Defensive stocks can be a smart play for investors leading into reporting season next month.
In a recent note to investors, Macquarie Group Ltd (ASX: MQG) said it thinks positioning in higher-rated stocks holds some risk this reporting season, even though macro recovery is ahead.
In the note, the broker also revealed its top 2 ASX industrials defensive stocks.
Here's what it had to say.
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SGH Ltd (ASX: SGH)
Macquarie lists SGH as a top defensive pick. SGH, formally Seven Group Holdings, is an Australian diversified operating company, with businesses across industrial services, energy, and media.
The SGH share price is 0.87% higher at 2 pm this afternoon at $52.17. For the year, SGH shares are changing hands 35.89% higher.
Macquarie has an outperform rating and a $59.20 target price on the shares. At the time of writing, that represents a potential upside of 13.4%.
Here's what the broker has to say about SGH:
Firm growth outlook remains. SGH maintained guidance for HSD EBIT growth in FY25 at the May investor day (current MQe: 9.1%). We think the medium term outlook remains underpinned by the Boral improvement, slow recovery in residential activity and the coming rebuild cycle in WesTrac.
In Australia, Macquarie pointed out that SGH offers a quality exposure to infrastructure, building activity, and resources output.
"Given increased global uncertainties, we find this attractive at this juncture", the broker noted.
The broker also identifies key themes for the business going into reporting season.
"Boral's turnaround momentum. Efficiencies are lifting, and price realisation is supported by better service outcomes. A recovery in residential activity should underpin growth in the medium term."
"Westrac rebuild wave to come. Management are pointing to a strong machine rebuild opportunity that should drive FY26/FY27 activity. Product support revenues continue to have solid momentum", the broker said.
The broker expects 12.3% EBIT growth for FY 2026 on its revised FY25 EBIT estimates.
"The solid growth outlook in the medium term and unique exposures of SGH remain attractive. The Boral recovery remains a key near-term value driver, while we believe easing monetary policy could add macro support. We are also watching for SGH's next acquisitive move."
The Reliance Worldwide Corp Ltd (ASX: RWC)
Reliance Worldwide is an Australian-owned company that designs and manufactures branded plumbing and heating products.
The company's share price is 0.12% higher as of 2pm today. The stock is changing hands at $4.315 a piece. Over the year, the share price is 14.89% lower.
Macquarie has an outperform rating and a $5.55 target price on the shares. At the time of writing, that represents a potential upside of 28.8% for investors over the next 12 months.
Here's what the broker has to say about Reliance Worldwide:
Market conditions have continued to disappoint, most notably in Americas and APAC. Against this backdrop, RWC's execution has remained strong, with cost-out progress and impressive tariff mitigation work being done. This supports operating leverage when volumes return.
Elsewhere, conditions are slowly improving and the business is recovery-ready.
"We think US R&R momentum will gradually improve, even as small-scale homeowner spend continues, while monetary policy support in the UK and Australia should aid a recovery in those regions", the broker said.
"Operational efficiency, supply-chain optimisation and sourcing-driven cost reduction all add to operational leverage when volumes begin to recover. The thesis is supported by valuation and execution that is still gaining incremental traction."
The broker expects FY 2025 Americas sales to be slightly lower on softer markets, and APAC, excluding Holman, will have slight single-digit growth. The broker expects EMEA sales to be down by mid-single digits.
