MoneyTalks: Barclay Pearce with 3 ASX stocks to hedge against recession

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MoneyTalks is Stockhead’s regular analysis of what equity investors are looking at right now. We’ll use our long list of experts to hear what’s hot, their top picks, and what they’re looking for.

Today we hear from Barclay Pearce Capital equity trader Morgan McGuire.

What’s hot right now?

There are a significant number of macroeconomic and geopolitical moves that create an environment in which investors are naturally defensive or “risk free” (sic), McGuire says.

As economic indicators over the past two years have signaled pandemic-related problems, fuel has been added to the infernos of already beleaguered economies through supply chain constraints.

“Supply issues have affected almost every sector and industry globally, creating supply chain inflation issues taking into account the UK, US and Australia as examples “, he says.

“In the UK, we saw in December 2021 that consumer prices, as measured by the Consumer Price Index (CPI), were 5.4% higher than a year earlier in December 2020 .

“This price increase (the annual rate of inflation) was 4.2% in the year to October 2021 and represented the highest rate since March 1992 (when it was 7.1%) .

“Inflation figures in the United States exceeded the median estimate of 7.3% in January 2022 and marked the highest inflation since February 1982, while in Australia the consumer price index (CPI) rose 2.1% in the March 2022 quarter and 5.1% annually.”

Market Trends – Energy Sovereignty

Economic commentators around the world are now in chorus, singing songs about the very real threat of recession — especially in America, McGuire adds.

America is watching the barrel of a not IF but WHEN scenario relative to the potential for economic recession, he says, and not only that, but many countries are grappling with an energy crisis that shows chilling similarities to the five main sources of energy. past crisis.

“Australia is ready to prepare for the change in government policy on climate change that has direct effects on energy prices.

“Households and businesses should prepare for higher electricity prices over the next few years after the Australian energy regulator approved price increases of up to 18% in New South Wales. and 12.5% ​​in Queensland from July 1.

“With soaring global commodity prices, Russia’s war on Ukraine and unplanned coal-fired power plant outages, AER President Clare Savage warned that wholesale market pressures would persist for some time.”

Market Trends – Currency

McGuire points out that the economic conglomerate of Brazil, Russia, India, China and South Africa (BRICS) and the looming prospect of a gold-backed currency pose a potential threat to that the US dollar is no longer the dominant global currency.

“Russia is ready to develop a new global reserve currency alongside China and other BRICS nations, in a potential challenge to US dollar dominance, as a recent TASS article highlights.

“While this may become a problem for the US dollar, our trade ties with China will provide Australia with some level of insulation against a potential decline in the value of the US dollar.”

Top picks

All of these factors contribute to a significant level of confounding information for making clear investment choices.

“It’s also compounded by the fact that we’re coming out of the longest bull market in history, which lasted from 2009 to 2020 and saw stocks grow more than 400%,” McGuire said.

“Today more than ever, making wise investment choices requires making calculated and informed decisions.

“Day trading in this climate (for traders brave enough to do so) is akin to catching a falling knife and requires more than a sentiment-based or anecdotal approach.”

In the lithium space, McGuire says he’s looking for players with stability and sustainable growth.

“Given the simple measure of lithium supply and demand, I think there’s still a long way to go for this product,” McGuire says.

“PLS shares rose from $1.455 at the market open on July 1, 2021 to $2.29 at the market close on June 30, 2022, a gain of 57%.

“Pilbara Minerals recorded a 394% increase in revenue to a record $291.7 million and also benefited from positive coverage from brokers.

“Macquarie affirmed its outperform rating on the company’s stock in December with a price target of $3.70 and forecasts record lithium prices over the next four years.

“Bank of America also raised its forecast for the Pilbara stock price by 13% in early January.”

There’s a steady pull for gold, which appeals to high net worth individuals (HNWIs), as opposed to bonds or fixed income, he says.

“Many are looking to protect their assets against any increase in volatility, however, Northern Star Resources are in a unique stock given that they mine and process gold deposits.

“The stock price is exposed to volatility and therefore must accept the spot and/or forward price of gold.

“Given the current global and economic landscape, I see many investors looking to gold as a potential hedge against market risk – and NST’s projections for annual growth through 2024 are very strong.”

According to McGuire, Woodside has low-cost conventional assets that are technically simple to operate.

“About 95% of their production is in OECD jurisdictions and they produce 70% gas, which is increasing over time.

“The company also recently merged with BHP Petroleum’s business to create a larger, more financially sound global energy company through an all-stock merger with BHP Petroleum’s Woodside Energy.

“WDS announced a FY21 underlying NPAT of $1.62 billion, which compares with market expectations of $1.45 billion. However, FY22 guidance is in line with current market expectations.

Any views, information or opinions expressed in the interviews for this article are solely those of the interviewees and do not represent the views of Stockhead.

Stockhead does not provide, endorse, or take responsibility for the financial product advice contained in this article.

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