No matter what is happening across the global economic landscape, investors are always searching for the next big opportunity. It is the nature of investing in the stock market and trying to reach your long-term goals.
However, during periods of economic uncertainty, some investors believe it is wise to adjust their investment strategies and add defensive stocks to their portfolios to hedge against various market risks. Because defensive stocks are typically less volatile than the overall market, they may perform better during turbulent times.
What are defensive stocks on the ASX?
Listed companies that are regarded as ‘defensive’ stocks usually operate in essential industries; they are essential to a functional economy and rely on consistent consumer spending habits. In other words, these industries will continue to run without significant disruption, even during an economic downturn.
Some of the most common examples of defensive industries include healthcare, energy, mining, and consumer staples. During economic uncertainty or recession, ASX defensive stocks tend to hold up better than other stocks due to the continued demand for their products and services.
1. CSL Limited (ASX: CSL)
CSL Limited is a global biotech company that develops and manufactures pharmaceuticals and diagnostics products through plasma-derived therapies. Its major product output spans vaccines, infection and pain-relief medicine, skin remedies, antivenoms and immunoglobulins.
CSL can be regarded as a defensive stock because it operates in an important sub-sector of the overall healthcare industry – one which tends to perform well even during economic unrest. Importantly, CSL has spent more than a century providing the Australian public with access to many sought-after treatments, including insulin, penicillin, and flu and polio vaccines. As a major name in Australian and global healthcare markets, CSL’s established presence may be an attractive feature for investors seeking hedging opportunities.
For the fiscal year ending June 2022, CSL Limited’s revenues increased by 2.44%, amounting to USD$10.56 billion.
2. Transurban Group (ASX: TCL)
Transurban Group is an Australian toll road operator that manages several major urban road networks across the country. Due to the essential nature of its operations, Transurban is undoubtedly seen as a defensive stock – with toll roads being a vital component of Australia’s transportation infrastructure. Even during the first COVID-19 lockdown, where most stock prices plummeted, Transurban didn’t take long to recover its position.
Investors may be interested in adding a defensive asset such as Transurban Group to their portfolio because of its market dominance. With a long and robust position in the Australian toll road market, it creates significant barriers to entry for any new and existing competitors.
For the fiscal year ending June 2022, Transurban Group’s revenues increased by 18.02% and amounted to $3.41 billion.
3. Ramsay Health Care Limited (ASX: RHC)
Ramsay Health Care Limited has carved out a significant healthcare market share in its nearly six decades of existence. The Australian company was founded in Sydney but now operates in Europe, the UK and Asia.
Ramsay Health Care is one of the largest private hospital operators globally, owning and overseeing private hospitals and other healthcare facilities. As it operates in historically, one of the most recession-proof industries – healthcare – it has remained relatively resistant to the major economic disruptions of recent years.
For the fiscal year ending June 2022, Ramsay Health Care Limited’s revenues increased by 3.5% and amounted to $13.3 billion.
4. Newcrest Mining (ASX: NCM)
Another relatively recession-proof industry, mining makes various operators in this sector a potentially good choice for defensive stocks. Newcrest Mining, for example, is one of the largest gold mining companies in the world and the largest gold producer listed on the ASX, with significant operations running in Australia, Canada and Papua New Guinea.
With many investors turning to commodities during bearish markets and especially with a looming economic downturn, gold inevitably plays a powerful defensive role. Newcrest Mining is one stock that may attract the numerous investors who flock to gold as a safe haven during market downturns.
For the fiscal year ending June 2022, Newcrest Mining’s net assets and total equity increased by 15.22%, amounting to $11.66 billion.
5. Brambles Limited (ASX: BXB)
While healthcare, mining and utilities have been regarded as defensive sectors for decades, the logistics industry has become more essential in recent years. That’s why Brambles Limited can be considered a defensive stock, with the supply-chain logistics company specialising in providing supply-chain support services and information management solutions.
Brambles has a network of operations in approximately 60 countries worldwide and is well-regarded for its service centre network and strong customer relationships. As an established supply-chain presence in the logistics sector, Brambles tends to perform well in the face of economic uncertainty.
For the fiscal year ending June 2022, Brambles Limited’s revenues increased by 6.7% and amounted to $5.55billion.
In considering defensive stocks as a potential investment opportunity, remember that these stocks generally hold up better during periods of market turbulence, offering you a potential revenue stream and perhaps even consistent dividends. However, as with any new investment, portfolio diversification or portfolio reallocation, it’s essential to conduct thorough research into each stock and consider your individual investment goals before making a decision.
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