With the RBA in the process of cutting interest rates, the future of the Aussie economy is uncertain. Certainly, cuts could help to boost an economy that has been ravaged by falling commodity prices in recent months, but could also have the impact of creating a housing bubble. As such, the ASX is likely to remain relatively volatile, as investors swing between periods of optimism and pessimism regarding the market's future.
One way that investors can neutralise higher levels of volatility is through relatively defensive stocks. They could provide greater stability in the short run, but also offer excellent long-term growth prospects. And, with that in mind, here are three top notch stocks that could help you to beat a volatile ASX.
Ramsay Health Care Limited
With a beta of just 0.5, Ramsay Health Care Limited (ASX: RHC) is clearly a defensive stock. In fact, its share price should change by just 0.5% for every 1% movement in the wider index. Furthermore, Ramsay's business model is relatively uncorrelated with the performance of the wider economy and this should allow it to increase its bottom line by 19.7% per annum during the next two years.
And, with Ramsay having the potential to benefit from a falling interest rate via significant international operations, its earnings forecasts have the scope to be upgraded moving forward. Certainly, its valuation is rather high, as evidenced by a price to book (P/B) ratio of 7.7, but it does have an excellent track record of growth in net asset value, with it having risen by 10.4% per annum during the last five years.
Wesfarmers Ltd
Although there is undoubtedly increasing pressure on the supermarket and hardware sectors, Wesfarmers Ltd (ASX: WES) looks set to deliver excellent growth by taking advantage of its conglomerate structure. In fact, a move into financial services seems to be likely and this could mean that Wesfarmers offers an even more diverse and robust business model.
Furthermore, Wesfarmers has a beta of just 0.6 and a dividend yield of 4.6%. And, with its shares having underperformed the ASX by 9% in the last year, Wesfarmers now trades on a price to book (P/B) ratio of just 1.9, which is far less than the wider food and staples retailing sector, which has a P/B ratio of 2.5.
Transurban Group
Recent traffic statistics from Transurban Group (ASX: TCL) show that the company is moving from strength to strength, with double-digit growth in revenue being reported for the March quarter. This shows that, despite concerns surrounding the performance of the economy, Transurban's business model is defensive and road usage continues to increase, with Transurban reporting a rise in traffic volumes in the mid to high single digits.
Furthermore, Transurban has an excellent track record of growth, with its top line having risen at an annualised rate of 13.8% in the last ten years. This has allowed it to post earnings growth of 19.1% per annum in the same period, which bodes well for its future performance, while a beta of just 0.9 means that it could be a useful ally if the ASX's volatility does rise.
