So Cooper-what are the best few defensive stocks in your opinion?
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So Cooper-what are the best few defensive stocks in your opinion?
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.
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?
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.
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.
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.
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 .
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).
Agreed
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