Stable stock ideas for volatile markets

Friday, Oct 19 2018 by
62
Stable stock ideas for volatile markets

I don’t know about you, but the recent market correction has rearranged my portfolio with all the subtlety of a bull in a china shop. I imagine I’m not the only investor sweeping up broken crockery right now.

As I write, the FTSE 100 has found a degree of resistance at the 7,000 level (down from 7,877 in May earlier this year). Macro fears abound: Brexit, trade wars, increasing debts, weakening underwriting standards and the gradual normalisation of interest rates, to name a few. The days are also getting shorter, but my colleagues assure me this happens every year.

Perhaps unsurprisingly, 2018 has been a volatile year. We are more than nine years into a bull market and pretty much in uncharted territory. If the UK stock market was an ‘X’ on an old pirate’s map, it would be scrawled right next to a ‘Here Be Monsters’ sign in the middle of the ocean.

The nature of this bull market deserves a book in its own right, propped up as it has been by the most massive bout of global quantitative easing in human history. There have been some unprecedented monetary policies enacted in the past decade by central banks, which makes second-guessing this market especially tricky. One thing is for sure: we may be in the middle of this bull run or we might be nearing the end, but we are certainly not at the start.

The risks are skewed to the downside but if you are not quite ready to start storing cash under your mattress just yet, it might at least be prudent to consider a couple of stocks with defensive characteristics.

With this in mind, I went to ‘Browse Sectors’ in Stockopedia's drop-down ‘Home’ menu, opened up the ‘Consumer Defensives’ sector, sorted its constituent companies in descending order of StockRank, and picked the top three UK-listed stocks to have a look at. (Click here for a shortcut)

Wynnstay (WYN)
Share price: 440p
Market cap: £86.9m
StockRank: 98

I was surprised to see Wynnstay pop up. I invested in this company because it is very boring, operates in the countryside away from the London hype machine, and has been around forever (well, since 1918). WYN began life as a farmers’ co-operative but grew steadily over the ensuing decades and, via a series of mergers and acquisitions (the latest being the…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Tate & Lyle PLC is a provider of ingredients and solutions to the food, beverage and other industries. The Company's segments include Speciality Food Ingredients and Bulk Ingredients. The Speciality Food Ingredients segment's product categories include dairy, beverage, bakery and convenience. The Bulk Ingredients segment's product lines include bulk sweeteners for food and beverage customers, and industrial starches for paper and construction industries. The Company's portfolio of products includes DOLCIA PRIMA Allulose, PUREFRUIT Monk Fruit Extract, TASTEVA Stevia Sweetener, CLARIA Functional Clean-Label Starches, PROMITOR Soluble Fibre, PromOat Beta Glucan and SODA-LO Salt Microspheres. The Company operates primarily in two industries: corn wet milling and sweeteners. The Company operates a network of corn elevator facilities across the United States Midwest. more »

LSE Price
720.6p
Change
2.6%
Mkt Cap (£m)
3,283
P/E (fwd)
13.7
Yield (fwd)
4.3

Wynnstay Group plc is a United Kingdom-based company, which is a supplier of products and services to the agricultural industry and the rural economy. The Company's segments include Agriculture, which is engaged in manufacturing and supply of animal feeds, fertilizer, seeds and associated agricultural products; Specialist Retail, which supplies to a range of specialist products to farmers, smallholders and pet owners, and Other. Its Feed division, which operates approximately two compound feed mills and one blending plant, offers a range of animal nutrition products to the agricultural market. It operates approximately 50 Wynnstay Stores, which provide a range of products for farmers and rural dwellers. Its Just for Pets, which is based in Hartlebury in Worcestershire, has over 20 specialist pet product stores operating on retail sites throughout the West Midlands. Its Youngs Animal Feeds manufactures equine and small animal feeds from its production facility at Standon. more »

LSE Price
402.5p
Change
-1.2%
Mkt Cap (£m)
80.6
P/E (fwd)
10.9
Yield (fwd)
3.4

Carr's Group plc is engaged in the agriculture and engineering activities. The Company's segments are Agriculture and Engineering. The Agriculture segment includes the sale of animal feed and feed blocks together with retail sales of farm equipment, fuels and farm consumables. The Engineering segment includes the design and manufacture of bespoke equipment for use in nuclear, oil and gas, and petrochemical industries. Its products include manipulators, robotics, specialist fabrication and precision machining. The Company's agriculture division develops and supplies a range of branded animal nutrition products into the livestock industries, as well as services the United Kingdom farming and rural communities through a network of retail stores and fuel businesses with manufacturing locations in the United States, United Kingdom and Europe. It is focused on the design and manufacture of pressure vessels and steel fabrications. more »

LSE Price
159.75p
Change
0.3%
Mkt Cap (£m)
145.6
P/E (fwd)
11.1
Yield (fwd)
3.0



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22 Comments on this Article show/hide all

Howard Marx 21st Oct 3 of 22
7

In reply to post #410504

Agreed, during the last bear market (2007-09), Defensive sectors in the US (Utilities, Healthcare,  Consumer Staples) did better than either the Cyclical sectors or the broader indicies, yet still managed to fall by 45%, 40% & 31% respectively. 

Holding cash was the only place to hide last time around.

5bcc88f0760cf2007-09_by_sector.jpg


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timarr 21st Oct 4 of 22
4

In reply to post #410524

Holding cash was the only place to hide last time around.

I know what you mean, but not quite. AAA bonds returned about 5% and Gold and Managed Futures about 16%. I love this graphic from Visual Capitalist, which looks at what's worked in the US in the 5 major crises we've had in the last 25 years:

Every situation is unique, but generally the types of asset classes that protect investors in times of crisis are not necessarily the same as those during a bull run. Therefore, it’s worth taking a look at five previous periods of distress to see the returns of conventional and alternative asset classes.
http://www.visualcapitalist.co...

Worst three performers out of all asset classes over all 5 crashes ... small cap stocks, large cap stocks and international stocks. Basically just avoid stocks.

timarr

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brianbathgate 21st Oct 5 of 22
1

Thanks for that Jack, as a relative newcomer to Stocko I am still learning to crank the handles. Like you I have recently been looking for "resilient" stocks for the next 3 to 6 months. My only recent purchase popped up top using your shortcut on another sector, it would be good to get some of our experienced experts view on resilience factors.

Are you presenting one of your stocks to Stock slam next Wednesday? I'll be a very interested member of the audience.

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TangoDoc 22nd Oct 6 of 22
3

The strategy I favour is to select stocks that have always paid a reasonable div and make money whatever anyone thinks of their value and hold them while they continue to perform that way. I am not clever nor lucky as a trader so rely on being a farmer since I have no need to sell any stock at any time.That's not to say I ignore market movements but I certainly don't feel gloomy while the human race still has to eat, drink, dispose of waste, bank, travel and replenish. In that sense, Tate & Lyle (LON:TATE) is certainly in my portfolio.

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donald pond 22nd Oct 7 of 22
2

if you want a truly defensive sector I would have thought Infrastructure was a good place to start: HICL Infrastructure (LON:HICL), BBGI SICAV SA (LON:BBGI) etc. Big dividend players, assets that are resilient throughout market cycle.

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dfs12 22nd Oct 8 of 22
1

Another vote for Tate & Lyle (LON:TATE). For me it is a goldilocks share... good value but not worryingly cheap (V=67), good dividend (Yield 4.6%) but sustainable and good cover (1.79), a bit of debt but not too much (gearing of 13%), momentum rank is high (91) and has been improving over the last few months (+29 in the last 3 months), balance sheet ok (Price to tangible book 3.3), not expensive on price to sales (1.1) especially when one looks at a good net margin (9.78%). The other thing I like about it is that it probably has a "image problem". Most people associate Tate & Lyle (LON:TATE) with sugar production at a time when sugar is the new evil, even though they are now a company who helps companies reduce the sugar content of their products having sold the sugar business years ago.

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Jack Brumby 22nd Oct 9 of 22

In reply to post #410474

No worries Charles, of the three it seems to me like TATE has the more defensive characteristics. WYN and CARR actually strike me as more cyclical, and both have low margins. They may have their merits and might both be good companies, but they're not quite what I was expecting to pop up! DYOR, of course.

Good luck to you too!

Jack

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Jack Brumby 22nd Oct 10 of 22

In reply to post #410504

Sounds like wise advice, Mechanical Bull. Did you get the sector performance from Stockopedia or somewhere else? It's useful context. I was surprised to see that two of the three companies that came up have cyclical characteristics -- I wouldn't instinctively classify them as defensive...

Valuation is also key. On the link below I think the right-hand side of the sector table deserves a mention -- the consumer defensive sector is more expensive than some of the others and this should be taken into account.

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Jack Brumby 22nd Oct 11 of 22

In reply to post #410544

Hi Brian, I will be at the Stock Slam but I'm not sure if I am presenting yet. Look forward to seeing you there in any case!

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vik2001 23rd Oct 12 of 22

i just noticed in the US Russell 2000 the 50 day MA is about to cross down over the 150 MA. which is a signal of a bear market in this small cap space.

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Howard Marx 23rd Oct 13 of 22
2

In reply to post #410799

It's getting close.

If you sell on this so called 'death-cross', which techncal trigger do you use to re-enter? When the 50d crosses above the 150d again?


5bcefc715c44arut_2018_50dsma_150dsma.jpg


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BH1991 23rd Oct 14 of 22
2

In reply to post #410889

Hi Howard Marx

Yes, you re-enter on the "Golden Cross" which is when the 50 DMA moves sharply above the 200 DMA (or 150 DMA in your case). You can find Golden Cross examples under Tools >>> Chart Signals if you're interested in applying this to individual stocks.

The ratio between the 50 DMA and 200 DMA is considered an important part of momentum. In fact, emperical studies suggest it's predictive of excess market returns if the 50 DMA is above its 200 DMA (the higher the better) and it forms part of the Stockopedia Momentum Rank.

Trading the Golden Cross can be an excellent trading strategy in itself, but you must be careful of "false signals" - they're numerous. Therefore, combining this with fundamental analysis such as upward analyst earning revisions, improved market sentiment etc. will help you find winners.

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cmills93 24th Oct 15 of 22
3

If fear you don’t know Tate and Lyle very well. It still has significant commodity businesses that make up over half the earnings, they like to talk about the added value stuff but there is a lot more to the business. The Singapore plant wasn’t closed temporarily it was closed permanently due to huge pricing pressures in Sucralose

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casper1240 24th Oct 16 of 22

In reply to post #410474

Me too have kept NAT.GRID UNITED UTILITIES,PLP.DS SMITH AND GLENCORE Sold my other holdings at a loss /could have made a good profit on Bodycote PLP. and Rolls r but i held my shares with Beaufort who went bankrupt so couldnt sell any till they were transfered to my new broker .

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fletty 24th Oct 17 of 22
2

i looked at the top 25 in the same sector out of curiosity and immediately excluded 9 of them including WYN and CARR, based on very high spreads (5 or 6% in some cases) and low volumes/thin trading. TATE looks OK though

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Beginner 24th Oct 18 of 22
1

The recent sharp falls have left most REITs unaffected; insurance has seen little volatility, and tobacco has seemed quite resilient. Alternatively, should income seekers think about shifting into preference shares to guard their dividends?

If a rising tide lifts all boats, surely the ebb tide will bring them all down too? To really squeeze the metaphor, ships laying aground can lay no lower. This suggests a decent place for your cash might be in companies/sectors that have already taken a hammering? The latter might include Flowtech Fluidpower (LON:FLO) , Walker Greenbank (LON:WGB) , Playtech (LON:PTEC) , Centrica (LON:CNA) and Cenkos Securities (LON:CNKS). None of the latter seem in danger of busting, they all have ample room for expansion, each has some form of moat, and they all display a proven track record of profitability.  During the most recent flap none of these shifted that much, so there may be stability here, or futility.  Perhaps not so much bottom fishing as sifting through the mud!

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Jack Brumby 24th Oct 19 of 22

In reply to post #411184

Hi cmills93,

No I don’t know Tate & Lyle’s business very well -- I hoped this article might throw up some new research candidates and that's what happened!

I see you’re right re. the Singapore factory, thanks. When I was writing this up I went to the FY15 accounts and found a reference to an ‘extended shutdown of the Singapore plant following the accident in April 2014,’ but missed the wider, permanent restructuring, apologies.

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Jack Brumby 24th Oct 20 of 22
1

In reply to post #411379

Beginner -- not stocks I’m too familiar with, but that’s quite the extended metaphor in any case. Here’s to plain sailing!

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Catstycam 24th Oct 21 of 22

In reply to post #410474

Good very late evening cafcash49.

I agree largely with what you are saying. I too sold out of the market totally about 2 weeks ago due to the market conditions. There is little reason for any optimism at present and some major black clouds around. Of course we have seen it all before and (over time) have pulled through. This may be part of a market correction or something much more like the end of a long and now very tiring bull market and the start of a bear market. There are many investors who over the last 9 years have only known a bull market with the occasional correction, but far fewer who have experienced a bear market which can last not weeks, or months but a year or more.

This evening I did an interesting exercise. I looked back at my trades since January 2016. Out of around 24 trades bought only 4 are currently above what I sold out at, despite many of them trading higher at some time after I sold out. I find that particularly worrying. Had I kept all the holdings I would be significantly worse off. Some luck, some good judgement - we need both. I would have been far better off had I not held onto shares which had at one time been in profit only to sell them only once they had fallen back into a loss.

Regards and good lucik

CM

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james1n 11th Nov 22 of 22

Hi Jack,

Whilst the first port of call after some market choppiness might be to look at Defensives, have you considered Begbies Traynor (LON:BEG), which is at heart an insolvency specialist? If we get a sustained downturn, this is one company who could stand to profit in such circumstances. I have previously held Begbies Traynor (LON:BEG) and they have spend recent years seeking to broaden its range of activities so as to avoid cyclical impacts and doing quite well as a look at the stock page might suggest.

The other thing I have been looking at it Pharma companies (although have not looked at back-test data at this point) as I would anticipate that these may be less susceptible to a down-turn, although comments on this line of thought are very welcome!

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