This week's chart of the week comes from Lochlan Halloway's Q&A with Investors. After a recent webinar for Morningstar clients, he received questions about a variety of topics, including where our Morningstar equity analyst team sees opportunities in the current market.

The data takes our Price to Fair Value for all Australian stocks under our coverage, and rolls them up into one number. This allows us to see a top down view of each sector.

Value across sectors

We can see that there's a wide divergence across sectors.

Energy is seen as the cheapest sector. The energy transition casts a pall over the outlook for hydrocarbons, but oil and gas demand is growing. Predictions of a near-term peak followed by rapid decline are likely premature. The outlook for natural gas demand is particularly favourable given its relatively lower carbon footprint than coal, which it often displaces.

One stock that the team calls out is Woodside, trading almost 40% below fair value. 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, the analysts believe that Woodside trades on a materially lower multiple than a group of global peers.

Ohter industries trading below fair value include consumer defensive, real estate and communications. Most importantly, they caution against an all-eggs-in-one-basket approach to investing. You never know what might happen in the future, and it's worth having the benefits of diversification on your side to offer protection against unexpected events or changes.

 

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