STOCKS

33 Undervalued ASX Stocks For 2025

We share our outlook for different sectors in Australia and highlight opportunities in 2025.

New Morningstar research has revealed that the energy, basic materials and technology sectors are undervalued (as of Mar 31, 2025), as the market frets about demand amid slowing global economies. While concerns are valid, the long-term outlook is favorable.

We have identified several stocks trading at attractive prices, with certain names trading at discounts to their long-term intrinsic value of up to 40% or more as of 31 March 2025.

Morningstar valuation overview of Australian-listed firms under coverage as of 31 March 2025. 4- and 5-star ratings mean the stock is undervalued, while a 3-star rating means it's fairly valued, and 1- and 2-star stocks are overvalued.

Here’s a brief summary of how valuations stack up across sectors and where investors may find opportunities. Data is as of 31 March 2025.

Skip to sector:

• Energy
• Financial Services
• Technology
• Basic Materials
• Communication Services
• Consumer Cyclical
• Consumer Defensive
• Healthcare
• Industrials
• Real Estate
• Utilities

Energy

The energy sector is significantly undervalued on a long-term view. Global oil prices faced significant headwinds in the first quarter, which could persist into 2025. As well, US trade policy uncertainty has rippled through markets, including possible economic impacts that could weaken demand. However, new sanctions on Venezuela and the willingness of OPEC to pause production increases suggest further downside to oil prices is likely limited.

With uncertainty surrounding global oil supply and demand weighing on the share prices of oil producers, most local names, are undervalued. Particularly important for gas-exposed Australian hydrocarbon producers, the outlook for liquefied natural gas is positive.

LNG demand is expected to increase by almost 60% over the next 10 years, according to Wood Mackenzie. This assumes increasing GDP per capita in regions short of gas resources, along with the opportunity for LNG to displace coal in emerging markets and for gas-fired generation to back up intermittent renewables.

The renewable energy transition does not negate the value proposition for Australian hydrocarbon producers, given our expectation for persisting conventional hydrocarbon demand. Significant investment is required in most demand scenarios to backfill falling hydrocarbon supply, which naturally declines at 5% to 6% per year. This investment will only occur if hydrocarbon prices are reasonably attractive.

Our oil and gas producer fair value estimates assume a pullback in prices of Brent crude and contract LNG to USD 60 per barrel and USD 8.40 per million British thermal units from late 2026, respectively. It is not currently feasible to eradicate all oil demand, which contributes to our forecast for a gradual, rather than sudden, decline in demand. For the petrochemical and aviation sectors, there are often no alternatives to oil and gas.

Undervalued stocks in the Energy sector

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Financial Services

The latest bank updates show broadly stable net interest margins and low bad debt expenses. While share prices eased, we attributed this to shares having run ahead of fundamentals, as the pullback leaves most banks trading much closer to fair value.

We don’t expect the RBA’s first interest rate cut, and those likely to follow, to materially change bank earnings. Broader economic conditions and competition impact margins more. Credit growth is robust, and well-supported by population growth and solid house prices. Modest revenue growth and cost savings are expected to underpin mid-single-digit EPS growth for the next five years across the sector. Dividends are well supported by surplus capital.

US tariff-induced uncertainties present a tough backdrop for asset managers. On average, our covered firms are likely to see gradual earnings decline over the medium term. As revenue is calculated off daily FUM, the earnings impact should be bearable for most asset managers this fiscal year but fully felt in fiscal 2026. In the longer term, as rate cuts are priced in and volatility rises, we expect net flows to slow down, with fee compression and investment in distribution constraining asset managers’ ability to grow earnings.

We expect bank margins to hold relatively steady despite lower cash rates. While banks are likely to pass on rate cuts in full to existing borrowers, to preserve margins they can reduce discounts on new loans and lower deposit rates. Tariff ructions present a tough backdrop for asset managers as cyclical tailwinds from rate cuts fade. Industrywide fund inflows are likely to deteriorate.

Undervalued stocks in the Financial Services sector

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Technology

The technology sector has fallen sharply in recent months and is now fairly valued. Investors were overly optimistic about the potential of generative artificial intelligence, as well as the re-election of President Trump. This overoptimism set the stage for the abrupt fall, triggered by uncertainty from Trump’s tariffs and other policies.

Resiliency to these and future shocks varies. Companies with high margins and high-quality earnings can likely withstand the headwinds. However, relative strength can also suffice.

Trade tensions could raise prices and weaken consumer confidence. This may affect consumer-focused companies.

Undervalued stocks in the Technology sector

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Basic Materials

Expectations that higher tariffs imposed by President Trump could cause a US recession, along with slower economic growth in China, have seen many commodity prices fall over the quarter.

Gold is the notable exception, recently reaching new highs as investors seek safety. In turn, most gold miner shares are up and trade above fair value.

Copper is also higher, potentially driven by traders moving copper to the US before the potential imposition of tariffs on imported copper.

Metallurgical coal prices are down on supply out of Mongolia, but iron ore prices are broadly stable.

We are bearish on the long-term outlook for iron ore and base metals demand given structural headwinds in China. These include its likely transition to a less commodity-intensive economy, falling population, housing oversupply, mature infrastructure stock, and rising trade frictions.

Undervalued stocks in the Basic Materials sector

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Communication Services

With high levels of uncertainty globally, the telecommunication sector should be resilient. However, despite its defensive nature, growing costs and capital expenditures have dampened free cash flow in recent years. Capex has increased dramatically due to 5G-related investments.

On a positive note, capital expenditures are likely to have peaked and should be much lower from fiscal year 2025 as 5G investment tails off and companies become increasingly disciplined. With steady EBITDA growth forecasted across our coverage, reducing capex is likely to see increased free cash flow.

Media began the year strongly with the average performance of the names we cover up around 10%. We believe there’s more to go as advertising markets recover from cyclical doldrums and the market realizes traditional media’s audience decline is slower than previously feared. Pressure from shareholders sees media companies reducing costs and selling nonperforming assets.

Overall, audiences are shifting from linear TV to broadcast video on demand. How traditional media companies monetize this streaming audience while optimizing programming investment and reducing headcount is key. However, considering the rock-bottom valuations of 3 to 4 times our forecast EBITDA, little needs to go right for meaningful share price improvements.

The expected reduction in capital expenditure should increase telecommunication companies’ free cash flow. Our estimate is for capex to be below fiscal year 2024 levels through to fiscal year 2029. Media audiences are likely to continue to shift from linear television to broadcast video on demand. We expect traditional media companies to better monetize their combined linear-digital audience while keeping non-content costs down.

Undervalued stocks in the Communication Services sector

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Consumer Cyclical

We expect the first-order effects of US tariffs on Australian retailers to be short-lived. Although we believe the net impact to be slightly negative for retailers and positive for consumers, we see negligible risks for the long-term outlook and intrinsic valuations of our Australian discretionary retail coverage.

We anticipate increased US tariffs on some USD 400 billion of Chinese goods to partially divert this supply elsewhere, including to Australia. We believe an increased supply of Chinese goods will deflate prices for consumer goods globally, outside the US. In this scenario, Australian consumers would benefit from lower prices in the short term. But at the same volume and gross margin, discretionary retailers would face lower revenue and earnings. We don’t expect earnings to be materially affected in reality, with increased buying power and demand to offset some of the headwinds.

The longevity of the tariffs are uncertain. But there is certainly an incentive to resolve the matter because exporting nations and the US economy will likely feel pain. Even if new tariffs stay beyond the current US presidential term, we think supply chains would adjust, and production capacity in higher-cost jurisdictions would reduce—in the long run, all costs are variable. Accordingly, the long-term earnings outlook of Australian retailers is undiminished.

Discretionary spending is the key macro driver for cyclicals. Despite recent interest rate cuts, debtors are still feeling pain. We expect a lag for the full impact to flow to consumers, and rate cuts to take at least a year to unfold their maximum relief. We expect falling interest rates to be a boon for goods consumption, which has been depressed by high mortgage payments. We anticipate discretionary goods are best placed to benefit.

Undervalued stocks in the Consumer Cyclical sector

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Consumer Defensive

As we expected, the final report of the Australian Competition and Consumer Commission’s inquiry into the supermarket sector doesn’t meaningfully affect Woolworths and Coles. However, a mid-single-digit relief rally following the report’s release suggests the market was worried. We see none of the 20 recommendations and reforms of the final report, largely focusing on greater transparency for consumers and suppliers, as overly burdensome for supermarkets.

We don’t think the supermarkets are price gouging, and the inquiry didn’t find evidence that they are. Spikes in food price inflation were a global phenomenon, and peak food inflation exceeded Australia’s in New Zealand, the US, the UK, and the euro area. Currently, Australian food price inflation stands at 3%, a third less than the peak of 10% in December 2022, without any government intervention.

However, we believe Australian food retailing is more competitive today than a decade ago, with gains by Aldi and Costco. Liquor retailers, market leader Endeavour and number two Coles, are grappling with sluggish sales growth.

While consumption volumes are holding up close to trend levels, consumers are trading down to cheaper options and are buying in bulk. We expect the premiumization trend to return from fiscal 2026 on rising real incomes and improving consumer sentiment following rate cuts, boosting liquor sales growth and earnings.

At the expense of supermarkets, dining out remains elevated as a share of personal spending. But we expect this to normalize over the medium term—a tailwind for supermarkets but a headwind for suppliers, given supermarkets are generally a less profitable channel.

Undervalued stocks in the Consumer Defensive sector

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Healthcare

We view the healthcare sector as overvalued on average; however, we rate approximately 40% of our coverage as 4- or 5-star-rated.

The February reporting season was more eventful than usual for healthcare and triggered large share price moves for many companies. The biggest gain in the sector was Nanosonics, up over 25% on strong first-half consumables revenue and the imminent launch of its new product, Coris. The largest share price decline in the sector was Polynovo, down over 40% since reporting due to slowing sales growth and issues among senior management.

We changed our fair value estimates for ten healthcare names with an average increase of 2%.

Undervalued stocks in the Healthcare sector

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Industrials

About half of our industrial stock coverage is trading at a discount to our fair value estimate. Many discounted stocks have US operations, and we believe these have been marked down due to geopolitical uncertainty between the US and the rest of the world.

We assume 25% tariffs on steel and aluminum imports to the US in our base case estimates.

Despite some near-term headwinds, we expect coal export volumes to recover from wet weather over the medium term.

We anticipate US steel tariffs leading to tighter supply and higher margins, and better near-term pricing for US producers.

Undervalued stocks in the Industrials sector

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Real Estate

The sector mildly underperformed the market in the March quarter, as bond yields linger at an elevated level.

The sector is modestly undervalued on average. Office valuations are stabilizing. Tenant demand for buildings in core city locations is resilient, especially in Sydney. We expect a further recovery in rents in core areas, partly due to office employment growing at a faster pace than office floor space. Granted, hybrid working reduces the floor space needed per employee, but higher-quality buildings are still sought after. Office attendance is a major consideration for tenants – well-connected locations, abundant amenities, and people-centric fit-outs are more likely to encourage employees to return to the office.

Retail REITs are dipping their toes in residential housing, planning to redevelop some existing shopping centers into mixed-use precincts. These shopping center locations are attractive: near public transport and within established neighborhoods. We like the idea, as housing feels structural tailwinds from population growth and dwelling undersupply. Plus, densifying the neighborhoods could benefit retail sales, adding to tenant demand for the shopping centers.

In the past decade, office employment growth outpaced growth in office supply. That, combined with more return-to-office mandates from employers, should support further rent increases, especially in higher-quality buildings. Capitalization rates (net property yields) are stabilizing, particularly for retail and industrial sectors. With solid rent growth anticipated, property values are likely to rise.

Undervalued stocks in the Real Estate sector

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Utilities

Utilities performed poorly in the quarter and are slightly undervalued on average. We think the impressive earnings recovery for Australian utilities is largely over. We expect earnings to soften in the next couple of years before stabilizing, but this will depend on wholesale electricity prices. Hot weather and power station outages pushed prices higher in early summer, and futures prices have lifted in sympathy. We don’t expect high prices to continue though as the renewable energy buildout is gaining momentum after a post-covid lull. This supply should help moderate electricity prices.

The renewable energy buildout is gaining momentum after a post-covid lull. Financial commitments to wind and solar farm projects picked up strongly in the September quarter despite high debt costs, signaling increased supply additions in coming years.

Undervalued stocks in the Utilities sector

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Looking for more stock ideas?

The Morningstar Rating for shares can help investors uncover stocks that are truly undervalued, cutting through the market noise.

Investors can turn to several metrics to gauge a stock’s worth. Some investors use standard metrics, such as price/earnings or price/cash flows. Others may look at a stock’s price relative to a company’s future growth prospects, or where a stock is trading relative to its 52-week high price.

At Morningstar, we define undervalued stocks as those that are trading below our calculated fair value estimate, adjusted for what we call uncertainty—both of which are wrapped into the Morningstar Rating for stocks. Stocks rated 4 and 5 stars are undervalued; those rated 3 stars are fairly valued, and those rated 1 or 2 stars are overvalued.

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