Over the coming months, share prices are likely to be volatile following Donald Trump’s election win. That’s not necessarily because his policies are good or bad, but rather because they’re likely to represent significant change from the status quo. As such, investors are likely to adopt a more cautious attitude over the coming weeks and particularly once Trump becomes President.
Therefore, it may be prudent to buy shares of defensive companies that aren’t closely tied to the fortunes of the wider economy. Here are two such stocks that could outperform the wider index over the medium term.
United Utilities
Water services company United Utilities (LSE: UU) offers a highly stable and robust financial outlook. The utilities sector is seen as a safe haven during times of economic distress by many investors, which could increase demand for its shares. Furthermore, the chances of a rise in US interest rates may decline due to the political uncertainty there. This could benefit highly indebted companies such as United Utilities and help to push its share price higher.
It also offers a relatively high yield of 4.4%. Due to the company’s resilient business model, the chances of dividends being paid is high, while they should provide growth in real terms over the coming years. Certainly, there’s change ahead with the liberalisation of the water services industry set to take place next year. However, United Utilities is well-placed to take that change in its stride.
Although it may not offer high earnings growth over the medium term, the company could gain popularity in a volatile market. It has a beta of just 0.6, which alongside its high yield mark it out as a logical stock to own ahead of a Trump presidency.
Shire
Healthcare companies such as Shire (LSE: SHP) also offer defensive attributes since they’re less cyclical than most of their index peers. In Shire’s case, its future performance is largely dependent on the success of its merger with Baxalta. There are doubts among some investors as to whether the two companies will prove to be a good fit. However, synergies are set to be realised and the combined growth potential of the two companies is likely to be significant.
In fact, Shire is expected to record a rise in its bottom line of 92% in the current year, and a further 19% next year. Both of these figures have the potential to push Shire’s share price higher – especially since the company trades on a price-to-earnings growth (PEG) ratio of just 0.6. This indicates that Shire has a wide margin of safety so that even if its financial performance fails to meet guidance, its shares may not come under severe pressure.
As with United Utilities, Shire has a relatively low beta of 0.8. This means that it should deliver a less volatile shareholder experience than the wider index, which could be a useful ally in the coming months.
