Given the significant falls in the share price of numerous blue chip companies over the past 12 months, arguably it's time investors rethought just what stocks truly offer their portfolio downside protection.
Listed investment company Bki Investment Co Ltd (ASX: BKI) recently provided shareholders with an update on the company's portfolio positioning which included details of seven high-quality defensive infrastructure companies.
Here are the seven stocks BKI singled out:
- ASX Ltd (ASX: ASX)
- Telstra Corporation Ltd (ASX: TLS)
- Sydney Airport Holdings Ltd (ASX: SYD)
- Transurban Group (ASX: TCL)
- APA Group (ASX: APA)
- TPG Telecom Ltd (ASX: TPM)
- Qube Holdings Ltd (ASX: QUB)
There are a number of appealing factors common to each of these seven companies…
- Firstly, they all provide services which are hard to replicate given the significant fixed start-up costs required
- Secondly, they are all market leaders and enjoy barriers to entry
- Thirdly, they have diversified revenue bases which provide protection against reliance on any single customer
- Fourthly, the longer term outlook for earnings growth in each case is positive
A great starting point
These seven stocks all possess characteristics which not only mean the underlying business should perform well in good times but importantly the underlying business should also continue to hold its own during tough economic times like we are currently experiencing.
Having identified companies with appealing business economics, the final piece of the puzzle is determining what a reasonable price to pay for a stock is.
One stock which arguably meets this important criterion at present could be Telstra. With earnings per share in financial year 2016 expected to come in at 35 cents per share, the stock is trading on a prospective price-to-earnings multiple of 16 times, but also boasts a legendary dividend yield – currently around 5.5% and fully franked.
