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

Sharesight is a portfolio tracker that is integrated into Morningstar Investor. Their data shows the top 20 trades by Morningstar users in September 2024. Our top 3 buy trades were dominated by the resources and mining sector. It’s also worth calling out Westpac’s WBC sell-off. It’s peculiar, especially given that the banks have been a mainstay for many retail investors.

Sharesight top trades September

Figure: Morningstar's top trades for September, 2024. Source: Morningstar Investor/Sharesight

Here is what our equity and manager research analysts think about our top buy trades.

Woodside Energy WDS ★★★★★

Last month, No-moat hydrocarbon producer Woodside reported first-half 2024 underlying net profit after taxes (“NPAT”) down 13% to USD 1.63 billion, marginally ahead of our USD 1.55 billion expectations. Underlying earnings exclude a USD 305 million gain on the Sangomar oil project deferred tax asset recognition. Our $45 fair value estimate stands.

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.

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.

Woodside's development pipeline is deep, enabling it to leverage the tried and trusted project-delivery platform as a template for other world-class gas accumulations off the north-west coast of Australia. Woodside is well suited to the development challenge. With extensive experience, it remains a stand-out energy investment at the right price. It is currently a five-star stock, trading at a meaningful 45% discount to fair value (at 30 September 2024).

Mineral Resources Ltd MIN ★★★★

Mineral Resources' mining services business builds, owns, and operates crushing and screening plants on behalf of mining customers. Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine delivered earnings momentum.

Commodity prices generally fell in the September-ending quarter, except for gold. Concerns about weak China end-user steel demand affected iron ore and other steelmaking commodities, while base metals prices fell on worries over slower economic growth in China and elsewhere.

Mineral Resources is the cheapest of our non-lithium-focused mining coverage. Lower near-term iron ore and lithium prices drive its 39% discount to fair value. But we expect earnings to rise as its lower-cost, long-life Onslow iron ore mine ramps and lithium prices recover.

MIN is undervalued, considered a 4 star stock and currently trading at a 20% discount (at 30 September 2024).

BHP Ltd BHP ★★

BHP is the world’s largest miner by market capitalisation. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Commodity demand is tied to global economic growth, China’s in particular. BHP benefited greatly from the China boom over the past two decades. China is BHP's largest customer, accounting for roughly 60% of sales in fiscal 2024. With demand for many commodities likely to soften as the China boom ends, particularly iron ore which has disproportionately benefited from the boom in infrastructure and real estate investment, we think the outlook is for earnings to materially decline.

Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remains profitable through the commodity cycle.

However, we consider BHP overvalued. It is currently trading at a 14% premium and is overvalued.

You are able to find the full equity analyst reports through Morningstar Investor.

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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.