Morningstar analysts suggest that Australia’s financial sector appears generally unattractive at present. Despite the major banks pushing higher, their earnings prospects are considered unremarkable. In contrast, significant opportunities are emerging in the basic materials, energy, and healthcare sectors, following share price declines triggered by US trade policies.
According to Morningstar market strategist Lochlan Halloway, energy stocks currently offer the best value on the ASX. Woodside Petroleum, Australia’s largest hydrocarbon producer, is trading at a substantial 40 per cent discount to its assessed fair value. Morningstar observes a stark divergence across different sectors of the Australian stock market, with basic materials now presenting some value.
While Morningstar remains cautious about China’s steel production and the future of iron ore prices, recent double-digit share price declines have made iron ore miners increasingly attractive. The market may have overreacted to the downside in this sector. Healthcare and consumer sectors also contain undervalued stocks.
Morningstar believes investors are underestimating the continued importance of gas in replacing more carbon-intensive coal. The firm anticipates potential supply challenges due to a lack of new investment in the energy sector, further supporting the attractiveness of energy stocks. Woodside Petroleum is an Australian oil and gas exploration and production company. It is one of the largest producers of hydrocarbons in the country.
