Defending your wealth with stocks that can weather the storm!
By wise-owl.com Equities Analyst Imran Valibhoy
It is no secret that recent market conditions have been challenging investors. Whether you are a professional fund manager or a retail investor working on your first million, trying to increase ones wealth is no easy task when market momentum is against you. In times like these, many investors are simply happy to preserve their capital until the market embarks on its next bullish run. There are several ways you can achieve this.
Investors can stay in cash, earning a small amount of interest while waiting for the right time to buy stocks on the cheap. One pitfall of this approach is that it can be easy to miss the marketís turnaround, and wish you had been a buyer during the doom and gloom.
Another option is to diversify your existing portfolio and invest in defensive or counter-cyclical stocks that are less susceptible to economic uncertainty.
Defensive and counter-cyclical stocks are those not significantly impacted by the state of the economy. These companies produce goods and services that are in demand throughout the business cycle, with some producing better results in an economic downturn.
Most defensive stocks, although in different sectors, share common traits such as a focus on selling non-discretionary goods and services, low debt levels and strong consistent cash flows.
The sectors where defensive plays are most common include gold, alcoholic beverages, healthcare, supermarkets and funeral homes. No matter what the state of the broader economy is we will all continue to eat, drink and seek medical advice. This makes the demand for these services very stable, and the businesses that supply these services safer investments.
Below are a few stocks that we see as good defensive plays for those looking to add a defensive slant to their portfolio:
Newcrest Mining Limited (NCM):
NCM is Australia's largest gold producer, consisting of six operating mines in Australia and Indonesia. The company also has significant upside potential with four development projects on its books.
NCM has been achieving solid gold production that has been increasing 18% year on year. Being a large gold producer, the company is in a position to take advantage of the current high prices of gold in the market.
Lion Nathan (LNN):
LNN is one of Australia's leading beverage companies in the beer, wine, spirit and ready-to-drink (RTD) market. Some of its well-known brands include Tooheys, XXXX and Hahn. LNN has been achieving steady growth in profitability due to strict cost controls and further investment into the marketing of its core brands. This should drive sales and translate into stronger earnings growth for the company.
CSL Limited (CSL):
CSL Limited (CSL) specialises in health care products and the supply of blood products and vaccines. The company's primary operations are in blood plasma services, bioscience, pharmaceuticals and human vaccines. As a healthcare provider, demand for its products is very stable. All divisions of CSL performed well in the half year to December '07 despite adverse currency movements eating into earnings.
InvoCare Limited (IVC):
InvoCare Limited (IVC) is a private provider of services related to funerals, burials and cremations. The company operates a network of funeral homes across Australia along with cemeteries and crematoria in NSW and Queensland. IVC's market share is a respectable 20% with the nearest competitor at just 6%.
Woolworths Limited (WOW):
Woolworths Limited (WOW) is an Australian and New Zealand retailer whose primary activity is supermarket operations. Other areas of business include liquor, Big W, petrol sales through Caltex, Woolworths co-branded service stations and Woolworths Plus Petrol, and consumer electronics through Dick Smith, PowerHouse and Tandy.
The success WOW has enjoyed to date can be attributed to the company's long-term strategy.
Wesfarmers Limited (WES):
Wesfarmers Limited (WES) is a diversified company with operating business interests in home improvement products, building supplies, coal mining, gas processing, gas distribution, industrial and safety product distribution, chemicals, fertiliser manufacture, insurance and rail transport. The company has been performing well to date and the integration of Coles into its business will play a significant role in its future earnings.
Click here for your complimentary report to get the full analysis on why we believe these stocks can weather the storm.
Wise-owl.com is one of Australia's leading independent research houses providing thousands of retail investors and some of the world's largest financial institutions with investment strategies and education on the stock market. We publish four research reports covering the entire spectrum of the market: Small to mid-cap Equities, ASX200, Derivatives (including CFDs) and the Pearl Report (featuring our analyst's preferred stock picks with a longer term horizon). Our analysts are highly regarded in the finance industry and are regularly interviewed on Bloomberg TV and Sky Business News.
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