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

Sharesight is a portfolio tracker that is integrated into Morningstar Investor. Their data shows the top 20 trades by Morningstar users in October 2024. Our top 3 buy trades included Woodside WDS, Mineral Resources MIN (which was also our largest sell), and APA Group APA.

Top 20 trades Sharesight October

Figure: Morningstar’s top trades for October, 2024. Source: Morningstar Investor/Sharesight

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

Woodside Energy WDS ★★★★★

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 46% discount to fair value (at 4 November 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.

The financial record to now is impressive. Mineral Resources has diversified its earnings streams and improved financial disclosure. In fiscal 2010, the company was a mining service provider and minerals producer as now. But disclosure extended to just iron ore production tonnage, and segment earnings. Mining services and processing contributed 96% of group EBIT. Step forward, and Mineral Resources had materially improved its level of financial disclosure; the greater depth of clients and number of project sites also reduces risk. We think the business model is demonstrably maintainable. The volume-linked crushing and screening business should be somewhat more resilient to commodity price weakness.

MIN is undervalued, considered a 4 star stock and currently trading at a 36% discount to its $64 fair value (at 4 November 2024).

APA Group ★★★★

APA Group is Australia's premier gas infrastructure company. Limited regulation, scale, and a superior skills base help it capitalise on gas demand growth and generate competitive advantages that warrant a narrow economic moat. Our analysts award a narrow economic moat when they believe that the company can maintain and grow their earnings for at least the next 10 years. However, they call out gas market reform and potential regulation of pipelines as factors that could weaken its competitive advantages. There’s medium uncertainty around the company’s Fair value determination, as secure revenue is balanced by high gearing and limited transparency over customer contracts.

Gas transmission and distribution is the core business, generating more than 80% of group EBITDA. Power generation—wind farms, solar farms and gas power stations—contribute about 11% and electricity transmission, asset management and investments contribute the balance. The investments division owns stakes in small energy infrastructure companies and the asset management division provides management, operating, and maintenance services to third parties and part-owned companies, leveraging APA’s skills base.

Our fair value estimate is $9.30, with it last trading at $6.30 making it 26% undervalued. It is currently a four star stock (at 4 November 2024).

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

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Terms used in this article

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.

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.

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.

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.