The structure of the ASX has also become incredibly hard to ignore. With over 50% of the ASX 200 residing in the financials and mining sector, broad-market exposure largely reflects a concentrated bet on the ongoing dominance of banks and miners.

Additionally, valuations also present significant considerations for individual stock investors with legacy holdings. Below I look at three overvalued ASX heavy weights that dominate the index and what our analysts think about their prospects.

Commonwealth Bank of Australia ★

  • Economic moat: Wide
  • Fair value estimate: $105 per share
  • Share price: $163.3 (as at 01/06/26)
  • Uncertainty rating: Medium
  • Price to fair value: 1.56

CBA has a notable presence in most Aussie portfolios. As the largest of four highly profitably, wide-moat-rated major banks, the business has consistently increased shareholder wealth in favourable economic times. CBA trades at a premium to major bank peers due to its track record of earnings and dividend growth supported by strong organic capital generation.

Some investors consider CBA’s strong emphasis on home loans a weakness. Our CBA analyst Nathan Zaia does not share this view.The loan book’s large weighting to home loans and the high proportion of customer deposits reduces risk on bad debts and sudden changes to funding costs.

While Australian housing is expensive and debt/household income ratios are high, we remain comfortable for several reasons. Tight underwriting standards, lender’s mortgage insurance, low average loan/valuation ratios, a high incidence of loan prepayment, full recourse lending, and a high proportion of variable rate home loans combine to mitigate potential losses from mortgage lending.

Shares have been hit recently after changes to tax concessions for investors (mainly hitting existing properties) were announced plus the higher rate environment which lowers borrowing capacity. Consequently, we expect housing credit growth to slow to around 3-4% in fiscal 2027. In comparison, the 12 months ended March 2026 saw robust growth at 7.3% and investor at 9.6%.

Despite this, the shares remain materially overvalued compared to our fair value estimate of $105 per share. On a forward P/E of around 24 and a dividend yield of 3%, valuation multiples are difficult to reconcile with a mid-single-digit earnings outlook.

BHP Group Ltd ★

  • Economic moat: None
  • Fair value estimate: $44 per share
  • Share price: $64.5 (as at 01/06/26)
  • Uncertainty rating: Medium
  • Price to fair value: 1.47

The world’s largest miner by market cap has had a stellar run, up over 30% year-to-date on higher copper prices. Commodity prices are the biggest drivers of its earnings. With both copper and iron ore prices elevated and not yet affected by the Iran conflict, cost headwinds from the war are likely to have a relatively minor impact on earnings.

Commodity demand is tied to global economic growth, particularly China’s. BHP has benefited greatly over the past two decades, however we think demand is likely to soften as the China boom ends, particularly in iron ore.

We ascribe no-moat BHP a fair value estimate of $44 per share. Optimism over increasing demand for data centres, the electricity grid, renewables and electric vehicles, along with near-term supply issues sees spot copper near historical highs at USD 6 per pound.

The iron ore price remains solid at about USD 110 per metric ton, but we’re more bearish than the market in the long term and assume copper and iron ore to fall to around USD 3.80 per pound and USD 75 per metric ton, respectively, from 2030, based on our estimate of the long-run marginal costs of production. This drives our forecast negative 2% five-year net profit after tax CAGR to fiscal 2030.

Wesfarmers Ltd ★

  • Economic moat: Wide
  • Fair value estimate: $58 per share
  • Share price: $79.8 (as at 01/06/26)
  • Uncertainty rating: Low
  • Price to fair value: 1.38

Wesfarmers is one of Australia’s best-know corporations, with operations divided into the two broad groups of retail and industrial. It earns around 80% of sales from the retail channel across discount department stores, hardware/home improvement and office supplies.

The diversified portfolio of operations provides exposure to many segments of the local economy. Even after the divestment of Coles, most of the conglomerate’s earnings are consumer related. We forecast group revenue to grow 4% per year over the next five years, and operating margins to average 10% over the period.

Bunnings generates close to two-thirds of earnings and is the most important driver of the top line in our model. We forecast midcycle revenue growth of around 5% per year in line with the hardware retailing market. Kmart is Wesfarmers’ second-largest business, accounting for about 20% of group midcycle EBIT. We think the department store sector will continue to lose customers to speciality brick-and-mortar stores and online pure-play retailers. Over the next five years, we forecast a sales CAGR of 3% for the combined Kmart Group.

Shares are materially overvalued even after the 7% drop year-to-date. The near-term outlook for consumer spending is worsening, although we think Kmart and Bunnings are well positioned. A prolonged oil shock and continuing hikes will likely weigh heavily on discretionary spending. We think the market is ascribing significantly more long-term growth potential to its existing operations.

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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.