3 biggest buys from Morningstar users
What do our analysts think about Morningstar Investor subscriber's top equity trades in October?
Markets continue to struggle with the ASX 200 dropping more than 7.5% in the last six months. Morningstar Investor subscribers have seen opportunities under the challenging market conditions.
While it can seem counter intuitive, purchasing shares after prices have dropped improves the chances of achieving favourable investing outcomes. At Morningstar we believe that finding great companies at competitive prices is the key to reaching your goals.
Our Morningstar Investor subscribers agree as the top three trades for the month are all in undervalued shares with 2 out of 3 assigned a moat rating by our analysts.
Top buy trade: CSL Limited (ASX:CSL) ★ ★ ★ ★
Fair value: $330
Morningstar investors double down on CSL, including Mark LaMonica. He recently wrote why it was his latest investment and how it checked all of his boxes.
CSL is currently considered undervalued, trading at a discount of 29%. CSL is one of three tier one plasma therapy companies that benefit from an oligopoly in a highly consolidated market. All the players are vertically integrated as plasma sourcing is a key constraint in production. The plasma sourcing market is currently in short supply, however, CSL is well positioned having invested significantly in plasma collection centres, owning roughly 30% of collection centres globally.
We award CSL a narrow moat rating based on the cost advantage afforded by its large-scale plasma collection and fractionation (this is where the various components of blood plasma are separated). CSL also possesses intangible assets based on the intellectual capital in its existing products and the proven success of its R&D efforts over time. The industry has high barriers to entry as plasma fractionation has long lead times, taking approximately seven years to be built and approved. Fractionation is also a complex process that requires significant expertise and scale to be performed cost-effectively.
Top buy trade: Resmed (ASX: RMD) ★ ★ ★ ★ ★
Fair value: USD $258 fair value, or AUD $40 per CDI at current exchange rates.
Resmed recently released earnings results. Our analysts believe that there are great prospects for margin expansion and shares are materially undervalued. Read the justification in our latest Resmed article.
ResMed is one of the two leading players in the global obstructive sleep apnea, or OSA, market. With cloud-connected devices, physicians can monitor patient compliance and encourage continued use. The global OSA homecare device market, is a two-player duopoly with over 80% estimated market share split between ResMed and Philips, with ResMed the market leader in the majority of the 140 countries it competes in.
Higher adherence supports both reimbursement rates from payers and the resupply of masks and accessories. ResMed also plays a key role in producing clinical data that demonstrates treatment can minimise related risks such as hypertension, stroke, heart attack and Alzheimer’s disease. Through its own testing devices and education, ResMed seeks more widespread diagnosis and treatment of OSA.
Top buy trade: Woodside Energy (ASX: WDS) ★ ★ ★ ★
Fair value: $45
As Australia's premier oil player, Woodside Petroleum's operations encompass liquid natural gas, natural gas, condensate and crude oil. However, LNG interests in the North West Shelf Joint Venture, or NWS/JV, and Pluto offshore Western Australia are the mainstay, and the low-cost advantage of these assets form the foundation for Woodside. Future LNG development, particularly relating to the Pluto project, encompasses a large percentage of this company's intrinsic value.
The global top 10 independent hydrocarbon producers reported lower-than-expected third-quarter production and price achievement though we read no long-term implication from the fact. Rather we are heartened by reported progress on development projects.
We recently did a share deep dive on Woodside. Listen to it on Apple Podcasts, Spotify or below.