Three out-of-favour defensive stocks – MoneyWeek

OnesuchstockisLloyd’sofLondoninsurancefirmBeazley(LSE:BEZ)。

Unlikeothersimilarfirms,itsunderwritingbusinessisn’tasexposedtopurecatastropherisks。

That’sdowntoafocusonlower-riskbusinesssuchasliabilitypoliciesforarchitects。

Withavaluationatthebottomendofitshistoricaltradingrange,ittradesonadiscounttoitsforecastnettangibleassets。

That’sdespitethefactthatithasdemonstrateditcangeneratehealthyreturns。

Thestockistradingonaprice/earningsratio(p/e)ofjustoverfivetimesfutureearningsandoffersadividendyieldabove6%。

Themarketseemsreluctanttoinvestinthesectoragainstaheadwindoffallinginsurancerates。

YetBeazleyiswellreservedandthesharesrepresentareasonablehedgeshouldinterestratesbegintoriseagain。

I’vealsobeenbuyingbusandrailfirmFirstgroup(LSE:FGP)。

It’sfallenoutoffavourwiththemarketmainlyasaresultofearningsdowngradesrelatingtoaUSschool-busbusinessitboughtin2007。

Followingthecreditcrunch,individualUSstatebudgetshavebeensqueezedandrevenuesforthisdivisionhavecomeunderpressure。

TheBritishrailbusinesshasalsoseenadrop-offinprofitability。

ButIbelieveprofitforecastshavenowbottomedandthevaluationlooksattractive。

Firstgroup’scoreBritishbusbusinessisrelativelydefensiveandprofitshavehitatroughfromwhichtheycannowgrow。

Thestockistradingonap/emultipleofninetimesnextyear’searningsandisyieldingmorethan5%。

Profitsshouldgrowfromhereandthedividendyieldlooksstable。

Manyinvestorshaveavoidedconstructioninrecenttimesduemainlytothesector’sexposuretothedomesticeconomy。

Thereare,though,somespecificstockopportunities。

ConsultingengineerWSP(LSE:WSH)providescivilengineeringdesignsforallareasofthesector,fromretailofficestohospitals,roadsandrailways。

Withconstructionhithardduringtherecessionasbuildingprojectsfellaway,thefirm’svaluationremainsdepressed。

That’sdowntoconcernsaboutadropingovernmentspending。

However,itsrelativelylowexposuretoUKgovernmentspendingandthegrowinginternationalandprivate-sectornatureofitsprofitscouldmeanearningsestimatesrisefromtheircurrentconservativelevels。

WSP’sbalancesheetisingoodshape,thebusinessiscashgenerativeandithasadividendyieldabove5%。

Thisiswellcoveredbyprofits,whichhavealreadyseena30%drop。

Istartedbuyingthestockwhenitwaspricedat£2。

80。

Sincethenwehavereceiveda10ppersharedividendfromthecompanyanditssharepricehasmovedupto£3。

45。

Yetnothinghaschangedinanalysts’estimates。

Thefirm’sdividendlooksstableandwellcovered。

Iwouldalsoexpectcapitalgrowthastheoutlookforprofitsbecomeslessbearishandthesharesarere-ratedfromtheircurrentdepressedearningsmultiple。

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