The ASX share I hold to ‘sleep really well at night’: fund manager

Ask A Fund Manager: U Ethical’s Jon Fernie reveals why supermarkets are looking attractive for the next half-decade.

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Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, U Ethical chief investment officer Jon Fernie reveals the one stock he reckons is reliable through economic turbulence.

The ASX share for a comfortable night’s sleep

The Motley Fool: If the market closed tomorrow for four years, which stock would you want to hold?

Jon Fernie: It’s probably a little bit conservative. We’ve gone for Coles Group Ltd (ASX: COL)

We expect that the Australian supermarkets are pretty well-placed in the current inflationary environment, so they are going to be impacted to an extent by rising costs. 

But they’re also able to pass on the higher food inflation to consumers. And I think again, if we have a weaker economic environment, that the company’s got a resilient earnings base. They’re continuing to invest in their logistics and distribution efficiency. 

From a valuation perspective, [Coles] looks more attractive than their closest peer Woolworths Group Ltd (ASX: WOW).

MF: Yes, I was just going to ask why you’d prefer Coles over Woolworths, but it sounds like it’s a matter of it being cheaper.

JF: Yeah, basically. We think that it’s more attractively priced than Woolworths. I think Woolworths, again, is probably pretty well-placed in terms of the outlook and the resilient earnings and to deal with the higher inflation. But we think Coles is just more attractively priced.

I think you can probably sleep really well at night with a stock like Coles.

MF: Yeah, and the supermarket sector in Australia is almost a duopoly, isn’t it?

JF: Yeah, it is. They’ve got a very strong market position and I think that makes it challenging for competitors because they’ve got this advantage in terms of scale where they can invest in improving their logistics and distribution and offer more competitive prices. So it’s a real advantage.

MF: And no need to apologise for being too conservative. I think that’s what people are seeking these days, compared to a year ago when we last spoke.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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