What are the best Australian shares to watch?

ASX key themes to watch

The recent Ukraine-Russia conflict has seen increased volatility in the commodities markets, including Australia. This was as a result of the West imposing economic sanctions on Russia, which disrupted global supply of commodities such as gas, metals and agricultural products worldwide.

Russia is the world’s second largest producer of gas – its global output was 17% the previous year. It’s also the third largest gold producer in the world accounting for roughly 10% of global production. The country also supplies precious metals such as palladium – supplying 40% of the world’s output in the previous year.

As with the economic recovery that’s currently underway following the global pandemic, the world will also make strides once the markets adjust to the initial shock of the Ukraine conflict.

Themes such as banking, mining, transport, food and alcoholic beverages will likely continue to influence market performance as Australia recovers from the initial economic impact of the Ukraine conflict. The themes will probably inform the ASX stocks that’ll be watched and potentially traded by investors in the year ahead.

10 best Australian stocks to watch

1. Block

2. Commonwealth Bank of Australia (CBA)

3. Telstra

4. Fortescue Metals Group

5. BHP Group

6. Macquarie Telecom Group

7. Northern Star Resources

8. Qantas Airways

9. Flight Centre Travel Group

10. JB HI-FI

This list includes some of the best Australian shares to watch in 2022, as per recommendation by market analyst, Kyle Rodda. Note that the following stocks have not been chosen as the largest stocks on the ASX alone, but rather based on various factors including market cap, future growth prospects, dividends and latest results.¹

It’s important to note that past share performance of any of the featured stocks does not guarantee positive future returns.

To get the best stock suitable for your trading plan, always do your own thorough analysis of both the company and the financial market.

Block

Block, formerly known Square, is a fintech company that builds product and service ecosystems. These include managed payments, point-of-sales (POS) and related business tools, e-commerce stores, vertical specific software, financial services and platform for developers to meet seller needs.

The company was listed on the New York Stock Exchange (NYSE) as Square in 2015. However, following its $29 billion acquisition of a ‘buy-now-pay-later’ (BNPL) company called Afterpay, Block made a second listing on the ASX on 20 January 2022. Block’s market cap is $14.06 billion.²

The company reported a strong growth at scale during Q3 2021 with gross profit having increase by 43% year over year to $1.13 billion.³

Reports are that the fintech firm is building an open bitcoin mining system as the compomer looks to expand beyond its payment business.⁴

Start trading Block shares

Commonwealth Bank of Australia (CBA)

This is the biggest bank in Australia and major mortgage lender with a market cap of nearly $161 billion.⁵ CBA's main activity is financial, retail and commercial banking services in Australia and New Zealand via its subsidiary ASB.

CBA also has operations in other countries, including the United Kingdom, the United States, China, Japan, Singapore, Hong Kong, Indonesia and South Africa.

In its H1 FY22 financial results, CBA reported a 23% increase in its cash profit. This was supported by lower loan loss provisions because of a positive economic outlook, continued customer focus and above system volume growth in core products, the group said.⁶

Start trading CBA shares

Telstra

Telecommunications and technology legacy company Telstra has a market cap of $47.93 billion and is currently undergoing a digital and tech.⁷

In its financial results for H1 FY22, the company reported negative transitional effects on the national broadband network (nbn) network with total income showing a $450 million decline in one off nbn receipts and around $200 million in nbn commercial works.⁸ Despite the decline, the company indicated that it had seen continued growth in its underlying business, with strong performance in mobiles.

Aligned with its strategy, the group reported making strong progress in its productivity program, with underlying fixed costs down $254 million and reducing total operating expenses to $644 million (8% decline). Telstra further reported being on track with the delivery of reduced underlying fixed costs of about $430 million for the full year.⁸

Start trading Telstra shares

Fortescue Metals Group

Fortescue is the ASX ‘market darling’ that’s primarily involved in the exploration, development, production, processing and sale of iron ore. In January 2022, the iron ore mining company said it had a 2% rise in Q2 2022 shipments despite the pressure from Covid-19 related supply chain constraints.⁹

In its H1 FY22 financial results, the company reported that it had delivered record half year shipments, contributing $2.8 billion worth of net profit after tax, the third highest in the company’s history.¹⁰

It recently announced its plans to acquire an engineering and battery company, founded by Williams Formula 1 team, for more than $222 million as it strives to decarbonise its fleet and equipment.⁹

During the reporting period, its green energy division, Fortescue Future Industries, continued to increase its portfolio within the renewable energy space. This included an increase in its green hydrogen project opportunities, while also growing its green technology capabilities.

Commenting on its financial position the group said its balance sheet remained structured on low cost, while being flexible in supporting ongoing operations and maintaining its capacity to fund future growth.¹⁰

Start trading Fortescue shares

BHP Group

BHP is a global resources company that produces various commodities, including copper and uranium, copper smelter, copper refinery and precious metals. Some of its divisions include petroleum exploration, development and production of oils and gases as well as the mining of copper, iron ore and coal.

In its H1 2022 results to 31 December 2021 the company reported a US$9.4 billion attributable profit, which included an exceptional loss of US$1.2 billion compared to US$3.9 billion for the same period in FY21.¹¹

The loss was due to the US$821 million half year impact of the Samarco dam failure in Brazil and the impairment of US deferred tax assets that couldn’t be recovered following the US$423 million Petroleum demerger.¹¹

The total impact of Covid-19 on operations was US$223 million before tax as compared to US$405 million in FY20. The pandemic lowered volumes of operated assets to US$69 million from US$138 million in the same period in FY20.¹¹

Direct costs worth US$154 million were incurred due to Covid-19 safety measures like social distancing measures, additional charter flights, accommodation, security and health and hygiene services and temporary relocation costs due to border restrictions and delays cost the company US$223 million.¹¹

Start trading BHP shares

Macquarie Telecom Group

Macquarie Telecom provides telecommunication, cloud computing, cybersecurity and data centre services to corporate and government customers within Australia. It operates under three divisions Telecom, Cloud Service and Government, and Data Centres.

This is one of the companies that has seen a positive performance even with the emergence of the Covid-19 pandemic. Its revenue increased from $266.21 million in FY20 to $285.8 million in FY21.¹²

The company will cash in on some cyber security issues many businesses and government institutions have had to contend with the pandemic forcing workplaces to digital. For FY22, the company said it predicted a strong demand for cyber security within government and cloud services companies.¹³

Start trading Macquarie shares

Northern Star Resources

Gold mining company Northern Star has a market cap of $9.87 billion. Its main activities include exploration, development, mining and processing of gold deposits. It also sells refined gold.

In its financial results for H1 FY22, the company reported a 63% rise in revenue compared to H1 FY20 due to an increase in gold sold. This was attributable to the contribution from assets acquired from the merger with Saracen Minerals Holdings for the current period and no corresponding contribution in the same period the year before.¹⁴

The company reported that the average realised gold price was consistent across both periods. Cost of sales rose by 103% from H1 FY21 due to an increase in activity that included merger assets.

The group also sold its interest in the Kundana Assets during the period, which contributed a pre-tax gain of $242 million.

The share price tumbled from a high of $17 in Q4 FY21 before tumbling down to $8.40 in Q1 FY22 due to the deterioration of the spot price of gold last year. However, the Ukraine-Russia conflict saw the company’s share price rise above $10 in February 2022 as investors bought gold, which is considered a ‘safe haven’.¹⁵

Start trading Northern Star shares

Qantas Airways

Australia’s largest airline, Quantas, has reopened trade following a list on travel bans and restrictions post pandemic and as global economies kick-started their recovery.

When the Covid-19 pandemic emerged in March 2020, most airlines obliged to government-imposed travel restrictions to curb the spread of the virus and cancelled flights. But this had a negative impact on the aviation industry’s bottom line, Qantas Airways included.

Following a steep tumble from an annual revenue of $17.96 billion in 2019 to $14.04 billion in 2020, the stock experienced a further decline to a low of $5.52 billion in 2021.¹⁶ In its 2021 annual results, the company had a negative NPAT of $1.72 billion and its operating income was also in the red at -$42.05 billion.

This stock, like most of its peers, is likely to show positive growth with the opening of economies. This provided there are no further Covid-19 related travel restrictions in the near future.

Start trading Qantas Airways shares

Flight Centre Travel Group

Online travel agent Flight Centre owns a leisure and corporate travel business with a footprint in approximately 23 countries, including New Zealand, the Americas, Europe, the United Kingdom, South Africa, the United Arab Emirates and Asia.

Like its peers in the travel and tourism industry, this stock took a tumble when the pandemic emerged, as all travel came to a halt to avoid the spread of the virus.

The annual revenue fell from $1.89 billion in June 2020 to $395.91 million in June 2021. The group’s NPAT has been negative since the pandemic but made a slight recovery from -$848.59 million in June 2020 to -$601.71 million by mid-2021.¹⁷

The company is a Covid-19 recovery stock that’s likely to show some improvements as global travel resumes.

Start trading Flight Centre shares

JB Hi-Fi

Australia’s number two electronics retailer, JB Hi-Fi is a ’huge short interest and perennial outperformer’, according to market analyst Rodda.

JB Hi-Fi sells home consumer products such as electronics and technology products, including televisions, audio equipment, computers and cameras, as well as telecommunications products and home appliances.

In their H1 FY22 financial results the group reported that total sales dropped by 1.6% to $4.86 billion, which could be attributed to the non-essential shop closures during the pandemic. It also reported a 62.6% increase in online sales to $1.1 billion. This could be due to an increased number of consumers transitioning to online shopping during the pandemic.¹⁸

The company saw a positive performance when stores re-opened after the lengthy Covid-19 lockdowns. This is likely to continue as the economy fully opens up, provided no new potentially life-threatening Covid-19 variants emerge and lockdowns resume.

Start trading JB Hi-Fi shares

Best ETFs to watch

Below we mention some of the ETFs within the commodities sector, including oil and gold, that might perform well during and after the Ukraine- Russia conflict. Remember to do your own thorough research and to speak to your financial advisor before making any investments. Also note that past performance does not guarantee future performance.

iShares U.S. Oil & Gas Exploration & Production ETF

Oil ETFs are a basket of stocks that track the market price movements of this natural resource. These can either be crude or oil and gas companies. They offer a way to invest in oil without buying and selling futures.

This ETF tracks US equities in the oil and gas exploration sector. This fund has US$809 million worth of assets under management. It also had an average total return of 67% over the past year.²⁰

iShares Gold Trust (IAU)

Gold ETFs are seen as a good alternative to hedge volatility in the commodity markets. This is because gold tends to be seen as a ‘safe haven’ during times of conflict. Gold prices have increased during the Ukraine-Russia conflict due to a rise in demand of this commodity.

IAU provides exposure to the daily price movement or performance of gold. The fund has US$32 billion assets under management and had an average total return of 12% over the past year. It can be used to diversify your portfolio by giving you affordable access to physical gold, while also protecting you against inflation.²¹

iShares Commodity Curve Carry Strategy ETF (CCRV)

Commodity ETFs give you exposure to a basket of physical natural resources and raw materials such as precious metals, oil and gas.

CCRV gives access to rules-based ’carry’ factor strategy from a selection of ten commodities believed to be positively positioned on the futures curve. The strategies can diversify your portfolio, protect against inflation and have the potential to outperform.²²

CCRV has US$40 million worth of assets under management. It also has had an average total return of 39% over the past year.²²

How to buy the best ASX stocks

You can buy stocks on the ASX using our award-winning platform by following these steps:¹⁹

• Research and learn: decide which company you’re interested in and learn more about trading with IG Academy

• Choose to trade or invest: whether you’re new to the markets or highly experienced, choosing to trade or invest with us is an important decision. Discover the differences between share CFDs vs share trading

• Open an account and place your first trade

You’ll pay from just $5 commission on your Australian share trades, or 0.05% on all domestic shares on a share trading account, if you've traded shares three or more times in the previous month.²³

Learn more about our fees (as well as the key benefits of being an active trader with us).

Best Australian shares to watch summed up

• The performance of the red-hot BNPL sector, Covid-19 recovery stocks, Australia’s top three miners and the dividend performance of the big banks – are all areas of the market worth watching this year

• Tracking the performance of AU dividend shares and AU mining stocks, could yield some interesting results for active traders and investors

• To trade or invest in these sectors and the companies within them, you can create an account with us

• Share trading lets you take direct ownership of the underlying shares, meaning you’ll profit from any upward movements in a stock’s share price

• By comparison, trading enables you take a speculative position on a stock’s price movement, without owning the underlying shares. This gives you the flexibility to go long (’buy’), or short (’sell’ if you think prices will fall)

The material above does not contain (and should not be construed as containing) personal financial or investment advice or other recommendations, or an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of the above information. Consequently, any person acting on it does so entirely at his or her own risk. The information does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

Footnotes:

1 This list was last updated on 16 March 2022.

2 Market Index, 2022

3 Block, 2021

4 Reuters, 2022

5 Market index, 2022

6 Commonwealth Bank of Australia, 2022

7 Market Index, 2022

8 Telstra, 2022

9 Reuters, 2022

10 FMG, 2022

11 BHP,2022

12 Reuters, 2022

13 Reuters, 2021

14 Northern Star, 2022

15 The Motley Fool, 2022

16 Reuters, 2022

17 Market Index, 2022

18 JB Hi-Fi, 2022

19 Best Finance App, Best Multi-Platform Provider and Best Platform for the Active Trader as awarded at the ADVFN International Financial Awards 2024.

20 iShares, 2022

21 iShares, 2022

22 iShares, 2022

23 Other fees and charges may apply.