MoneyTalks: 2 experts, 5 ASX stock picks as Australia slides into energy crisis

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MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Jessica Amir, markets strategist at Saxo Markets, and John So, co-founder at VP Capital.

What’s hot right now?

All sectors have seen a pullback month to date and this means market buying opportunities in select stocks and sectors, especially in the commodity sector, according to Amir.

“Energy companies will see some of the highest earnings growth in the year ahead and can withstand the mega-rate hikes to offset inflation.

“These companies are key contributors to inflation, all on the other side of making money from high inflation,” she said.

“What we are seeing is, the household energy bill will likely rise by 14% in the second half of this year and unfortunately, in Australia a lot of our energy needs are met by coal.”

Yesterday, the Australian Energy Market Operator (AEMO) –  who manages electricity and gas markets across the country – suspended the National Energy Market (NEM) spot market after many days of calling on states and companies to supply more energy to the market.

Energy demand is rising and with coal gaining pace, Amir said it is likely we will see higher prices this year due to the supply/demand imbalance.

“At Saxo, we are thinking about long term opportunities and the sector we are most bullish on is energy,” she added.

“Right now, the market is favouring companies with higher yields and higher returns, as well as momentum.

“We see opportunity in energy amid the downturn, before the market moves to higher levels during the year.”

Coal picks

WHC is continuing to hit all-time highs but it has taken a haircut due to the downturn in markets, Amir said.

“We must remember, though, financial year rebalancing is taking place, so this is a time when fund managers take the top off their best performers and lock in profits for the financial year ending 30 June.

“We see opportunity in WHC coal – it’s not just Saxo saying coal prices will hit high levels this year, the Energy Information Administration (EIA) – the peak energy body, is guiding for the same.”

It is also worthwhile keeping a smaller company on your radar.

“New Hope Corporation are in a similar ilk, they are just continuing to hit new record highs and experiencing a pullback, but there could be some good opportunities ahead amid strong earnings growth,” she said.

“Next pick is a much smaller company, so approach this one with upmost caution,” Amir said.

“SMR are in a sharp downturn, but they are about to outlay a wad of cash to BHP for the acquisition of their coal assets.

“Depending on time horizons, I think there could be some opportunity to look at SMR.”

John So co-founder at VP Capital co-founder

What’s hot right now?

“In the next short little while, you can either take a dive into some of the higher risk stocks and see if they bounce.

“Or alternatively, there are some safer sectors which are not going to go up as much when the market picks back up, but they will probably do well in an inflationary environment and tougher economy,” So said.

“One sector I see opportunity in is energy and that is because part of what is driving the inflation is high energy cost, so buying energy stocks is going to give investors a hedge on that.”

Oil and gas picks

COE is an Australian East Coast producer.

“They’ve had some operational issues in the last few years since commissioning their main gas projects but we’re seeing a bit more stability in their production now and the numbers have been starting to look much better over the past six months,” he said.

“Excess gas at the moment on the east coast can sell for as high as $40 a gigajoule – to put that into perspective, last year gas on average was selling for around $6.50 to $7.50 a gigajoule.

“So, energy stocks in oil and thermal coal and so forth – if they can sell gas into the spot market, they could very easily double or triple their EBIDTA.

“Cooper Energy is in a position to do that if recent production numbers are sustained.”
 

COI have a joint venture with Santos.

“If they are able to get the gas field developed, they could tap into this energy shortage, which may persist for many years and longer than what we expect, partly because of the underinvestment in discovering new gas fields,” So said.

“The difference between Comet Ridge and Cooper Energy is that Comet Ridge doesn’t currently produce commercially.

“But if the gas prices and sentiment in energy stocks remain high enough in the next little while, then it’s going to flow out into the next set of predevelopment opportunities.

“And one of the better energy companies on the east coast is Comet Ridge.

“In the long-term Comet Ridge is a prospective opportunity anyway because this gas shortage is more likely than not going to persist for many years I think.”

 
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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