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Morningstar names Telstra among the most undervalued shares on the ASX

The research business Morningstar has named Telstra Corporation Ltd (ASX: TLS) among the most undervalued shares on the ASX.

Morningstar has done its own analysis to come up with a fair value for each ASX share and then compared that to the share price.

The shares trading at a discount of 30% or more to the fair value include Myer Holdings Ltd (ASX: MYR) at a 38% discount, Telstra at a 32% discount, Woodside Petroleum Limited (ASX: WPL) at a 32% discount, InvoCare Limited (ASX: IVC) at a 30% discount and Aveo Group (ASX: AOG) at a 30% discount.

Shares trading at a discount of between 20% and 29.9% to fair value include Pendal Group Ltd (ASX: PDL) trading at a 27% discount, James Hardie Industries plc (ASX: JHX) trading at a 27% discount, Newcrest Mining Limited (ASX: NCM) trading at a 26%, Southern Cross Media Group Ltd (ASX: SXL) at a 24% discount, Carsales.Com Ltd (ASX: CAR) at a 22% discount and Crown Resorts Ltd (ASX: CWN) at a 21% discount.

You can see why the 30% and above discount group are trading so cheaply. They are all facing significant individual business problems. Myer’s sales are shrinking year after year, Telstra faces competition on all sides, Woodside is suffering from a plummeting oil price, InvoCare can’t affect a falling death rate and Aveo Group has an aged care Royal Commission & falling house prices to contend with.

Looking at all of the businesses mentioned above, I would only be interested in buying shares of InvoCare and Crown Resorts. Both businesses have large capital investment ideas to boost earnings over the long-term and they may be able to offer reliable earnings even through a recession. Most of the above cheap businesses are cheap for a reason.

Some fund managers think Myer is a turnaround story under the new management, but I can’t see it growing over the long-term with its department store format in the face of online competition.

Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited and Telstra Limited. The Motley Fool Australia has recommended Limited and InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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