Despite a sharp sell-off in the market, long-term investors may be looking at these names in 2022.
It’s no secret that the start of 2022 has been tumultuous, but two industry experts point out that it can be an opportunity for investors to buy quality companies at a lower price.
Global markets are off to their worst start since World War II.
So far, 2022 has seen the tech-heavy NASDAQ 100 fall into a bear market, down 23.96%.
Meanwhile, the S&P 500 is down 14.50% and our own market, the ASX 200, is down 6% year-to-date.
As the possibility of stagflation, higher interest rate risks, supply chain bottlenecks and conflict in Europe continue to dampen market expectations, Morningstar Senior Equity Analyst, Mark Taylor, and analyst Angus Hewitt, remind investors that volatility creates opportunity.
“There’s definitely a chance things will get worse before they get better, but I think at that time investors will have plenty of opportunities to buy high-quality stocks at a discount,” he said. said the Morningstar analyst.
What should be on your shopping list?
During the seminar, the duo point out a variety of stocks you should consider adding to your shopping list, should the current market decline continue.
In naming names, Hewitt highlights the likes of Bapcor, Aristocrat and Breville, all of which went expensive in last year’s rally, as potential options.
“Those are all good names, Invocar is another and potentially even lotto corp,” Hewitt said. “These are defensive and mocking businesses.”
While energy pundit Taylor said commodities could be the big winners in the current market environment.
“Nufarm is a company that is fundamentally driven by a long-term tailwind of population growth, rising living standards – which leads to a higher proportion of high-quality food – and limits to available land.”
“Similarly, for energy players, the Ukraine/Russia situation, which is an unfortunate event, but there are beneficiaries, of which NuFarm being one of them because Ukraine is a major exporter of wheat and other commodities,” says Taylor.
Taylor said energy producers will continue to outperform even if stock prices don’t reflect that growth.
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The COVID-19 pandemic has seen businesses sold off heavily over the past 2 years.
But also, businesses have become more adaptive thanks to COVID, changing their models to adapt to modern life.
Ironically, according to Hewitt, one such company is funeral service provider Invocare.
“He’s had a tough trot since the pandemic,” he said.
“Social distancing, people washing their hands, all measures to stop the highly contagious [COVID] disease stopped another, there was no flu season.”
The analyst notes that although it has fortunately reduced the death rate in Australia, this is impacting Invocare’s results.
“This is compounded by restrictions on funeral attendance. When funerals have a maximum capacity of 10 people, they have moved to cheaper services with streaming services,” he continues.
But Hewitt said that since restrictions eased, demand has returned.
Going further, the analyst also points to a2 milk which has been affected by border closures, shutting down the daigou trade in China.
“I think a2 has fundamentally changed since COVID.
“The problem a2 has been having lately is the continued high inventory levels through these reseller channels like daigou. So it has had high inventory levels which it has canceled to prevent retailers from reducing its brand.” he said.
Hewitt thinks the retail business that will benefit from reopening is less important than its expanding overseas sales.
“Out of COVID, it’s really been focused on its Chinese label business, but even throughout the pandemic, it’s grown steadily in mother and baby stores and online retailers. We think it’s more important,” concludes Hewitt.
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