Insights

This ASX share is recession-proof

Past consumer habits in times of financial stress is a great indicator for this business, which this fund manager has been monitoring for a long time.
The post This ASX share is recession-proof appeared first on Motley Fool Australia. –

A fund manager has revealed his tip for an ASX share that might actually prosper during an economic downturn.

Pengana Capital Group Ltd (ASX: PCG) portfolio manager Chris Tan told The Motley Fool that his fund had kept an eye on automotive parts provider Bapcor Ltd (ASX: BAP) for “a long time”.

“It was always just a bit too expensive and COVID-19 allowed us the opportunity to buy it,” he said.

“We probably started buying in late February or early March, but we had done a lot of work on it and were able to just keep adding as it went down into the crazy times.”

Bapcor shares have risen almost 150% since the depths of the COVID-19 panic. They were trading for $7.85 at close of trade on Monday, after they were as low as $3.15 in late March.

“We see that as a business that is really, really resilient,” Tan said in this week’s Foolish Q&A. 

“Recession-proof almost.”

Tan explained that in times of economic distress, consumers tended to avoid buying new cars, preferring to maintain existing vehicles for longer.

“(With) new car sales shrinking for two years in a row, the fleet of second hand or older vehicles on the road is just getting larger,” he said.

“Bapcor will make their money servicing or supplying mechanics who service the after-warranty or second-hand car market.”

After performing a capital raising, the company is also in fine shape structurally.

“They’re now poised to consolidate more smaller competitors. So there’s good industry structure as well,” said Tan.

“There’s really [only] two main players, Bapcor and Repco… And there’s an Asian growth story further down the line as well.”

Read The Motley Fool’s full exclusive interview with Chris Tan right here.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post This ASX share is recession-proof appeared first on Motley Fool Australia.

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