A Defensive Stock is one that holds value and generates earnings regardless of how the broader market is performing. As I mentioned in Part 1 of this series (where I talked about my Innovation Plays) I am not really a stock market bull. However, I am using stocks as a place to hide out and give myself a break from the crazy going on in crypto-land right now.
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Defensive Stocks are a good place for me to relax during December while I break out the popcorn to watch the crypto mania unfold. No doubt I’ll also be putting away a few cold beverages to suppress the FOMO over this festive season but while doing so I will be keeping a lazy eye on these Defensive Plays.
NOTE – All of these stocks are listed on the Australian Stock Exchange and some of my plays are very specific to the Australian situation.
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I’m a self-confessed gold bug and before getting into the Crypto space full-time I spent a lot of time trading gold stocks. Australia not only has exceptional gold resources, but mining generally has been one of the few industries that has been consistently powering the Australian economy for many decades now. Gold Mining is just another business, but it is one that has some naturally built-in hedges against both global and national uncertainty. If we get any kind of GFC type event and any fresh rounds of Quantitative Easing (a.k.a. Money Printing) or any fresh outbreak of war then gold demand globally is going to push the price up. If we get any trouble in Australia, such as a housing bubble bursting then the Aussie Dollar will get smashed and the price of gold in AUD will go up. If everything keeps running status-quo then these quality gold producers still have a healthy enough margin to maintain viability. I actually have lots of favourites in this space that I follow but I have narrowed my portfolio down to 3 of the best quality gold producers in the country. Newcrest Mining is the biggest and most diversified. They have deposits in Australia, Asia and Africa and are a very mature and reliable producer. Northern Star Resources is a bit of a market darling and are having a stellar run of success within the gold regions of Western Australia. Evolution Mining is my third pick, a steady performer with 5 diversified gold and silver mines in Queensland and Western Australia.
| Code : NCM | Price : 22.16 | Weight : 12% |
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| Code : NST | Price : 5.83 | Weight : 10% |
| Code : EVN | Price : 2.39 | Weight : 8% |
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No matter how the economy is going, people still need to eat. Even when things get really bad like in Venezuela, governments have a tendency to subsidise food because they know that a hungry population can quickly turn murderous. In the good old USA, once the bastion of Capitalist enterprise, we see a vast amount of the population receiving Food Stamps from the government as a form of welfare. Well, where do these subsidies and handouts go? They benefit the big supermarkets who can continue to sell food no matter how bad things get, so food is one of those really safe defensive plays. My stock pick here is Woolworths, which is a perfect defensive play because not only does it have huge market share in supermarkets but it also has liquor and gambling businesses and these are 2 other sectors that have historically held up very well during economic downturns. You’d have a hard time putting together a better defensive portfolio under one stock code if you tried.
| Code : WOW | Price : 26.76 | Weight : 30% |
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Anyone who wasn’t born yesterday would have heard that in the developed world we have an ageing population. On top of that there is a growing awareness that the Upward Mobility for the younger generations is not what it used to be. For example, in Australia the Millennial generation is kicking up quite a fuss because of its inability to acquire affordable housing. Partly this is due to our massive housing bubble, but with robot AI and automation on the way there is genuine concern that the youth is going to find it even harder to earn enough to save. All those entry level positions like flipping burgers at the local McDonalds will be gone because all those unskilled jobs are likely to be automated. What does this mean? If the financial order doesn’t change it means a lot of the country’s wealth is probably going to stay with an increasingly aged population which is going to need a lot of care, but it is care that they are going to be able to afford. My 2 stock picks here are both Residential Aged Care providers who have both recently been added to the ASX 200 and are maturing in this growth industry. They are Japara Healthcare and Regis Healthcare and interestingly they have both had a bit of a pullback over the last 2 years and are kicking off fresh rallies. If you’re a Buy-The-Dipper then you’ll struggle to find 2 better looking charts.
| Code : REG | Price : 3.75 | Weight : 10% |
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| Code : JHC | Price : 2.18 | Weight : 10% |
So that rounds out the remainder of my stock portfolio for December. The Defensive Plays are not particularly exciting but investing is not supposed to be exciting. I am constantly amused at the moment that Bitcoin is now pitching itself as a Store Of Wealth and yet it is behaving like a completely Speculative Asset. Any Store Of Wealth that has the potential to drop 10% or 20% of any given day and it be considered “Normal” price action is not really a very good Store Of Wealth in my book. Yes, Cryptos are exciting and have the potential to change the world but don’t kid yourself. Putting money in Bitcoin right now is gambling. Good luck to you if you are riding this mania cycle out. I’m prepared to be wrong on this and it won't cost me a cent….are you prepared?
DISCLAIMER – This information is for general information only and should not be taken as financial advice. I am not a financial adviser and I encourage all readers to seek independent financial advice before investing in any of the above stocks.
http://forex.info
https://assets.entrepreneur.com
https://www.woolworthsgroup.com.au
http://www.alameinnlc.com.au
Stocks are in bubble too.
Precious metals seem to be more viable option.
Ive been thinking of doing the same thing but than I think, how can any stock come close to everything related to crypto.
It'd be tough to find anything in the stock market that could compare to the returns that crypto is giving right now.
My current strategy is a bit more about wealth preservation right now though.
Ya it's prob a wise choice!
I’ve been trading crypto and stocks for a bit too and boy is it a great time for both. I have been playing some crypto stocks as well. I like the volatility of the markets. Good luck my friend!
For sure, if you are swing trading the volatility then you'd be having a great time at the moment in both crypto and stocks. I hope you continue to do well!
Sounds like very solid advice man, those are definitely safe bets.
Thanks mate. Just seems like a good time to play it safe.
There are some pretty good gold producers on the TSX if you are familiar with the Canadian stock market. You have a very similar real estate bubble to us and Pot stocks have been going well in Canada too if you read my first post our countries have a lot in common right now!
If it's purely defensive, why not do an index etf like qqq, spy, or dia?
ETFs are great for diversification but are better for passive investing. I do like to be a bit more active and try to cherry pick my investments.
Plus there is always a little bit of administrative overhead with an ETF that you can bypass if you buy the shares direct.
nice work friend , good luck
very informative post. thnx sharing with us.i hope you will next post again very informative
good read, thanks!
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