The coronavirus pandemic has seen widespread carnage across financial markets. Coupled with widespread job losses, consumer behaviour and business priorities have changed. As a result, ASX shares in cyclical and discretionary sectors have seen extremely volatile price movements.
Traditionally, defensive shares have been the preferred option for prudent investors, due to their essential nature and ability to deliver stable earnings and dividends regardless of market volatility.
So with that in mind, here are 3 defensive ASX shares that could bolster your portfolio today and provide some peace of mind.
Amcor PLC (ASX: AMC)
Amcor is a global leader in producing flexible and rigid packing and speciality cartons, making it one of the most defensive shares on the ASX, in my opinion. The company makes the majority of its revenue from the sale of packaging for defensive consumer products such as food, beverages, pharmaceutical products and medical equipment.
As a result, Amcor could be a beneficiary of the changed consumer behaviour that has resulted from the COVID-19 pandemic. Amcor has maintained a strong balance sheet and is also in the process of realising cost synergies from its $9 billion buyout of US group Bemis.
In addition to an increased demand for basic consumer goods, the record-low oil price could also see a reduction in the price of raw materials used in the company’s plastic packaging. The Amcor share price has surged nearly 40% in recent weeks from its mid-March low.
Brambles Limited (ASX: BXB)
Brambles is another defensive ASX share that is well-positioned to benefit from a change in consumer behaviour. The company is a logistics giant with a resilient supply chain and great exposure to essential consumer goods.
The company is best known for its iconic and reusable CHEP brand of pallets and crates, of which it has 330 million in circulation. Brambles recently reported sales revenue growth of 6% in the March quarter and the first 9 months of FY20.
With around 80% of its revenue coming from the consumer staples sector, Brambles noted that the company had seen record levels of pallet demand from its grocery supply chains during the period. The company cited that the defensive and resilient nature of its business was reflected in the strong volume growth.
Despite being sold-off earlier in the year, the Brambles share price has bounced more than 20% from its low in mid-March.
Xero Limited (ASX: XRO)
Although hardly anybody finds joy in completing tax returns, accounting software is an essential need for businesses. As a result, I believe online accounting business Xero offers excellent defensive qualities. Xero has a resilient and sustainable revenue stream, reporting over 2 million subscribers in 2019.
Xero also boasts a strong balance sheet with NZ$111 million cash in the bank that could see the company navigate through the coronavirus crisis. In addition, Xero is poised for growth in overseas markets with the company expecting to exceed 5% in average revenue per user growth. The Xero share price has bounced more than 30% from its low in mid-March.
Should you buy?
In my opinion, the share market will be a very bumpy ride in the short to medium term. I think a prudent strategy for long-term investors is to hedge their portfolio with defensive shares to give themselves some peace of mind, at least in a relative sense compared to other shares on the ASX. Defensive shares, like the ones I have listed, are typically exposed to stable and essential sectors and are less likely to be part of a violent market sell-off.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Amcor Limited. The Motley Fool Australia owns shares of Xero. 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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