Only a handful of days or so ago investors were fretting about the prospect of interest rates not falling as soon – or as far – as expected. Courtesy of some dodgy US economic stats, the prospect of a global recession now looms large.
Or does it? Locally, Reserve Bank governor Michele Bullock this week remained unmoved, asserting that reducing stubborn inflation – and thus a still overheated economy – remained the central bank’s numero uno priority.
So go figure – we can’t.
But the torrent of red ink doesn’t lie and this week there were few places to hide on the bourse. If the guv is wrong and we are on the cusp of our first recession in 33 years, some sectors are going to be safer than others.
Analysts nominate healthcare stocks as likely safe harbours, along with utilities and consumer staple retailers. The macro theme is sound enough – we all need to eat, stay warm and healthy and buy underwear – but individual stocks will always outperform or lag their peers.
Investors can be lured into buying ‘expensive defensives’ and miss out on bargains elsewhere if the recession bells are ringing out a false alarm.
In the healthcare sector, investors need to distinguish between established profitable providers and biotechs on the cusp of drug or device development that haven’t quite got there.
Locally, we’re not blessed with the global healthcare names such as Johnson & Johnson and Pfizer.
That said, global sleep apnoea leader ResMed (ASX:RMD) was one of the few industrial shares to gain during this week’s market rout.
Snoring – or anti-snoring – is recession proof, but there’s a wider context in the stock; it had already been hammered by fears the Ozempic-style anti-obesity drugs will put paid to those deafening nocturnal emissions.
CSL (ASX:CSL) , too, benefits from a US recession: the growing ranks of the US jobless means greater and cheaper supply of blood as donors flock to collection centres (they get paid for their claret over there).
Meanwhile we’re not over-endowed with consumer staple names such as Coca-Cola or Unilever. So that makes Coles Group (ASX:COL) and Woolworths (ASX:WOW) number one on recessionary shopping lists. But let’s face it, both stocks are low growth, boring and not exactly cheap.
The owner of the IGA and Mitre 10 brands and a major distributor to convenience stores, Metcash (ASX:MTS) is seldom mentioned in despatches.
But the stock trades on a much lower multiple than the supermarket duopolists, with June’s full-year numbers suggesting resilience in adversity.
Otherwise, take a look at discount chains such as The Reject Shop (ASX:TRS), which has a $120 million market cap backed by $80 million of cash.
Real estate investment trusts (REITs) aren’t typically seen as recession beneficiaries, but are a big winners from lower rates. The key is to avoid office exposures as the mass sackings start, or shopping centres overly exposed to fancy fashion or homewares.
With a shopping centre portfolio anchored by Coles and Woolworths, Region Group (ASX:RGN) fits the brown-rice-and-kerosene zeitgeist. So, too, does RAM Essential Services Property Fund (ASX:REP) , which rents to medical facilities and supermarkets.
Elsewhere, booze and gambling companies have an uncanny reputation for being recession proof, with the proviso that these nefarious activities are more likely to be done locally or at home.
Woolworths spin-off Endeavour Group (ASX:EDV) has both sins covered with its Dan Murphy chain and local pokies barns. As a provider of those Willy Wonka tickets out of misery, The Lottery Corporation (ASX:TLC) also tends to be resilient.
Oh, and folk will also die in predictable numbers.
That makes Propel Funeral Partners (ASX:PFP), the only listed deathcare play, a recession stock to die for. An added benefit is that easing wage pressure will benefit the labour-intensive sector.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.
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