The Australian share market has staged a convincing recovery since the correction late last year, with the ASX 200 up over 13% from its low point in December. But with the longest bull market in history still running in the USA, investors remain cautious that the good times cannot last forever. Growth and consumer discretionary stocks usually suffer the most at times of economic distress, so I am pivoting away from these toward more defensive investments.
Here are three ASX shares I would feel comfortable holding during a market downturn.
Woolworths Group Ltd (ASX: WOW)
Woolworths is one of the largest supermarket chains in Australia, and together with Coles Group Ltd (ASX: COL), controls over 80% of the market in a relatively comfortable duopoly.
I like Woolworths in this context because demand for food and other groceries is highly stable even in tough times (we all need to eat) and low-cost supermarkets like Woolworths may even see a rise in sales as customers ditch more expensive dining for the cheaper supermarket options.
Woolworths also pays a dividend yield of 3.14%, which gives a nice cushion against any major falls in the share price.
Transurban Group (ASX: TCL)
Transurban Group may not be a familiar name, but if you live or drive in Sydney, Melbourne or Brisbane, chances are you have used one of the 13 toll roads the group has a stake in (with more in the pipeline).
Transurban is by nature a highly defensive stock, underpinned by the consistent and stable demand for its infrastructure, as well as a lack of real competition. This gives it a business model that is very resilient to an economic downturn, providing a high degree of certainty for investors.
Transurban has a policy of paying out close to 100% of its cash flow as dividends, which will give shareholders a substantial 4.51% yield in 2019. Dividends are one of the best protections against portfolio losses and for this reason, Transurban would be a fantastic addition to a defensive portfolio.
Telstra Corporation Ltd (ASX: TLS)
Telstra has been one of the most hated stocks on the ASX over the last two years (down nearly 40%) but this may make it a good stock to hold for a recession. I believe the Telstra share price has been in somewhat of a sentiment hole and thus will not suffer as much as most stocks if there is a market crash or recession.
I also think there is quite a lot to like about Telstra – a strong brand name and a network quality advantage have ensured Telstra remains the dominant player in the Australian Telecom industry. The company remains the clear market leader in fixed voice and broadband services as well as boasting a 48% market share in mobile service subscriptions and approximately 50% in wholesale and commercial telecommunications.
Telephony and internet services have become almost as essential as power and water in our modern age and demand is likely to remain relatively unaffected by an economic downturn.
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Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019