Equities  

Defensive companies to watch

This article is part of
What Value ‘Defensive’ Investing? - August 2013

The Share Centre’s investment research analyst Helal Miah highlights his top defensive stocks for the current market, based on a long term, buy and hold investment strategy.

GlaxoSmithKline

It is a very defensive business and we like them because, while it is a good company for income investors, it is probably in the best position among the large-cap pharmaceutical stocks with regards to research and development (R&D) programmes and in terms of patent expiries.

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It will be affected by the latter, but not to the same degree as its competitors such as AstraZeneca. It has a good product pipeline. For us it is a buy and hold for the long term, especially for the income seeker.

Centrica

A utility firm that has good income levels with estimates of 4.25 per cent. It is a business that has been doing relatively well in recent years. Given the nature of the business, you wouldn’t expect too much to go wrong here when the market falls or there is an unexpected event that drives markets lower.

National Grid

Among those mentioned here, this stock has the highest yield and that is its key attraction. Unlike the other utilities, National Grid is very international – it has a large US exposure from which roughly 55 per cent of its revenues comes. It manages the electricity grid for New York and east coast America, as well as the UK. It has had a bit of a pull back in recent weeks, but that has just made it a more attractive investment.

United Utilities

Most of this firm’s operations are in the north west of the UK. The yield is just under 4.75 per cent, which is fairly attractive. The sector has been a little volatile because there have been a number of takeover talks taking place in the past year and United Utilities has always been one business that is discussed. Overall, long term, the income is attractive.

Unilever

Obviously the type of products – household goods – you wouldn’t expect to change. For instance, if a person’s income doubles that doesn’t mean they would double their cleaning product purchases. This is a business that has seen really strong growth from the emerging markets. The yield here isn’t great at roughly 3 per cent, but for the long term a lot of household goods producers are benefiting from expansion into Africa and Asia. It is defensive, but with plenty of growth potential.

Diageo

Alcohol consumption, on the whole, is a defensive business and Diageo has a huge range of products. In some ways similar to Unilever, it has seen strong growth coming out of emerging markets, especially China. The luxury brand part of the company has been doing well, but one concern could be China’s ban on luxury gift giving that will affect the upper end of the market.