Romano Sala Tenna

Portfolio manager, Katana Asset Management

Sala Tenna describes himself as a contrarian investor – and right now, he’s beginning to become just a tad uneasy about sitting where the crowd is.

He told Stockhead we could be looking at an “abnormal” market, with most people around the world predicting some form of market fall.

“What’s abnormal is it’s probably the most predicted correction in the history of the stock market, certainly from what we’re seeing. Consensus positioning is already that we have to have a leg down. And when the consensus positioning is such … the path of least resistance then becomes the upside,” he said.

But with a recent US survey showing that 60% of US managers are overweight cash and underweight US equities, Sala Tenna reckons we’re “not going to see that same panic, the same sell down.”

“You’re going to actually see people buying the dips.”

But rather than looking at where you want to be, Sala Tenna says it’s important to work out where you don’t want to be.

Retail? Exciting, but too early, Sala Tenna says.

Financial services? Again, too early. REITs? Just… no.

But there’s one sector he says that “even if we go into a recession, we’re still going to see incrementally improving demand” – EV-facing metals.

The two Katana is specifically exposed to are lithium and copper. In fact, six of Katana’s top 10 are exposed to lithium and copper.

In lithium, it’s pretty straightforward. Sala Tenna sticks with the tried and tested. So Mineral Resources (ASX:MIN), Wesfarmers (ASX:WES), IGO (ASX:IGO) and Allkem (ASX:AKE), with Pilbara Minerals (ASX:PLS) just outside its top 10 exposures.

Copper’s a bit curlier.

“It’s very hard to get quality copper exposure in the ASX now since OZ Min’s been taken over,” Sala Tenna said.

“So we’ve got certainly got a top 10 position in Sandfire (ASX:SFR), around the top 10 mark, and we’ve also played it via WIRE.AXW, which is a Global X copper ETF.
 

Grady Wulff

Market analyst, Bell Direct

A note from JP Morgan recently for all the bears out there.

“In the 21 other instances since 1950 that the S&P 500 has been up at least 10% or more in the first half, it’s rallied further in the second half 17 of those times, with the full year up on average +25%.”

In case you hadn’t noticed – and who would blame you, with all the negativity around rates and recessions – the market did rally in the first half. The S&P 500 is up by 15% so far this year; the Nasdaq, over 30%. The ASX? A mere 1.5%, but Tech is up 28%.

Hmm.

If you’re still determined to go defensive (for the record, Wulff reckons recession “is not necessarily something to be scared of… just a kind of moderation”) look for stocks that can a) weather the storm and b) outperform the market. Think gas, power, utilities and consumer staples.

But also consider as rates rise (and wages don’t), investors will gravitate towards the divvie-payers for some extra cash.

Wulff’s tip here is to not “get fooled by companies that are paying a higher dividend in one year, but then no dividends at all the next”. Stick with form over time.

BP has recently initiated coverage on Brickworks (ASX:BKW) and has a Buy recommendation on.

“Brickworks has a really good track record of paying dividends, it hasn’t cut dividends since the late 1980s.”

Another dividend stock that Bell Potter likes is shoes retailer Accent Group (ASX:AX1).

“Accent is part of the sector (discretionary) that has been sold off but the company pays growing dividends.”

Accent’s dividend grew from 2.5 cents per share last financial year (FY) to 12.5 cents per share in the first half of this FY. Not bad for a stock running under $1.70 right now.

And if you want to ride that Tech growth into the second half, Bell Potter’s got a Buy out on Telix Pharma (ASX:TLX). The cancer fighter’s been on a rocket since March, adding nearly 70% to sit at just over $11.

BP particularly likes the fact it’s invested that success into acquiring an AI company, Dedicaid GmbH, to accelerate its clinical programs.

Yes, AI. The magic acronym. But the premise is simple, according to Wulff.

“Companies that aren’t investing in it are falling behind.”

And here’s some free advice before you jump into Tech. Wulff says investors “are really wary of investing in companies that have high debt levels, those which have AI tech but aren’t actually sure how to use it, and those that have low annual recurring revenue.”
 
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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