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One of the world’s largest investment research firms has made its pick of companies on the local bourse that it believes are trading at discounts, including one of the country’s largest tech stocks.
US-based researcher Morningstar’s picks come with warnings that their returns can be volatile and investors should seek financial advice, but could be rewarding if held over the longer term.
Among the stocks on Morningstar’s radar include three high-quality “growth” stocks.Credit: Peter Braig
WiseTech Global
The logistics software company is a “well-managed, high-quality company with a large and highly winnable market opportunity,” says Morningstar.
The company provides software that helps logistics companies outperform their competition through increased productivity and has only been recently added to the researcher’s best stock ideas.
CargoWise, its core product, is what Morningstar says is “best-in-class” software for international freight-forwarding and has annual customer retention rates of more than 99 per cent.
Its main competition consists of in-house software solutions and manual processes, providing a “large and highly winnable market opportunity” for WiseTech’s current and future products, says the researcher.
Morningstar has a fair value on the company’s shares of $95. Its shares are trading at about $60.
Fineos Corporation
The Dublin-based company provides software for life, accident and health insurers, with its customers including some of the biggest names in insurance.
“Fineos has unique investment merits not generally found in profitless technology companies,” Morningstar says.
“We think the market underestimates revenue upside from the adoption of cloud software by insurers and the increasing stickiness of Fineos’ insurer customers. It is well-placed to win new business, supported by longstanding customer relationships and their referrals,“ the researcher says.
Morningstar has a fair value estimate of $3.10 for its shares, which are trading at about $1.70. Fineos was first added to Morningstar’s best ideas list in the middle of last year.
ResMed
The dual Australian Securities Exchange and New York Stock Exchange-listed sleep apnoea equipment and software company’s share price has weakened by more than 30 per cent since the start of August on concerns that weight loss drugs such as Ozempic, among others, will reduce the incidence of sleep apnoea.
Morningstar says widespread adoption of these drugs will take some time, and obesity is just one risk factor for sleep apnoea.
The researcher has a fair value estimate for the shares of the San Diego-headquartered company of $40. Its shares are trading at about $24.
Mathew Hodge, director of equity research at Morningstar Australia, says the three stocks are growth stocks, where the businesses are seeking to expand.
They are going to have different returns-versus-risk profiles to those companies that tend to pay a large portion of their earnings as dividends to shareholders, Hodge says.
Investing with a diversified portfolio over the long term is likely to see better results than trying to time the market, he says.
The Australian Securities Exchange, as measured by the S&P/ASX 200 index, is trading at about 7000 points, where it was at the start of this calendar year.
Most analysts expect Australian share prices to stay in their current trading range.
Concerns that the conflict between Israel and Hamas could spill over into a regional war is weighing on investors’ minds. Higher oil prices would stoke inflation.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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