Considering all of the headwinds that appear to be facing both the Australian and the global economies, investors could be well advised to consider having a defensive skew to their portfolio.
So what makes a good defensive investment?
Amongst the attributes to look for are pricing power, strong market share, a product or service which is non-discretionary, a solid balance sheet and maintainable dividends.
One sector which could be worth fishing in for potential defensive investment opportunities is the packaging sector which is home to three global packaging giants.
Amcor Limited (ASX: AMC) – currently undertaking a share buyback and having reported a rise in profits of 7.2% on a constant currency basis to $726.9 million, the stock is trading on a price-to-earnings (PE) ratio of 24.8x based on financial year (FY) 2015 earnings per share of 53 cents and offers a dividend yield of 4%.
The outlook is for higher earnings on a constant currency basis.
Orora Ltd (ASX: ORA) – demerged from Amcor in early 2014, Orora has just reported for the 2015 FY a significant 25.9% uplift in profit after tax to $131.4 million on the back on a 7.3% rise in revenues. With the shares currently trading at $2.22 this equates to a PE ratio of 20.4x based on earnings per share of 10.9 cents. The dividend yield is 3.4%.
The outlook is for organic growth with earnings expected to be higher than in FY 2015.
Pact Group Holdings Ltd (ASX: PGH) – reported a 42.7% jump in underlying profits to $85.2 million and paid dividends totalling 19.5 cents per share for FY 2015. It was an impressive first full year result for the company which only listed in December 2013. With the shares trading at $4.60 and an underlying earnings per share of approximately 29 cents, Pact is trading on a PE of 15.9x with a dividend yield of 4.2%.
The outlook is that Pact expects to achieve higher revenue and higher underlying earnings in FY 2016.
