Morgans 'Best Ideas' for March and reporting season reflections

We scored February as the strongest reporting season in three years. 

Banks delivered standout results and associated earnings upgrades, and many ASX50 franchises are demonstrating resilience in challenging times through self-help, cost and margin control. This supported a higher-than-average rate of large-cap (ASX50) stocks exceeding expectations at their results, and a resumption of material earnings per share growth for the ASX200 this year.

While macro sentiment has created near term noise, the underlying result fundamentals remain the strongest we have seen in three years - and that matters for patient, conviction-led investors.

Below are some of the key themes we observed during reporting season and changed to our ‘Best Ideas’.

Rush to safety looks more sentiment than fundamentals led

Roughly 45% of February’s gross market returns were explained by only 6 stocks (Major banks + miners), with the index concentrating toward size and relative safety. 

The sheer pace of this pivot stands out as it is comparable to episodes around both COVID and the GFC. Associated sell-offs in tech/ growth/ high PE segments has at times looked indiscriminate.

We’ve flagged stretched equity market valuations for some time. But at its heart investors look to be selling uncertainty linked to AI, the inflation/ rates outlook, and now geopolitics all with difficult-to-know economic impacts. But we think that some of the market’s best franchises have dislocated too far below fundamentals. 

Growth stocks on our shopping list include: Aristocrat Leisure (ASX:ALL), CAR Group (ASX:CAR), REA Group (AS:REA), Generation Development (ASX:GDG), Pinnacle (ASX:PNI), Eagers Automotive (ASX:APE), Pro Medicus (ASX:PME) and Sonic Healthcare (ASX:SHL).

A genuinely strong dividend season - but income compression is real

69% of dividend-paying stocks grew their distributions - the strongest mix in recent memory and a meaningful upgrade from the prior data pass (55%). Only 9 names cut. The structural reason is clear: EBITDA margins at a 20-year high of ~18% support earnings and free cash flow, giving boards confidence to lift payouts.

The caution sits in the income comparison. The XJI dividend yield (~3.8%) now sits below the 10-year Australian Government bond yield (~4.7%) - a negative equity income spread. The argument for owning equities purely for income requires the growth premium to do the heavy lifting, which demands earnings delivery in 2H26 and FY27. SUN and ING were the biggest absolute dollar cutters; CSL's −12% cut alongside a miss reinforces the negative sentiment around that name.

Volatility: Adjust to the new reality

It did feel worse at times, but volatile result-day price moves were overexaggerated to the downside to a similar extent that we saw last August. Much has been written about the reasons why, linked to algorithmic and hedge fund trading patterns, the rise of passive funds and a decline in active (fundamentals based) money management. The lesson is that investors need to get used to this and to develop strategies to extract value from it.

Plenty of the positives from February saw over-exaggerated responses to the upside also. Beats are still rewarded strongly, particularly among ASX50 stocks seeing above-average gains. Notably, several of August’s most problematic losers featured as winners this season (WOW, SHL, WTC, AMC). This shows the ability of large companies to self-help/repair and how markets remain highly momentum sensitive. This is relevant to problem stock CSL going forward.

Four stocks added to Morgans’ 'Best Ideas'

The Morgans ‘Best Ideas’ are our highest-conviction stock calls designed to deliver the most attractive risk-adjusted returns over the next 12 months.

We added four stocks to our 'Best Ideas' in March and removed DigiCo (ASX:DGT), Guzman Y Gomez (ASX:GYG) and Tyro (ASX:TYR)

Sigma Healthcare (ASX: SIG)

• Chemist Warehouse (CW) network strength: CW sales grew 17.2% to $5.1bn, with 13 new stores and LFL growth of 15.0%, driven by strong customer engagement and GLP-1 uptake.
• Offshore optionality: – YTD CW sales up 16.6% (LFL 14.4%). International up 24.5% across NZ, Ireland and UAE - with 3 new UAE stores in 2H.
• Standout at these levels: Recent weakness is positioning-driven. Top 50, high quality, high growth defensive with offshore optionality.

Price target: $3.36

Generation Development Group (ASX: GDG)

• Evidentia mandate inflection: Mandate win record has been disappointing, but management is confident this is changing. Booking the bulk of flagged A$2bn in mandates this quarter is a key catalyst.
• Market leader: Acquisitions of Lonsec and Evidentia have made GDG a market leader in the fast-growing SMA space, complemented by a step-up in Investment Bond sales.
• Pullback is an opportunity: Share price retreat since late 2025 is not fundamental. Prior re-rating was supported by improving business quality across divisions.

Price target: $6.66

GemLife Communities (ASX: GLF)

• Best play in homebuilders: One of the most attractive exposures in the development space, with upside risk to guidance and potential earnings upgrades. 
• Strong structural growth dynamics: Underpinned by strong demand from the ageing/downsizing cohort coupled with constrained supply. 
• Sizeable pipeline and a well-regarded, founder-led management team: We see FY26 guidance as highly achievable at the top end, with upside risk from potential settlement outperformance.

Price target: $5.84

Judo Capital (ASX: JDO)

• Good result, second chance to buy: JDO delivered a good result; the share price spiked on the day but was sold down due to an early investor liquidating its position, creating a second chance to enter.
• On track for key targets: Remains on track to hit its Gross Loan and “at-scale” NIM targets, with the underlying business fundamentals intact.
• Catalyst ahead: Once the dust settles from reporting season, we expect the stock to rerate. The sell-down was technical, not fundamental.

Price target: $2.09

Morgans full reporting season review is available via the pdf attached to this wire.