With so much uncertainty about the economy, inflation and interest rates swirling about, “defence” seems to be the new buzzword among ASX shares.
While the term defensive shares can evoke images of dour investments offering anaemic growth in return for protection of capital, that doesn’t necessarily have to be the case in reality.
In fact, Wilsons equity strategist Rob Crookston recently talked about what his team calls “growth defensives”.
“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 in a memo to clients.
“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.”
Now, without confusing Wilsons with Wilson Asset Management, experts from the latter this week named two ASX shares to buy that fit the bill:
‘Lipstick effect’ in full swing
As a non-surgical cosmetic services provider, Silk Laser Australia Ltd (ASX: SLA) is not a name that immediately comes to mind when talking about defensive stocks.
But Wilson equity dealer William Thompson has seen it differently, calling it a “big buy”.
“They had a really interesting last half because no one really believed their story,” Thompson said in a Wilson video.
“[The market] thought the cosmetics business was probably more discretionary, and it’s really showed that it’s defensive.”
Thompson cited what economists call the “lipstick effect”, which is when consumers still buy feel-good goods and services through tougher economic times.
“These products, they’re actually quite defensive because⦠when there is potentially a recession, they still want to look good and still want to spend money on themselves.”
Silk Laser’s growth numbers impressed Thompson during the recent reporting season.
“They posted a 20% sales increase half-on-half, and nearly 45% EBITDA increase half-on-half, so it’s looking really good,” he said.
“Like-for-like sales are up 10% for the first seven weeks of the year. So it’s definitely a buy.”
Thompson’s peers largely agree, with 4 out of 5 analysts currently surveyed on CMC Markets rating Silk Laser shares as a buy.
The Silk Laser share price has roughly halved over the past year.
‘Pricing momentum is going to continue’
As the world’s largest pallet and crate provider, Brambles Limited (ASX: BXB) probably better fits the traditional definition of a “defensive” stock.
Indeed while other non-mining shares have struggled, Brambles has soared more than 38% over the past 12 months. This is all while paying out a handy 2.6% dividend yield.
Wilson equity analyst Anna Milne called it a buy, while admitting that the share price has already had a good run.
“We do think the pricing momentum is going to continue,” she said.
“The focus on profitability is only going to grow over the coming year.”
Milne, however, did raise a caveat that recently popped up.
“Given all the market volatility, it’s around anything that’s earning US dollars,” she said.
“So that’s a watch for us, but operationally, Brambles is still a buy.”
According to CMC Markets, 11 out of 17 analysts are rating the stock as a buy.
The post ‘Big buy’: Wilson’s 2 surprisingly defensive ASX shares to cruise through 2023 appeared first on The Motley Fool Australia.
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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Silk Laser Australia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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