Recently I’ve been wondering if the Australian economy and share market are in for a bumpy time. Share prices of many major companies like Commonwealth Bank of Australia (ASX: CBA) seem to suggest investor optimism that is seemingly not caused by either earnings growth, or the underlying economy.
The economy is stagnant, there aren’t a lot of jobs being added, and a major driver of employment (resources) is in the doldrums. Here are 4 ways to invest that I think would avoid major possible pitfalls of the Australian economy over the next few years:
Oil and natural gas
Oil + gas and commodities in general are governed by supply and demand. Unlike, say, iron ore, oil and gas are not sensitive to one industry (e.g. Chinese construction and manufacturing). While there’s a gas shortage at the moment, there are no guarantees on where the prices are heading, so investing in a low-cost producer with low debt will prove vital. I like Woodside Petroleum Ltd (ASX: WPL) on these grounds.
If the Australian economy is headed down the drain, international shares could prove a shrewd place to put your money. Of course, it wouldn’t make sense to send your money out of Australia only to invest in another overpriced market (e.g. USA) but fortunately there are a variety of exchange traded index funds out there to choose from.
About as exciting as a root canal, cash can’t be overlooked for the ‘optionality’ it gives investors. If sitting on cash gives you a twitchy trigger finger, you could think about it like this: You’re in possession of unlimited expiry options to buy companies like Wesfarmers Ltd (ASX: WES) at $20 a share, or Flight Centre Travel Group Ltd (ASX: FLT) at $15.
Will either of those companies hit that price? Who knows! But if they do, you’ll be waiting.
Companies with either international exposure or vital software are less vulnerable to economic disruption. XERO FPO NZX’s (ASX: XRO) accounting software will likely be one of the last expenses cut in a recession, given the time and effort it saves users. Same goes for Myob Group Ltd (ASX: MYO) and Reckon Limited (ASX: RKN).
Elsewhere, Hansen Technologies Limited (ASX: HSN) and Gentrack Group Ltd (ASX: GTK) provide crucial billing and operator software to customers. This software can be very expensive to replace and retrain users, and both companies are also diversified geographically.
5 stocks under $5
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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Flight Centre Travel Group Limited and Wesfarmers Limited. Motley Fool contributor Sean O'Neill owns shares of Flight Centre Travel Group Limited and Xero. The Motley Fool Australia owns shares of Hansen Technologies and Xero. 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 Bruce Jackson.
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