4 new ASX names enter Morgan Stanley’s Leading Ideas Portfolio

In a market that is becoming increasingly selective, Morgan Stanley Wealth Management has updated its Australia Leading Ideas Equity Model Portfolio via a recent research note, adding new positions, removing others, and rebalancing. The changes offer a window into the stocks the team believes can drive performance into 2026, particularly at a time when earnings certainty has become more valuable than ever.

This is not a top-down thematic rotation. The newly added companies operate in four completely different industries. What unites them is that each is delivering identifiable progress that Morgan Stanley believes the market has yet to fully appreciate. These four stocks receive the greatest attention in the report, although the strategy team also made several trims and removals to sharpen the overall positioning.

Below, we break down what has entered the portfolio, what has been removed, and how the weightings have shifted.

REA Group (ASX: REA): A textbook example of pricing power

The decision to add REA Group reflects Morgan Stanley’s confidence in the company’s ability to grow through pricing and product expansion. The team describes REA’s model as one with “strong pricing power” and highlights the company’s capacity to generate “compounding shareholder value” through annual rate increases and higher depth penetration.

The report notes that REA’s margins are expected to advance from roughly 56% in FY25 to about 63% in FY28, underscoring the operational leverage that continues to support the business even as listing volumes fluctuate.

Morgan Stanley also points to an expected 11% yield increase in FY26 and FY27, driven by a combination of price changes, rising depth take-up and incremental revenue from new products. While the report acknowledges risks including competition from CoStar (NASDAQ: CSGP), technological change, and leadership transition, the team states that REA’s current valuation “adequately reflects these risks” while still undervaluing its longer-term earnings opportunities.

REA is the clearest example in this update of a company that retains control over its own destiny through the power of its platform.

Sigma Healthcare (ASX: SIG): A multi-year synergy and scale story

The second addition is Sigma Healthcare, which Morgan Stanley describes as “Australia’s largest domestic pharmacy distributor and franchisor.” Sigma’s merger with Chemist Warehouse has created a step-change in scale, and the report emphasises that the business is benefiting from strong sales momentum across major categories and elevated demand for GLP-1 therapies.

Morgan Stanley highlights management’s target of $100 million in cost and revenue synergies, most of which are expected to emerge in years three and four. The team applies a blended valuation approach, resulting in a target price of $3.30, supported by expectations of network sales growth in the low double digits through FY26 and FY27.

Where REA offers pricing power, Sigma offers scale, operational uplift and defensive growth. In an environment where investors are rewarding visibility, Sigma’s long-term synergy profile appears to fit neatly into the portfolio.

Pilbara Minerals (ASX: PLS): Positioned for a recovery in lithium markets

The addition of Pilbara Minerals brings cyclical exposure back into the model, although the report frames it as a quality-led opportunity rather than a speculative bet on commodity prices.

Morgan Stanley states that the investment case centres on Pilbara’s “operational leverage and lithium market recovery potential.” The most recent quarterly result was a highlight, with mining rates running “approximately 45-50%” ahead of consensus expectations and unit costs “7-8% better” than forecast. Lithium recovery also improved meaningfully, rising to 78.2%.

The team believes lithium prices “have likely troughed” and that Pilbara’s production growth and post-expansion cost position place it in a strong position for the next phase of the cycle. Expansion optionality at Pilgangoora adds further appeal.

Pilbara is included not because the sector is fashionable again, but because it is executing well in a difficult commodity backdrop.

BlueScope Steel (ASX: BSL): Resilience and improving US spreads

BlueScope Steel rounds out the new additions. The company has produced solid returns despite weak steel spreads in Asia and a subdued domestic construction cycle. Morgan Stanley points out that BlueScope delivered $738 million of underlying EBIT in FY25 and achieved a return on invested capital of around 6% in a tough environment.

The team notes signs of improvement, most notably in the United States, where spreads are expected to rise to about $480 per tonne in the first half of FY26. BlueScope is also progressing a cost improvement program targeting more than $200 million in FY26, along with longer-term initiatives that could produce around $500 million in incremental EBIT by 2030.

BlueScope does not offer explosive growth, but the report characterises it as a company with a balanced risk-to-reward profile and a stable foundation for long-term returns.

Four stocks removed from the model

Morgan Stanley also exited several positions to make room for the new names and to maintain alignment with its broader Macro+ framework.

• Xero (ASX: XRO) - Removed due to recent volatility and a shift in active weighting within the associated Macro+ model. This was not presented as a fundamental downgrade.
• Scentre Group (ASX: SCG) - Removed after the Morgan Stanley strategy team moved domestic real estate from overweight to equal weight. The decision reflects positioning rather than a change in the business outlook.
• Santos (ASX: STO) - Removed because its “estimated risk-adjusted returns” were assessed as median across the energy coverage universe.
• CAR Group (ASX: CAR) - Removed in line with adjustments to the Macro+ model. The business remains high quality, but the portfolio is being refocused elsewhere.

Reweighting the existing holdings

Portfolio weights were also adjusted to control volatility, tracking error and sector concentration.