In these volatile times, you may be nursing a portfolio of ASX shares that are looking pretty sick at the moment.
The S&P/ASX 200 Index (ASX: XJO) is down 5.4% so far this year, while it’s been even worse in the United States with the S&P 500 Index (INDEXSP: .INX) losing 13.3%.
And those index drops don’t even tell the story of individual stocks, many of which have fared far worse.
The combination of persistent inflation, rising interest rates, supply constraints, and a war in Europe is killing the market’s morale.
So it’s no wonder the experts can’t agree whether Australia and the US will end up in recession.
Can the central banks engineer a ‘soft landing’ or will everyone feel the cabin rocking?
Given this scary environment, three veteran fund managers were asked to name one stock each they would buy now to put in their bottom drawer.
Here’s what they said at the Future Generation Live event in Sydney last week:
Set to grow double-digits even without reopening recovery
Tribeca portfolio manager Jun Bei Liu picked ear implant maker Cochlear Limited (ASX: COH) as a “quality company that’s been sold off”.
“Earnings have been hurt by the pandemic. They couldn’t operate on new instalments around the world.”
Indeed, the Cochlear share price is still well below its pre-COVID highs, when it reached the $240s. The stock closed Monday at $224.77.
But Liu sees much hope in the medium term.
“Now with the world reopening, the earnings are looking incredibly strong,” she said.
“This company was going to grow double-digits [even] without the recovery earnings, regardless of whether there’s a recession happening.”
Demerger the best thing for everyone
Regal Funds chief investment officer Phil King likes the look of chemicals provider Incitec Pivot Ltd (ASX: IPL).
The company recently announced that it would separate its explosives and fertiliser divisions.
“The demerger’s very positive for both stocks in the long term,” said King.
“Better capital allocation and the management’s a lot more focused.”
Due to the unstable global security situation, he noted fertiliser prices are sky-high. Explosives prices are also rising due to a mining boom.
Creating two smaller companies could also make both more palatable for an opportunistic deal.
“In this environment, we think private equity could be very active,” King said.
“Splitting the company into two, both parts are very bite-sized.”
The Incitec Pivot share price has gained 7% so far this year.
Can this ASX share beat expectations for the first time?
Wilson Asset Management chief investment officer Geoff Wilson favours a stock that’s long been neglected by the market.
But Wilson predicted that, for the first time, engineering firm Worley Ltd (ASX: WOR) would beat analyst forecasts.
“In theory [the share price is] re-rating when it beats market expectations.”
Long-suffering Worley investors will be hoping Wilson is right.
The stock has risen a spectacular 34.5% for the year so far. But over the past five years, it has not performed, gaining only just over 30%.
Earlier this year, Worley’s own shareholders won a legal case against the company, after the full Federal Court agreed that a financial forecast in 2013 was inflated with no “reasonable grounds”.