It has already been an eventful year for investors, with volatility making a noticeable return to the Australian sharemarket more recently.

Investors are grappling with persistent inflation, rising bond yields and renewed expectations that interest rates may need to stay higher for longer. Despite this, valuations at the top end of the ASX look stretched.

Morningstar Strategist, Lochlan Halloway, explains following August reporting the ASX benchmark index still sits on a lofty 18 times forward earnings and about 15% above our fair value. The market shrugged off what was, against both our estimates and consensus, fairly disappointing guidance looking ahead.

Despite lofty market conditions at the top end of the market, opportunities remain in equities.

In this article I’ll explore our top analyst picks in each sector post earnings.

Basic Materials

James Hardie (ASX.JHX)

  • Fair Value Estimate: $45 (15% discount at 18 September)
  • 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.

Communication Services

Spark New Zealand Ltd (ASX.SPK)

  • Fair Value Estimate: $3 (45% discount at 18 September)
  • Rating: ★★★★★
  • Moat: Narrow

Challenging New Zealand economic conditions, combined with structural headwinds facing the mobile and IT units from austere government and enterprise customers, have exposed Spark NZ’s bloated cost base. Earnings are weak but expected to recover as New Zealand’s economy improves.

A reinvigorated focus on costs is likely, with decent cost-out targets. We believe the balance sheet will remain reasonable, especially with recent asset sales. None of this is reflected in the share price, nor is Spark’s moaty mobile business. This is supported by a stable and rational mobile industry structure, with Spark as the market share leader.

Consumer Cyclical

Amcor PLC (ASX.AMC)

  • Fair Value Estimate: $85 (30% discount at 18 September)
  • Rating: ★★★★
  • Moat: Narrow

We believe investors fail to appreciate the underlying defensiveness of Amcor’s exposure to its food and beverage customers. While our short-term outlook is for cyclically soft volume, we are positive about the longer term. We expect future returns on invested capital to incrementally improve.

This reflects strong single-digit organic sales growth, driven by reinvesting free cash flow in emerging markets and higher-margin, differentiated products. The Bemis deal in 2019 established Amcor’s position as the largest plastic packaging supplier in North America, with more than twice the market share of its nearest competitor.

It has since grown with the Berry Global acquisition, completed in April 2025.

Consumer Defensive

Endeavour (ASX.EDV)

  • Fair Value Estimate: $5.10 (42% discount at 18 September)
  • Rating: ★★★★★
  • Moat: Wide

The market underappreciates Endeavour’s defensive attributes given recent sales weakness. At-home liquor consumption growth is soft, and Endeavour is lowering its prices to win customers. This strategy is crunching profits. We expect this discounting to persist near term, but we expect shelf prices to inflate again once Dan Murphy’s lower price base is established and lapped in September-quarter 2026.

We believe industry wide promotional levels are irrational and margins challenging for its competitors. Second-largest liquor retailer Coles’ now-tiny liquor pretax margins are almost one-third of Endeavour’s. With a more rational liquor market, we anticipate gross margins to rebound and liquor sales momentum to improve from fiscal 2027, driving solid earnings growth.

We believe long-term liquor sales growth is underpinned by inflation and relatively defensive. Our long-term forecast recognises that younger cohorts are moderating their liquor consumption, with changing drinking behaviors offsetting population growth and a positive mix shift to premium products.

Energy

Woodside Energy (ASX.WDS)

  • Fair Value Estimate: $43.80 (25% discount at 18 September)
  • Rating: ★★★★
  • Moat: None

Woodside has meaningful development underway, including Scarborough/Pluto T2 LNG and Louisiana LNG Trion oil. We project production increasing 25% to around 230 million barrels of oil equivalent by 2028 against 2026.

While net production growth is lower than at Santos, the increase is still material for returns, given the capital efficiency of the existing Pluto infrastructure base. We expect returns on invested capital to improve after 2028 with the start of Pluto T2 and to reach the weighted average cost of capital by 2033.

Woodside’s robust balance sheet supports a strong 80% dividend payout ratio and a healthy, fully franked yield, despite capital expenditures.

Financial Services

ASX Ltd (ASX.ASX)

  • Fair Value Estimate: $67 (18% discount at 18 September)
  • Rating: ★★★★
  • Moat: Wide

We view ASX as a natural monopoly, given that it provides essential infrastructure to Australia’s capital markets. Despite a deteriorating regulatory environment, we believe the business is well protected by a wide moat founded on network effects and intangibles.

The incoming CEO provides an opportunity to reset relations with the regulator, which have weighed on margins. In the longer term, we think Australia’s large and growing savings pool in superannuation, and potential for the energy transition to spark new listings and trading activity, are underappreciated tailwinds.

Healthcare

Resmed (ASX.RMD)

  • Fair Value Estimate: $43 (25% discount at 18 September)
  • Rating: ★★★★
  • Moat: Narrow

We think the market overstates how much GLP-1 weight-loss drugs will erode demand for continuous positive airway pressure therapy. Sleep apnea 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; meanwhile, fewer than one in five US sufferers are even diagnosed, presenting an enormous runway for growth.

ResMed’s narrow moat rests on switching costs and brand intangibles—its cloud-connected devices drive higher patient adherence than rivals, which supports the resupply of machines and masks that anchor group revenue.

Industrials

Auckland International Airport (ASX.AIA)

  • Fair Value Estimate: $7.80 (15% discount at 18 September)
  • Rating: ★★★★
  • Moat: Wide

A massive project’s capital expenditure bill looms for wide-moat Auckland International Airport. Aeronautical charges are also set to drop starting in fiscal 2026, following a regulatory decision. However, we believe the scale of the capital investment plan is reasonable, supported by the airport’s balance sheet.

The plan aligns with other global airports and demonstrates appropriate cost rigor. We expect Auckland International to generate a reasonable return on capital investment, given that the proposed airport charges are reasonable relative to those of other airports, both globally and domestically.

We believe the market is unjustifiably pricing either lower returns on regulated expenditures or weakness in unregulated businesses, such as retail and car parks. This presents an attractive entry point into a rare, high-quality, essential infrastructure asset.

Real Estate

Dexus (ASX.DXS)

  • Fair Value Estimate: $8.30 (33% discount at 18 September)
  • Rating: ★★★★★
  • Moat: None

Dexus is trading well below its net tangible assets, and we think investors are too bearish. The market mistrusts office valuations and dislikes the media attention Dexus has been getting for all the wrong reasons.

However, the discount to NTA is too harsh, in our view, for a high-quality office portfolio and relative to peers. Dexus’ office portfolio, which contributes half the earnings, is high-grade, well located, and has maintained above-market occupancy.

We expect tenant demand to hold up as the flight-to-quality trend persists. Our valuation also includes the intangible value of the funds management business. While the recent legal loss in relation to the Melbourne and Launceston Airports is likely to set back funds under management in the near term, we expect Dexus’ noninfrastructure FUM to be reasonably sticky.

Technology

SiteMinder (ASX.SDR)

  • Fair Value Estimate: $7.50 (63% discount at 18 September)
  • Rating: ★★★★★
  • Moat: Narrow

We view SiteMinder as a well-positioned industry leader with a significant and highly winnable market opportunity. We expect the hotel industry to consolidate around scaled software providers like SiteMinder, which can divide high fixed technological and regulatory costs across a larger customer base. Economic downturns will only accelerate this process, in our view.

Over 50,000 small and midsize accommodation businesses use SiteMinder’s e-commerce software to increase their utilization, rates, and profitability, which is around twice as many businesses as use the products of its closest competitors.

We expect SiteMinder’s new platform products to increase switching costs and help establish network effects, resulting in significantly higher terminal margins. We expect SiteMinder will use artificial intelligence to accelerate its own product development, thereby maintaining differentiation.

Utilities

Meridian Energy Limited (ASX.MEZ)

  • Fair Value Estimate: $4.80 (8% discount at 18 September)
  • Rating: ★★★
  • Moat: Narrow

Meridian Energy is one of New Zealand’s largest utilities. Its narrow moat is underpinned by its irreplaceable hydroelectric schemes, which are reliable and flexible like gas and coal power stations but are much cheaper to run, have long lives, and emit no carbon dioxide.

Meridian has conservative financial leverage and is well placed to fund its renewable energy and battery development pipeline. Although fiscal 2025 earnings were down due to dry weather, strong earnings growth is expected in the coming years from the normalization of rainfall, higher retail prices, and the completion of renewable energy and battery developments.

It is important to note that individual shares should be considered as part of a well defined investment strategy. For a step-by-step guide to defining your investing strategy, read this article by Mark LaMonica.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.