3 ASX shares I would buy to protect against a recession

These stocks look like strong defensive buys.

| More on:

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

When the economic outlook is uncertain for the ASX share market and the economy as a whole, it's understandable to want to invest in businesses with defensive earnings and inflation protection.

If a business' earnings are relatively stable and predictable, then the share price may be more resilient during times like this. In fact, if inflation does pick up, then the following companies could see their revenue (and earnings) growth accelerate.

I like the three ASX shares below for their defensive earnings.

A banker uses his hands to protect a pile of coins on his desk, indicating a possible inflation hedge.

Image source: Getty Images

Coles Group Ltd (ASX: COL)

Food (and liquor) retail seems like a very defensive sector, in my view. Food is an essential product, and Coles has significant scale advantages compared to nearly every other business it's competing against in Australia. I expect customer demand will hold up in the coming months.

Coles has come under pressure for how the last inflationary period played out. But I think the company will have learned lessons and will handle inflation a little differently, while largely protecting its margins.

The company's sales and earnings continue to rise, helping fund larger dividend payments.

With its impressive product range of own-brand items and the new advanced warehouses, the company will continue unlocking a higher profit margin.

I expect Coles' earnings will be higher in two years, which is the minimum that I think investors should focus on.

Telstra Group Ltd (ASX: TLS)

Telstra provides subscribers with a market-leading mobile network with the widest coverage and the most valuable spectrum assets.

The ASX telco share's offering of allowing Australians to connect to the internet with their devices seems to be essential these days. Aussies use the internet for a lot of things, like entertainment, communication, learning, work, shopping, banking, connecting with government services, and plenty more.

Over the last few years, Telstra has seen its mobile subscriber numbers and average revenue per user (ARPU) steadily climb, with the ASX telco share implementing inflation-linked price increases.

If inflation were to pick up, I'd expect Telstra to implement more price rises. The operating leverage can come through as it spreads its costs across more users. I'm also excited to see the ongoing progress of wireless broadband for customers, meaning it's capturing the margin that currently goes to the NBN.

Additionally, the business hiked its dividend by more than I was expecting, which I think bodes well for future shareholder payouts in upcoming results.

APA Group (ASX: APA)

Energy is one of the most important aspects of the Australian economy – households and businesses alike need energy throughout the year.

APA's gas pipeline network accounts for half of the country's gas consumption. Its gas capacity is expected to grow in the coming years as the business invests in adding pipelines to increase the ability to take gas from sources of supply to where it's needed.

I think the ASX share will continue seeing cash flow growth as it expands its portfolio across a number of areas, including renewable energy, gas-powered energy generation, and electricity transmission.

As a bonus, the business has hiked its annual distribution every year for the past two decades. At the time of writing, APA offers a FY26 distribution yield of 6.3%.

The business offers inflation protection because a large majority of its revenue is linked to inflation. While higher interest rates may be detrimental to APA's asset value, the increase in revenue is a useful boost for long-term earnings.

Motley Fool contributor Tristan Harrison 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Defensive Shares

Cubes placed on a Notebook with the letters "ETF" which stands for "Exchange traded funds".
Defensive Shares

3 ASX ETFs with a focus on global defensive shares

These three funds could provide defensive structure for your portfolio.

Read more »

Woman in an office crosses her arms in front of her in a stop gesture.
Defensive Shares

Rotating into defensive stocks? 3 ASX companies to consider

These three companies could add some protection to your portfolio.

Read more »

A woman crosses her hands in front of her body in a defensive stance indicating a trading halt.
Defensive Shares

If I had to build a defensive ASX share portfolio today, I'd start here

Defensive investing doesn’t mean giving up long-term potential.

Read more »

Buy and sell written on a white cube.
Defensive Shares

Why it's a great time to buy these ASX 200 shares in these rocky times

These businesses offer investors a mixture of stability and strength.

Read more »

A man in a supermarket strikes an unlikely pose while pushing a trolley, lifting both legs sideways off the ground and looking mildly rattled with a wide-mouthed expression.
Defensive Shares

Woolworths shares recover 22% from all-time low: Buy, sell or hold?

Here's what I'd do with the supermarket's shares.

Read more »

Concept image of man holding up a falling arrow with a shield.
Defensive Shares

Is this the right time to invest in ASX defensive shares?

Should investors be looking towards ASX defensive shares as buys?

Read more »

A small child in a judo outfit with a green belt strikes a martial arts pose with his hand thrust forward.
Defensive Shares

Australian defensive stocks to buy now for stability

With global uncertainty still high, here are three defensive ASX stocks that could potentially help protect your portfolio in 2026.

Read more »

Woman with a scared look has hands on her face.
Defensive Shares

3 ASX 200 shares I'd trust if I couldn't check my portfolio for a year

If I had to step away from my portfolio for a year, I’d focus on businesses with predictable demand and…

Read more »