Premium Quality, Strong Fundamentals, Buy Recommendations – Could These 13 Stocks Be the Ideal ASX Portfolio?

Morgan Stanley’s High-Quality Stock Picks: A Look at the ASX Market

Each month, Morgan Stanley meticulously analyses numerous ASX-listed stocks through a method known as quantitative analysis. This approach utilises mathematical and statistical models to assess financial and investment data, enabling investors to identify trends and patterns to inform their decisions.

Morgan Stanley employs its proprietary quantitative model dubbed “MOST”, which has shown remarkable performance in 2023, generating a 10.9% return by the end of April, compared to a mere 0.2% for the ASX 200 index. This notable success raised interest in a particular quantitative screen that spotlighted a group of 13 stocks classified as “High Quality Stocks Preferred by MOST” and recommended as "Overweight" by the firm’s analysts.

The Featured 13 Stocks

Here are the highlighted stocks in alphabetical order:

1. Eagers Automotive (ASX: APE)

   • Industry: Consumer Discretionary (Automotive Retail)
   • Operations: Eagers Automotive runs a network of new and used car dealerships in Australia and New Zealand.

2. Accent Group (ASX: AX1)

   • Industry: Consumer Discretionary (Footwear and Apparel Retail)
   • Operations: Manages brands like The Athlete’s Foot and Platypus across Australia and New Zealand.

3. Coles Group (ASX: COL)

   • Industry: Consumer Staples (Supermarket Retail)
   • Operations: Operates over 800 supermarkets as well as Coles Express petrol stations and liquor outlets across Australia.

4. Dicker Data (ASX: DDR)

   • Industry: Information Technology (Distribution)
   • Operations: Distributes hardware, software, and cloud solutions to IT resellers in Australia and New Zealand.

5. Data#3 (ASX: DTL)

   • Industry: Information Technology (IT Services)
   • Operations: Delivers IT solutions, including cloud services and software licensing across Australia.

6. Endeavour Group (ASX: EDV)

   • Industry: Consumer Staples (Retail and Hospitality)
   • Operations: Manages liquor stores like Dan Murphy’s and hotels across the country.

7. Fortescue (ASX: FMG)

   • Industry: Materials (Mining)
   • Operations: Engaged in iron ore mining in Western Australia, with investments in green energy.

8. IPH Limited (ASX: IPH)

   • Industry: Industrials (Intellectual Property Services)
   • Operations: Offers a range of intellectual property services, including patent filings in Australia and Asia.

9. Pro Medicus (ASX: PME)

   • Industry: Healthcare (Software Solutions)
   • Operations: Develops and provides radiology software solutions primarily in Australia and the US.

10. Premier Investments (ASX: PMV)

    • Industry: Consumer Discretionary (Retail)
    • Operations: Owns popular brands such as Smiggle and operates numerous stores in Australia and overseas.

11. Redox (ASX: RDX)

    • Industry: Industrials (Chemical Distribution)
    • Operations: Supplies chemicals and ingredients to various sectors in Australia, New Zealand, and the USA.

12. Telstra Group (ASX: TLS)

    • Industry: Telecommunications
    • Operations: Provides broad telecommunication and technology services both domestically and internationally.
13. Woolworths Group (ASX: WOW)
    • Industry: Consumer Staples (Retail)
    • Operations: Runs supermarkets and liquor stores across Australia and New Zealand.

Portfolio Observations

This selection could serve as an ideal starting portfolio for new investors. However, it only encompasses seven out of the 11 major ASX sectors, lacking representation from Energy, Financials, Real Estate, and Utilities. This limitation suggests the possibility of expanding the portfolio with additional stocks from these sectors.

In terms of style, the portfolio offers a blend of income and growth-oriented stocks. Companies like Coles, Woolworths, and Telstra promise stability with their reliable dividends, while stocks like Eagers and Accent lean towards cyclical performance.

Notably, the dividend yield of this hypothetical portfolio shines, boasting an impressive 6.65% yield on average, based on grossed-up calculations. All but one stock—Pro Medicus, which is typically reinvested in growth—provides yields exceeding the usual post-tax threshold for Australian investors.

Conclusion: Is It the Right Portfolio?

Ultimately, the concept of a "perfect" portfolio is subjective. It hinges on individual financial goals and market circumstances. This selection’s diversity across different sectors and the balance between cyclical and defensive stocks delivers a foundational exposure to the ASX. However, the effectiveness of this portfolio is heavily reliant on the investor’s trust in Morgan Stanley’s quantitative analysis.

With strategic modifications and additional selection from the omitted sectors, this portfolio could potentially be tailored to meet diverse investment objectives.

Source: “Stock Ideas – A ‘Quantamental Approach’,” Morgan Stanley Research, 7 May 2025.