Our top ASX picks in every sector

It’s been an eventful year for investors so far.

The ASX was rocked after Trump’s tariff announcements drove the market down 7% in less than a week. Morningstar Market Strategist, Lochlan Halloway, describes this as a “blink and you miss it” moment after the swift recovery by month-end.

Figure 1:ASX 200 price return over time. Source: Morningstar. Data as of June 30, 2025.

However, Halloway notes this swift rebound might not be warranted given the continued uncertainty of unresolved trade agreements, fiscal unknowns of “The Big Beautiful Bill” and the potential for further escalations in the Middle East.

Despite this, the market appears untroubled with our ASX coverage now trading ~4% above fair value on an unweighted basis. The market cap weighted premium is far steeper around 20% driven by richly priced large caps.

Figure 2: Morningstar Australia and New Zealand coverage universe price to fair value over time. Source: Morningstar. Data as of June 30, 2025.

In the broad scheme of things, we’re not too concerned with the market’s valuation as we continue to see numerous attractive opportunities across most sectors. In this article I’ll explore our top analyst picks in each sector.

Basic Materials

This sector remains moderately undervalued on average. Commodity prices were mostly flat to down on subdued global economic growth. However, gold continued to rise on safe-haven demand, reaching new all-time highs before falling modestly.

Our top pick:

Nufarm (NUF) ★★★★★

• Economic moat: No moat
• Fair value estimate: $7.70 per share
• Share price: $2.48 (as at 11/07/25)
• Uncertainty Rating: High
• Price to fair value: 0.32

Australian agricultural innovator, Nufarm, is on track to meet fiscal 2026 revenue aspirations of more than AUD 4.6 billion, up 30% on fiscal 2023’s AUD 3.5 billion.

This captures new crop protection product introductions and accelerated seed technology growth via Omega-3 canola and bioenergy developments. Nufarm’s modest dividend doesn’t particularly appeal, but the stock is a growth story.

We project growth in earnings per share to AUD 0.81 by fiscal 2029 for an attractive prospective mid-single-digit P/E. Nufarm’s top 22 pipeline crop protection projects have all passed proof of concept and target an addressable market of around USD 6.6 billion. As for seed technologies, Omega-3 canola revenue is increasing fast, and bioenergy carinata planting for biofuel offtake is agreed with BP.

Communication Services

The telecommunications sector has rallied strongly, up 14% year-to-date. Ongoing costcutting and the potential for artificial intelligence to further reduce fixed costs present a resilient outlook for the sector.

Media began the year strongly, outperforming the broader market. We expect this to continue as media companies benefit from a recovery in advertising revenue (which accounts for 60% to 90% of revenue among ANZ media groups under our coverage).

Our top pick:

Nine Entertainment (NEC) ★★★★★

• Economic moat: No moat
• Fair value estimate: $2.70 per share
• Share price: $1.62 (as at 11/07/25)
• Uncertainty Rating: High
• Price to fair value: 0.60

No-moat Nine Entertainment spans advertising and entertainment in Australia. Exposure to the structurally challenged free-to-air television advertising market is offset by a broadcast streaming offering, a subscription video-on-demand service, and 60% ownership in the digital real estate business, Domain.

The publishing unit has transformed into a digital-first news provider, decreasing its exposure to traditional print media. Business diversification and a solid balance sheet position Nine well, in case there is a hiccup to the current advertising recovery.

The ability to flex costs and utilise efficiencies is not at the expense of the competitive position, with Nine’s audience, revenue share, and subscriptions growing across all businesses.

Consumer Cyclical

The near-term outlook for the greater consumer cyclical sector is positive. After a period of rampant inflation and associated cost-of-living pressures, real household incomes are growing again. Inflation is back under the Reserve Bank’s control, shifting the focus to keeping the job market strong.

Monetary settings are still slightly restrictive, providing room for more easing. Further interest rate cuts could boost consumer sentiment and support retail spending over the fiscal year ahead.

Our top pick:

Domino’s Pizza Enterprises (DMP) ★★★★★

• Economic moat: Narrow
• Fair value estimate: $58 per share
• Share price: $18.19 (as at 11/07/25)
• Uncertainty Rating: High
• Price to fair value: 0.31

Domino’s Pizza is a high-quality company with a long growth runway. Recent softness in same-store sales growth, as well as a slower store rollout, overlooks the massive growth potential of the firm’s global network.

We forecast a 20% compound annual growth in earnings for the next five years. The bulk of our earnings growth forecast is tied to franchisees opening new stores. Franchise store profitability and demand for new stores hinge on same-store sales growth, which we expect to recover from fiscal 2026, together with a broader fast-food recovery.

We expect Domino’s to update investors on its long-term plans at its strategy day in the first half of fiscal 2026, removing some uncertainty surrounding the stock.

Consumer Defensive

Mix shift to services and an increasing savings rate recently dampened goods consumption. But momentum is building amid rising incomes. We think these factors are weakening as households have mostly reset their behaviours.

Wages growth is the key driver of rising incomes and consumer demand. But it is also a key component of operating costs. With sales growth finally matching minimum wage growth, food and liquor retailers no longer need to cut costs to protect margins.

Our top pick:

IDP Education (IEL) ★★★★★

• Economic moat: Narrow
• Fair value estimate: $17 per share
• Share price: $3.82 (as at 11/07/25)
• Uncertainty Rating: High
• Price to fair value: 0.22

Part-ownership of the International English Language Testing System, or IELTS, and international student placement services position IDP as a global leader in education services. We think the market has a short-sighted view of the company driven by recent declining volumes and regulatory uncertainty.

Whilst we agree the short-term outlook is soft, and we forecast earnings to more than halve in fiscal 2025, we expect the firm to outperform broader industry declines, as the industry preferences high-quality operators like IDP. We see compelling long-term value, given foreign-student caps are temporary and in response to transitory cyclical concerns such as inflation and cost of living pressures.

The pricing outlook is positive in the near term, with IDP negotiating improved terms and universities looking to raise tuition fees, given capped international students. In the long term, we expect IDP to benefit from an eventual recovery as its destination countries rely on international students to build a complete workforce, balance ageing populations, and support the key education sector.

Energy

The energy sector is significantly undervalued. Israeli strikes on Iran, followed by US bombing of nuclear sites, saw the Brent crude price rise 28% to a USD 77 per barrel peak against May 2025 lows. But prices have since eased off, with little change in global oil fundamentals. This is likely what equity markets reflect.

Ample supply is available to cover seasonally strong demand. Oil futures suggest lower prices ahead albeit can be poor predictors. However, OPEC appears intent on adding volumes throughout the end of the year and markets are likely to be oversupplied. Despite this, with oil-leveraged stocks undervalued in our view, assuming a long-term USD 60 per barrel oil price, we continue to see opportunity in key energy names.

Our top pick:

Woodside Energy WDS ★★★★★

• Economic moat: No moat
• Fair value estimate: $41.50 per share
• Share price: $24 (as at 11/07/25)
• Uncertainty Rating: Medium
• Price to fair value: 0.58

Woodside has meaningful development underway, including Scarborough/Pluto T2 LNG, and new Sangomar oil production is now ramped up. While net production growth is less than for Santos, the increase is nonetheless material for returns given capital efficiency.

We expect returns on invested capital to improve after 2026 with the start of Pluto T2, and to approach WACC by 2033. We credit group production growing by 15% by 2028 compared with 2023. Woodside’s robust balance sheet supports a strong 80% dividend payout ratio and a healthy, fully franked yield, despite capital expenditures.

Financial Services

Most bank share prices have run ahead of fundamentals, particularly Commonwealth Bank, which is priced for much more than the mid-single-digit earnings growth we expect. Net interest margins are softening due to mortgage competition and the lingering impact of customers switching from transaction accounts to more expensive deposit products.

Over time, we expect competitive intensity to ease as nonmajor banks look to lift subpar returns on equity. Low bad debt expenses are helping soften the hit to earnings and are likely feeding into the more favourable rates for customers.

Credit growth is healthy, well supported by population growth and solid house prices. Banks are nearing the end of announced on-market buybacks but still hold surplus capital, which supports the outlook for modest dividend growth.

Lower-than-expected natural hazard expenses, higher investment income, and consecutive years of large premium rate increases result in general insurer profitability at excessive levels. The market appears to be extrapolating this. We expect competition for market share to weigh on future returns, given the commoditised nature of insurance.

Our top pick:

ASX Limited (ASX) ★★★★

• Economic moat: Wide
• Fair value estimate: $77 per share
• Share price: $70.65 (as at 11/07/25)
• Uncertainty Rating: Low
• Price to fair value: 0.92

We view ASX as a natural monopoly providing essential infrastructure to Australia’s capital markets.

Despite the deteriorating regulatory environment, we believe the business is well supported by its wide economic moat based on network effects and intangibles. We also believe the energy transition is an underappreciated tailwind.

We expect it to spark demand for resources in which Australia holds strong natural endowments, to deliver new listings and a long tail of revenue from trading and clearing activity.

Healthcare

We view the healthcare sector as overvalued on average; however, approximately half of our coverage is 4- or 5-star-rated.

We expect margin expansion due to increased operating leverage from higher volumes and improved labour productivity as digitization and newer artificial intelligence tools expedite diagnoses. Inflation of the main costs, labour, and rents is also easing.

Our top pick:

Ramsay Health Care (RHC) ★★★★★

• Economic moat: Narrow
• Fair value estimate: $58 per share
• Share price: $ 37.86 (as at 11/07/25)
• Uncertainty Rating: Medium
• Price to fair value: 0.65

Ramsay Health, owner and operator of hospitals and healthcare services is delivering strong patient revenue growth. However, group profitability is hampered by inflationary pressures, lower government support, and increased investment in digital initiatives.

However, we expect margins to expand in the long term as Ramsay uses fewer agency employees, as case mix and volumes normalise for nonsurgical services, as capacity utilisation improves, and as digital investment efficiencies are realised.

Importantly, labour shortages are easing, and Ramsay continues to invest in recruiting and training. The firm is successfully negotiating higher reimbursement rates above cost inflation.

Industrials

About one-third of industrial stocks are now 4- or 5-star-rated, from roughly half at the end of March. Following the spectre of tariffs, the market is now more optimistic, with some tariffs already wound back and others anticipated to be reduced or removed as countries negotiate with the US.

Nonetheless, as of the end of May, the average US tariff was nearly 19%, still significantly up from the 2024 level of 2.4%. It matches highs not seen since the 1930s.

Our top pick:

Aurizon Holdings (AZJ) ★★★★

• Economic moat: No moat
• Fair value estimate: $4.40 per share
• Share price: $3.18 (as at 11/07/25)
• Uncertainty Rating: Medium
• Price to fair value: 0.72

Heavy-haul rail freight operator Aurizon offers an attractive yield underpinned by defensive rail infrastructure and haulage operations.

Considerable downside is priced into the shares, and our analysis suggests that risks skew to the upside for investors. Haulage volumes have been soft as heavy rainfall hurt coal exports and weak economic conditions hurt noncoal volumes. But the outlook for Asian coal demand is solid, and noncoal volumes should benefit from investment in renewable energy. We expect haulage tariffs to rise with the Consumer Price Index.

We think concerns around the demise of coal exports are overestimated, providing an opportunity. Aurizon largely hauls coking coal from globally competitive mines, and a large-scale commercial alternative to coking coal for making virgin steel from iron ore is a long way off.

Real Estate

The real estate sector was relatively unperturbed by tariff news. The volumes of commercial property transactions continued to recover, suggesting asset prices may have bottomed, and investor interest is rekindling.

The subdued outlook for interest rates could reinvigorate inflows to property funds. However, the rapid growth of the past five years, when interest rates were extremely low, is unlikely to repeat. REIT security prices are catching up to their net tangible assets, indicating increasing confidence in underlying property values.

Our top pick:

Dexus (DXS) ★★★★

• Economic moat: No moat
• Fair value estimate: $9.60 per share
• Share price: $6.90 (as at 11/07/25)
• Uncertainty Rating: Medium
• Price to fair value: 0.72

Dexus is a major property owner, manager, investor and developer with about two thirds of income generated from office rentals. Securities trade well below the firm’s net tangible assets and have an attractive fiscal 2025 distribution yield of about 5%. We think investors are being paid to wait for a recovery in office markets.

Dexus’ office portfolio is of high quality, and the shift toward hybrid working adds to its appeal. Nearly all of its office towers are premium or A-grade and mostly located in the central business districts of major Australian capital cities. The portfolio is Sydney-skewed. As the flight to quality continues, high-grade, well-located buildings like Dexus’ are likely to be sought after.

Another concern the market has is around Dexus’ ability to attract investment inflows into its funds management business. However, we think the market is penalising Dexus too much, and its brand, scale, and management expertise should help the company weather the recent hiccups.

Technology

ASX tech stocks screen as overvalued, on average. We believe investor optimism is premature and underestimates downside risks, particularly from unresolved tariff uncertainties.

Although recession risks have receded, tariffs are likely to reignite inflationary pressures and reduce the number of expected interest rate cuts, which could weigh on global growth and challenge elevated stock valuations.

Much of our coverage is expensive and exposed to downside earnings risk. An earnings downturn could impair the competitive positioning of firms. Firms with economic moats, exposure to structural growth trends, or higher-quality customer bases are better placed to withstand macroeconomic headwinds.

Our top pick:

SiteMinder (SDR) ★★★★★

• Economic moat: No moat
• Fair value estimate: $10 per share
• Share price: $4.42 (as at 11/07/25)
• Uncertainty Rating: High
• Price to fair value: 0.44

SiteMinder is a cloud-based platform engaged in development, sales and marketing for accommodation providers, delivered as a software-as-a-service subscription model. We believe the company is a well-positioned industry leader in terms of market share and products and is likely to win its large market opportunity.

We expect the channel manager industry to consolidate around scaled providers, such as SiteMinder, which can fractionalise large fixed technological and regulatory costs over a larger customer base than competitors.

We also believe SiteMinder’s new Channels Plus product will help evolve the company from a middleware software provider, where it bears all the costs to create the value of its products, to a platform, where third parties build some of the product value. We think the market underestimates the adoption of Channels Plus and overestimates the strength of competitors.

Utilities

In Australia, default electricity prices are rising to pass through higher network, generation, and retailer costs. In this environment, the outlook for utilities like AGL and Origin is solid, though higher electricity prices will likely reduce customer demand and encourage churn, a minor headwind.

Far more material would be if higher oil prices push up prices for alternative fuels like gas and coal, which would be a boon for Origin and AGL, given they have a cheap supply of gas and coal, respectively.

Rainfall has improved in New Zealand, but utilities remain at risk from dry periods due to gas shortages that make backup power expensive. We expect these risks to lessen in the medium term with investment in new sources of renewable energy and a preliminary agreement to keep Huntly Power Station’s coal-fired units running until 2035.

Electricity futures prices are elevated, particularly in New South Wales. Default electricity prices rose about 9% in New South Wales on July 1 due to higher generation, electricity grid, and retailer costs. Prices are likely to rise further in the next few years as these pressures persist.

Our top pick:

AGL Energy (AGL) ★★★★

• Economic moat: No moat
• Fair value estimate: $12 per share
• Share price: $9.59 (as at 11/07/25)
• Uncertainty Rating: High
• Price to fair value: 0.80

AGL Energy is one of Australia’s largest energy utilities. It generates close to 20% of the electricity in the National Electricity Market, mainly from coal-fired power stations. It is aggressively developing new renewable generation and storage to cope with the scheduled closure of its coal power stations by the mid-2030s.

The company trades slightly below fair value on a low-teen P/E ratio. Earnings have recovered and the long-term outlook is relatively stable as investment in renewables and batteries offsets headwinds from closing coal-fired power stations.

We expect electricity prices to remain elevated, supported by closure of coal power stations, high gas prices and growing electricity demand as transport and other industries electrify. These factors support a solid earnings outlook. Financial health is sound, and management is doing a good job navigating ESG threats.

It is important to note that individual shares should be considered as part of a well defined investment strategy. For a step-by-step guide to defining your investing strategy, read this article by Mark LaMonica.

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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.

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.