Morningstar reveals top three undervalued stocks

Morningstar analysts have revealed what they believe to be undervalued stocks with sustainable above average dividend payouts to buy and hold for the long-term, with an Australian name making the list.

The analysis found Dexus, Telus Corp and Sociedad Quimica Y Minera De Chile SA (SQM) were three undervalued global stocks.

"Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading," Morningstar said.

"We assume office rents are roughly at the lows in 2023 and will gradually recover, about in line with inflation for the remainder of our forecast period. Dexus' stated net tangible assets (NTA) has declined materially since the pandemic and is now below our valuation."

Morningstar said the high-quality portfolio should see Dexus perform better than most in the long term.

"More than half the portfolio is rated Premium by Property Council of Australia guidelines and most of the rest is A-grade," it said.

"Dexus' portfolio has held up relatively well in major downturns compared with rivals with lower-quality portfolios."

However, this comes after an external revaluation of the bulk of its assets estimated Dexus' book value dropped some 9% in the last six months.

In an update to investors, Dexus said recent draft external independent valuations have resulted in a total estimated drop of about $1.3 billion or 9% on book values.

Telus Corp is a Canadian wireless carrier that Morningstar analysts believe is a standout amongst the three dominant carriers in the country.

"Telus has replaced most of its legacy copper network with fiber, significantly upgrading the quality. We think this move has set Telus up for a prolonged period of success," it said.

"In addition to further success we expect in adding subscribers because of the better capability the fiber network offers, we believe the fiber network gives Telus more pricing power and is more efficient, leading to reduced costs."

Lastly, SQM is a top three lithium producer globally, with the company in the midst of expanding its Chilean lithium carbonate production capacity.

"However, beginning in 2025, SQM will transfer its Chilean lithium production resources to a joint venture with the state-owned Codelco, where SQM will have just under a 50% equity stake, effectively giving SQM 150,000 metric tons of capacity once the expansions are complete," Morningstar said.

"We expect lithium prices to rise further as lithium demand grows from EV sales and the buildout of utility-scale batteries outpaces supply growth."