The recent collapse of US banks and Credit Suisse was a sharp reminder to all investors of how rapidly events can unravel.
Wilsons equity strategist Rob Crookston said his team hasn't changed the portfolio due to those bank failures, but it did teach everyone a critical lesson.
"The event highlights how important defensives are in a portfolio, especially in such uncertain times," he said in a memo to clients.
"As we continue through this slowdown period, investors will have to navigate a period where economic and earnings growth could be vulnerable to downward revisions."
But defensive, for the Wilsons team, doesn't mean merely protection of capital to the detriment of growth.
Crookston's analysts focus on what they call "growth defensives".
The Wilsons staff hunt down businesses that produce defensive goods and services but still have excellent growth potential.
"The focus portfolio holds a selection of high-quality, high-margin, defensive businesses with strong competitive advantages, pricing power, and relatively attractive long-term growth prospects," Crookston said.
"We believe these companies are likely to grow their earnings faster than the market over the medium term, which should translate to outperformance over time."
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Three stocks that could grow through tough times
Three of their favourites in this category are Lottery Corporation Ltd (ASX: TLC), Ramsay Health Care Ltd (ASX: RHC) and Treasury Wine Estates Ltd (ASX: TWE).
"Our top defensive pick is the Lottery Corp, which has predictable, infrastructure-like cash flows that are underpinned by its long-dated licences and the defensive nature of lottery demand which has historically been resilient through the cycle."
With a price-to-earnings ratio hovering just under 35, Crookston admitted Lottery Corp shares could look expensive.
"However, we believe the consensus earnings are too pessimistic," he said.
"The increasing penetration of digital channels should lead to higher margins than consensus… The Lottery Corp's monopoly on lotteries in Australia further contributes to the higher multiple."
Recovery in elective surgery activity will continue to boost Ramsay Health Care.
"We believe RHC will continue to see patient volumes recover in a post-COVID world," said Crookston.
"Wilsons healthcare analysts forecast an earnings per share CAGR of 36% (versus consensus of 26%) between FY23E and FY25E, driven by a recovery in surgeries, strong underlying utilisation trends, raised prices for payers, dwindling COVID costs, and continued brownfield activity."
On the other end of the health supply chain, Treasury Wine will enjoy unwavering demand for alcohol this year.
"Wine consumption is typically relatively resilient through economic cycles," read the Wilsons memo.
"On the structural growth side of the equation, the business is poised to deliver meaningful earnings growth as it executes its premiumisation strategy, which is poised to drive material margin expansion over the medium-term."
The resurgence of the Chinese economy and the removal of politically motivated tariffs might revive what was once a massive market for Treasury.
"Treasury Wine trades at a 12-month forward PE multiple of 22.4x, which offers compelling value considering its 3-year consensus EPS CAGR of 15%, where we see material upside if China loosens its restrictions on wine imports."
