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Defensive investment strategies are those that maintain holdings in safe assets, which include stocks that meet a certain criteria that avoids losses in market value. These companies operate in businesses characterised by favourable capital structures and liquidity, and have a demonstrated history of producing earnings. Let’s take a look at the three examples below.
DuluxGroup Limited (ASX:DLX)
DuluxGroup Limited manufactures, markets, sells, and distributes paints, coatings, adhesives, and garden care and other building products in Australia, New Zealand, Papua New Guinea, China, South East Asia, and the United Kingdom. Formed in 1918, and currently run by Patrick Houlihan, the company employs 4,000 people and with the stock’s market cap sitting at AUD A$2.83B, it comes under the mid-cap group.
DLX has a robust financial position , with long-term commitments covered by cash and short-term assets at a ratio of 1.18x. Additionally, operating cash flow is at a good level relative to overall debt at 40.02%, creating greater safety for investors in a fickle market. Moreover, as its price gives it a AU$2.83B value on the market , the company provides decent liquidity to investors, which reduces risk of firm price declines and allows you to sell without a large loss due to unattractive spreads. Returning 34.29% on equity as earnings grew 9.60% in the past year, surpassing its 5-year annual average of 9.30%, has some of the necessary characteristics to maintain value during a cyclical downfall in the market. Continue research on DuluxGroup here.
Bank of Queensland Limited (ASX:BOQ)
Bank of Queensland Limited, together with its subsidiaries, provides various financial products and services in Australia. Established in 1874, and now led by CEO Jon Sutton, the company currently employs 1,859 people and with the market cap of AUD A$4.30B, it falls under the mid-cap stocks category.
BOQ has a robust financial position , with the majority of liabilities made up of low risk funding such as deposits which account for 77.65%. On top of this, the amount of loans that default sits at an insignificant 0.43% of total loan assets, providing greater comfort for investors that the company is well-grounded if equities become out of favour. With Bank of Queensland’s market value of AU$4.30B and a PE ratio of 12.05x, there are active participants in the market for the stock and there could still be room for value in the price, helping curtail the rate of decline in share price during periods of mass selling. Considering earnings have also grown annually at 24.79% over the past 5 years, BOQ is a fundamentally strong defensive company. Dig deeper into Bank of Queensland here.