5 Defensive Stocks For Safety And Protection

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 |  Includes: ABEV, BIG, PM, SAFM, THS
by: Investment Underground

The current uncertain times and turmoil in stock markets make it imperative to add defensive stocks into investment portfolios. These stocks are expected to provide reasonable returns irrespective of market movements. Five such currently attractive stocks are; an alcoholic beverage company, a closeout retailer, a processed food manufacturer, a poultry company and a cigarette manufacturer.

Companhia De Bebidas (ABV) – The biggest Latin American brewery also produces carbonated soft drinks and other non-alcoholic and non-carbonated products in the Americas. With 68% market share, it dominates Brazil's beer market. The company’s normalized profit for the second quarter 2011 was 20.4% higher compared to the same quarter last year.

The company has shown good performance over the last ten years. The sales and net income had been growing at an average rate of 14% and 22% respectively over the last ten years. The book value per share has also seen an average growth rate of 18% over the same period.

The five-year average return on equity is 27%. The long track record is good enough to alleviate any fears generally associated with companies operating in Latin America. In fact, its emerging market focus adds an additional layer of defense to an already defensive stock.

Big Lots Inc. (NYSE:BIG) –The stock has shown stable sales over the last five years but the net income has been growing at an average rate of 15% over the same period. The five year average return on equity is around 19%. The company has been recording strong free cash flows and deploying it by buying back shares, returning value to the shareholders. The company’s strength also lies in its balance sheet which has very little debt.

The broadline closeout retailer recently posted better-than-expected second-quarter 2011 results. The company has started its Canadian operations after acquisition of Liquidation World Inc. The acquisition is expected to increase revenues in the coming years and generate long-term growth prospects for the company.

TreeHouse Foods Inc. (NYSE:THS) – The processed food manufacturer has shown good growth in sales and net income at an average rate of 14% and 15% respectively over the last five years. The five-year average return on equity is 8.6% and the book value per share has been growing at an average rate of 8% over the same period.

Sales for the second quarter of 2011 increased by 10.4% as compared to the same quarter last year. The company reaffirmed its previously announced guidance range of $0.80 to $0.85 in adjusted earnings per share for the third quarter and $2.90 to $3.00 in adjusted earnings per share for the full year 2011. At current levels, the stock has good upside potential.

Sanderson Farms Inc (NASDAQ:SAFM) – The US poultry industry is currently going through one of the worst phases as the prices of corn and soybean meal have increased substantially since last year. At the same time, chicken prices are near all-time lows on weak demand amid high unemployment. This has resulted in plummeting prices for stocks in this industry. Sanderson Farms also reported higher than expected losses and is trading near its 52-week low level.

The integrated poultry processing company has shown good performance over the last ten years. The sales and net income had been growing at an average rate of 11% and 17% respectively over the last ten years. The book value per share has also seen an average growth rate of 15% over the same period. The five-year average return on equity is 12%.

The industry should see recovery over the next several months. The input costs are expected to decrease when crop production will be good and the chicken prices are expected to rise due to lowered supply levels. Based on its strong fundamentals the stock is expected to come back near its true value offering returns to investors entering at current levels.

Philip Morris International Inc (NYSE:PM) – The company has shown stable sales and earnings over the last ten years. The five-year average return on equity is 65%. Strong international presence, brand name, pricing power and solid dividends are its key strengths.

The company reported 14% growth in diluted earnings per share and 10.2% growth in revenues, excluding currency effects, for second quarter 2011 as compared to the same quarter last year. The company experienced good growth in the Asian region. It raised its EPS guidance by $0.15 to a range of $4.70 to $4.80 for the year 2011.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.