The Australian share market is home to over 2,000 listed companies — from blue-chip giants to small-cap disruptors and meme stocks — all vying for investor attention.
But with so many ASX stock options, how do you separate the long-term winners from the short-term flashes?
For me, it comes down to a few non-negotiables. While no company is perfect, there are three qualities I always look for when picking an ASX stock.
Sustainable competitive advantage
Also known as a "moat," this is about what makes a company hard to disrupt. Whether it's proprietary technology, network effects, global scale, or a powerful brand, I want to own businesses that can defend their turf and keep growing.
Take WiseTech Global Ltd (ASX: WTC) as an example. Its CargoWise platform is deeply embedded into the global logistics industry, making it difficult (and costly) for customers to switch. That kind of stickiness is worth its weight in gold.
Or look at Lovisa Holdings Ltd (ASX: LOV), which has built a fast-moving, vertically integrated retail model with a unique position in affordable fashion jewellery. It is a nimble operator with a formula that's now scaling globally.
I also own the VanEck Morningstar Wide Moat ETF (ASX: MOAT) for easy access to a group of US companies with strong moats.
Consistent earnings growth
An ASX stock that can grow profits year after year — through all kinds of market conditions — is doing something right. It shows good execution, strong demand, and often, pricing power.
TechnologyOne Ltd (ASX: TNE) is a great example here. It has grown its earnings and dividends like clockwork, thanks to its steady transition to a SaaS model. The recurring revenue adds predictability and the growth adds compounding power.
Goodman Group (ASX: GMG) has also delivered impressive earnings growth over the years, driven by global demand for logistics hubs and industrial real estate. It continues to ride the structural tailwinds of e-commerce and digital infrastructure, now focusing heavily on data centres.
Strong balance sheet
If a company carries too much debt, it can run into trouble when conditions get tough. That's why I always look at the balance sheet.
A business with low debt and healthy cash flow has more options — it can reinvest, acquire, return capital to shareholders, or simply ride out a downturn. Importantly, it won't need to raise capital, potentially diluting your investment.
ResMed Inc (ASX: RMD), for example, maintains a solid balance sheet while continuing to invest in product development and digital health innovation. That flexibility is critical for long-term resilience.
Meanwhile, Life360 Inc (ASX: 360) has shown that it is focused on sustainable growth, building a product that families around the world trust — all while keeping its financials in check as it scales.
Foolish takeaway
Unfortunately, there's no crystal ball when it comes to picking ASX stocks. But by focusing on moats, earnings, and financial strength, you can tilt the odds in your favour.
That's why I back businesses like Goodman, Life360, Lovisa, ResMed, Technology One, and WiseTech — they may operate in very different industries, but they all share the qualities that make great companies stand the test of time.
