Defensive Stocks are non-cyclical in nature and less prone to changes during various stages of the business cycle. These stocks give a constant dividend as well as stable earning.
Stocks associated with sectors related to food, utilities, healthcare and non-durable goods (soap, toothpaste) generally fall under the category of defensive stocks. The stock price of the companies which belong to this industry group is comparatively more stable than the others. Besides, keeping defensive stocks in the portfolio reduces the overall unpredictability.
Investors generally opt for defensive stocks in their portfolio to mitigate the risks related to them during the economic downturn, since they generate a good return during the market’s downturn phase. Usually, well-established companies come under the category of defensive stocks.
Let’s look at the 4 ASX listed defensive stocks as follows:
Woolworths Group Limited
About the company: Woolworths Group Limited (ASX: WOW) is a company from the Consumer Staples sector, and it provides retail operations. It is engaged in food, general merchandise and speciality retailing via chain store operations. Woolworths Group is also into the business of hotel operations, which includes pub, food, accommodation and gaming business.
Recent update/s: On 07 June 2019, WOW and Marley Spoon AG (ASX: MMM) have joined hands for a strategic partnership. Marley Spoon AG is one of the leading providers of a subscription-based meal kit.
Under this partnership, the company would be investing A$30 million in Marley Spoon through a senior secured convertible note of A$23 million, followed by the issue of shares of Marley Spoon worth A$7 million. With the issue of shares worth A$7 million, the company would be owning ~ 9% of Marley Spoon. Further, the structure of the convertible note would help the company to participate in the expansion of the Australian business.
Both the brands, Marley Spoon as well as Dinnerly would be able to grow in Australia and at the same time would be building operational synergies through this partnership for an initial period of 5 years.
Stock Performance: The shares of WOW have generated a YTD return of 11.90%. The WOW’s stock was trading at A$33.110, (as on 20 June 2019,2: 12 PM AEST), up by 1.099%. WOW holds a market cap of A$41.22 billion with approximately 1.26 billion outstanding shares and a PE ratio of 24.73x.
About the company: Wesfarmers Limited (ASX: WES) is a diversified corporation with an aim to give a satisfactory return to shareholders. WES is into a diverse business operation which includes supermarkets, liquor, hotels and convenience stores etc. Its industrial division includes businesses in chemicals, energy and fertilizers, industrial and safety products and coal.
Recent update/s: On 13 June 2019, the WES provided a trading update for the Kmart Group (owned by Wesfarmers) for 2H FY2019 period.
The company reported that the sales growth in the Kmart Group was moderate due to substantial sales growth realized in the prior corresponding period. This lower sales growth continued in the second half of FY2019 with the sales being influenced by the on-going optimization of the store network. During the period between January 2019 to May 2019, the total sales growth of Kmart increased by 1.8% and comparable sales by 0.2%.
The company implemented multiple initiatives in FY2019 for optimizing product flow and store processes to aid in future progress, post several years of strong volume growth.
The total sales in Target during the 2H FY2019 period, reduced by 3.6% as a result of the continuing optimization of the store network. The comparable sales also declined by 2.3%, which highlighted the need for repositioning in the existing offers.
Apart from that, the modernization in the sales momentum, risen price momentum has influenced the margin in both Kmart and Target.
For Kmart Group, the EBIT from the continuing operations for FY2019 is anticipated to be in the range of $515mn to $565mn.
The company also provided its investors with the Strategy Briefing Day’s presentation on 13 June 2019. To know more, click here.
Stock Performance: The shares of WES have generated a YTD return of 18.35%. WES’ shares were trading at a price of A$36.460, down by 0.496$ (as on 20 June 2019, 3:00 PM AEST). WES holds a market cap of A$41.14 billion with approximately 1.13 billion outstanding shares and a PE ratio of 7.43x.
About the company: Cochlear Limited (ASX: COH) is a company from the health care sector and is engaged in the manufacture and sale of the Cochlear implant system (product). The company helps its clients to hear and be heard.
For more than 3 decades, the company has delivered various 'world firsts' in hearing technology.
Recent update/s: On 17 June 2019, Cochlear announced that it had secured a green signal from FDA for its Nucleus® Profile™ Plus Series cochlear implant. The company would begin the process of an immediate launch of the product in the US.
On 16 April this year, COH notified about the launch of the Nucleus® Profile™ Plus Series cochlear implant, which is created for the purpose of regular 1.5 Tesla as well as 3 Tesla magnetic resonance imaging scans, which do not require the removal of the internal magnet. At that point of time, the company in its announcement confirmed that the product was commercially available in Germany and would be available in other parts of European countries soon. The Nucleus Profile Plus series implant would be introduced in other developed markets as well, depending on regulatory consents.
Stock Performance: COH’s shares were trading at A$207.660 (as on 20 June 2019, 3:16 PM AEST), up by 0.401%. COH holds a market cap of A$11.94 billion with approximately 57.72 million outstanding shares and a PE ratio of 45.22x.
Tabcorp Holdings Limited
About the company: Tabcorp Holdings Limited (ASX: TAH) belongs to the consumer discretionary sector, and it provides gambling and other entertainment services. The company provides services to customers in Australia and the UK.
Recent update/s: Recently on 23 May 2019, the company notified, that as per Listing Rule 3.19, it was aware that BlackRock Group which includes BlackRock Inc. and subsidiaries had announced that they have become a substantial shareholder in Tabcorp Holdings effective 21 May 2019, and has relevant interest in 101,144,422 ordinary shares, as well as 167 American Depository Receipts which is equivalent to 334 ordinary shares, which represents a total of 5% of the issued fully paid ordinary capital.
Stock Performance: The shares of TAH have generated a YTD return of 9.91%. TAH’s stock was trading at A$4.625 (as on 20 June 2019, 3: 24 PM AEST), down by 0.751%. TAH holds a market cap of A$9.41 billion with approximately 2.02 billion outstanding shares and a PE ratio of 55.48x.
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