3 quality ASX stocks for 2026

Last year we wrote about 3 quality stocks that were well placed to outperform in 2025: Seek (SEK), Block (XYZ) and The Lottery Corporation (TLC). It was a disappointing year, with all 3 underperforming the ASX200’s 6.8% return in 2025. SEK (+2.4%) and TLC (+4.5%) moderately underperformed while XYZ materially disappointed (-30.6%). 

While 2025 was unusual in that the Quality factor was one of the worst performing factors, the underperformance of Quality does not tend to last for long, and we would expect a reversal at some point. 

High-quality companies tend to outperform markets over the long term, with their quality attributes of durable competitive advantages, supportive industry structures and aligned management teams, allowing the companies to thrive through the economic cycle.    

Although SEK slightly underperformed, it was a pivotal year for the business as the first year post the significant multi-year platform investment. Combined with strong pricing power and disciplined cost control, SEK’s FY25 FCF doubled over the prior 2 years. SEK also provided strong FY26 earnings guidance even without a recovery in listing volumes. The market applauded SEK’s execution and the stock was outperforming the ASX200 by ~20% until the significant underperformance of the Quality factor in the final 3 months of the year saw SEK de-rate ~25% to finish the year behind the ASX200. We continue to see strong upside for SEK as an ‘Improving / Enduring Quality’ business with significant earnings and capital optionality and believe the recent factor driven underperformance has created a highly attractive opportunity.

TLC also finished the year just behind the ASX200, and similar to SEK, had outperformed the ASX200 by ~12% until the underperformance of the Quality factor in the last quarter. TLC delivered resilient earnings for FY25 even with a poor run of jackpot luck, beating consensus expectations with disciplined cost control. We believe it’s a matter of when, not if, TLC receives some “normal” luck, which would drive earnings upgrades. We view TLC as one of the most attractive defensive ‘Enduring Quality’ stocks in the ASX for 2025.

XYZ was the worst performer. We had expected continued momentum in XYZ to deliver a relatively smooth journey towards their Rule of 40 target for 2026, however concerns around the US consumer saw a bumpy ride with an earnings downgrade in May, which saw the stock drop 50% in 3 months. This was followed by a reversal upgrade in November, but the uncertainty and opaqueness of guidance meant the stock did not recover the full drop. There is still upside for XYZ in 2026 as an ‘Improving Quality’ business if they can execute and deliver their Rule of 40 target for 2026, however the business has shown greater economic sensitivity, partially curtailing the upside.

Looking forward to 2026, we roll across unresolved issues from 2025: geopolitical instability, tariff uncertainty, unknown AI impacts and AI “bubble valuations”, US fiscal and debt issues, and stubborn global inflation. 

We expect volatility to be the norm in 2026. In the face of this challenging backdrop, we believe quality investing offers a robust framework for navigating the uncertainties and capturing sustainable returns. 

At Blackwattle Mid Cap Quality, we focus on investing in high quality businesses over the longer term. We discuss three high-quality stocks, diversified across industries, that we believe are well placed in 2026: 

Wisetech (ASX: WTC)

WTC is a global leader in logistics services software. WTC was a significant underperformer in 2025, as governance issues, poor FY25 operational execution and conservative FY26 guidance post the E2Open acquisition disappointed the market.

We see 2026 as a pivotal year for WTC. The recent commercial model shift to a pure transaction model is a generational change for WTC, and while this has seen some mixed feedback from customers, productivity benefits from using the CargoWise software product suite and WTC’s monopolistic position should see a relatively smooth transition. 2026 should also see the delivery of E2Open merger synergies and expansion of the product offering and organic growth capability. This should allow WTC to accelerate revenue and earnings growth in 2026. On the governance front, we believe the refreshed board (3 new independent directors) and new management team (new CEO and CFO) is a step in the right direction towards improving governance and reducing key person risk.

We view WTC as an ‘Enduring Quality’ business, as one of the highest quality companies on the ASX, continuing their multi-decade customer and product growth journey. 

In our experience the best time to buy Quality stocks is when they are encountering short term issues and are trading significantly below intrinsic value, and WTC’s 2025 share price selloff represents a significant investment opportunity.  

Whitehaven Coal (ASX: WHC)

WHC is the leading Australian coal producer with thermal coal mines in NSW and metallurgical coal mines in QLD. While coal prices suffered in a bear market in 2025, reaching a 4-year low and forcing high-cost mine closures in Queensland, WHC continued to execute through this period. Strong productivity and cost discipline allowed WHC to generate free cash flow through this low coal price period.

Into 2026, the outlook is looking rosier with both internal and external drivers. The current supply/demand dynamics for coal remains favourable, with recent wet weather disruption this summer driving metallurgical prices higher, highlighting fine balance of supply/demand. WHC is also nearing the end of its journey to integrate and improve productivity of the acquired QLD metallurgical coal mines from BHP, as well as the last major paydown of the deferred BHP acquisition payments. In combination with a healthier coal price, this should allow WHC to increase capital management in the second half of 2026, which we would expect to drive a valuation re-rate of the stock.

We see material upside for WHC in 2026 and beyond as an ‘Improving / Enduring Quality’ business. We back WHC to execute on numerous multi-year internal levers to maintain and improve the business quality beyond commodity prices; including productivity improvements, mine expansions and further disciplined capital management. 

We view WHC as one of the highest quality mining companies on the ASX, with strong financials and a capital disciplined management team. 

Tuas Limited (ASX: TUA)

TUA is a telecommunications company, providing Mobile and Broadband services in Singapore under the Simba brand, established by TPG Australia in 2016 and spun out from the TPG Group (TPG AU) in June 2020. TUA has followed the same model as TPG originally, disrupting legacy, high-cost incumbents with a low cost, strong service and aggressive pricing model. TUA is managed by former TPG executives and is backed by the Executive Chairman David Teoh, the founder of TPG Australia.

In mid-2025 TUA announced the acquisition of M1, the number 3 player in the Singaporean mobile market, which would allow TUA to leapfrog into the number 2 player in the Singaporean mobile market. While strategic given the consolidation of the market, this acquisition is also highly earnings accretive for TUA. Early 2026 should see TUA close the acquisition and begin the delivery of material cost and revenue synergies opportunities, which should drive significant earnings upgrades over 2026.

The M1 acquisition also opens up the enterprise market and provides strong positions in prepaid mobile and broadband where TUA is still in its infancy compared to postpaid mobile, enhancing TUA’s medium term growth profile. There is also a significant longer-term opportunity for TUA to expand across SE Asia given the strong Simba Telecom brand and disruptive business model. 

We view TUA as an ‘Early Quality’ business, with significant upside post the M1 merger as the business continues to execute at scale. 

Quality Investing

At Blackwattle we are constantly on the lookout for these mis-priced, high-quality and improving-quality businesses with internal levers. We understand the exceptionalism of these businesses in generating significant shareholder returns, so when we do discover one, we look to become long-term shareholders and capital partners, enabling our portfolios to capture the potential long-term compounding of outperformance through market cycles.

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