Wild swings, big opportunities: 6 ASX best ideas Morgans is backing

Australian reporting season was better than feared. Unfortunately, the macro backdrop has become harder to ignore.

FY26 industrial earnings came in 1-2% ahead of expectations, while FY27 forecasts were trimmed by less than 1%. Companies generally protected earnings through cost control and better margins despite softer revenue growth.

But Morgans’ Tom Sartor and Andrew Tang remain underweight Australian equities. Bond yields have pushed higher, domestic activity is slowing and sticky inflation means the RBA’s next move could be up rather than down.

"Large caps are trading close to 19x for mid-single-digit growth, banks carry rate and credit risk we are not compensated for, and domestic activity is softening with the threat of another rate hike," they wrote in a report.

And as the explosive chart below shows, reporting season volatility is becoming more extreme with each passing season. But that noise is also creating opportunities for savvy investors to pick up quality names caught in the crossfire.

Against that backdrop, Sartor and Tang have added six companies to Morgans’ 'best Ideas' list, which represents the research team’s key stock picks over a 12-month timeframe.

• Wesfarmers (ASX: WES) - The diversified conglomerate behind Bunnings, Kmart, Officeworks and Wesfarmers Health fell more than 15% during August as softer-than-expected results collided with stretched valuations. Morgans forecasts a 12-month total shareholder return (TSR) of 10%.
• Dalrymple Bay Infrastructure (ASX: DBI) - The infrastructure company owns the Dalrymple Bay Terminal, a major coal export facility in Queensland, and offers a defensive cash flow profile alongside a dividend yield of around 5%. Morgans forecasts a 12-month TSR of 12%.
• REA Group (ASX: REA) - The digital property business behind realestate.com.au has seen its share price hit by the Federal Budget’s tax changes, but remains an essential platform for Australians listing and searching for homes. Morgans forecasts a 12-month TSR of 22%.
• Monadelphous (ASX: MND) - The engineering group, which provides construction, maintenance and industrial services to the resources, energy and infrastructure sectors, reported record revenues and continues to benefit from contracts tied to the energy transition. Morgans forecasts a 12-month TSR of 28%.
• Civmec (ASX: CVL) - The engineering and construction group delivered surging profits, supported by growth across its defence and resources businesses. Morgans forecasts a 12-month TSR of 37%.
• Imricor Medical Systems (ASX: IMR) - The medical technology company is developing equipment that enables cardiac procedures to be performed using real-time MRI guidance rather than conventional X-ray imaging. Highlighting the scale of its ambitions, Imricor said in its FY26 results that “few companies have ever pushed a platform of this scale through FDA approval at once.” Morgans forecasts a 12-month TSR of 52%.

Making way for the new additions were Amcor (ASX: AMC), SGH Limited (ASX: SGH) and Generation Development Group (ASX: GDG).

Results: key scores and themes

Morgans’ assessment of August is essentially that corporate Australia held together, but at a price.

“FY26 prints came in line to slightly ahead, and FY27 forecasts were pared back only modestly." 

Companies defended EPS through cost reductions against a soft top line, while boards favoured shareholder returns over reinvestment.

"The tension sits in valuation: multiples expanded while FY27 earnings were trimmed, and the equity income spread turned further negative," Sartor and Tang said.

There were some clear sector themes too.

Healthcare rebounded strongly, led by CSL (ASX: CSL), which gained 41% in August, while Ramsay Health Care (ASX: RHC) delivered a strong margin-led result.

"Healthcare is the one clear re-rate, led by CSL recovering from 15.0x to 19.7x."

Meanwhile, AI and data centres continue to emerge as a theme through Australian contractors. Shape Australia (ASX: SHA) grew data-centre fit-out revenue from $0.5 million to $109 million in a year, while Southern Cross Electrical (ASX: SXE) expects its data-centre electrical revenue to roughly triple to $360 million.

The ASX is getting noisier - and that’s the opportunity

This is where Sartor and Tang’s analysis gets particularly interesting.

Almost 60% of results now trigger share price moves exceeding 5%, with result-day reactions becoming larger across large, mid and small caps - with the biggest reactions captured in the below graph.

“The noise in market pricing around results ratcheted to a new level in August.”

More interestingly, many of those extreme moves subsequently reversed, and that leads Sartor and Tang to an important conclusion for investors:

“Re-positioning and/or re-balancing in stock positions after results are delivered, rather than ahead of them, appears to be the prudent risk-adjusted portfolio management strategy.”

Morgans’ screen for situations where price weakness looked excessive relative to fundamentals identified Sigma Healthcare (ASX: SIG), Eagers Automotive (ASX: APE), Monadelphous, JB Hi-Fi (ASX: JBH), Goodman Group (ASX: GMG), Megaport (ASX: MP1) and SGH (ASX:SGH).

Valuations health check

There is one problem with buying the dip: the Australian market isn’t cheap.

ASX 200 Industrials trade at around 18 times forward earnings, a roughly 20% premium to their 10-year average, even as FY27 earnings estimates were trimmed around 1% through August.

The de-rating has instead been concentrated in previously expensive areas such as platforms, telcos, fund managers and services.

That explains why Sartor and Tang remain selective rather than outright bullish. Volatility may be creating opportunities, but investors still need to be disciplined about what they pay.

Nowhere is that valuation problem clearer than the banks.

The four majors fell a median 7.1% following their August results or trading updates, despite FY27 earnings estimates declining just 0.6%. CBA fell 8.2% following its result, Westpac 9% and NAB 6%, while ANZ bucked the trend with a 2.3% gain.

Mortgage applications have also fallen 15-20% across the majors since the Budget, while NAB expects FY27 housing credit growth of just 2.5%, roughly half the pace the sector has been accustomed to.

And while falling share prices have pushed yields higher, Morgans argues income investors still aren’t necessarily being paid enough to take the risk.

"CBA now yields 3.2% and the other majors 4.4 to 4.6%, against a 10-year above 5%. The regionals pay 5.9 to 6.2%. While the de-rating provides a slight bump in yield with earnings growth constrained in FY27 the total return for the majors look unattractive as significant core portfolio holdings," Sartor and Tang said.

All in all, August provided clear evidence that market rotation is occurring among the ASX 20 - particularly when you contrast CSL with the big banks.

It’s a reminder that ahead of reporting season, investors need to be mindful of the combination of valuations, short positioning and earnings expectations, all of which can amplify share price moves when results land.

“Elevated valuations leave them vulnerable to some further profit-taking as the equity risk premium narrows on higher bond yields,” Sartor and Tang concluded.