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3 defensive plays to combat an ASX pullback: AGL Energy Ltd, Toll Holdings Limited and Orica Ltd

It’s been a difficult couple of weeks for the ASX. Indeed, alongside other stock markets across the globe, it has fallen significantly in recent days as continued uncertainty has caused investors to adopt a more risk-off approach. After reaching six-year highs of 5,637 points at the end of July, the ASX is now 3.2% lower at around 5,457, which is a significant fall in a short space of time. With this in mind, and with uncertainty looking likely to stay for a little while yet, here are three defensive stocks that could help your portfolio ride out further volatility.

AGL Energy Ltd

Since the end of July, the share price of AGL Energy Ltd (ASX: AGK) is little changed. A key reason for this is the fact that it has a low beta of just 0.65, which means that (in theory at least), AGL’s share price should fall by just 0.65% for every 1% fall in the ASX. This shows that the stock has strong defensive qualities, while a high yield of 4.3% (fully franked) could equate to an impressive income return during periods of high uncertainty. Meanwhile, a P/E of 14.6 appears attractive when the ASX’s P/E is much higher at 16.1.

Toll Holdings Limited

Logistics provider, Toll Holdings Limited (ASX: TOL), also offers strong defensive qualities. While its beta is higher than that of AGL at 0.95, it does mean that shares in the company should fall by less than the wider market during a downturn. In addition, Toll Holdings offers good value at current price levels, with shares in the company currently trading on a P/E of 13.5. This could provide downside protection, since shares in Toll Holdings already trade at a 16% discount to the ASX, meaning their valuation gap versus the index could narrow in future. In addition, a fully franked 5.2% yield could be a major asset for investors during a prolonged downturn.

Orica Ltd

Shares in Orica Ltd (ASX: ORI) have posted disappointing returns during 2014. Indeed, the chemicals company is down 13% year-to-date, while the ASX is up 2% despite its recent pullback. However, Orica could outperform during a downturn, since its P/E ratio is already well below the wider index at 12.6 (versus 16.1 for the ASX). In addition, its fully franked yield of 4.6% could become a major asset for investors during further volatility, while a beta of 0.95 also means that it could be an attractive defensive play.

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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.

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