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goingtobe
07-04-2005, 07:45 PM
Given the current state of play of the NZ share market/economy there is now a continual reference to buying "Defensive Stocks", and even better, "Defensive high yeilding stocks".

I would be interested in you opinions about which NZ stocks meet these criteria. CEN is one that is often mentioned, what about others.

07-04-2005, 08:19 PM
ANZ WPT

scamper
08-04-2005, 02:43 PM
Hi goingtobe
KIP and HLG are two of my holds that I consider defensive. Both have the advantage of being relatively immune to overseas kerfuffles -- wars, oil prices, labour strikes, terrorism etc.

Hlg has a 13 cps share divi coming up with the record date 15 April.
Kip's net asset backing is ~123 cps (current price 114) and it has a ~5 cps divi coming up in June. Cheers, scamper.

goingtobe
08-04-2005, 05:43 PM
Thanks for the response.

Enigma - why banking stocks - what makes these defensive stocks. Is it because they too "are immune to wars, oil prices, labour strikes, terrorism" as per Scampas suggestion.

I have checked these stocks (ANZ,WPT,KIP,HLG) compared against the performance of the NZSX50 over the last 5 years. Of the ones suggested, HLG has consistently performed over the last 5 years when compared against the NZSX50. The others have outperformed the NZSX50 on average over the last 5 years, but this was as a result of a couple of good years being enough to cover for a couple of bad years and still come out on top. I notice their good years were in 1999/00 and 2000/01. Was this another time when it was also wise to hold defensive stocks?

08-04-2005, 08:25 PM
Goingtobe Dont forget to add in the very fat dividends into the equasion. The only bug bear is they are very sensitive to the $A TO $NZ exchange rate. They are very defensive because of the yield on dividends.

Lizard
09-04-2005, 03:50 PM
Anyone else heard rumours that some major banks are experiencing a big increase in bad debts and mortgagee sales as interest rates rise? Don't see banks as defensive at this point in time myself.

duncan macgregor
10-04-2005, 09:06 AM
LIZARD, To early for that as yet but it will come. When it does it creates new opportunities in different areas. I look on the market as leveling off, and dropping in the short term. It takes a period of time before higher interest rates takes a toll. If it all hits the fan, property is the best bet, buying from stressed sellers at the bottom. macdunk

Dazza
10-04-2005, 07:18 PM
i agree, will be having some funds slowly being allocated for this predicted crash, man i cant wait :D

i tink... the next market crash will involve mmm resources IMO... in the 90s we had the dot com..

i tnk in the 00's we will have the resources crash..

kittydashwood
21-04-2005, 08:36 AM
PFI is my favourite.

clearasmud
21-04-2005, 12:40 PM
in the small caps TTP and PRG also poss GEN


All these have nta greater than sp

Snow Leopard
21-04-2005, 01:01 PM
TTP - well, just read the thread
PRG - I think the NTA is actually less than the SP, but ignoring that you have the Watson factor.
GEN - eating it's way through the NTA

These are not even good guard DOGS.

Dazza
21-04-2005, 02:41 PM
TTP??? trans tasman properties?
AHAHHAHAHAHHAHAHAHHAHAHHAHAHAHAH.............

wont even be worth a pawn on the chess board!!!

scamper
21-04-2005, 05:00 PM
aspex
i sold my pfi at a small profit after it had done very little for years, but unfortunately just before the rerating started mid last year! the only reason i stuck with it for so long was that it paid out a respectable divi quarterly. don't know of too many who pay out quarterly, but it is viewed very favourably by some types of investor.

am still holding some kip, which seems a solid sort of hold, and has a slightly higer div. what says Kitty?
Cheers.

Snoopy
21-04-2005, 05:46 PM
quote:Originally posted by goingtobe

Given the current state of play of the NZ share market/economy there is now a continual reference to buying "Defensive Stocks", and even better, "Defensive high yeilding stocks".

I would be interested in you opinions about which NZ stocks meet these criteria. CEN is one that is often mentioned, what about others.


WRI, TEL, SKC, RBD, LPC

Definitely not Contact Energy. Great company, good business to be in but far too expensive at $6.70 or so. The share price would need to drop by well over $1 maybe even $2 for it be considered defensive IMO.

SNOOPY

discl: hold all the above

Lizard
21-04-2005, 06:08 PM
NMNPB - yield with potential upside from share-backing and foreign currency gains assuming the NZD:GBP soon begins to return closer to the 0.33 long term average.

TerryA
21-04-2005, 06:35 PM
Dazza,

>>AHAHHAHAHAHHAHAHAHHAHAHHAHAHAHAH.............< <

Please translate into sensible English, or did you have something stuck in your throat ?

KJ
21-04-2005, 09:54 PM
I would go for stocks that should continue to grow their earnings,have low PE's and high div yields which will continue.

IMO the following have PE's in the 9 to 12 range,and div yields in the 7% to 11% range with good prospects of growing earnings:
FBU,HBY,EBO,STU-I would also go with TEL although PE a little higher.

Anything with falling earnings will be hit hard.

Placebo
22-04-2005, 08:10 AM
It's a bit hard to consider FBU and STU "defensive" in the current price situation. Rising earnings, yes, but would you buy them at the moment?

KJ
22-04-2005, 09:24 AM
Not sure I understand what defensive really means-in the current climate there is no certainty in any stock not heading south.

From my perspective-earnings growth,low PE,and high div yield-means defensive over LT.

What stocks do you consider defensive?

Cooper
22-04-2005, 03:04 PM
I personally consider defensive stocks to be those for which earnings are non-cyclical in nature... ie the profit expectations are the same regardless of where the country is on the business cycle. For companies like FBU and STU, there is a heavy reliance on cyclical factors, so profits are more volatile than defensive stocks.

The reasoning is that the market will value the company on it's most recent earnings, so those companies without high profit volatility should hold their value better than cyclical stocks.

KJ
22-04-2005, 03:21 PM
So Cooper-what are the best few defensive stocks in your opinion?

Cooper
22-04-2005, 03:43 PM
Well, the safest is cash, but that's probably not the answer you were after...

I'm only looking at a couple...WAM on the NZX and BPC on the ASX. I hold BPC and have done for a while, and am watching WAM for an opportunity to purchase. My opinion is that locking in the current NZD/AUSD exchange rate by buying BPC will result in a currency gain as well, but that's based on some fairly low level macroeconomic analysis and a lot of guess work.

But of course that's not exhaustive... there are plenty of good defensive companies that I haven't looked at and I don't want to eliminate these by not mentioning them.

KJ
22-04-2005, 09:31 PM
Thanks Cooper-while I am aware of the text book explanation for defensive stocks I doubt that many remain unaffected in any serious downturn.A high div yield should hold a share price from slipping too much.

In the last building downturn WAM blamed the downturn as one of the reasons for its profit decline.

Are SKC & WHS still considered defensive?

Cooper
22-04-2005, 09:47 PM
As long as the divi is sustainable, which goes back to the idea of a sustained level of profits.

I guess WHS and SKC would be considered defensive stocks, but I haven't looked at them seriously.

Halebop
22-04-2005, 10:02 PM
Supermarkets, Insurance Companies and the vices; Defence Industries, Tobacco, Gambling, Alcohol etc are traditional defensive categories. Commercial Property is sometimes seen as a haven at the end of an equity bull run but this often proves to be wrong.

High yielding equities are also defensive but you need to pick carefully here. A portfolio approach is likely to suffer in line with a falling market. Utilities can hold up well but if a downturn is fed by inflation keep in mind the impact this has on capitalisation rates. Sustained inflation can also hurt cashflow and capex of infrastructure companies despite perception that they can raise rates in line with inflation irrespective of economic conditions.

SKC would definately have defensive characteristics. With WHS I think the red sheds are too but the Blue Ones wouldn't rate defensive nor would the loss making Aussie business for obvious reasons.

Cooper
23-04-2005, 09:08 AM
Cheers Halebop. A more detailed and intelligent explanation than I could come up with.

An inflationary environment can still hurt infrastructure companies because prices are "stickier" than inflation... they don't move as consistently as inflation itself does (companies will not pass the price rises on straight away), and the company incurs costs in passing on the higher prices (price list changes, informing their customers of the price rises).

I don't like SKC, but that's a personal, moral thing. The WHS though.... I don't think it's a coincidence that they were doing well in a downturn and poorly while we had good economic conditions (could be an "inferior good") but I wouldn't want to buy based solely on that idea.

Generally I like BPC because of the high cashflow and the chance of prospective growth through acquisition. As long as they maintain market share and margins they look like a good stock to me.

k1w1
26-04-2005, 08:40 PM
I have KRK as my defensive because it is impervious to the pervailing stockmarket trends, is diversified as it holds retail and office property as well as retailing, and caters to the affluent and the civil servants of Wellington, who both seem to do well regardless of the state of the economy- thereby allowing them to maintain their margins .

Lizard
27-04-2005, 06:30 AM
KRK is interesting choice k1w1. As sub-contractors to construction we've always seen Wgtn as somewhat counter-cyclical to the rest of NZ economy (also has cycles related to election years, particularly when there is an expected change of government).

k1w1
27-04-2005, 11:03 PM
Agreed

Neo-Con
03-06-2005, 09:35 PM
I think generally stocks with low PE's are least likely to have their price fall sharply. Because stocks with high PE's are relying on a lot of positive hype and general good feel about them in the market (AIA,POT etc) and it doesn't take much to turn market sentiment around on a given stock. Whearas shares with low PE's are already cheaply priced usually because of negative sentiment and concern about earnings growth so don't have so far to fall.

On another note isn't this the whole purpose of beta?? Stocks with a low beta are less volatile and stocks with a high beta are more volatile

Drone
03-06-2005, 09:51 PM
Yo Neo-con. In your example both AIA and POT operate either monopolies or close to it. Monopolies are generally good defensive stocks becasue they have an ability to price-fix (as long as the ComCom is kept at bay) and therefore maintain profit levels in a time of downturn. NZX is another coy with high PE but monopoly position. High PE are not necessarily hyped, sometimes they just have very strong, defensible market positions.

Neo-Con
03-06-2005, 10:05 PM
POT have got into a very strong market position at the moment but there is no reason why in a relatively short space of time this could change. There are many other commercial ports in NZ and in fact Tauranga (although they have a very effective rail arangement getting goods to and from akl) is not a logical place for NZ's largest port. In the case of AIA if say the govt were to impose tight regulations(quite concievable given it is a monopoly) it again could take a major hit overnight. So in both cases these stocks high PE's could come crashing down to earth given unfavourable conditions of which I have mentioned just a couple of possibilities. Of course in an economic downturn overall business goes down so monopolies lose out too (less passengers fly etc)

Drone
05-06-2005, 04:51 PM
What you say is correct neo-con but unlikely to happen, take for example AIAs recent move on departure taxes, a couple years back post 9/11 a temp $5 government scurity charge per passenger was imposed, now has been removed by government but AIA has kept the charge at existing level, $5 per passenger straight to bottom line, not a whimper from central govt or ComCom. The fact is that is is very had to prove monopolistic pricing in court, it requires very expensive economic analysis by the prosecution and it is relatively easily defended which is why we see few cases brought. Authorities are relatively underresorced vs large listed coys and law is not particularly tough.

RE POT, remember one of NZs biggest exports in terms of volume (cu m) is timber, POT is a the heart of the wood growing area, this is one of the main reasons why it is biggest, not to mention that it is just as close to the agricultural heartland of waikato at port of auckers. Ports of auckland has major infrastructure issues which are not going to be solved soon. It is very hard to get goods in and out of it. I think POT will continue to outpace POA. L8r