Safe ASX shares can be a compelling option for investors who want to avoid the worst of stock market volatility.
Of course, every share investment is capable of seeing declines. An ASX company's rising share price is exposed to possible falls as well. That's the risk of the stock market – sometimes, there are times when share prices drop heavily.
However, not every business falls at the same scale as others.
Some ASX shares can experience enormous volatility due to the cyclical nature of their profit and operations.
Investors typically value businesses based on their projected profit margins. Discretionary retailers can see significant profit changes as the economy moves between booms and downturns, meaning their share prices can be volatile.
ASX mining share profits can change enormously depending on what happens with commodity prices.
But, if a company's profit isn't likely to fall as much during a downturn, then the share price (and dividend) may hold up better than average as well.
With that in mind, I'm calling the three companies below (relatively) safe ASX shares.
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Propel Funeral Partners Ltd (ASX: PFP)
Propel is one of the largest funeral providers in Australia and New Zealand.
As the saying goes, there are only two things certain in life—death and taxes. Sadly, Propel is likely to see a continued demand for its services, which means a certain level of profit each year.
Australia's ageing and growing population is a tailwind for the company's earnings over the next 10 or 20 years. Inflationary impacts on funeral prices are another support for Propel's earnings.
In addition, the company can grow its earnings by making bolt-on acquisitions to boost its geographic presence and scale.
I think this safe ASX share's profit will be significantly higher in five years, which is a good tailwind for the Propel share price.
Wesfarmers Ltd (ASX: WES)
As mentioned, economic downturns can be a significant headwind for retailers.
However, the last five years have shown that Wesfarmers is capable of performing in all economic conditions. The retail conglomerate operates a number of leading retail brands including Kmart, Bunnings and Officeworks.
In the current economic climate, more Australians may be drawn to the 'value for money' credentials that Kmart and Bunnings pride themselves on.
As we're seeing, it's possible that Wesfarmers' sales can increase during a downturn if it can capture market share amid customers being more price-conscious.
The Wesfarmers share price may decline in the future, but I think it's possible it could outperform many other retailers. It also helps that the business has other segments not related to retail such as healthcare, industrial and safety, and chemicals, energy and fertilisers.
In five years, I think this safe ASX share could make materially more profit as it invests in its operations and potentially expands into new market segments.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is an investment conglomerate that invests in a wide array of areas, with a focus on profitable assets with robust cash flows.
The company noted last year that according to Capital IQ, in the 20 years to 31 January 2023, the All Ordinaries Accumulation Index (ASX: XAOA) had a negative return in one-third of months, while the Soul Patts share price outperformed the market by an average of 2% per month in those down months.
That's a pretty good track record, making it one of the more safe ASX shares, in my eyes.
One of the company's stated aims is to manage investment risk and protect shareholder capital. It says it has a diversified, resilient, less correlated portfolio, which is "well positioned to be opportunistic and withstand market volatility."
I believe Soul Patts' ongoing investments in the private equity portfolio are appealing and give the company a wide array of potential investments from which to choose.
