Finding quality stocks trading at a cheap price can be a challenging and time-consuming task. You not only need to identify whether a company has a tangible edge over its peers. You also need to assess whether a stock is over- or under-valued.

The Global Best Ideas list is compiled by Morningstar’s equity analysts every month. To earn a spot on the list, these stocks have high analyst conviction in their future prospects and are trading at a price significantly below what our analysts calculate them to be worth.

Buying stocks when they are undervalued gives investor’s a higher margin of safety, therefore reducing the risk of an uncertain future.

Additionally, analysts consider the stock’s moat rating. This rating is an indication of the analyst’s expectations for the company to maintain a sustainable competitive advantage. A wide moat rating is awarded to companies that are expected to maintain and grow their earnings for at least the next 20 years, a narrow moat for the next 10 years.

Brian Han, Director of Equity Research, says of the list “These Best Ideas are sourced from all main sectors of the market, to provide a diversity of names across the spectrum. The last thing investors want is a Best Ideas list chock-full of cheap mining stocks when commodity prices tank, or a litany of oversold retail stocks when consumer sentiment slumps.”

The August monthly list has seen the addition of domestic stocks ASX Ltd (ASX: ASX) and the removal of AGL Energy (ASX: AGL) and Wisetech Global Ltd (ASX: WTC) from last month’s list. Below we've highlighted the new edition to the list and a share trading at a large discount to our fair value estimate. 

ASX Ltd (ASX: ASX)

Price to Fair Value: 0.83 (17% discount)*

Moat rating: Wide

Morningstar star rating: ★★★★*

Our analysts view ASX as a natural monopoly providing essential infrastructure to Australia's capital markets. Despite a deteriorating regulatory environment, they believe the business is well-protected by its wide economic moat based on network effects and intangibles. We also believe the energy transition is an underappreciated tailwind. We expect it to spark demand for resources in which Australia holds strong natural endowments, to deliver new listings and a long tail of revenue from trading and clearing activity.

 

Lendlease Group (ASX: LLC)

Price to Fair Value: 0.59 (41% discount)*

Moat rating: None

Morningstar star rating: ★★★★★*

Lendlease securities trade near net tangible assets. Our analysts believe that this is overly pessimistic, given that about half of the group's EBITDA comes from development and construction, largely excluded from net tangible assets. Both segments are profitable, and we expect an uplift in development earnings in 2024. Management denied rumours of an equity raise, gearing remains modest, and Lendlease is successfully recycling capital.

Top US picks

The US markets are serving investors with several compelling opportunities, with three 5-star additions for August, and 11 on the list. One addition is Paypal (NASDAQ: PYPL).

PayPal Holdings Inc (NASDAQ: PYPL)

Price to Fair Value: 0.56 (44% discount)*

Moat rating: Narrow

Morningstar star rating: ★★★★★*

Over the last few years, the market has oscillated between hope and despair when it comes to PayPal. The stock roughly tripled in the early stages of the pandemic. But the stock has since fallen about 75% from its peak to a level materially below its pre-pandemic price. With market confidence in the stock at a low ebb, our analysts see a potentially good long-term opportunity.

They think the market is overly focused on near-term absolute growth, when they believe it should be more focused on relative performance. In their view, relative performance is a better indicator of the company's competitive position and long-term value.

They recognize the headwinds the company faces in the near term. But in the long term, PayPal's fate remains tied to the high growth e-commerce space, with Venmo providing some additional upside option value. Historically, PayPal has demonstrated it can take share in this area, and they believe the company retains a strong competitive position.

Access the full analysis, and the full list of 82 stocks through Morningstar Investor (or access through a free, four week trial)^.

*As at 2 August

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