A chart of the ASX in the last few weeks resembles a rather extreme rollercoaster ride, with the index yo-yoing between 5,000 and 5,200 points on a number of occasions. While this may cause some investors to become fearful and to wonder whether a major fall is ahead of us, it presents an opportunity for long term investors to take advantage of the fear which is currently present in the market and to top up on high quality stocks.
However, many investors may also be seeking out companies which offer a degree of stability during this highly uncertain period. One stock which offers just that is Woolworths Limited (ASX: WOW). That's because it has a beta of just 0.67 which indicates that its share price should move by 0.67% for every 1% change in the level of the ASX.
Furthermore, Woolworths offers a yield of 5.2% (fully franked) and this provides its investors with a highly useful cash flow during the present challenges with which to reinvest in the index at potentially depressed prices. And, with Woolworths' dividends being covered 1.3 times by profit, they appear to be sustainable at around their current level.
Clearly, Woolworths is enduring a challenging period of its own at the present time, with pressure on household budgets causing many shoppers to become increasingly price conscious. This is allowing discount retailers such as Aldi and Costco to increase their market share and is drawing Woolworths into a price war which is likely to put pressure on its margins over the medium term. However, with a price to sales (P/S) ratio of 0.55 (versus 1.4 for the ASX) such difficulties appear to be adequately priced in, meaning that Woolworths has a sufficient margin of safety to warrant investment right now.
Similarly, Coca-Cola Amatil Ltd (ASX: CCL) is also a strong defensive play, with it having a beta of just 0.56. Furthermore, it offers a yield of 4.6% (partially franked) which is well covered by net profit at 1.3 times.
In previous years Coca-Cola Amatil has endured a challenging period, with its bottom line coming under pressure. However, it has made a number of changes to its business including a new marketing strategy, investment in pricing and a renewed focus on brand-building. These changes, alongside planned cost savings of $100m over the next three years, are set to reverse a declining bottom line and allow Coca-Cola Amatil to post earnings growth of 4.9% during the next two years.
In addition, Coca-Cola is making changes to its products, with it introducing a number of healthier options as well as smaller serving sizes such as its 250ml can. This should make its products even more affordable and, alongside investment in social media, may improve its popularity and sales among younger people. And, with its shares trading on a P/S ratio of 1.4, it appears to be a worthy purchase at the present time.
