Analysts at Goldman Sachs have revealed that they remain reasonably bearish on Australian equities in the short term.
This is largely over concerns with how quickly economic activity can recover due to the risk of a second wave of coronavirus infections when social distancing measures are relaxed and the impact of both cyclical and structural changes to the economy that the lockdown could have induced.
The latter includes high unemployment, bankruptcies, rising public debt, and significant shifts in consumer and business behaviours.
Though, Goldman Sachs does concede that "Australia continues to look relatively well positioned both in terms of virus suppression and the scale of its fiscal and monetary response."
Nevertheless, the broker believes that investors ought to be looking for defensive options during the crisis and has picked out a few underappreciated favourites.
Which underappreciated defensive shares should you buy?
Six companies with defensive characteristics that Goldman Sachs believes the market is under-appreciating are as follows:
Aurizon Holdings Ltd (ASX: AZJ)
Goldman believes this rail freight operator would be a good option for investors. It notes that Aurizon "offers highly defensive earnings which remain unaffected by Covid-19 and related containment measures." The broker has a buy rating and $5.43 price target on its shares.
Charter Hall Social Infrastructure REIT (ASX: CQE)
The broker is a fan of this REIT in the current market. It points out that "CQE benefits from its defensive, long-term triple net leases with minimal near-term expiries underpinned by childcare operators." It has a buy rating and $3.15 price target on its shares.
Cleanaway Waste Management Ltd (ASX: CWY)
This waste management company is a buy according to Goldman Sachs. It notes that it is "positive on the company's near-term earnings resiliency coupled with attractive long-term industry dynamics." It also points out that the bulk of its earnings come from Municipal waste management (collecting, sorting, and storing waste for local councils). It has a $2.21 price target on Cleanaway's shares.
Freedom Foods Group Ltd (ASX: FNP)
Goldman Sachs likes Freedom Foods for its direct exposure to attractive categories such as infant formula, adult nutritional, immunity, and health. It also notes that plant-based beverages are gaining share from traditional dairy products. Overall, it feels the "current share price is not rewarding the company for its forecast future growth (54% 3-yr EPS CAGR)." The broker has a conviction buy rating and $6.55 price target on its shares.
St Barbara Ltd (ASX: SBM)
Goldman's favourite option in the gold sector is St Barbara. It has a conviction buy rating and $3.50 price target on the gold miner's shares. It notes that its shares are "trading at a deep discount of 0.6X NAV and still at 0.9X on a bear-case excluding all growth and exploration."
Telstra Corporation Ltd (ASX: TLS)
Finally, telco giant Telstra is rated as a conviction buy with a $4.20 price target. Goldman notes that "in an uncertain macroeconomic environment, we like the defensive and recurring nature of telco earnings, with the sectors' revenues showing limited correlation with consumer household expenditures and GDP growth." It also believes Telstra is well-placed to navigate the crisis from a balance sheet perspective.
