This fund manager likes the look of these 7 shares – Should you buy?

Given the significant falls in the share price of numerous blue chip companies over the past 12 months, arguably it’s time investors rethought just what stocks truly offer their portfolio downside protection.

Listed investment company Bki Investment Co Ltd (ASX: BKI) recently provided shareholders with an update on the company’s portfolio positioning which included details of seven high-quality defensive infrastructure companies.

Here are the seven stocks BKI singled out:

  1. ASX Ltd (ASX: ASX)
  2. Telstra Corporation Ltd (ASX: TLS)
  3. Sydney Airport Holdings Ltd (ASX: SYD)
  4. Transurban Group (ASX: TCL)
  5. APA Group (ASX: APA)
  6. TPG Telecom Ltd (ASX: TPM)
  7. Qube Holdings Ltd (ASX: QUB)

There are a number of appealing factors common to each of these seven companies…

  • Firstly, they all provide services which are hard to replicate given the significant fixed start-up costs required
  • Secondly, they are all market leaders and enjoy barriers to entry
  • Thirdly, they have diversified revenue bases which provide protection against reliance on any single customer
  • Fourthly, the longer term outlook for earnings growth in each case is positive

A great starting point

These seven stocks all possess characteristics which not only mean the underlying business should perform well in good times but importantly the underlying business should also continue to hold its own during tough economic times like we are currently experiencing.

Having identified companies with appealing business economics, the final piece of the puzzle is determining what a reasonable price to pay for a stock is.

One stock which arguably meets this important criterion at present could be Telstra. With earnings per share in financial year 2016 expected to come in at 35 cents per share, the stock is trading on a prospective price-to-earnings multiple of 16 times, but also boasts a legendary dividend yield – currently around 5.5% and fully franked.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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