Safe ASX shares could be a good place to invest on the stock market in December 2023.
There's no such thing as a truly safe ASX share when it comes to share price movements because trading is made up of different buyers and sellers every day. Sometimes outside events, such as a pandemic, can cause a sell-off even if the company's underlying profit isn't going to be affected much.
The 'safe' businesses I'm going to refer to may be able to deliver outperformance in a bear market.
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Propel Funeral Partners Ltd (ASX: PFP)
Propel is the second-largest funeral operator in Australia and New Zealand. As the saying goes, there are only two things certain in life – death and taxes. We can't invest in the Australian Taxation Office (ATO), but we can invest in Propel, as morbid as it is.
The number of deaths in Australia is expected to increase by 2.4% per annum between 2023 to 2030, and then rise by 2.5% between 2030 to 2040, according to Propel's sources, which is an ultra-long-term tailwind for the company. In FY23, the company saw funeral volumes rise by 9% to around 18,000 funerals.
The average revenue per funeral is increasing every year thanks to inflation. FY23 saw a 6% rise in the average funeral price amid strong inflation.
Propel's FY23 revenue rose 16% to $168.5 million, while the operating net profit after tax (NPAT) grew 17.9% to $20.9 million.
With a market share of approximately 8% of the funeral industry in 2022, there is still plenty of room for the company to grow through acquisitions.
I think the company's profit can hold up, and possibly grow, even if there's an Australian recession.
Its dividend has grown each year since FY21 and the ongoing revenue and profit growth could enable continuing dividend growth. As far as defensiveness goes, I think this is one of the leading ASX safe shares.
Vaneck Morningstar Wide Moat ETF (ASX: MOAT)
This is an exchange-traded fund (ETF) that Aussies can invest in.
There are some businesses out there with very strong competitive advantages, such as great brand power, powerful network effects or advanced patents. Think how embedded Disney is in the entertainment world with its movies, theme parks, Disney+ and so on.
The MOAT ETF only invests in businesses that have competitive advantages which are expected to endure more likely than not for over two decades. I think owning these sorts of businesses which have compelling long-term futures, could mean less volatility than the market.
I think this ETF can be particularly useful in a sell-off because it's invested in US shares.
For some reason, the Australian dollar is seen as a riskier currency as it has a habit of falling against the US dollar during a market sell-off (though that's not guaranteed to continue). The Aussie dollar dropped close to US 60 cents during both the GFC and the COVID-19 sell-off.
I normally don't bother thinking about currency too much. However, in a situation where the global share market is selling off, a weakening Australian dollar would protect Aussies from some of the decline in value on the US share market, in Australian dollar terms.
For example, if the US shares fell 10% in value in US dollar terms and the Australian dollar weakened by 10%, then the Aussie investor wouldn't see any decline in value at all for their MOAT ETF investment in Australian dollar terms.
On 11 December 2023, the biggest five positions in the portfolio were US Bancorp, Salesforce.com, Charles Schwab, Masco and Nike.
The strong, long-term businesses that this ASX ETF owns make it a relatively safe ASX share, in my opinion.
