Best 5 ASX stocks to watch in December 2022

Choosing what could be the best ASX stocks to watch next month is no easy task. But as recession approaches amid a possible real estate crash, it can make sense to choose those with either a wide economic moat or those selling low-supply but in-demand products.

Both qualities may help the best ASX companies to weather the oncoming storm.

5 best ASX stocks

1. Telstra Corporation (ASX TLS)

Telstra shares have remained remarkably resilient through 2022, highlighting its defensive nature. Australia’s dominant telecommunications company provides some 18.8 million retail mobile services, in addition to 3.8 million retail fixed bundles and standalone data services.

TLS has completed that start of its ambitious restructuring plan — codenamed T22 — which could start to unlock value for investors over the medium term. And it delivered its first fully-franked dividend increase in seven years in 2022, and now boasts a healthy dividend yield of circa 4%.

Morgans has an add rating and has placed an AU$4.60 target on the ASX stock, arguing that ‘after a major turnaround, TLS has emerged in good shape with strong earnings momentum and a strong balance sheet.’

The stockbroker also believes that the company’s high-quality assets including InfraCo could also be under-priced by investors.

It’s also worth noting that its largest competitor, Optus, has recently suffered significant reputational damage after up to 9.8 million customers had their data hacked.

In full-year results, Telstra saw total income fall by 4.7% to $22 billion, while net profit dipped by 4.6% to $1.8 billion. However, these decreases reflected costs associated with Australia’s national broadband network rollout that should see sales increase over the longer term.

The next stage of Telstra’s turnaround, T25, will be led by previous CFO and newly anointed CEO Vicki Brady.

2. Treasury Wine Estates Ltd (ASX: TWE)

Treasury Wine Estates shares are up 13.8% over the past year to AU$12.96, a decent return given its exit out of the lucrative Chinese market. The global ASX stock owns an international portfolio of mid-high tier brands including Beringer, Lindemans, Wolf Blass, and flagship Penfolds.

Like tobacco, alcohol stocks come with some ESG concerns. But on the plus side, consumers will sacrifice discretionary spending elsewhere to afford wine. And Treasury Wine Estates has made a successful effort to grow sales in new markets to compensate for its previous sales in China.

Delivering strong earnings growth in FY22, partially because of its Treasury Americas segment, TWE enjoys a buy rating from Goldman Sachs, which has placed a price target of AU$14.70 on the ASX stock. It also has an add rating at Morgans with a price target of AU$15.71.

Goldman is forecasting 16% net profit FY 22-25 compound annual growth.

Meanwhile, Morgans has described its Penfolds brand as the ‘jewel in the crown,’ rates the management team ‘highly,’ and thinks that ‘the foundations are now in place for TWE to deliver strong earnings growth from the 2H22 over the next few years. Trading at a material discount to our valuation and other luxury brand owners, TWE is a key pick for us.’

3. Pilbara Minerals (ASX: PLS)

Pilbara Minerals shares are up 525% over the past five years to AU$5.37, buoyed by record high lithium prices that have accelerated through 2022, and which are seemingly immune to wider fears of a global recession.

The ASX lithium stock owns a 100% interest in the Pilgangoora Project in Western Australia, one of the largest hard rock lithium deposits in the world. In its September quarterly activities update, the ASX miner saw production increase by 164% quarter-over-quarter to 147,105dmt of spodumene concentrate, while its cash balance more than doubled to AU$1.375 billion.

At its most recent offering at the online Battery Material Exchange, Pilbara accepted a record pre-auction offer of US$7,100 per dry metric tonne (dmt) for a shipment of 5,000dmt of spodumene concentrate on a 5.5% lithia basis.

And these prices could increase further soon. CEO Ken Brinsden argues that ‘In the hard rock space – at least as it relates to merchant spodumene supply – the next available (production) uplift besides us is probably late next year at the earliest.’ Pilbara is also working hard to scale up production across its operation.

Of course, the predicted downturn in the Chinese market, where one in three cars sold is an EV, could weight on the lithium miner in the near term.

4. National Australia Bank (ASX: NAB)

National Australia Bank is a blue chip ASX 200 finance company which offers traditional banking services in addition to wealth management. With a circa AU$99 billion market cap, the ‘big four’ Australian bank has long been part of many passive income investor portfolios, but tightening monetary policy is now attracting new types of investors, despite the elevated risk of credit and mortgage defaults.

National Australian bank shares have risen by just 4.2% over the past five years, with the bank instead preferring to pay out biannual fully franked dividends, which have risen every year for the past decade.

With a focus on business banking, NAB’s full-year results saw cash earnings rise by 8.3% year-over-year to AU$7.1 billion, while it issued a total dividend of AU$1.51, an 18.9% increase in the space of a year.

Rising rates could see profits accelerate in 2023, though the risk of a serious downturn must be weighed against this potential outcome.

5. Coles (ASX: COL)

Coles shares are up a respectable 32% over the past five years to AU$16.97. The ASX company is one of the country’s largest operators of both supermarkets and liquor retailing and it now has more than 2,500 outlets open across Australia.

Despite its 5% share price slip year-to-date, after-tax profits rose by 4% during the FY22 year to AU$1 billion. Further profitability could be found as consumers cut back on hospitality spending, a fact not lost on Coles, which expects consumers to turn to its value offering to protect themselves from the ravages of inflation.

COL is another Morgans pick, with the stockbroker arguing that its healthy balance sheet and strong defensive qualities mean its shares could rise to AU$19.50 in the medium term, while simultaneously increasing its dividend pay-out.

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