Whilst I’m optimistic that we are now over the worst of the market volatility, these are uncertain times and you never know what is around the next corner.
In light of this, it is understandable why many investors are still looking for a few defensive options for their portfolio.
To help you with this, I have been looking at the defensive shares that analysts at Morgans like in the current environment.
Which defensive shares does Morgans like?
Last week the broker revealed that it has a preference for shares in the utilities, telco, and healthcare sectors and appear concerned that there are further downside risks with cyclicals such as banks and consumer shares.
In the utilities sector it likes APA Group (ASX: APA) and AGL Energy Limited (ASX: AGL). Whereas in the healthcare sector it has a preference for medical diagnostics company Sonic Healthcare Limited (ASX: SHL) and biotherapeutics giant CSL Limited (ASX: CSL).
Other defensive picks to consider are Telstra Corporation Ltd (ASX: TLS) and Opticomm Ltd (ASX: OPC) in the telecommunications sector and Freedom Foods Group Ltd (ASX: FNP) and Woolworths Group Ltd (ASX: WOW) in the food sector.
It notes that these are all providers of key essential services that are likely to remain most resilient to heavy population movement restrictions in the coming months.
The broker also notes that many of these shares are trading at valuation discounts that have not been seen since the global financial crisis.
And while it acknowledges that defensive shares are likely to underperform an eventual market recovery, it feels the severity and duration of this event remains unclear.
What about when the recovery comes?
Morgans astutely reminded investors that no crisis lasts forever.
It has suggested that investors discard the noise, assess the facts, and be clear on their strategies.
The broker expects equity markets to stabilise when it becomes clear that the number of new daily cases of the virus has peaked, despite the longer lasting economic impacts.
And when it comes, it thinks investors should focus on companies with the “strongest competitive/market positions, balance sheets, and adaptive strategies will be able to re-set in order to thrive through an eventual recovery.”
I think Morgans is spot on with this assessment and it could be time to start planning which shares you want to own when the market recovers.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Freedom Foods Group Limited and Sonic Healthcare 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.
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