What do our analysts think about Morningstar Investor subscriber's top trades during February?

Sharesight is a portfolio tracker that is integrated into Morningstar Investor. Their data shows the top 20 trades by Morningstar users in February 2024, during earnings season. Here’s what our analysts think about the 3 top buy trades.

Top 20 trades for February 2024

Fair value: $45 (32% discount at 27 February)
Moat: None
Uncertainty rating: Medium

Woodside reported stronger-than-expected underlying 2023 net profit after tax, down 37% to USD $3.3 billion (AUD $2.63 per share) against our USD 3.0 billion (AUD $2.33 per share) expectations. Lower-than-anticipated depreciation largely accounts for the profit beat, and we see no long-term implication for our unchanged $45 fair value estimate. The weaker 2023 result reflects a 26% decline in average pricing to USD $66.60 per barrel of oil equivalent, easily offsetting a 19% increase in production to a record 187 million barrels of oil equivalent.

Woodside paid a better-than-expected final dividend of USD $0.60, bringing the 2024 total to USD $1.40 or AUD $2.10. It equates to a healthy 6.9% fully franked yield at the current share price, on an as-expected 80% payout ratio but over higher-than-expected earnings. Our 2024 DPS forecast equals a lower 5.4% yield, reflecting lower anticipated commodity pricing of USD $55.70 per barrel of oil equivalent (boe).

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.

Our analysts have determined that Woodside does not have a moat, meaning that they do not have a sustainable competitive advantage that will allow them to protect and grow earnings over the long-term.

Woodside is unique among Australian energy companies in that it has successfully managed the development of LNG projects for more than 25 years—unparalleled domestic experience at a complicated and expensive task. Adding to Woodside's competitive advantages are the long-term 20-year off-take agreements with the who's who of Asia's blue chip energy utilities, such as Tokyo Electric, Kansai Electric, Chubu Electric, and Osaka Gas. These help ensure sufficient project financing during development and should bring stability to Woodside's cash flows once projects are complete.

Top buy trade: CSL Limited CSL ★ ★ ★

Fair value: $310 (trading within a range that we consider fairly valued at 27 February)
Moat: Narrow
Uncertainty rating: Medium

CSL is one of three Tier 1 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.

Our analysts award CSL a narrow moat, indicating that they believe the company will be able to maintain a sustainable competitive advantage for at least ten years.

CSL reiterated fiscal 2024 guidance for constant-currency group net profit after tax before amortization of USD $2.9 billion to USD $3.0 billion, implying 13%-17% growth on fiscal 2023. The guidance factors in continued gross margin recovery in CSL Behring and constant-currency group revenue growth of 9%-11%, largely driven by immunoglobulins, or Ig. We keep our estimates broadly unchanged and maintain our $310 fair value estimate.

First-half fiscal 2024 group revenue of USD 8.1 billion and NPAT of USD 1.9 billion, up 11% and 20% in constant currency, respectively, were close to our expectations. Strong underlying performance was driven by Ig revenue growth of 23% to USD 2.8 billion as global supplies recovered. We remain optimistic over the long-term demand for Ig, driven by improving diagnosis rates for existing and new indications. Despite the comparable prevalence of diseases, Ig consumption per capita in the U.S., Canada, and Australia is 2 to 3 times greater than CSL’s other markets, highlighting the unmet need.

Top buy trade: Betashares Nasdaq 100 ETF NDQ

Morningstar Medalist Rating: Neutral (at 27 February 2024)

Betashares Nasdaq 100 ETF NDQ is an investable option for Australian investors looking to gain technology sector-oriented US equities exposure. The exchange-traded fund has a Morningstar Medalist Rating of Neutral. A neutral rating means that Morningstar does not expect these funds to outperform their peers within the same Morningstar Category but also does not consider them likely to underperform.

The rules underpinning the construction of the Nasdaq-100 Index are likely borne from Nasdaq's desire to promote its exchange and the exclusivity of the companies that choose to list on it, rather than genuine investment rationale. The benchmark picks the 100 largest nonfinancial firms listed on the Nasdaq and weights them by market cap. It automatically excludes stocks listed on other exchanges, which shrinks the fund’s opportunity set, leading to, in our view, a suboptimal portfolio. Some of the large-cap market’s best recent performers, like Eli Lilly LLY and Merck MRK, are precluded from the portfolio because of their New York Stock Exchange listing. If one of the fund’s marquee holdings moves from the Nasdaq, the fund would have to sell it.

In summary, Betashares Nasdaq 100 ETF has a reasonable fee (0.48% per year), and it has been a terrific performer since its inception (May 2015) through April 2023; however, its compromised index methodology fosters higher concentration risk relative to broader benchmarks like MSCI USA Index or S&P 500, overshadowing the lofty trailing performance. As such, our preference lies with more diversified and cheaper options to get exposure to US markets.