Michael Bailey Deputy editor

Michael has been a business journalist for 12 years. He has extensive experience editing magazines covering funds management, commercial property and the travel industry. In 2011 he won a Citi Excellence in Financial Journalism award for a BRW cover story on economic indicators.

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From Alumina to Woodside, Morningstar’s nine best stocks to buy

Published 04 October 2013 08:27, Updated 04 October 2013 14:26

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From Alumina to Woodside, Morningstar’s nine best stocks to buy

Research house Morningstar has released its nine best stock picks from the 230 ASX-listed companies it follows. Photo: Tamara Voninski

From Alumina to Woodside Petroleum, research house Morningstar has unveiled its nine top stock picks from the 230 companies it analyses from the Australian Securities Exchange.

Morningstar’s best stock ideas are “our most-vetted, highest conviction ideas” at attractive prices, according to the firm’s head of equities Andrew Doherty.

“The best stock ideas generally have wide application among our varied clients and their respective investment needs.”

The nine stocks, along with their current price and the fair value price determined by Morningstar, are as follows:

Alumina (Price: $1.03; fair value: $2.60)

“Alumina’s key assets are substantial global bauxite reserves and low-cost alumina refining operations,” Doherty says. “Earnings could improve substantially in time as a de-linking of aluminium and alumina prices allow alumina producers to raise prices.”

AMP Limited (Price: $4.70; fair value: $6.00)

“AMP is our preferred wealth manager due to high market share, a strong brand, large sticky customer base, a low-cost base and the largest aligned financial planner network in Australia and New Zealand,” Doherty says.

ANZ Bank (Price: $31.19; fair value $36)

“The Asian growth strategy is gaining momentum with good volume growth, and the Australian franchise continues to efficiently manage costs and margins,” Doherty says.

BHP Billiton (Price: $36.10; fair value: $40)

“A balanced suite of world class, long life assets in conjunction with a power-house balance sheet and strong management.”

Chorus (Price: $2.46; Fair value: $3)

“New Zealand’s largest telecom infrastructure owner is continuing its fibre rollout,” Doherty says. “A number of regulatory pricing decisions are pending which raises uncertainties but we expect rational outcomes. The stock is inexpensive and offers a healthy yield.”

National Australia Bank (Price: $34.83; fair value: $38)

“We expect funding costs to decline further and productivity to improve, while stronger equity markets will drive wealth earnings and the worst of peer bad debts will benefit from a stronger economy,” Doherty says.

QBE (Price: $14.78; fair value: $18)

“We are increasingly confident earnings will recover and support management actions to deliver improved operational performance. Disciplined underwriting and major productivity improvements are key.”

Rio Tinto (Price: $62.57; fair value: $75)

“Rio Tinto enjoys the lowest global production cost for iron ore delivered to China,” Doherty says. “Long-life assets and low-cash costs in iron ore and, to a lesser extent, copper underpin the narrow [competitive advantage].”

Woodside Petroleum (Price: $38.72; fair value: $46)

“As Australia’s premier oil play, Woodside Petroleum’s operations encompass liquid natural gas, natural gas, condensate, crude oil and liquefied petroleum gas,” Doherty says.

One stock removed since Morningstar last published its best ideas list is standards and compliance group SAI Global, which Doherty says is trading near fair value after a strong recent run.

Doherty stresses that Morningstar;s best ideas list is not intended to represent a well-diversified portfolio, so investors should consider each business with reference to existing holdings and risk appetite.

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