Telstra shares and 4 other defensive income stocks to buy now

ASX defensive shares are a good way to hedge your bets in a volatile share market.

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Telstra Group Ltd (ASX: TLS) shares are among five ASX defensive stocks that Shaw and Partners portfolio manager James Gerrish recommends amid today's share market volatility.

As the chart below shows, the S&P/ASX 200 Index (ASX: XJO) has weakened since hitting its all-time peak of 7,910.5 points on 2 April.

In a recent Market Matters newsletter, Gerrish said he was still bullish on equities but pointed out that ASX defensive shares were a good way to hedge your bets (just in case your plans go pear-shaped!)

Gerrish said:

As equities have struggled over recent weeks, we've been asked several times whether this was a good time to allocate additional capital into the market …

… we are still bullish towards equities over the medium term primarily because we see interest rate cuts unfolding over the next 12-18 months, a very bullish backdrop for stocks.

However, Gerrish said successful investing required preparation for good and bad eventualities.

… obviously, not all stocks/sectors move as one, and if we are wrong and stocks are going to enter a tough few years, the defensive end of town should, in theory, outperform.

Fundie backs Telstra shares and 4 other defensive stocks

Gerrish and his Market Matters funds management team have provided an update on how they view the following five well-known ASX defensive shares. They are listed below in order of the team's preference.

AGL Energy Ltd (ASX: AGL) shares

Market Matters is long and bullish on AGL shares. The team likes AGL for its future yield expansion and potential capital gain. Market Matters holds AGL shares in the Active Income Portfolio.

APA Group (ASX: APA) shares

Market Matters is also long and bullish on APA shares and holds the stock in the same portfolio. The team believes the risk vs. reward is attractive below $8.50 per share for this infrastructure stock.

Gerrish says:

The infrastructure stock has been under pressure for almost two years, falling over 36% from its lofty 2022 high above $12.

The stock has been weighed down by several headwinds, but if we are correct and central banks start cutting rates in 2024/5, it will finally enjoy a macro tailwind that should support it.

We continue to see value in APA as a defensive infrastructure holding, supported by its sustainable and growing yield in the 6-7% region.

Metcash Ltd (ASX: MTS) shares

Gerrish says his team's positive view on Metcash shares is predicated on the company's growing proportion of earnings coming from higher growth areas such as hardware.

Market Matters is also long and bullish on Metcash shares. The team reckons it is cheap compared to its peers and offers good value around the $3.80 mark.

Telstra Group Ltd (ASX: TLS) shares

The Market Matters team likes Telstra shares for yield and holds a long position in its Active Income Portfolio.

Gerrish explains their view on the ASX 200 telco:

We bought TLS at good levels in 2021, and it has been delivering a solid yield since.

TLS has been nudging 12-month lows over recent weeks, which is rarely a good sign. As it approaches $3.50, we believe value is returning to the telco, but … TLS needs to address costs to regain investor confidence.

Woolworths Group Ltd (ASX: WOW) shares

Market Matters is "cautiously bullish" on Woolworths shares at about the $31 per share mark.

Gerrish said the market had lost confidence in the company, with CEO Brad Banducci's recently exiting.

He said:

The supermarkets find themselves in the unenviable political crosshairs ahead of a tight election. They are accused of price gouging when the cost of living pressures are extreme.

New CEO Amanda Bardwell may have inherited WOW at a good time to turn the company's fortunes around. Their 1H24 result in February was a disappointment, and the stock hasn't recovered since.

Over the past 5-years, WOW has traded on average PE multiple of 23.85x, but has seen extremes of 31x and 19x.

Currently, WOW trades on 21x earnings making it 11% 'cheap' vs. history, and we believe it is likely to be a decent turnaround story in 2025.

Foolish takeaway

Gerrish concludes by saying it's too early in the cycle to be aggressively overweight in ASX defensive stocks.

However, some value is presenting itself with Telstra shares and the other four ASX shares listed above.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Apa Group and Telstra Group. The Motley Fool Australia has recommended Metcash. 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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