Over the past six months, there have been solid gains on the S&P/ASX 200 Index (ASX: XJO), which raises the question: Are stocks overvalued and if so, where can you still find a good buy?
In the latest Invest Now market snapshot released by the team at Wilsons Advisory, they do strike a note of caution, saying that globally, the outlook for equities is "finely balanced".
In the Australian context, there are some warning signs, they say, with domestic inflation showing signs of picking up speed, causing market watchers to temper their outlook for further interest rate cuts.
As the Wilsons team says:
We have edged back our easing forecasts from two cuts to one and pushed the 'final' cut into February next year (previously November). The apparent pick-up in domestic inflation is occurring against an improving growth backdrop. However, we see the relatively quick translation of better growth into higher inflation as at least a marginal negative for equities.
The Wilsons team say they have trimmed their own Australian equity position slightly due to "stretched valuations" and less scope for interest rate cuts to stimulate earnings growth.
The local market faces medium-term headwinds in respect of underlying earnings growth with tepid profit growth likely for banks and large cap miners. Growth looks better outside these areas. This is particularly the case for mid and small caps where we continue to advocate an overweight position.
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Some stocks still stand out
So which stocks do they see as good buys at current levels?
The first cab off the rank, if you'll excuse the pun, is Carsales owner CAR Group Ltd (ASX: CAR), which the Wilsons team says has pulled back more than 14% in value since August, with no news of note.
They point out that the group has guided to earnings growth of 10% to 13% in FY26, and "encouragingly, management has pointed to 'early signs of improvement' in the US, suggesting cyclical headwinds are easing''.
Another Wilsons pick is property development group Stockland Corporation Ltd (ASX: SGP), which they say provides good exposure to the recovering Australian housing market.
Given the positive operational momentum heading into FY26, Stockland is well placed to benefit from housing-cycle tailwinds over the medium-term.
On the technology side of things, Wilsons is keen on Xero Ltd (ASX: XRO) shares, which they say are good value after a recent share price pullback, and the company's reiteration of its outlook in August.
Private credit provider Pinnacle Investment Management Group Ltd (ASX: PNI) makes the list, as they explain:
The pullback in Pinnacle's share price presents an attractive buying opportunity for investors willing to look through immediate market concerns. Recent weakness is likely driven by market concerns around the health of the domestic private credit sector … however, we view the weakness in Pinnacle's share price as excessive.
And rounding out Wilson's five top picks is sleep apnoea device maker ResMed Ltd (ASX: RMD), which Wilsons say remains one of their "highest conviction ideas following its FY25 result''.
ResMed continues to demonstrate robust top-line growth amidst a continuation of healthy CPAP (device) demand (supported by several tailwinds), while gross margins have further scope to expand, which presents upside to consensus over the medium-term.
