Global packaging company Amcor Limited (ASX: AMC) and retail behemoth Woolworths Limited (ASX: WOW) both cater to the fast-moving consumer goods industry, but one has a better outlook than the other.

Here are four reasons why I like Amcor right now.

1. International exposure

Amcor generates 95% of its revenues outside Australia. The company's client base comprises many of the major multinational consumer products companies, so when they move into new, emerging markets, Amcor follows them. This provides investors with additional exposure to the huge growth in the middle class across Asia and South America.

Of Amcor's revenues, 30% are derived from emerging markets, the sweet spot as far as growth in packaging use goes.

Source: Company reports

2. Strong returns and cash flow

In FY14 Amcor reported strong returns with a return on equity (ROE) of just over 24% and analysts forecast this to move beyond 30% over the next few years. It also generated free cash flow post dividends of over $300 million, providing management with the flexibility to continue to buy back its own shares.

3. High barriers to entry with strong market positions

Amcor's scale allows it to fractionalise costs across a large asset base, making it extremely difficult and costly for competitors to replicate. Amcor is the global leader in many of its key product segments and it spends a lot of money on research and development to maintain its leadership position.

4. Defensive end markets

Almost all of Amcor's revenues are generated from the highly defensive and stable end markets of food, beverage, healthcare, home and personal care and tobacco packaging industries. These industries tend to be far less affected by economic volatility than most other industries.

In contrast, there are four reasons why I won't be rushing to buy Woolworths right now.

1. Downgrade cycle

As we see time and time again, the first downgrade by a company in transition is usually not the last. Remember Coca-Cola Amatil Limited? Given the size and nature of this business, a small downgrade is quite meaningful and any future downgrades are not currently priced in by the market.

2. Management turnover

This is a qualitative factor but it can sometimes tell investors a lot about the issues facing a company. Woolworths has recently experienced high levels of turnover amongst its senior management – this is never a good sign.

3. The "M" word

Everyone knows the issues facing Masters right now and it's hard to see what will turn its performance around. Let's face it, Woolworths is a world-class supermarket operator. Unfortunately, its track record outside of food and grocery is less than stellar…does anyone remember its disastrous ownership of Dick Smith Holdings Limited? It took Wesfarmers Ltd (ASX: WES) over a decade to get Bunnings up and running profitably and it had extremely limited competition at the time. I am somewhat surprised Woolworths did not decide to test the Masters format first because now it appears Masters may be "too big to fail".

4. Discount disruptors

The discount supermarket chain Aldi has an excellent track record in disrupting incumbents in overseas markets. Why will it be any different in Australia? A good case study comes from Europe and the French supermarket chain Carrefour SA. It was generating EBIT margins of 3.9% (well below Woolworths' food, grocery and liquor EBIT margins of 6.98% in FY14!) prior to the entry of Aldi and now the margin sits at 2.9%. This may not seem like much, but to a business the size of Carrefour, it has dramatically impacted earnings. I can only imagine what Aldi management must be thinking when they see Woolworths' EBIT margins!

Foolish takeaway

Don't get me wrong, Woolworths is a good supermarket operator; however, in my view I think its shares may tread water until some of these issues are resolved. In contrast, Amcor has numerous appealing characteristics. Its shares look to be a good place to hide during times of market volatility and they should also benefit when markets are doing well given its exposure to growth markets.

The post Which of these 2 high-quality defensive businesses should you buy now? appeared first on The Motley Fool Australia.

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Markets tend to be efficient over the long term however in the short term, this is not necessarily the case. Investors often overreact to bad news and treat temporary setbacks as permanent.

A company recently in the cross-hairs of investor fear is ResMed Inc. (CHESS) (ASX: RMD). ResMed is a leading global supplier of sleep apnea products, including flow generators and associated masks. The company has been developing devices for sleep-disordered breathing, chronic obstructive pulmonary disease and other chronic diseases for more than 25 years.

The company recently announced that clinical trials of a special form of sleep therapy designed for patients who suffer from both heart failure and central sleep apnea failed to protect those patients from death or complications associated with heart failure. The share price reaction was savage, with a fall of 15%, wiping $2.1 billion off ResMed's market capitalisation.

The disappointing results from the clinical trials relate to a segment of the flow generator products, that accounts for less than 7% of group revenues. Further, the specific issues found in the clinical trials relate to only 25% of these flow generators. In other words, the impact to ResMed's revenues is less than 2% and less than 1% to net profit. A 15% drop in the share price would therefore suggest investors may not have been acting rationally in response to this announcement.

A good comparison is Cochlear Limited (ASX: COH). In 2011 the company announced a product recall of one of its key cochlear implants due to implant failure. This was a major setback for the company as the product was absolutely core to its business. The resulting 37% share price fall wiped around $1.6 billion off Cochlear's market cap.

However, unlike ResMed, the announcement had serious implications for Cochlear's profits. In FY2011, the year prior to the product recall, Cochlear made a net profit of $180 million. In FY2012, the year of the product recall, the company made just $57 million in net profit. In fact Cochlear's earnings are still only approximately half those posted prior to the recall and yet the share price recently hit an all time high. Given the announcement by ResMed will not materially impact earnings, I would expect its share price to also recover.

Foolish Takeaway

Warren Buffett once said that it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price. ResMed operates in a very attractive industry. Sleep apnea is a growing market with an estimated 26% of people aged between 30 and 70 affected by the disorder and ResMed contends that only a small proportion of sufferers are currently diagnosed.

The business has a wonderful track record of growing earnings, generates a high level of free cashflow, is debt-free and applies surplus cash to buying back its own shares. Although disappointing, it would appear as though the announcement will have very little impact on ResMed's near term earnings yet the share price reaction would imply otherwise. Sometimes the market provides investors with an opportunity to buy a wonderful business at a fair price and we may be seeing that now.

The post Was the market too tough on ResMed Inc. (CHESS)?  appeared first on The Motley Fool Australia.

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