10 ASX Defensive stocks to protect your portfolio in 2023

Top ASX defensive shares to watch

Data as of 4 August 2023. Source: Stake, ASX.

*The list of shares mentioned is ranked by market capitalisation. When deciding what assets to feature, we analyse the financials, recent news, the state of the industry, and whether or not they are actively traded on Stake.

🎓 Learn more: What are defensive stocks and why are they important?→

Decide which is the best defensive stock for you

1. CSL Limited ($CSL)

Market Capitalisation: $127.90b

Stock price (as of 04/08/2023): $265.14

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 57% / 43%

CSL is a speciality biotechnology company with expertise in rare and serious diseases, flu vaccines, iron deficiency and kidney diseases. They are known for their blood plasma products and it has become a popular holding in many Australians’ portfolios and is one of the most traded Australian shares on Stake. The defensive stock has managed to achieve consistent revenue growth and maintain leadership in its field through regular investments in R&D.

2. Telstra Group ($TLS)

Market Capitalisation: $48.99b

Stock price (as of 04/08/2023): $4.24

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 53% / 47%

Australia’s largest telecommunications company has a number of advantages as a defensive stock. By providing essential communication services, the firm has a solid base of customers paying monthly bills. Telstra has a strong brand and very extensive network coverage across the country, a setup that allows it to charge a premium over its competitors and establish high margins in the main defensive asset classes.

3. Transurban Group ($TCL)

Market Capitalisation: $43.19b

Stock price (as of 04/08/2023): $14.02

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 45% / 55%

Transurban builds and operates toll roads in Australia, Canada, and the U.S. Its toll prices are linked to inflation levels, which enables the firm to offset rising construction costs and stabilise its financial situation in uncertain times, as well as help protect against increased interest rates. The defensive stock also benefits from a steady income, as people and businesses have resumed more regular travel patterns after the Covid pandemic.

4. Coles ($COL)

Market Capitalisation: $24.24b

Stock price (as of 04/08/2023): $18.11

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 47% / 53%

The supermarket provides consumer staples, including everyday items like groceries and personal products. Demand levels for Coles’ merchandise could stay relatively stable across economic downturns, as consumers are more likely to avoid or delay less necessary and more expensive purchases. Together with competitor Woolworths ($WOW), revenues of these defensive stocks tend to stay relatively stable across market volatility as some of the most common shops in Australia.

5. QBE Insurance Group ($QBE)

Market Capitalisation: $23.77b

Stock price (as of 04/08/2023): $15.93

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 43% / 57%

The ASX 200 insurance business helps other firms and individuals hedge against risks. Some consider the insurance sector to also have quality companies when looking for defensive stocks, with people still seeing the value of their offerings during a downturn. QBE’s clients pay regular premiums to provide consistent revenue streams. Its premiums have been mainly lifted in line with inflation, which could help them maintain operating margins.

6. Brambles Limited ($BXB)

Market Capitalisation: $19.41b

Stock price (as of 04/08/2023): $13.93

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 38% / 62%

The supply chain logistics firm provides equipment and services to help transport products. Brambles’ CHEP subsidiary creates pallets and containers to move goods from one place to another, including essential products such as consumer staples. While the general state of the global economy does affect demand for logistics, the business derives most of its revenues from customers in the food, beverages, health and personal care product segments.

7. Ramsay Health Care ($RHC)

Market Capitalisation: $13.19b

Stock price (as of 04/08/2023): $57.54

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 58% / 42%

Ramsay provides private healthcare services and operates private hospitals across several countries. People tend to prioritise their wellbeing and delaying some kind of treatments could have devastating consequences for patients. With public healthcare systems under pressure, businesses like Ramsay could increase demand in the near term as people seek alternatives for essential services.

8. APA Group ($APA)

Market Capitalisation: $11.33b

Stock price (as of 04/08/2023): $9.60

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 52% / 48%

APA Group operates a multibillion-dollar portfolio of gas, electricity, solar and wind assets across Australia. They provide essential infrastructure to the nation, such as gas transportation, distribution and storage to power the electricity network. The business receives regular income through people paying utility bills, which can be transferred to investors as dividends. With already established assets, APA does not require the same large amounts of funds for construction as new players looking to enter the industry.

9. TPG Telecom Ltd ($TPG)

Market Capitalisation: $10.11b

Stock price (as of 04/08/2023): $5.46

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 53% / 47%

Telecommunications firm TPG also benefits from regular income from its customers. As a large internet and mobile network provider, many Australians and businesses are dependent on its services for work, as well as leisure. They are known for their fibre connections, but this infrastructure has come at a cost and its consumer arm is the source of the majority of revenues. TPG has made several acquisitions over the years, but it is not clear whether this trend will continue.

10. NextDC Ltd ($NXT)

Market Capitalisation: $6.64b

Stock price (as of 04/08/2023): $12.90

Stake Platform Bought / Sold (1 Jan 2023 - 04 Aug 2023): 43% / 57%

NextDC develops and operates data centres in several countries. The business benefits from the shift into cloud computing and concerns about cybersecurity, as firms require increasing amounts of computing power and data storage solutions. Their clients tend to enter long-term contracts and shifting to a competitor is not a simple task. However, NextDC’s costs can quickly add up if data centres do not have enough customers.

What is the most defensive stock sector?

Defensive stocks are commonly found in sectors like healthcare, consumer staples, and utilities. These sectors generally experience steady demand from consumers, regardless of whether the market is in a bear or bull phase. The products and services offered by these companies are essential, used regularly by a significant portion of the population, and generally cannot be postponed indefinitely. 

These defensive sectors differ from industries like consumer discretionary, which are more influenced by consumer spending preferences and tend to experience greater fluctuations based on economic conditions. However, no company is guaranteed to weather market volatility well simply due to being in a specific sector and its performance could be impacted by internal factors such as management or brand perception. 

Do defensive stocks do well in a recession?

The demand drivers for goods and services offered by defensive companies are generally less reliant on the overall state of the economy. Whether the market is experiencing a bear or bull phase, people consistently purchase essential items like food, personal care products, and utilise services such as electricity and healthcare. While certain sectors may exhibit defensive characteristics at specific times, these attributes are not fixed and can vary over time.

Defensive companies often operate on lower profit margins but leverage economies of scale, focusing on steady and incremental growth. In contrast, growth stocks are more susceptible to economic cycles. They rely on optimism about the future and can yield high returns during periods of economic expansion. However, this also exposes them to greater sensitivity during economic downturns.

While many defensive stocks have had good past performance through times of economic uncertainty, no company is entirely recession proof and the chance of negative returns is always present. Their defensive qualities are relative to other types of stocks rather than certainties, rather the declines in stock prices will be comparatively lower than those of growth stocks.

When should you invest in defensive stocks?

Many investors like to keep defensive investments at all times as part of a balanced portfolio. Defensive stocks might not provide the same levels of returns as growth stocks during periods of economic expansion, but they don’t have an inverse relationship with the upside of the business cycle either. The focus could be on adjusting the levels of exposure to defensive stocks during market downturns.

However, predicting and timing recessions is difficult. They don’t necessarily have specific start and end dates, investors might need to deal with a volatile market for extended periods of time. It depends on what fits with your investment strategy and the amount of risk that matches your comfort levels.

This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.