In a recession, there are services which you can’t do without, such as utilities and medical care.
Some cyclical companies could suffer greatly from the effects of a recession, while a defensive one could maintain its profit or even thrive.
I believe that you should never wait for a recession to occur before buying into defensive shares to protect your funds.
Warren Buffett once said:
“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
So if you want to better protect your portfolio, here are 3 defensive ASX shares to own before a recession:
Spark Infrastructure Group (ASX: SKI)
Will this electricity provider stop serving and charging its customers because of a recession? I don’t think so.
Spark Infrastructure is a leading energy network owner and distributor of electricity across New South Wales and Queensland, Victoria and the Australian Capital Territory. It currently owns about $17 billion of energy assets and serves 5.5 million customers.
Spark Infrastructure pays an annual dividend of $0.15, which at its current share price, generates a yield of 6.4%. The only set back is the potential regulatory risk which may restrict its future earnings.
Should a recession occur, I have no doubt that electricity will continue to be delivered to consumers. Likewise, investors will continue to receive a dividend from Spark Infrastructure.
InvoCare Limited (ASX: IVC)
InvoCare is a market leader for funeral services in Australia, New Zealand and Singapore. Despite a lower than expected number of deaths last year, it has continued to grow with acquisitions.
While the funeral home business may not be completely recession-proof, I am certain that a recession will not stop families from giving a proper send-off for their deceased loved ones.
With a price to earnings ratio of 17.63 times, I believe that this undying business could be a good defensive stock addition to your portfolio.
Ramsay Health Care Limited (ASX: RHC)
During a recession, will you avoid going to the hospital for medical treatment? Unlikely.
Ramsay Health Care is one of the largest and well-established private healthcare providers with 480 facilities across 11 countries. A share price target of $60 based on consensus analysts suggests that Ramsay Health Care is fairly valued.
Besides being a defensive business, I think Ramsay Health Care has the potential to grow and expand its services.
In my view, it is always wise for investors to keep some defensive stocks in their portfolio regardless of the market conditions. In a weak market situation, such as a recession, it’s also a good idea to always have ready cash on hand and be prepared to pounce when buying opportunities arise.
These 3 stocks could be the next big movers in 2020
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.
*Returns as of 6/8/2020
Motley Fool contributor Ivan Loh has no position in any of the stocks mentioned. The Motley Fool Australia has recommended InvoCare Limited and Ramsay Health Care 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.
- 3 ASX blue-chip shares that Warren Buffett might like – February 9, 2019 9:29am
- 3 reasons why Carsales.com should be on your watchlist – February 5, 2019 12:01pm
- 3 ASX shares to watch during the property downturn – February 5, 2019 11:37am