The best Australian shares to watch

The Australian economy enters Q4 on uncertain terms. While the financial situation seems to be improving, the Reserve Bank has continued to maintain the cash rate at 4.35%. And CPI inflation, while now falling, remains above the target range at 3.4% in January.

Australia's macroeconomy

Australian inflation therefore remains a core problem and increases in the cost of borrowing will continue to put pressure across the economy. Key potential pressure points include overleveraged mortgage borrowers, the potential for bad bank loans, and the slowdown of the Chinese economy — which is by far Australia’s largest two-way trading partner.

But Q4 may be an excellent time to invest in Australian shares. The market tends to be forward-looking, and the expectation is that inflation will continue to fall while the cash rate is perhaps at its peak.

Of course, inflation globally has proved far stickier than many analysts had expected, so investors may wish to be careful with their assumptions. Inflation, like a weed, has a habit of coming back if monetary policy is loosened before completely under control.

But with sunnier times perhaps ahead, here’s five ASX stocks to consider for Q4.

The best Australian shares to watch

These are not recommendations, simply some of the largest Australian companies across a range of sectors.

1. Commonwealth Bank
2. Telstra
3. CSL
4. Wesfarmers
5. BHP

Commonwealth Bank

Commonwealth Bank is Australia’s largest bank — and together with National Australia Bank, Westpac, and ANZ — constitutes one of the ‘Big Four’ of the ASX 200. It generates most of its revenue from lending to homebuyers through mortgages, and also to businesses.

But the bank also offers multiple insurance products, including for homes and cars, and operates the largest online broker in Australia, CommSec. It also operates in New Zealand as Auckland Savings Bank.

Commonwealth — which manages 25%, or $2 trillion of Australia’s mortgages — posted a $4.8 billion statutory net profit after tax in half-year results, with a CET1 ratio of 12.3%, well in excess of regulatory minimum capital requirements. CEO Matt Comyn notes that 'Australian households continue to feel pressure in the current environment, with many cutting back to adjust. Throughout the half, we have continued to support our customers and communities.'

Of course, with inflation now falling the bank may be poised for another excellent quarter.

Telstra

Telstra is the largest ASX telecommunications company by market share and engages in building telecommunications networks and markets-related products and services. In Australia, it provides 18.8 million retail mobile services, 3.8 million retail fixed bundles and standalone data services, and 960,000 retail fixed standalone voice services.

ASX telecoms stocks can be attractive in uncertain economic times; while better growth can be found elsewhere, mobile and broadband services are very defensive — customers usually consider connectivity a necessity rather than as a luxury.

In half-year results, the company saw total income rise by 1.2% year-over-year to $11.7 billion, while net profit after tax increased by 11.5% to $1 billion.

CSL

CSL is Australia’s largest biotech company and has been operating for over a century. With the combined capability of CSL Behring, CSL Plasma, CSL Seqirus and CSL Vifor, CSL’s offerings are more diverse than ever — making it a popular choice for differentiated ASX investors.

CSL boasts a dynamic portfolio of lifesaving medicines, including those that treat haemophilia and immune deficiencies. The company operates across three sectors; rare and serious diseases; influenza vaccines; and iron deficiency and nephrology. Again, the size of the company can be attractive given the expense of clinical trials for new treatments, as is the multi-focused business
plan.

The company now provides lifesaving products to patients in more than 100 countries, and it employs 30,000 people. At its AGM meeting, CEO Dr Paul McKenzie noted that the company has ‘have a number of late-stage R&D programs that are approaching fruition. These are potentially high value medicines that will help drive the improvement in our margin.’

In recent half-year results, the business saw revenue rise by 11% year-over-year to $8.05 billion at constant currency rates. And it reaffirmed guidance for FY24 NPATA to be within the range of $2.9 billion and $3 billion (CC).

Wesfarmers

Wesfarmers is a hugely diversified retail operator which owns some of Australia’s most famous retail brands. Its undertakings cover sectors including home improvement and outdoor living, apparel and general merchandise, office supplies, health, beauty and wellbeing, chemicals, energy and fertilisers, and industrial and safety products.

Half-year earnings saw Wesfarmers' statutory net profit after tax rise by 3% year-over-year to $1.425 billon - while operating cash flows increased by some 47%.

As one of the country’s largest employers, Wesfarmers boasts a brand portfolio that includes Bunnings, Priceline Pharmacy, Kmart, Officeworks, and catch.com.au. Accordingly, it’s a popular share with retail investors as many are more comfortable investing in a company they already ‘know’ at the coal face.

BHP

BHP is the largest mining company in the world based on market capitalisation, and also usually the largest company on the ASX 200, accounting for circa 10% of the country’s share market.

The corporation generates over half of its profits from selling iron ore, predominantly to China, but it also sells copper, nickel, potash, and coal.

The company is a global operator with mines across Australia, the United States, Canada, Chile, Peru, Brazil, and Columbia; this variation across jurisdictions and minerals can be compelling for investors who value diversification. And despite the threat of slowing Chinese economic activity, BHP is actively engaging in asset acquisition, including recently buying up copper junior Oz Minerals.

Past performance is not an indicator of future returns.

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