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2 Defensive Stocks Investors Could Consider - Coles And Amcor

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Why are Coles Group and Amcor a defensive stock?

The main reason why Coles Group and Amcor are defensive stocks is because the success of these companies is not entirely linked to the performance of the economy. For example, everybody needs to buy food to eat, therefore regardless of what is happening in the economy, assuming people have some level of income, people will continue to buy food. As Coles Group is a major player in the food industry in Australia, Coles Group are relatively protected in an economic downturn. Amcor is similar to Coles Group in a sense that the success of Amcor is not entirely linked to the performance of the economy. The reason being that food, medicine and so on packaging will always have to be used.

 

AMC


Coles Group Ltd (ASX: COL)

Coles Group Ltd (Coles group) is a large Australian retailer, providing customers with everyday products including fresh food, groceries, household goods, liquor, fuel and financial services via its store network and online platforms. The Coles supermarkets segment accounts for most of the group's sales and earnings. Coles is the second-largest Australian grocery retailer behind Woolworths Group Ltd (ASX: WOW), with a market share of around 29% of the grocery market compared Woolworths market share of around 37%.


How has Coles Group performed recently (March 2020 quarter)?

Coles’ total March quarter 2020 sales revenue increased by 12.9% to $9.2 billion ($8.2 billion in the December quarter 2019).

Supermarkets performed strongly in January and February prior to the impact of COVID-19 and achieved comparable sales growth of 13.1% for the March quarter 2020. In late February, Supermarket sales growth was impacted by customer stockpiling as a result of rising concerns relating to COVID-19, which continued throughout March.

Liquor was negatively impacted by bushfire smog over capital cities and floods in January and February (which has a negative impact of sales growth), before being impacted by COVID-19 later in the quarter (which had a positive impact on sales growth).


What has been Coles’ resent share price performance?

Coles share price is down 15% from the February 2020 high and is currently trading at A$15.24. This compares with the ASX falling around 23% of the February 2020 high. Coles has a forward P/E ratio in the low twenties and a dividend yield of around 2.6% (fully franked).


Amcor PLC (ASX: AMC)

Amcor PLC (Amcor) is a global leader in developing and producing packaging for food, beverage, pharmaceutical, medical, home, person care and other products. Amcor plays an essential role in the supply chain for essential consumer goods. Amcor has 250 sites in 40+ countries. Amcor has a market capitalisation of A$22 billion.

How has Amcor performed recently?

As shown from Amcor FY20 results released 12 May 2020, net sales for the nine months ended 31 March 2020 is $9.3 billion. This is only slight down 3.5% compared with the corresponding period. Earnings per share for the nine months ended 31 March 2020 is 44.7 cents, up 10% compared with the corresponding period.

Interestingly, this result shows that Amcor was not hurt by the impacts of COVID-19 compared with other companies. Amcor notes that during the third quarter, demand for health care globally and most food and beverage end markets were relatively strong in the developed world but weaker in emerging markets including China and India. This shows that regardless of the economic environment, Amcor business is essential to the global supply chain of these consumer goods.


What has been Amcor resent share price performance?

Amcor share price is down 10% from the February 2020 high and is currently trading at A$14.40. This compares with the ASX falling around 23% of the February 2020 high. Amcor has a forward P/E ratio in the mid-teens and a dividend yield of around 4.7% (unfranked).


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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