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

Sharesight is a portfolio tracker that is integrated into Morningstar Investor. Their data shows the top 20 trades by Morningstar users in November 2024.

The top trades were Endeavour EDV Woodside WDS and iShares S&P 500 ETF IVV.

November trades for Morningstar users

 

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

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

Top buy trade: Endeavour EDV ★★★★★

Endeavour is an omnichannel liquor retailer, and it operates the largest network of brick and mortar stores throughout the country. They’ve got more than 1,600 liquor outlets across the well-known Dan Murphy’s and BWS brands.

The business is divided into two. It has its retail segment in Australia as Australia’s omnichannel retailer, but it also has its hotels segment that provides hospitality services and gambling. The retail segment is vertically integrated – meaning that the company controls the supply chain, and it is supported by Pinnacle Drinks private-label portfolio. They operate several wineries, as well as bottling and packaging facilities. The products from this process are supplied exclusively to Dan Murphy’s, BWS and ALH Group in Australia. What they get from this is higher margin which are notoriously tight in retail businesses. They’re also able to have a large amount of control in the wine supply chain which minimises risk.

What we’re seeing at the moment is Australians are cutting back on their liquor spending and liquor retailers are reacting to cyclically soft demand by offering more promotions. Endeavour's liquor retail sales were flat in the September quarter of 2024, but sales at its pubs are increasing, underpinned by food, beverages, and gaming.

Endeavour is taking market share, setting it up for a strong cyclical recovery. The smaller hotels segment is performing better than we forecast. They gave us some market share in the gaming market by voluntarily adopting shorter trading hours, but Endeavour is now picking up share in Victoria after trading hour restrictions became mandatory in the state.

Endeavour is 28% undervalued, making it a five-star stock (at 3 December 2024). You can find a full run down on Endeavour in our Investing Compass episode ‘this stock ticks all our boxes’.

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Top buy trade: Woodside Energy WDS ★★★★★

Woodside shares have fallen by around 30% since mid-2023, greatly underperforming the broader market. Given the robust outlook for cash flows and positive implications for shareholder returns, we believe that Woodside trades on a materially lower multiple than a group of global peers.

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 38% discount to fair value (at 3 December 2024).

Top buy trade: iShares S&P 500 ETF IVV

Morningstar Medalist rating: Gold

Many passive Australian investors are anything but. They deviate from this strategy by making active decisions to be overweight in certain sectors, themes or geographies. It is no secret that Australian investors prefer and are heavily invested in domestic markets.

However, Australian investors have started to double down on the US as well. This may be due to the US outperforming almost every other market since the GFC. It is no surprise that iShares S&P 500 ETF IVV makes the top three.

Given the breadth of coverage and the cost efficiency, iShares S&P 500 ETF IVV is a fine choice for investors seeking US-specific equity exposure. Our manager research analysts think it is the best in class option for large cap investors. The strategy is expected to outperform its peers over the long term and remains the clear choice for investors to gain US exposure. It can be paired with other ex-US products to form a balanced global equity portfolio.

The underlying benchmark, the S&P 500, is a market-cap-weighted index of the largest 500 companies in the United States. Thus, it offers giant- to mid-cap exposure, covering about 80% of the free-float-adjusted market cap of the US equity market. This results in a well-diversified index at the stock and sector levels. As such, passive strategies that track the S&P 500 stand as above-average options in a market segment where active managers have generally struggled to outperform. Consisting of highly liquid stocks, material stock-specific valuation information is quickly incorporated into stock prices.

From an Australian perspective, IVV gives exposure to a broad portfolio of some of the world’s most noteworthy companies, including sectors that are underrepresented in Australia such as technology and healthcare. The S&P 500’s correlation to Australian equities has come down in recent years, effectively adding to diversification for Australian equities exposure. It earns a silver medalist rating.

At an annual fee of 0.04%, the fund is priced attractively compared to active and passive peers.

When we look to the index’s exposure, 34% of the index is in the top 10 holdings, 6.98% of the index is in one holding – Apple AAPL, 6.59% in NVIDIA Corp NVDA and 6.14% in Microsoft MSFT. The index is highly concentrated in tech, with over 30% of the index in this sector (at 27 November 2024).

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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.