Key points:

  • Recessions can provide buying opportunities for high-quality businesses.
  • Stock picks for 2023: Newcrest (NCM) and InvoCare (IVC)
  • Top sector in 2023: Energy


Mathew Hodge: It's not just here in Australia where the market is digesting interest rate rises. It's around the world. So, it's going to be really interesting to see if the economy does slip into recession. If we do, for investors, that can often be a period where there's plenty of opportunities to buy and be selective and buy things on sale that are high quality. So, it's not necessarily a bad thing.

It's really interesting what's happening with cryptocurrency and that all melting down. It's a potential positive for gold. And also, given the risk of recession, 2023 could well be a disruptive year. Newcrest, for example, has been pretty well smashed. So, it's quite a way down from where it was. We think the reasons for that are generally transitory. There's a decent underlying business there. So, we think there's pretty good value in Newcrest and it's probably not a bad thing to own given the year that we look like we're going into.

So, the second one is InvoCare. As with (Angus), I agree InvoCare is a decent opportunity at this point in time. Obviously, funeral care is pretty recession resistant. It's nondiscretionary, and there's obviously opening up that's happening as well. But what I also like about InvoCare is the big ball of money that comes from the prepaid funerals, and with rising interest rates, they can deploy that and earn higher returns than what they have been. So, that's a positive.

The sector – energy. I still think there's more to go there. I mean, it's been a phenomenal run in 2022. The war in Ukraine and EU's pivot away from Russian gas, that's still going to take more to digest, I think, and I would not be surprised if these high prices last longer than what the market expects or prices in. The other thing is, I think there's a case to be made that it's becoming increasingly difficult to get new coal mines approved, new gas fields approved, and if we do have a more longer-lasting constraint on supply that leads to a disconnect between supply and demand, supply declines faster than demand does, that could be an upside scenario where you've got high prices for coal and gas for some time to come, and that's not really factored into valuations at the moment. So, Woodside (WDS), Santos (STO), Whitehaven Coal (WHC) – there's plenty of things to choose from in the energy space where we think there's still value.