Morningstar analyses Australian investors' top trades of FY25

The 2024-2025 financial year was eventful to say the least. Elections in the US, UK and Australia, conflict in the Middle East, on again/off again tariffs and another year of war in the Ukraine.

Markets zigged and zagged with the news cycle but are on track for healthy gains for the year for investors who stayed the course. Australian shares end the year in overvalued territory although there were opportunities over the course of the year to pick up shares on sale.

The start of the financial year is a time to reflect on the year that’s gone. This includes understanding whether the holdings in your portfolio still match your investment strategy. It is also a time to reflect on the thesis for each of your holdings and if they still apply.

Here’s what our Morningstar analysts think about the top three equity trades for the 24/25 financial year.

Woodside Energy (ASX: WDS)

• Fair Value estimate: $41.50 (41% discount at 25 June)
• Moat: None
• Uncertainty Rating: Medium
• Star Rating: ★★★★★

Woodside is Australia’s premier oil and gas company with operations across liquid natural gas, natural gas, condensate and crude oil. LNG interests in the North West Shelf Joint Venture, or NWS/JV, and Pluto offshore Western Australia are the firm’s mainstay, and the low-cost advantage of these assets form the foundation for Woodside.

A big chunk of Morningstar Equity Analyst Mark Taylor’s intrinsic value estimate for Woodside comes from future project development. This is both a complicated and expensive endeavor, but it is one that Woodside has excelled in for over 25 years and has unparalleled experience domestically.

Woodside also benefits from 20-year off-take agreements with several blue-chip Asian energy utilities including Tokyo Electric, Kansai Electric, Chubu Electric, and Osaka Gas. These help ensure sufficient project financing during development and should also add stability to cash flows after completion.

Woodside’s deep development pipeline is backed up by what Taylor views as an attractive medium-term demand picture for gas, which is a far cleaner energy source than coal and therefore should play an important role in reducing global emissions.

In terms of dividends, Woodside’s official policy is to pay out a minimum of 50% of underlying earnings to shareholders. Since 2013, though, this has risen to roughly 80% of earnings as Woodside put many of its LNG expansion plans on hold. Taylor thinks this is high and suggests the funds could potentially be better used to accelerate the company’s growth investments.

Nonetheless, Woodside has strong cashflow and a healthy balance sheet that should support ongoing dividend payments that are 100% franked. Taylor expects a fiscal 2026 forward yield of around 7.10%. At a recent share price of $24.16 the company’s shares screen as materially undervalued versus his $41.50 Fair Value Estimate.

NVIDIA Corp (NASDAQ: NVDA)

• Fair Value estimate: $140.00 (Fairly valued at 26 June)
• Moat: Wide
• Uncertainty Rating: Very High
• Star Rating: ★★★

With a nascent technology sector in Australia comparative to the US, we see investors looking towards America for exposure to the AI trend. Leading the charge is NVIDIA thanks to its market leadership in graphics processing units, or GPUs. GPUs are hardware and software tools needed to enable the exponentially growing market around artificial intelligence.

Morningstar’s analysts award NVIDIA a wide moat, indicating that they believe the company is able to maintain and grow their competitive advantage for at least the next twenty years. They do expect that many larger tech companies will strive to find in-house solutions or second sources of solutions to reduce reliance on NVIDIA, but while these efforts may chip away at NVIDIA’s AI dominance, they are unlikely to unseat it.

Our analysts also believe that NVIDIA is in outstanding financial health. As of April 2025, the company held $53.7 billion in cash and investments, as compared with $8.5 billion in short-term and long-term debt. We think the firm generates sufficient cash flow and has ample resources to meet its debt obligations, capital expenditure requirements, potential acquisitions, and shareholder returns.

Our Fair Value Estimate is tied to NVIDIA’s prospects in the AI market and prospects in the data centre. It’s expected that they won’t be unbothered in the top spot, with leading cloud vendors continuing to invest in their own in-house solutions, while AMD is working on GPUs and AI accelerators for the data centre. Right now, it is a game of chasing NVIDIA who is ahead of the pack. The valuation hinges on how long NVIDIA can maintain this position.

There’s confidence that NVIDIA will be able to maintain their position for the foreseeable future. Their position is protected by Cuda, a proprietary software platform. These tools allow AI developers to build their models with NVIDIA. We believe NVIDIA not only has a hardware lead, but benefits from high customer switching costs around Cuda, making it unlikely for another chip designer to emerge as a leader in AI training. 

Over the course of the 24/25 FY, the share managed to comfortably outperform the NASDAQ 100. NVIDIA is fairly valued against Morningstar’s Fair Value Estimate at the end of June.

CSL Limited (ASX: CSL)

• Fair Value estimate: $325 (26% discount at 26 June)
• Moat: Narrow
• Uncertainty Rating: Medium
• Star Rating: ★★★★

CSL is one of three tier one plasma therapy companies that benefit from an oligopoly in a highly consolidated market. All the players are vertically integrated as plasma sourcing is a key constraint in production. The plasma sourcing market is currently in short supply, however, CSL is well positioned having invested significantly in plasma collection centres, owning roughly 30% of collection centres globally.

We award CSL a narrow moat rating based on the cost advantage afforded by its large-scale plasma collection and fractionation (this is where the various components of blood plasma are separated). A narrow moat indicates that our analysts believe that CSL will be able to maintain and grow their earnings for at least the next 10 years.

CSL also possesses intangible assets based on the intellectual capital in its existing products and the proven success of its R&D efforts over time. The industry has high barriers to entry as plasma fractionation has long lead times, taking approximately seven years to be built and approved. Fractionation is also a complex process that requires significant expertise and scale to be performed cost-effectively.

Our analysts believe that CSL also demonstrates a sensible approach to R&D, evaluating spend based on the commercial outlook. The strategy for CSL has been to target rare diseases, typically low volume and high price and margin businesses.

CSL is currently considered 26% undervalued to its Fair Value Estimate of $325 at the end of June. It has underperformed significantly during the 24/25 financial year. The share price has continued to decline since reporting interim results in February 2025, with no material announcements. If an investor had chosen to invest in a broad market index ETF such as the Vanguard Australian Shares Index ETF VAS, they would have bested CSL by just under 30%. However, this has created an attractive opportunity for a moated company, with its core business in good shape.

My colleague Mark LaMonica, CFA joined the ranks of Sharesight users who purchased CSL Ltd during the Financial Year. He has written about his process to include it into his portfolio, and his assessment of the share against his portfolio goals.

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This article has been prepared by Morningstar Australasia Pty Ltd (AFSL: 240892). The information is general in nature and does not consider the financial situation of any individual. For more information refer to our Financial Services Guide at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser.

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