The difference between uncertainty and risk': 5 ASX shares this fundie is backing for 2023

Which shares is the fundie buying up for next year?

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Key points

  • The five shares mentioned could help investors navigate a complex macroeconomic environment next year
  • Most of the shares also take advantage of the world's transition away from fossil fuels, with hydrocarbons being the main intermediary on the way to relying on renewables
  • Other companies were selected due to their strong cashflows and supposedly undervalued share prices

One fund manager has chosen five ASX shares that could help investors profit through an uncertain environment in 2023.

SG Hiscock portfolio manager Hamish Tagdell shared his stock picks this week in the Australian Financial Review.

Amid a backdrop of soaring inflation and rising interest rates, Tagdell made the following comments about his thesis for these shares:

One of our greatest learnings through COVID and the last number of years is understanding the difference between uncertainty and risk. Uncertainty means change, which also brings about ingenuity, entrepreneurship, and opportunity.

So let's take a look at which shares he believes could deliver solid returns in the future.

Fundie buys up ASX energy shares

Woodside Energy Group Ltd (ASX: WDS) was one of Tagdell's top picks. The world's possibly lengthy transition from fossil fuels to renewables was cited as a catalyst for hydrocarbons such as gas, which Woodside produces in spades.

Tagdell said:

We've liked it [Woodside] for a while because we think gas is an important transition fuel in the decarbonisation debate. We think being able to do the energy transition in a reliable way is important.

Earlier this year, Wilsons equity strategist Rob Crookston mirrored Tagdell's sentiment that natural gas will become a key commodity in the coming decades. Crookston stated that gas will end up replacing coal as the second most important energy material by 2030.

Bullish on Woodside and BHP Merger

Tagdell noted the strength of Woodside after it merged its oil and gas business with BHP Group Ltd (ASX: BHP) earlier this year.

BHP itself also earned a spot in Tagdell's portfolio as one of his prominent holdings.

My Fool colleague Tristian noted that the merger confers several benefits that the fundie could be feeling bullish about. One of these benefits included unlocking a possible US$400 million in operational synergies.

Another part of this strength comes from his view that gas will continue to be in hot demand and that it has room for additional growth potential, as Tagdell noted:

Woodside has a strong position, post the BHP deal – it's very well capitalised. In terms of balance sheet, it's got good growth options through Scarborough and the West Australian developments it's looking at. And that's in a world where I think there's clearly an increased demand for gas.

Tagdell deepened his position of investing in natural gas producers and cited another ASX energy share as a top portfolio pick: Cooper Energy Ltd (ASX: COE).

What else is the fundie buying?

Tagdell praised Chorus Ltd (ASX: CNU), saying it laid the foundation to generate a healthy amount of free cash flow, some of which could be diverted back to shareholders in the form of bigger dividends. He also believes that Chorus's shares can be fetched at a discount as they are presently undervalued.

These comments come amid Chorus's strong performance in FY22. Its top and bottom lines expanded, and it issued a final unfranked dividend of 35 cents per share.

Tagdell said:

[Chorus is] moving from investment to operating mode, and we expect a strong increase in free cash flow. That should enable them to start paying attractive dividends and on our valuation it's trading on an eight to nine per cent free cash flow yield, or an EV to EBITDA multiple about eight times at the moment.

Qube Holdings Ltd (ASX: QUB) was the fund manager's final pick. He cited Qube's undervalued share price and future growth prospects as being strong reasons why the share was added to his portfolios.

Over the last 12 months or so, I think [Qube] delivered 25 per cent underlying earnings growth and is expected to post strong earnings growth into 2023.

And that's a result of its privileged asset position. We think it's underappreciated at the moment, trading on an attractive valuation with attractive growth over the next 12 to 18 months.

Motley Fool contributor Matthew Farley 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 no position in any of the stocks mentioned. 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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