Fund manager names 3 recession-proof stocks and reveals how to rescue your portfolio if underwater

Published Tue, Oct 25 20228:36 PM EDTUpdated Tue, Oct 25 20229:29 PM EDT

Semiconductor and growth stocks have tanked this year, bonds are underwater and even the S & P 500 is in a bear market. It's a challenging picture for many portfolios. So how should investors nurse such steep losses? Speaking to CNBC " Pro Talks ," Foord Asset Management's Brian Arcese said investors should sell any underperforming stock as soon as they realize they have made a "mistake" in their portfolio. "You have to look at each individual stock on its own," said Arcese, who manages two funds overseeing more than $1.6 billion in assets. "If you don't think the business model of some of the meme stocks, like a GameStop or an AMC , is sustainable, then regardless of what happens in the near to medium term, you're better off exiting and buying a company you believe in." Many investors hold on to loss-making positions taking on "emotional pain" in the process, according to the portfolio manager. "I think it's more behavioral than anything else." Investors also "fear" losing out on the rebound rather than stepping back and re-evaluating the companies they own, he added. Arcese said he would consider holding on to an underperforming stock if the company made changes to its executive team or were willing to restructure and turn the business around. "But if nothing has really changed, then it's very difficult to get full conviction in that [stock]," he added. Stock markets in 2022 have been unkind to investors of all stripes, be it hedge funds, billionaire family offices, or meme stock traders. More than 85% of hedge fund and billionaire investors, on average, have lost 18% this year, according to CNBC Pro's analysis of data on 271 funds from Investing.com. As seen in the table below, 232 funds lost value this year, with 11 funds down by more than 50%. Kora Management and Spruce House Investment Management have lost more than three-quarters of their assets by value, with the latter taking on a third of those losses in the past month. "The best investors in the world probably are right 60-70% of the time," Arcese told CNBC, speaking from Singapore. "Which means that everyone is, at least a third of the time, investing in a company that doesn't work for whatever reason." Much of the pain can be avoided, according to Arcese, if investors bought only "quality" companies with great management teams offering good returns and solid fundamentals. Stock picks The fund manager named three stocks that will "will work, kind of, in any type of economic environment" — UnitedHealth Group , Air Products , and Freeport McMoRan . Shares of all three companies are likely to be impacted in a recession, admits Arcese, but they are likely to outperform "deep cyclicals" such as semiconductors and the broader market. UnitedHealth, a U.S.-headquartered health care and insurance company, has a buy-rating from 16 out of 19 analysts covering the stock since Oct. 14. The median price target of analysts surveyed by FactSet is at $597.5, indicating 10.3% upside potential from current levels. Air Products, an industrial chemicals company, is an inflation hedge and an "incredibly defensive company," according to Arcese. "They've grown their dividend for 40 consecutive years. They have contracts with inflation clauses with their customers that are 15 and 20 years long," he added. Meanwhile, Freeport McMoRan, a copper mining giant based in Arizona, is a "low-cost" producer of a commodity the world is running short of, according to the fund manager. "If you believe in energy transition, in green energy, the world doesn't have enough copper to get us there," he said. Six of 12 analysts covering the stock have rated FCX as a "buy" since its third-quarter results. Shares of the company have fallen by 21% year-to-date, chiefly tracking the copper prices.