3 ASX 200 shares Firetrail Small Companies fund is overweight in right now

It's a confusing time to pick stocks at the moment. Check out this trio and the reasons why analysts are backing them.

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Despite the buoyant stock market so far in 2023, it's confusing to investors to know which ASX shares to pick up right now.

That's because much uncertainty still abounds. 

Regardless of the opinions you hear, no one truly knows how the economy, inflation, interest rates, geopolitics, and earnings will turn out this year.

In this environment, it might help to see where professional investors have their money parked.

The Firetrail Small Companies Fund this week revealed three S&P/ASX 200 Index (ASX: XJO) shares that it's "overweight" in, and the rationale behind the investments:

Outlook remains strong for this hammered stock

The Incitec Pivot Ltd (ASX: IPL) share price has started the year poorly, dropping more than 6% so far.

Firetrail analysts put this down to the "falling European gas price and rising Australian dollar". 

"An unusually warm European winter resulted in lower gas demand than expected," read their memo to clients.

"With the price of ammonia largely driven by the cost of marginal European production, the warm winter has been negative for global fertiliser companies."

But the team is happy to buy up Incitec shares while they're cheap, as "energy-exposed" businesses are a favoured theme at the moment.

"We view these [headwinds] as temporary. The medium-term outlook for Incitec Pivot's fertiliser business remains strong."

Demand for EV materials will continue

Lynas Rare Earths Ltd (ASX: LYC) shares have risen more than 6% to kick off 2023, although they're still 12% down from a year ago.

The post-COVID reopening of the Chinese economy plus a positive performance update helped.

Businesses that produce materials that go towards electric vehicles are winners for the Firetrail team. As such, it will stick with its Lynas shares. 

"December quarter production of Lynas' main rare earth product NdPr [neodymium and praseodymium] improved 44% on the September quarter, as water outages in Malaysia were successfully rectified."

US housing downturn not as bad as first thought

Another theme Firetrail analysts currently like is "globally exposed cyclicals".

This rationale is behind its backing of plumbing equipment supplier Reliance Worldwide Corporation Ltd (ASX: RWC).

The stock has rocketed 17.5% up so far this year.

"Reliance Worldwide outperformed in January. US market sentiment improved following [US] Fed chair Jerome Powell's less hawkish comments at the January FOMC meeting."

The great tailwind for Reliance is that the duration and severity of a housing downturn in the US could be "less pronounced than expected". 

"Reliance Worldwide has 20% of revenue linked to new housing construction, and 80% linked to repair & replace (R&R) activity."

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 positions in and has recommended Reliance Worldwide. The Motley Fool Australia has recommended Reliance Worldwide. 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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