If you are coming to the stock market with your first £2k to invest, I reckon it’s a good idea to look first in the lead FTSE 100 index, which is packed full of well-established sizeable enterprises.
But I’d avoid the more-cyclical companies and go instead for defensive operations such as these two.
Distribution and outsourcing
I’ve liked Bunzl (LSE: BNZL) for some time so was a little surprised to see the stock drop almost 20% during April and May. The specialist international distribution and services firm delivered its first-quarter update in April saying the rate of underlying revenue growth had slowed during the quarter “due to mixed macroeconomic and market conditions.”
The slowdown was at its most acute in North America where the growth rate dropped to about 1%.
That kind of news was enough to spook the skittish stock market even though Bunzl went on to say further down the report that it had seen good growth in the safety, processor, agriculture and convenience store sectors. And there was still underlying revenue growth of about 2% in continental Europe, the UK, Ireland and the Rest of the World.
My view is that the business model has resilience, as exemplified in the firm’s unbroken 26-year record of dividend-raising. The company supplies non-food and generally not-for-resale products to various businesses, organisations and sectors. We are talking stuff such as food packaging, grocery, films, labels, gloves, bandages, safety consumables, chemicals, and products for cleaning and hygiene. Good old consumable things that help keep customer-companies ticking over in their day-to-day operations.
Another update in June confirmed growth hasn’t slowed any further. Meanwhile, the company has growth very much still on the agenda and directors are working an “active” pipeline of acquisition opportunities. I see the weakness in the share price as a buying opportunity and consider the growing dividend yield running close to 2.5% to be attractive.
Pharmaceuticals
The defensive pharmaceutical sector continues to display attractive qualities, in my view, and I’d be keen to make one of the big London-listed pharma giants such as GlaxoSmithKline or AstraZeneca (LSE: AZN) a core holding in my portfolio. Indeed, depending on the size of your invested funds, maybe holding both would be desirable.
Both firms have been in the doldrums over the past few years because of the well-reported patent-expiry issue – where patent protection times-out on previously best-selling and money-spinning products leaving the door wide open for generic competition to swoop in and gobble up the market.
But AstraZeneca has been working hard on its research and development pipeline, trying to rebuild profits from new launches and potential new product stars.
There’s some evidence the plan is working. In April, the firm reported results in the first quarter were supported by growth in product sales growth of 10%, which it said is “a reflection of the sustained performance of new medicines.”
I reckon the company is on the way to regaining its growth mojo over the next few years, so consider the dividend yield running near 3.4% to be attractive.