High quality companies with strong fundamentals are better positioned to withstand short-term volatility in the market and a potential recession, according to portfolio manager and ESG head at ECP Asset Management (ECP), Jason Pohl.

“With the spectre of a recession looming, companies in Australia and globally should be focusing on building resilience in the face of escalating costs, high inflation, tight labour markets, and dwindling consumer demand.

“Meeting these challenges head on will ensure competitive excellence through these cycles and provide a higher chance of emerging successful on the other side,” he said.

Mr Pohl adds that investors should not be put off by flat or declining growth, instead they should be looking for companies that are making strategic decisions that position them for growth past any short-term disturbance.

“Identifying companies with clean balance sheets, loyal customer bases, and management teams that understand their value proposition and competitive advantage is really important.

“Markets are likely to be turbulent, and as this happens companies need to strengthen their competitive moat to provide opportunities for the long-term investor.”

In these market conditions, Mr Pohl suggests that companies should be taking advantage of any pull back in business activity and reinvesting in new systems and processes promoting efficiency and productivity in the business that are key to long-term success.

“This period should be used to re-evaluate the business model including the current processes and systems in place. Instead of hiring new workers, companies should be looking at where they can most effectively deploy their existing workforce. Or perhaps consider a new Enterprise Resource Planning (ERP) system that can improve efficiencies and reduce costs,” he said.

Australian listed automotive cooling company PWR Cooling is one such company that Mr Pohl said exhibits the hallmark traits of companies that seek to reinvest in new systems and processes.

“PWR is focused on its niche core competency, continually reinforcing its competitive advantage, and growing its economic footprint sustainably over the long term.

“By investing in the business' competitive advantage, PWR has been able to secure aerospace and military contracts, and has also started to explore opportunities in providing cool solutions to electric vehicles (EV).

“PWR has also faced difficulty in acquiring appropriately skilled workers. To manage this, it has implemented programs to train workers to the right skill level, bettering labour retention within the company.

“Over the next two to three years, we believe there will be a lot of opportunity for PWR because of its ability to reinvest and stand out in these times of volatility.”