Is there value in the S&P/ASX 20 right now? Yes, there is. Here’s a look at four ‘buy’ prospects from the ASX’s top echelon.

1. Telstra (TLS, $3.95)

Market capitalisation: $45.6 billion

12-month total return: 2.4%

Three-year total return: 4.7% a year

Estimated FY25 dividend yield: 4.8%, fully franked (grossed-up, 6.9%)

Estimated FY25 price/earnings (P/E) ratio: 20.5 times earnings

Analysts’ consensus price target: $4.40 (Stock Doctor/Refinitiv, 14 analysts); $4.18 (FN Arena, six analysts)

Australia’s leading telecommunications and information services company, boasting 26 million retail mobile services and 3.4 million retail bundle and data services, is a great basis on which to be a defensive portfolio cornerstone stock, insulated from economic cycles. Telstra is embedded in the Australian economy, with the most widely used mobile and broadband services in the country, with 2,500 ‘enterprise’ customers, and 800,000 small-to-medium-sized businesses. Telstra’s strong earnings are primarily driven by the Mobile division, which covers 99.7% of the Australian population. The performance of Mobile has masked difficulties in other parts of the business, such as Enterprise. In FY24, Telstra delivered 7.5% earnings growth measured on ‘underlying’ earnings, powered by a 9.2% lift in Mobile earnings, but analysts tend to believe that FY25 could be a flat year for the big telco, before earnings growth resumes in FY26.

Telstra is Australia’s biggest investor in digital infrastructure, with its $5 billion spend in FY24 taking the ten-year total to $42 billion. It is investing in its infrastructure assets such as data centres, exchanges, sub-sea cables and fibre, after spending several years mulling spinning-off these assets, after setting-up the (legally separate) InfraCo. The infrastructure business is now regarded as core to Telstra’s future. The company is ramping up its spending in digital infrastructure through additional spectrum, and the construction of the inter-city fibre network. Telstra is laying almost 14,000 kilometres of high-capacity, ultra-low-latency fibre across Australia to build InfraCo’s intercity fibre network – connecting major capital cities from north to south and east to west and creating access points to connect regional and remote areas.  Telstra International is upgrading its subsea cable infrastructure to meet customers’ increasing bandwidth consumption, data centre demands and the growth in global backbone networks fuelled by cloud and AI applications across crucial global routes, including intra-Asia, Transpacific and Asia to Australia. This spend is weighing on cashflow, but these infrastructure upgrades will help make data-hungry technologies like AI more feasible at scale and will help connect more people seamlessly. Telstra is getting ahead of the game in terms of the swelling connectivity requirement that AI is bringing.

Telstra has partnered with global consulting firm Accenture in a seven-year joint venture, which will be 60 per cent owned by Accenture, into which all of Telstra’s AI-related activity will work with Accenture’s AI consultants, to accelerate Telstra’s data and AI roadmap to further extend its network leadership. The new joint venture will be responsible for reducing Telstra’s data platforms to three from 30, and deploying AI into Telstra’s frontline teams, back office and network infrastructure. Another joint venture with Microsoft has seen Telstra take 21,000 Copilot for Microsoft generative AI licences in return for Microsoft signing up to use a new ultra-fast intercity fibre network, and engaging InfraCo in a strategic deal to deliver enhanced connectivity solutions within Australia for further customer AI capabilities.

Telstra chief executive Vicki Brady and her executive team see the company’s future being built around three pillars: high-tech digital infrastructure,

connectivity, as devices become more sophisticated and demand smarter networks; and the customer experience, whether it is business, government or consumers. Telstra has come through major cost-reduction programs in the last decade but looks to be in the best shape it has been for a long time. In all three customer spaces, as data useage continues to grow, Telstra looks to be well-placed to continue delivering solid results for Australian investors in total-return terms, and analysts see plenty of scope for near-term price appreciation.

2. Rio Tinto (RIO, $117.40)

Market capitalisation: $190.6 billion

12-month total return: –6.6%

Three-year total return: 8.9% a year

Estimated FY25 (December) dividend yield: 5.7%, fully franked (grossed-up, 8.2%)

Estimated FY25 (December) price/earnings (P/E) ratio: 10.4 times earnings

Analysts’ consensus price target: $131.71 (Stock Doctor/Refinitiv, 13 analysts); $128.58 (FN Arena, six analysts)

Rio Tinto is one of the world’s largest mining companies, with major interests in aluminium, copper, industrial minerals (borates, titanium dioxide and salt) and iron ore, with smaller exposure to diamonds and gold. Its major operations are world-class, mostly operating in the lowest quartile (lowest 25%) in terms of operating costs. Operations are located largely in Australia and North America but also in Asia, Europe, Africa and South America. The main operations include the Pilbara iron ore operations, Escondida copper (Rio Tinto owns 30% of Escondida, with BHP owning 57.5% stake and JECO Corp, a joint venture between Japanese giants Mitsubishi Corp, Nippon Mining & Metals Co. Ltd and Mitsubishi Materials Corp) controlling the remaining 12.5%; and Rio Tinto Alcan. In 2024, Rio Tinto earned 56% of its revenue from iron ore, 21% from aluminium, 13% from copper, and 10% from minerals (the rest of the commodity portfolio).

Rio Tinto is bringing on-stream two major projects: Oyu Tolgoi in Mongolia and Simandou in Guinea.

Oyu Tolgoi is one of the largest known copper and gold deposits in the world. Surface mining began in 2013, and underground production began in March 2023, making it one of the most important copper producers in the world. At peak production, Oyu Tolgoi is expected to produce 500,000 tonnes of copper a year. The Mongolian government has 34% ownership, while Rio Tinto owns 66%: Rio Tinto manages the operation on behalf of the owners.

Simandou will initially comprise two neighbouring iron ore projects under different ownership, which will use shared rail and port infrastructure to get a combined tally of about 120 million tonnes of iron ore to seaborne markets. Rio is a partner in one of the projects: its share of Simandou costs is expected to be up to $US6.2 billion, with its mine not expected to ramp up to full production rates until 2028. Macquarie analysts believe the Simandou province will produce just 5 million tonnes in 2025, but closer to 75 million tonnes in 2027 and 90 million tonnes by 2028.

Despite predictions of a surplus that will result from this, Rio will continue to build a new mine each year in the Pilbara for the remainder of this decade. Its Western Range joint venture with Chinese steelmaker Baowu is now 70 per cent complete and will deliver first ore in 2025. Replacement mines at West Angelas and Hope Downs are expected to deliver first ore in 2027, while the Brockman 4 mine will start production in 2028. Another replacement mine at Nammuldi in the Pilbara is running behind the schedule required to deliver first ore in 2028, but the delay is linked to indigenous cultural heritage matters – after blotting its copybook (badly) by (legally) blasting and destroying a sacred rock shelter in the Pilbara region of Western Australia in 2020, Rio will take more than the necessary pains to tick every box this time.

Rio Tinto recently completed a $US6.7 billion ($10.7 billion) takeover of Arcadium Lithium, which will be part of a new lithium division called Rio Tinto Lithium. The deal gives Rio an immediate production boost from Arcadium’s Olaroz asset in Argentina, which extracts lithium from groundwater “brines” that lie beneath salt lakes in the Andes mountains. Olaroz is close to the Rincon project, the company’s first commercial-scale lithium operation, expected to start producing lithium before the end of 2028. While the Argentinian “brine” assets are the main prize, Arcadium also brings with it a marginal, mothballed, hard-rock lithium mine at Mt Cattlin in Western Australia and an undeveloped hard-rock lithium project in Canada. Rio will also inherit Arcadium’s lithium processing assets in Japan, China and North America, which turn the raw material into battery-grade lithium.

Rio is expanding into crucial commodities for the energy transition, and analysts are quite bullish on revenue growth; earnings expectations are a little more stable. Rio Tinto maintains a dividend policy of a 40%–60% payout of underlying earnings, in aggregate, through the cycle, and that should flow through to maintaining the company’s very attractive fully franked yield when the dividend is converted into A$ – which augments the total return that can be expected, given that analysts feel Rio is cheap at these levels.

3. BHP (BHP, $39.95)

Market capitalisation: $202.7 billion

12-month total return: –10.9%

Three-year total return: 6.5% a year

Estimated FY25 dividend yield: 4.4%, fully franked (grossed-up, 6.3%)

Estimated FY25 price/earnings (P/E) ratio: 11.9 times earnings

Analysts’ consensus price target: $45.81 (Stock Doctor/Refinitiv, 17 analysts); $45.10 (FN Arena, six analysts)

BHP, the world’s biggest miner, is a major producer of iron ore, copper, coal (steelmaking and thermal), nickel, silver, zinc, molybdenum, uranium and gold, and a soon-to-be potash producer.

Having exited petroleum and thermal (electricity) coal, BHP continues to refine its steelmaking coal portfolio, concentrating on higher-quality steelmaking coal. The company is now focused on its large-scale assets in iron ore, copper and metallurgical (steelmaking) coal with potash an emerging long-life, large-scale asset.

In 2024, iron ore generated just over half of BHP’s revenue, with copper 17% and coal 14%, and the rest coming from nickel, uranium, gold and molybdenum. Potash is expected to join the portfolio next year, and be an emerging long-life, large-scale asset. Production at the Jansen project in Canada is expected to begin in late 2026. Once fully ramped up, Jansen will become one of the world’s largest potash mines, producing about 8.5 million tonnes per annum (Mtpa) a year, with potential to produce 16 to 17 million tonnes of potash a year. Demand for potash could substantially increase over the coming decades to meet the world population’s needs in a land-scarce, nutrient-depleted world.

In 2024, BHP achieved production guidance for all its commodities, reporting its highest copper production in more than 15 years, with the highest production in four years at Escondida (see the Rio Tinto entry), record production at Spence and Carrapateena, and successful integration at Copper South Australia. It was also a production record at Western Australia Iron Ore business, with the second consecutive year of record iron ore production; BHP is the world’s lowest-cost iron ore producer.

In recent years, BHP has been a very consistent performer, in a cyclical industry. It has delivered an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) profit margin of more than 50% for eight consecutive years and has generated net operating cash flows of over US$15 billion for all but one of the past 15 years.

BHP has also been a very strong dividend payer in recent years, with a dividend policy of a minimum 50% payout of underlying attributable profit at every reporting period. Some brokers have recently downgraded the dividend outlook overnight, citing weaker-than-expected FY25 production guidance, the impairment and costs associated with the Nickel West operation, as well as uncertainties surrounding China’s economic outlook and iron ore prices, with the Simandou production on the horizon. In 2024, BHP paid a full-year dividend of US$1.46, which came to shareholders as $2.21 a share. Analysts don’t expect a dividend that high (in either US$ or A$ terms) this year (FY25) or next, but BHP still offers, at current prices, a grossed-up dividend yield of 6.3%, on top of good buying value in terms of analysts’ consensus share price targets.

What the analysts are most bullish on is copper, which faces ongoing supply-side challenges and increasing demand driven by the energy transition. Broker Goldman Sachs, for example, expects BHP’s copper EBITDA to more than triple to more than US$10 billion by FY26, which would represent about 45% of group EBITDA. And the stock is cheap on valuation grounds, trading on a prospective price/earnings (P/E) ratio of 11.9 times earnings, compared to its long-term average forward PE of 14 times earnings. Add that discount on P/E and analysts’ consensus share price targets to the solid expected dividend yield.

4. CSL (CSL, $280.43)

Market capitalisation: $135.8 billion

12-month total return: –5.8%

Three-year total return: 3.8% a year

Estimated FY25 dividend yield: 1.7%, unfranked

Estimated FY25 price/earnings (P/E) ratio: 26 times earnings

Analysts’ consensus price target: $330.84 (Stock Doctor/Refinitiv, 16 analysts); $333.79 (FN Arena, six analysts)

The former Commonwealth Serum Laboratory listed in June 1994 and has been an outstanding long-term performer, generated an average annual return

But the stock has largely traded sideways for the past four years, as it struggles to get the best out of its most recent acquisition.

CSL is a global biotechnology company with a dynamic portfolio of lifesaving medicines, including those that treat haemophilia and immune deficiencies, vaccines to prevent influenza, and therapies in iron deficiency and nephrology. It operates in more than 40 countries around the world. Its divisions are:

CSL Behring (which holds the world-leading CSL Plasma business): CSL Behring is a global biotherapeutics leader, develop and delivering innovative medicines for treating bleeding disorders, immune deficiencies and chronic inflammatory conditions. Its major product is immunoglobulins, a range of antibodies that help fight infections and diseases.

CSL Seqirus, a global vaccine leader, with one of the broadest influenza vaccine portfolios in the world. CSL Seqirus operates state-of-the-art manufacturing facilities on three different continents and a globally integrated supply chain for the timely supply of influenza vaccine to customers around the world.

CSL Vifor: the Swiss-headquartered CSL Vifor is a global specialty pharmaceuticals company specialising in the treatment areas of iron deficiency, dialysis, nephrology and rare disease. CSL bought Vifor in 2022 in a $17.8 billion deal.

Vifor hasn’t performed well, a mixture of operational struggles and currency issues: by the strong Swiss franc and US dollar currency fluctuations had worked against the company, which has operations in Switzerland, the US, Australia and Germany. Vifor’s travails have disguised the fact that CSL’s business apart from Vifor have been performing well. The company’s engine room, the core blood products business in CSL Behring, has returned to where it was before the COVID-19 pandemic crunched the supply of blood plasma, and CSL said when reporting its FY24 result in August that it expects double-digit earnings growth for the next five years, driven mainly by CSL Behring.

While CSL beat analyst expectations for FY24, with revenue, at US$14.74 billion, beating consensus estimates of about US$14.65 billion, and net profit surged 25%, investors were disappointed by the company’s guidance for FY25, which came in slightly below analysts’ expectations.

But with strong growth likely in plasma collection and the flagship immunoglobulin sales, CSL’s defensive, sustainable growth characteristics are likely to become increasingly appealing to investors – especially with analysts seeing the stock as cheap.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.