'Attractive valuations': 2 ASX 200 shares set for 'strong performance' while the world crumbles

The Wilsons team reckons these two monopolies could do the trick during uncertain economic and geopolitical times.

| More on:
two men smiling with a laptop in front of them, symbolising a rising share price.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Regular readers might already know the S&P/ASX 200 Index (ASX: XJO) hit a 12-month low on Monday.

Persistent inflation, soaring bond yields, plus wars in Europe and the Middle East are all conspiring to strike fear into markets.

So during such anxious times, which stocks are the most reliable?

Wilsons equity strategist Rob Crookston knows where he would take shelter.

"Over the medium term, easing bond yields and the growing appeal of defensive earnings amidst a slowing economy should support strong relative performance for both infrastructure and 'infrastructure-like' companies," he said in a memo to clients.

And the great news is that these types of stocks are in a sweet buying spot.

"Infrastructure and infrastructure-like companies have lagged the broader ASX 300 since late June, amidst the ongoing headwind from rising bond yields," said Crookston.

"Despite the recent underperformance, the outlook for infrastructure remains positive, especially at this point in the economic cycle. There is currently an opportunity to invest in infrastructure stocks at attractive valuations."

Of course, you want to know which of these stocks Crookston's team is bullish on.

Here are the two top picks, both from the ASX 200:

Two monopoly businesses ripe for the taking

The APA Group (ASX: APA) share price is down more than 21% since the start of the year.

Not only has that presented a buying opportunity, but has brought the dividend yield close to 7%.

Crookston loves that the pipeline infrastructure owner operates as a monopoly.

"Pipeline demand is resilient through the cycle and APA's contract structure provides a high degree of earnings visibility.

"Contracts are long-dated, and ~87% are take-or-pay (users pay for access irrespective of their usage) or regulated (based on a predetermined return on capital) in nature, which has underpinned predictable and uninterrupted dividend growth for 20 years."

The Lottery Corporation Ltd (ASX: TLC) is not an infrastructure business in literal terms, but one that the Wilson team considers to be very similar.

"Lottery Corporation has many of the characteristics of traditional 'infrastructure', including a predictable demand profile, a degree of inflation protection through its ability to raise ticket prices, its low sustaining capex requirements and high free cash flow margins."

The share price has tumbled 15.5% since early August, to now offer a tempting valuation.

Like the APA Group, the company operates as a monopoly in every Australian state except for Western Australia.

Some investors might think gambling spend might dive during tough economic times, but this is apparently not the case with Lottery Corp.

"Lottery turnover has historically been highly resilient through past economic cycles, notwithstanding short-term fluctuations due to jackpot variability," said Crookston.

"The predictability of lottery turnover on a medium-term basis has helped TLC generate consistent 'infrastructure-like' earnings growth over time."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Lottery. The Motley Fool Australia has positions in and has recommended Apa Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Defensive Shares

A banker uses his hands to protects a pile of coins on his desk, indicating a possible inflation hedge
Defensive Shares

Safeguarding against inflation: A defensive share strategy

Investing in defensive shares can shield your portfolio from inflation.

Read more »

a man sits back from his laptop computer with both hands behind his head feeling happy to see the Brambles share price moving significantly higher today
Defensive Shares

Don't get clever, just buy stability: 2 defensive ASX shares to buy now

Analysts think these defensive shares would be top buys for investors right now.

Read more »

safe dividend yield represented by a piggy bank wrapped in bubble wrap
Defensive Shares

5 ASX shares to buy for turbulent times

Here are 5 stocks to consider buying for safety.  

Read more »

Men standing together and defending the goal post symbolising defensive shares.
Defensive Shares

4 defensive ASX shares to own in a greedy market: Macquarie

These experts reckon the ASX's record highs won't last...

Read more »

Two mature women learn karate for self defence.
Defensive Shares

2 defensive ASX income shares I think investors should consider buying for bumper returns!

These stocks could offer defence and good returns.

Read more »

Defensive Shares

The pros and cons of buying Telstra shares right now

Is this an opportunity calling?

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Defensive Shares

My 2 favourite ASX utility shares for January 2024

These stocks could provide a good mixture of defence and growth.

Read more »

safe dividend yield represented by a piggy bank wrapped in bubble wrap
Defensive Shares

Weathering market storms: Dividend stocks in Australia as a safe harbour

Defensive earnings could help provide stability.

Read more »