The S&P/ASX 200 closed out the September quarter virtually unchanged. The index climbed as much as 6% to a record high in early August as hopes of reopening the Strait of Hormuz pulled oil prices and bond yields lower. September took back almost all of it.

Set aside the largest stocks on the ASX and the market is starting to look cheap. Across our ANZ equity coverage, the average company now trades about 5% below fair value. By market capitalisation they sit at a 10% premium.

Equity strategist Lochlan Halloway notes that we have rarely seen such a large divergence in value between the largest stocks and the rest. This gap has been wider on only 2% of trading days over the past decade.

Undervalued stocks are becoming more plentiful across sectors. About half of our coverage is 4- or 5-star-rated. This is against an average of about 40% over the past five years. Moreover, three in 10 undervalued stocks also carry a moat.

Value is plentiful across sectors

Real estate, technology and communication services are all trading near their cheapest levels in three years. Real estate is the most attractively priced, with most stocks undervalued.

Value is much harder to find among miners and banks, where about half of stocks are rated 1 or 2 stars. Healthcare has swung furthest: at a three-year low as recently as May, it now offers few bargains after a rebound led by healthcare giants CSL and Cochlear .

Healthcare No Longer Screens as Cheap After Its Rebound

With plenty of opportunities presenting across the ASX, here are three of our top picks across our coverage. Each company also has a wide moat rating, indicating our confidence in the company’s ability to sustain a long term competitive advantage over peers.

Wisetech (ASX:WTC)

  • Fair Value Estimate: $90 (65% discount at 14 October)
  • Rating: ★★★★★
  • Moat: Wide

Enthusiasm for artificial intelligence has led to concerns about the commoditisation of software. However, we believe expectations for AI are overly optimistic and think that over 30 years of development of the CargoWise platform and no competitors of note provide sufficient competitive distance for WiseTech to maintain differentiation and avoid price-based competition.

CargoWise enjoys switching costs evidenced by its near-perfect retention rates, despite steep price increases over this period, speaking to the productivity value WiseTech delivers to its customers.

In addition, we expect the lower cost to develop software, as enabled by AI, will allow WiseTech to solve more problems for customers and ultimately monetize these solutions accordingly.

Corporate governance issues centered on founder Richard White can weigh, but the shares are cheap regardless.

Our fair value estimate is $90 per share, which implies a price/earnings ratio of 64 in fiscal 2027, which is a year in which it is still digesting the large e2open acquisition. We assume revenue grows at a compound annual growth rate of 13% over the next decade, driven primarily by organic revenue growth in the CargoWise product suite.

Brambles (ASX:BXB)

  • Fair Value Estimate: $24 (22% discount at 14 October)
  • Rating: ★★★★
  • Moat: Wide

As the world’s largest supplier of reusable wooden pallets, Brambles is generally the market leader wherever it operates. We believe this is due to its scale and first-mover advantage, limiting competition. This underpins a wide moat based on cost advantage.

Most of the firm’s earnings are derived from large beverage and food companies, which we consider reasonably defensive, dampening Brambles’ exposure to the economic cycle. We expect steady, mid-single-digit revenue growth for the next decade, driven by growth in population, incomes, consumption, and market share.

Margins should modestly expand with efficiency projects in pallet repairs and transportation, and the integration of new digital technology. A near-term slowdown in repairs and maintenance is reducing sales, and the need for only small deviations in pallet dimensions from large customers automating their supply chains will require additional capital spending on pallets and repairs. However, we think these negatives are compensated for by the price.

Our fair value estimate is $24 per share. Our annual revenue growth forecast averages mid-single digits over the decade to fiscal 2035. The current dividend yield is 3.3% (partially franked).

James Hardie Industries (ASX:JHX)

  • Fair Value Estimate: $45 (21% discount at 14 October)
  • Rating: ★★★★
  • Moat: Wide

James Hardie has a tremendous runway for growth. Aging US houses provide a pipeline of repair-and-renovation customers, while a strategy to win contracts with large homebuilders is increasing volumes in new builds.

We think the recent share price fall reflects concerns about the price paid for Azek and whether the merger’s benefits can be realized. In our view, Azek’s products offer similar durability and low-maintenance benefits to Hardie’s and can be bundled at a reasonable price.

We see a decent opportunity for sales of the acquired products and are optimistic that significant cost savings can be extracted from the merger. While we are not as confident as management on the benefits, we think that’s more than compensated for by the share price. For more details, see our special report published in May 2026.

Our fair value estimate for James Hardie is $45 per share. Although we think fiscal 2026 and 2027 will be soft for US renovation activity, we are confident in James Hardie’s ability to outperform the system in the midterm.

The full Australian Equity Q4 report can be accessed by Morningstar subscribers.

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