different problem. Yet looking at a holdings table does not reveal any of these motivations and everyone appears to be making the same decision.
Lastly, I’m not convinced that the wealth itself validates the portfolio. Sometimes an investor becomes wealthy through a stock that created success, but other times it is likely accumulated through business ownership, property, careers or inheritance. Their portfolio may just be a consequence of wealth rather than the cause of it.
That’s why I don’t really subscribe to the ‘follow the smart money’ strategy. Even wealthy investors disagree with each other constantly. The entire asset management industry exists because people believe they can identify opportunities that others have missed.
I think the real value of studying wealthy investors isn’t just finding portfolios to copy. It’s about understanding how wealth has been historically built and how that is evolving over time.
