If you’re looking for ASX shares with attractive defensive properties to shield against negative market forces, while also providing great long-term growth potential, I don’t think you can go past these two choices.
Amcor PLC (ASX: AMC)
Amcor is a global packaging company that develops and produces a broad range of specialty cartons, as well as flexible and rigid packaging products. The company operates in around 250 locations across over 40 countries. Founded in Melbourne, Amcor is now very much a global company with Australian and New Zealand sales accounting for less than 3% of overall sales in FY19.
In mid-2019, Amcor completed the acquisition of US-listed Bemis Company, a producer and supplier of flexible and rigid plastic packaging used by food and healthcare companies worldwide. The new combined entity is now officially referred to as Amcor Plc.
The acquisition provides Amcor (and the merged entity) greater scale, higher cash flows and margins, and increased exposure to attractive markets including a presence in North and Latin America.
The merger also broadens Amcor’s exposure to defensive industries such as food, beverages and health, providing more stable earnings at various times during the economic cycle.
The merger has seen Amcor expedite its strategy to make 100% of its packaging either recyclable or reusable by 2025.
In FY19, Amcor increased its sales by 5% to US$9.5 billion. The company’s earning before interest and tax (EBIT) margin increased by 10 basis points to 11.4%, while net profit rose by 9% to US$730 million. Adjusted free cash flow increased 14% to $733 million, almost right in line with net profit.
Along with this growth, Amcor shares are currently trading on an attractive trailing dividend yield of 4.1%.
Sydney Airport Holdings Pty Ltd (ASX: SYD)
The Sydney Airport share price has performed reasonably strongly over the last 12 months, up by nearly 25% during this time.
Sydney Airport shares have lost a bit of ground over the past month, possibly due to concerns over the coronavirus, and the potential impact it can have on travel. However, the Sydney Airport share price has been hit much less than other travel-related shares such as Webjet Limited (ASX: WEB) and Corporate Travel Management Ltd (ASX: CTD), which is a good indicator of its resilience to negative market impacts.
Sydney Airport is a pure monopoly, which gives the company enormous pricing power. This can be illustrated by the extraordinarily high parking fees in its car parks. The airport’s monopoly status also enables it to leverage all the growth in its industry segment as passenger numbers will continue to climb over the long term, driven by increasing domestic and international travel.
In the half-year to September 2019, revenue rose 3.4% higher compared to FY18 and totalled $797.1 million. Earnings before interest, tax, depreciation and amortisation also rose higher, climbing 4.1% to $649.2 million.
Similarly to Amcor, Sydney Airport shares have an attractive trailing dividend yield that sits at 4.5% at the time of writing.
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Motley Fool contributor Phil Harpur owns shares of Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Sydney Airport Holdings Limited. The Motley Fool Australia has recommended Amcor Limited and Webjet Ltd. 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. 2020