Looking to buy some stocks to help you sleep better at night? Then, grab your pillow and cup of hot cocoa because we asked our Foolish writers which defensive ASX shares they think could deliver some sweet financial dreams right now.
Here is what the team came up with:
7 best defensive ASX shares for May 2023 (smallest to largest)
- The Reject Shop Ltd (ASX: TRS), $174.44 million
- Super Retail Group Ltd (ASX: SUL), $2.9 billion
- Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), $11.51 billion
- Coles Group Ltd (ASX: COL), $24.21 billion
- Newcrest Mining Ltd (ASX: NCM), $26.47 billion
- Transurban Group (ASX: TCL), $45.25 billion
- Wesfarmers Ltd (ASX: WES), $58.4 billion
(Market capitalisations as at market close of 9 May 2023).
Why our Foolish writers love these defensive ASX stocks
The Reject Shop Ltd
What it does: The Reject Shop is an Australian discount variety retailer. The company offers a range of consumer goods and merchandise at the lower end of the price spectrum.
By Bernd Struben: Inflation is still at 7% and likely to remain elevated into 2025. The RBA unexpectedly raised rates again last week. And I expect consumers will start feeling the pinch in earnest over the coming months.
That could offer some sales tailwinds for the Reject Shop's low-priced merchandise. In its latest half-year results, the company reported a 3.5% year-on-year increase in sales and a 6.2% increase in net profits over the six months.
This is a small-cap ASX share for a defensive play. But I think consumers looking to stretch their dollar will support the share price. Shares are up 21% over the past 12 months. Management is hoping to return to paying regular dividends in the near future.
Motley Fool contributor Bernd Struben does not own shares in The Reject Shop Ltd.
Super Retail Group Ltd
What it does: Super Retail Group is a retail conglomerate housing four iconic brands that millions of Australians know and love – Supercheap Auto, Rebel, BCF, and Macpac. The company operates through an omnichannel approach across Australia, New Zealand, and Asia.
By Mitchell Lawler: If I'm looking to add a quality defensive stock to my portfolio, there are three criteria the company needs to meet: it needs to have a strong moat, boast an ironclad balance sheet, and be (at least somewhat) non-cyclical.
In my opinion, Super Retail Group ticks all three boxes. The company owns multiple brands with exceptional recognition, operates through an enviable distribution network of more than 700 stores, and has a loyalty program with 9.7 million active members – these are all forms of a moat.
Furthermore, the business is fortified with a clean balance sheet – zero debt and $212 million in cash at the end of 2022. That gives me confidence in Super Retail Group's ability to ride out some challenging conditions.
Lastly, I believe the stock is defensive in nature due to the necessity of transportation these days. The average vehicle age might surge as people clamp down on costs. This could drive increased demand for Supercheap's replacement auto parts and accessories.
Motley Fool contributor Mitchell Lawler does not own shares in Super Retail Group Ltd.
Washington H. Soul Pattinson and Co. Ltd
What it does: Soul Patts is an investment house and one of the oldest companies on the S&P/ASX 200 Index (ASX: XJO). It boasts a diversified portfolio of listed and private equities, property, and loans.
By Brooke Cooper: Investment house Soul Patts aims to hold a portfolio capable of outperforming the market over the longer term, no matter the economic environment. And it's been successful historically.
The company's flexible investment mandate has helped its share price soar nearly 490% over the last 12 years. That's compared to a 150% rise in the All Ordinaries Index (ASX: XAO) over the same period.
The investment house has also upped its dividend every year since 2000. It currently boasts a 2.5% dividend yield.
Of course, past performance isn't an indicator of future performance. But I think the built-in diversification and defensive nature of Soul Patts' portfolio make it an attractive defensive ASX share to buy this month.
Motley Fool contributor Brooke Cooper does not own shares in Washington H. Soul Pattinson and Co.
Coles Group Ltd
What it does: Coles is one of the big two supermarket operators in Australia, with a growing collection of supermarkets and convenience stores.
By James Mickleboro: I believe Coles would be a great option for investors looking for defensive ASX shares in May.
Supermarkets play a vital role in our economy, regardless of conditions, and have the ability to pass on the effects of inflation to their customers.
Furthermore, Coles has a strong market position and is investing heavily in automation. The latter is expected to make its operations more efficient and boost its online business.
All in all, I think this leaves Coles well-placed to grow its earnings and dividend at a decent rate long into the future, whatever happens in the economy.
Motley Fool contributor James Mickleboro does not own shares in Coles Group Ltd.
Newcrest Mining Ltd
What it does: Newcrest Mining is the ASX's largest gold mining company. It has extensive, long-life mines across Australia, as well as in Papua New Guinea and Canada.
By Sebastian Bowen: When it comes to defensive investing, I believe gold (and by extension, gold miners) can play a useful role.
As we have seen in 2023, gold prices tend to rise whenever there is an increase in geopolitical or financial instability. Many experts also believe gold is an effective inflation hedge.
Thus, having exposure to gold right now could be an effective way of hedging an ASX share portfolio against all kinds of threats.
If we end up seeing a recession this year or next, an ASX 200 gold stock could provide a valuable cushion.
It's my opinion that Newcrest is an ideal candidate for this role, considering its size, scale, long mine life, and high gold reserves. Newcrest shares also pay a modest dividend too.
Motley Fool contributor Sebastian Bowen owns shares in Newcrest Mining Ltd.
Transurban Group
What it does: Transurban is one of the world's largest toll road operators. It owns 17 roads in Australia, five in the United States, and one in Canada.
By Bronwyn Allen: Transurban recently released its Q3 FY23 traffic update and reported a record quarter, with average daily traffic of 2,397,000 trips. While you'd expect a year-over-year increase due to the end of COVID lockdowns (up 12.9% on Q3 FY22), a record quarter indicates more people are using their cars and that new roads in Transurban's portfolio are boosting business.
The latter includes Sydney's WestConnex M4-M8 link, which opened on 20 January and has seen usage exceed expectations.
One of the key reasons I believe Transurban is such a great defensive ASX share is that many of its tolls are linked to inflation. During the quarter, Transurban raised its toll charges on Sydney's WestConnex and M5 West by 6.1% and 2.3%, respectively.
The toll on Brisbane's AirportLink M7 increased by 7.9%. In Melbourne, tolls increase by 1.05% per quarter.
This provides useful protection for the company's income (and dividends) in an inflationary economy.
Motley Fool contributor Bronwyn Allen does not own shares in Transurban Group.
Wesfarmers Ltd
What it does: Wesfarmers operates a variety of businesses, including Bunnings, Officeworks, Kmart, Target, Priceline, and Wesfarmers chemicals, energy and fertilisers (WesCEF).
By Tristan Harrison: Many of Wesfarmers' businesses, such as Bunnings and Kmart, are market leaders and aim to provide customers with great value.
I believe that in today's inflationary, high-interest environment, these offerings will continue to resonate with households and enable Wesfarmers to perform better than its rivals. This could make it a good ASX defensive share to buy right now.
I also like that the company is looking to expand through acquisitions, which could open more growth avenues or improve scale and market share.
Furthermore, once operational, the Mt Holland lithium project has the potential to help Wesfarmers further diversify and significantly grow its earnings.
Overall, I like the longer-term outlook for Wesfarmers shares.
Motley Fool contributor Tristan Harrison does not own shares in Wesfarmers Ltd.
