What are the interesting defensive stocks right now?

Here are the defense supplies suggested by four experts. (Photo: 123RF)

We asked experts to suggest quality and interesting defensive stocks right now. Here are their choices.

A selection by David Caron

Senior Director, Portfolio Manager, North American Equity Division, IA Global Asset Management

(Note: David Caron’s portfolios hold positions in the companies mentioned.)

1. Constellation Software (CSU, $3,184.43)

When the economic environment is difficult and the cost of financing is as high as it is now, times are often tougher for companies that rely on acquisitions for growth. It’s a different story with Constellation Software, as the Toronto-based company has money to spend, notes David Caron. “It can count on excess cash flow and an excellent balance sheet,” he explains. In a difficult economic environment, it is interesting. »

Through its six subsidiaries, Constellation Software acquires, manages and builds software that meets the needs of a variety of target markets, from medical clinics to moving companies, spas and agriculture.

“If inflation is high and financing conditions are tightening for businesses in general, Constellation will find itself one of the only potential buyers in certain cases,” explains David Caron. Because it is able to deploy capital quickly, the profitability of its acquisitions is more attractive. »

Up 42% year-to-date through mid-November, the stock is far outperforming the S&P/TSX (+1%), but it’s still a good time to buy, David Caron believes. “It’s still a very good company to hold in your portfolio for the long term,” he says.

2. Brookfield Infrastructure Partners (BIP.UN, $37.11)

A stock may be in trouble because it is a company going through a period of turbulence, or because the market has not well assessed its potential. According to David Caron, Brookfield Infrastructure falls into the latter category. “The title was penalized despite its defensive attributes, which may not have been well regarded. That is why the stock is currently trading at a very attractive level,” he says. In many cases, energy companies have significant debt and need to refinance, which is complicated these days. “In the case of Brookfield Infrastructure, this is not necessarily the case,” adds the manager.

Brookfield Infrastructure is a classic defensive stock. In particular, the company owns and operates infrastructure that transports electricity and natural gas, in addition to being active in data storage. “Some of the company’s assets are protected against inflation by contracts,” explains David Caron. Even if inflation remains high in the coming months, it may increase the price charged for using its assets. »

David Caron adds that Brookfield Infrastructure should also do well in the coming months even though we are witnessing stagflation – very little or no economic growth combined with inflation that remains high.

3. Element Fleet Management (EFN, $21.21)

The Toronto-based fleet manager has several strings attached in the context of the economic slowdown, says David Caron: a business model that’s up-to-date, an order book that’s crowded and a strategy that has plenty to please shareholders.

First, the business model. Element Fleet’s selling point is reducing operating costs for the approximately 1.5 million vehicles that make up the fleets it manages. “It’s a service offer that can be interesting in the context of an economic slowdown,” says the manager. What’s more, he adds, “the company is one of the leaders in all the markets it’s based in,” namely Canada, the United States, Mexico, Australia and New Zealand.

If the economic engine falters for a few months, some firms may be less tempted to embark on fleet renewal, but Element Fleet will have plenty of work to do, he points out, as supply chain disruptions in recent years have created a bottleneck on the supply side. The result: the company was unable to deliver all the ordered vehicles as planned. “They have an order book that will keep them busy for two years. »

The company also has a habit of doing share buybacks, notes David Caron, which allows money to be returned to shareholders.

4. Granite Real Estate Investment Trust (GRP.UN, $50.62)

Available spaces are scarce not only in residential properties. This is also true in industrial real estate, and that’s what Granite Real Estate can count on to ensure stability in the coming months, David Caron believes. “It’s a market that’s still tight,” he said. There are practically no free spaces. »

Granite (formerly MI Developments) was under the umbrella of automotive supplier Magna International before striking out on its own in 2003. Ten years ago, the vast majority of Granite’s rental space was occupied by Magna. This overexposure made the investment less attractive, says David Caron. “Today, that share has dropped to 20%. Magna is still a quality tenant, but the exposure is much smaller. »

Granite’s approximately 140 properties—primarily industrial space and warehouses—located in North America and Europe are even more sought after as major U.S. companies decide to exit Asia and repatriate their production to the United States as a result of the “Inflation Reduction Act” or “Act about chips and science”, notes the manager. “I think we are in the presence of a tailwind that can support this niche, despite the fact that we might think that the industry could slow down in an unfavorable economic context,” he judges. This is a trend that we should follow in the coming years as well. »

Discover Steve Goulet’s selection on the next page.

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