While the FTSE 100 has slumped by 12% in the last six months, shares in Vodafone (LSE: VOD) have fared much better. While they are down, they have fallen by just 2% and this is evidence of their defensive nature which, at the present time, has huge appeal for investors given the uncertain outlook for the index.
However, Vodafone is much more than just a defensive stock to own during rough patches for the rest of the market. In fact, its business may not be as defensive as it was in the past, since it lacks the same extent of regional diversity as it once did following the sale of its stake in North America-focused Verizon Wireless. This shifted Vodafone’s dependence onto Europe; a region that has struggled to deliver any kind of economic growth in the recent past, but where Vodafone is buying up discounted assets and investing in the quality of its infrastructure.
And, with Europe offering relatively bright future growth via an expansionary monetary policy, investors could soon begin to switch from Asia-focused stocks to European-focused ones, with Vodafone likely to be a major beneficiary of this.
Of course, Vodafone remains a great income play. It yields over 5% and has an excellent track record of dividend growth, with them having increased in each of the last five years. This combination of income, growth potential plus defensive qualities mean that Vodafone should continue to outperform the FTSE 100 over the medium to long term.
The same may not be true, though, for online fashion company ASOS (LSE: ASC). It is a superb business with an efficient supply chain, slick website and a relatively high degree of customer loyalty. Furthermore, it has scope to continue to expand outside of the UK, while its position as the go-to destination for twentysomethings in the UK looks fairly stable.
However, as an investment, ASOS lacks appeal. Certainly, the 25% fall in its share price in the last six months makes its appeal somewhat stronger, but it still trades on a very generous valuation given its growth outlook. For example, ASOS has a price to earnings (P/E) ratio of 61 and, while its bottom line is forecast to rise by 24% next year, it still translates into a price to earnings growth (PEG) ratio of 2.5. Although this is lower than it has been for some time, ASOS’s shares may need to come under further pressure for it to become an enticing investment for me.
Meanwhile, oil and gas exploration company President Energy (LSE: PPC) released positive news flow today regarding its reserves, which has pushed its shares upwards by 3%. The Argentinian-focused company has stated that an independent report has shown the amount of reserves and potential resources it owns is higher than previously thought. In fact, proven oil reserves are up by 21%, while proven plus probable reserves are 28% higher.
This is clearly positive news for the company and, while a lower oil price has hurt sentiment this year (President Energy’s share price is down 41% year-to-date), the increase in proven plus probable reserves has increased President Energy’s net present value by 10% to around £215m. With its shares having a market capitalisation of £45m and a price to book value (P/B) ratio of 0.4, it could be a strong performer over the medium to long term.