Buy Hold Sell: 5 stocks to soar as recession risk rolls over

Buy Hold Sell

Livewire Markets

While the US is technically in a recession, with two negative quarters of GDP growth in the first half of 2022, several leading economists would say otherwise. 

Look no further than Goldman Sachs chief economist Jan Hatzius, who recently pointed to solid second-quarter earnings as proof of recession risk rolling over. Or JP Morgan's global head of macro quantitative and derivatives research, Marko Kolanovic, who remains pro-risk, steadfast that the probability of a recession is low. 

Then, of course, there's former Deutsche Bank chief economist Ed Yardeni (now of Yardeni Research), who recently noted that the technical indicators are pointing in the direction of the bulls. 

But that's all very US-focused. How does this fading risk impact Aussie stocks? Glad you asked. 

In this episode, Livewire's Ally Selby was joined by Ben Clark from TMS Capital and Henry Jennings from Marcus Today for their analysis of three stocks that have been hit hard by recession fears. 

Plus, they each name their number one pick that could soar if the risk of recession is truly behind us. 

Note: This episode of Buy Hold Sell was filmed on Wednesday 17th August 2022. You can watch the video, listen to the podcast, or read an edited transcript below. 

Edited Transcript 

Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby and over the last few days, several leading economists have announced that the risk of recession is finally rolling over. Today we're going to be taking a look at some of the stocks that could benefit if that truly is the case. To do that, we're joined by Henry Jennings from Marcus Today and Ben Clark from TMS Capital.

First up today, we have consumer discretionary stock Breville Group. Its share price has plummeted 30% since the beginning of the year, but they do make good coffee machines. Ben, I might start on you. Is it a buy, hold or sell?

Breville Group (ASX: BRG) 

Ben Clark (HOLD): High-quality stock. I'm going to go a hold. The reason is that they're cycling a lot of those lockdown sales - when we all went and bought those coffee machines to keep us going through the lockdowns. I think retailers are holding on to potentially some excess inventory at the moment which might be an issue for them and they are on a pretty heavy OPEX drive at the moment. One to keep on the radar and if it fell further, I would definitely look at buying, but it's a hold for now.

Ally Selby: Over to you, Henry, do you like their coffee machines? Is it a buy, hold or sell?

Henry Jennings (SELL): I do like their coffee machines. Their coffee machines are a buy, but I think the stock is a sell. I think Ben's right. They do have a lot of inventory at the moment, and there's a lot of OPEX at the moment. They just bought a very high-end Italian coffee machine maker, as well. How is that going to work in Europe when Europe starts to go into a recession? And I think it's heading that way. For me, it had the best of times during COVID and I think now we're just going to see a little bit of indigestion.

Aristocrat Leisure (ASX: ALL)

Ally Selby: Okay. Next off the rank today we have Aristocrat Leisure. Its share price has sunk 19% since the beginning of the year on US recessionary fears. Henry, is it a buy, hold or sell?

Henry Jennings (BUY): Apart from the moral aspect of pokie machines which I struggle with, I think Aristocrat is a buy. At the end of the day, no matter what happens in the economy, people like to hope and they like to put money into pokie machines and online gaming because it's a distraction. A distraction from everyday woes and there's that hope that you're going to hit the jackpot. And even in a recessionary environment, it is relatively safer than some of the other stocks that are out there.

Ally Selby: Okay. Over to you, Ben. Is Aristocrat a buy, hold or sell?

Ben Clark (BUY): I'm going to go a buy as well. Look, I think it's interesting because the "Crown Jewel" is now the US land-based business. And that continues to trade very strong despite all these concerns about a recession going to what Henry's talking about there. A very strong result in May, well ahead of every analyst's expectations. There's earnings momentum. The big issue for this company is it's got too much cash on its balance sheet. It did a big raising to fund an acquisition that never played out, but to me, that's a pretty good problem to have. It's not the biggest problem. I'll go buy.

Altium (ASX: ALU)

Ally Selby: Okay. Next up we have Altium. It's an Aussie software business. It's been caught up in the growth selloff. Ben, is it a buy, hold or sell?

Ben Clark (HOLD): I'll go a hold on this one. We do own Altium and I think it's been a bit weaker because some of the PCB designers in the US that they compete against have had some weaker numbers in their quarterlies that have been coming out, no news from Altium. But Altium really is a long-term play on them trying to completely revolutionise the global electronics industry. It's a massive task. If they can get it right, they're going to be worth a lot more than they are today. Short term, probably looks fairly fully priced and maybe some short-term earnings headwinds. 

Ally Selby: It's actually seen its share price fall around 31% since of being of the year. Henry, over to you, is it a buy, hold or sell?

Henry Jennings: There's some big moves, aren't there, in some of these stocks?

Ally Selby: Crazy.

Henry Jennings (HOLD): For me, it's a hold. I think there's some M&A appeal to it. What I find interesting at the moment is the whole chip story. I know Altium is not really involved in that but it's kind of in that sort of sector. At one stage, we had a chip shortage, now the chip makers are saying we've actually got too many and we're not seeing the demand. I think the jury's out, but I think there's some M &A potential for Altium. It's a great quality company, it's just the price really. I think that's the problem with it. And it was just too expensive and now maybe it's a little bit cheaper. Well, a lot cheaper, 30% cheaper. But I think it's a hold at these levels.

Henry's pick as recession risk fades: Pilbara Minerals (ASX: PLS) 

Ally Selby: Okay. I'm really looking forward to this. We asked our fundies to bring along one stock that they think can soar as recession risk fades. Henry, what have you brought for us today?

Henry Jennings: Well, mine is going to be a bit of an outlier and I think it's going to be in the lithium space. I think those stocks are really going to fire up if we do see China emerge and COVID dissipate and the recession doesn't happen, then we are going to see this continued push towards electric vehicles. I still like Pilbara (ASX: PLS), and I like Core Lithium (ASX: CXO) as well. I think if I had to choose between the two of them, Core Lithium is just about to become the next Australian producer. There's a bunch of them out there, but I guess in big-time terms, I'll go with Pilbara.

Ben's pick as recession risk fades: Reece (ASX: REH)

Ally Selby: Your time in the hot seat, Ben. What stock do you think can soar as recession risk fades?

Ben Clark: One we've been buying back into actually is Reece (ASX: REH) which has been hammered. I don't know what that's down this year, but it's been sold down aggressively and it's because of concerns about building and renovation activity. But I think that the renovation market here might hold up better than expected. Certainly, if recession fears fade it will. You'll still get building construction. But the big thing with Reece is this MORSCO business in the US. The big tailwind for them there is this huge immigration that happened from the north to the south of America and MORSCO is the biggest player in places like Florida and Texas where there are huge amounts of house building and renovation happening. We still see some really good forward progress for Reece and it will certainly move if the market starts to get less bearish on a recession.

Ally Selby: Okay. Well, that's all we have time for today. We hope you enjoyed that episode of Buy Hold Sell. If you did, why not give it a like? Remember to subscribe to our YouTube channel, we're adding so much great content every week.


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Buy Hold Sell

Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.

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