The Motley Fool

Credit Suisse picks stocks to buy for an “all-weather” defensive portfolio

It’s not easy to ignore the sea of red as our market is getting hammered again today with just about every sector in the losing ground.

That pretty much sums up the month of October and if you thought traditional safe haven stocks (often called “expensive defensives” for their high valuation and relatively stable income) such as Sydney Airport Holdings Pty Ltd (ASX: SYD) and Transurban Group (ASX: TCL) offered some protection from the storm, you’d be disappointed.

It feels like we need new safe haven stocks to ride out the volatility and the analysts at Credit Suisse have put on their thinking hats to come up with stocks to buy and sell (or short-sell) to construct an “all-weather portfolio”.

“Currently, the market is not sure whether expensive defensives are truly defensive,” said Credit Suisse.

“Investors are toying with the idea of value stocks being more defensive than defensives themselves. And as this uncertainty phase plays out, there is much speculation and angst.”

How to pick alternative safe haven stocks

The trick is to be sector or category agnostic and to focus on the characteristics of the stock instead, according to the broker. A quality large cap stock will need to check the following boxes:

  1. High returns on equity
  2. High returns on assets
  3. High dividend payout ratios
  4. High earnings certainty, as proxied by low earnings forecast dispersion
  5. Low beta, as measured on an historical five-year basis
  6. Strong growth in earnings, measured using a blend of historical and forecast rates

Stocks that make the cut

Stocks in the S&P/ASX 100 (Index:^ATOI) (ASX: XTO) that fit the bill and are rated “outperform” by Credit Suisse includes gaming machine maker Aristocrat Leisure Limited (ASX: ALL), blood products group CSL Limited (ASX: CSL), mineral sands miner Iluka Resources Limited (ASX: ILU), fund manager Magellan Financial Group Ltd (ASX: MFG), packaging group Amcor Limited (ASX: AMC) and online auto classifieds company Carsales.Com Ltd (ASX: CAR).

On the flipside, large cap stocks at the opposite end and are rated “underperform” by the broker include Sydney Airport and stock exchange operator ASX Ltd (ASX: ASX). These stocks make ideal short-selling targets as well.

Short-selling is when an investor borrows a stock and sells it on-market in the hope of buying it back at a lower price later to profit from the difference.

But these stocks aren’t the only blue-chips that are worth keeping an eye on. The experts at the Motley Fool have picked three of their best blue-chip stock ideas for FY19 and you can find out what these are by following the link below.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Aristocrat Leisure Ltd. and Magellan Financial Group. The Motley Fool Australia owns shares of and has recommended Transurban Group. The Motley Fool Australia owns shares of ASX Limited. The Motley Fool Australia has recommended Limited. 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 Scott Phillips.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.