With no immediate relief from the deepening bite of high inflation and interest rates, many investors are looking for ways to safeguard their investment portfolios from growing financial pressure.
To help in the battle to buffer against a volatile ASX market and economic instability, we asked our Foolish writers which defensive ASX shares they think could deliver some solid protection right now.
Defensive stocks tend to be large, dividend-paying companies or those with consistent demand for their products and services, even during economic downturns.
Here is what the team came up with:
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6 best defensive ASX shares for June 2023 (smallest to largest)
- Bega Cheese Ltd (ASX: BGA), $1.09 billion
- Ampol Ltd (ASX: ALD), $7.56 billion
- Lottery Corporation Ltd (ASX: TLC), $11.22 billion
- Sonic Healthcare Ltd (ASX: SHL), $17.02 billion
- Transurban Group (ASX: TCL), $45.13 billion
- CSL Limited (ASX: CSL), $149.89 billion
(Market capitalisations as at market close of 5 June 2023).
Why our Foolish writers love these defensive ASX stocks
Bega Cheese Ltd
What it does: Bega Cheese is the company behind some of the most iconic Australian food and drink brands. Not only does it own the eponymous Bega Cheese range, but its other brands include Dare, Juice Brothers, Dairy Farmers, Vitasoy, and (of course) Vegemite.
By Sebastian Bowen: When I think about the kinds of ASX shares that have the best defensive characteristics, consumer staples shares always come to mind. And Bega Cheese is a top consumer staples name on the ASX.
Its portfolio of iconic Australian brands, including national icon Vegemite, is unrivalled on the ASX.
In good times and in bad, Australians are going to seek comfort in their favourite dairy products, snacks and drinks. This makes Bega a great defensive choice, in my view.
Also helping this defensiveness is the company's solid and fully franked dividend.
Motley Fool contributor Sebastian Bowen does not own shares of Bega Cheese Ltd.
Ampol Ltd
What it does: Ampol supplies Australia's largest branded petrol and convenience network. The company also refines, imports and markets fuels and lubricants.
By Bernd Struben: Fuel demand may decrease marginally in the event of a recession. But people and companies still need to get themselves and their goods from A to B. And in Australia, you'll almost certainly need petrol or diesel to do so.
Ampol has been performing strongly, with shares up 15% in 2023. And there was much to like in the company's 1Q23 report. That included an 82% year-on-year increase in earnings before interest and taxes. EBIT came in at $345 million over the three months.
The past 12 months also saw Ampol pay out a record interim and final dividend. The stock trades on a trailing yield of 8.6%, fully franked.
Motley Fool contributor Bernd Struben does not own shares in Ampol Ltd.
Lottery Corporation Ltd
What it does: Lottery Corporation operates Australia's largest national lotteries, including The Lott and Keno. Most people would be familiar with its well-recognised lottery games, Oz Lotto, Powerball, and Tatts Lotto.
By Tristan Harrison: The defensive capabilities of this ASX gaming company include being able to increase prices during tough economic times, as there may be little detrimental effect on demand.
A number of studies and research show lottery participation is not hampered during a recession, meaning that lotteries are essentially "recession-resistant".
Lottery Corporation is demonstrating revenue growth and even quicker profit growth. More players are buying tickets online, which boosts margins because the defensive ASX share is capturing more of the market.
The company also says that it's "pursuing new licences and other opportunities", which could open up further earnings streams over time.
Motley Fool contributor Tristan Harrison does not own shares of Lottery Corporation Ltd.
Sonic Healthcare Ltd
What it does: Sonic Healthcare is a medical diagnostics company with operations in Australia, the United States, Germany, the United Kingdom, and Switzerland. From humble beginnings in 1934, the business has grown to become one of the world's largest providers of pathology and diagnostic imaging.
By Mitchell Lawler: There are two qualities that make Sonic Healthcare a defensive investment, in my opinion.
Firstly, medical diagnostics is a need in almost all cases. Seldom will people elect to get a blood test or have a scan taken just for the sake of it. Additionally, people will continue to have illnesses and injuries regardless of the economic environment – making Sonic's revenue largely insulated.
Secondly, the industry is dominated by two or three players in most countries due to the enormous capital required. This oligopoly structure keeps profitability reasonably high compared to other industries.
At around 16 times earnings, I believe this is a fair price to pay even if Sonic's profits moderate further still.
Motley Fool contributor Mitchell Lawler owns shares in Sonic Healthcare Ltd.
Transurban Group
What it does: Transurban operates toll roads in Australia and around the world – with majors CityLink and WestConnex, located in Melbourne and Sydney respectively, among its assets.
By Brooke Cooper: It was only last week that Australia was shocked by April's inflation figures, courtesy of the Australian Bureau of Statistics (ABS). What better time to consider an ASX defensive share with built-in inflation protection?
There are plenty of inflation-hedging stocks out there, but I'm personally drawn to Transurban.
The charges road users pay to drive on the company's toll roads are linked to inflation. Thus, its income increases alongside the cash-eating measure.
Not to mention, even if people tighten their belts, they'll likely keep using toll roads. Indeed, the company posted record traffic in the first half.
UBS tips the Transurban share price to reach $15.45.
Motley Fool contributor Brooke Cooper has no position in Transurban Group.
CSL Limited
What it does: CSL is a global biotech that develops vaccines and medical therapies to help people with a multitude of life-threatening or debilitating conditions.
By Bronwyn Allen: Healthcare is known for being a highly defensive sector in tough economic conditions.
CSL is the giant of ASX healthcare shares and one of the largest companies by market capitalisation on the Australian share market. It's a defensive share because of the nature of the company, but it also has good room for growth.
CSL shares rose above $310 recently, and several brokers think there's more to come. Morgan Stanley has an overweight rating and a 12-month price target of $339. UBS has a buy rating and a $330 price target.
Motley Fool contributor Bronwyn Allen owns shares in CSL Limited.
