For now, the stock market is going up, which is good news for many investors who already own shares. No one knows though what will happen next. If markets do fall once again, then I’d want to be invested in a dependable defensive share.
A solid performer in troubled times
The tobacco group Imperial Brands (LSE: IMB) is one such share. Looked at from a purely investing perspective it’s compelling at the current time. Demand for its product isn’t going away. The dividend has been kept, at a time when many other companies are cutting back payouts to shareholders to conserve cash.
Proving just how robust and reliable tobacco producers tend to be, analysts at Deutsche Bank have said tobacco dividends are “amongst the safest in the market”.
With the shares up just a little over the last month but still on a price-to-earnings below six, I think the shares offer value. The main benefit to investors though, especially in a volatile market, has to be the dividend. The yield is now around 15% which is well above where you’d expect to see a yield.
This combination of value and income along with the defensive nature of the tobacco industry makes it an ideal share in my view to buy if you believe the market might fall once again.
And if the market does recover
If you hold the opposite view, that the worst of the bear market is over, then Hargreaves Lansdown (LSE: HL) strikes me as being a good option for a share to buy. The shares are down 25% this year so far. This has pulled the P/E down towards the mid-twenties, whereas before it tended to be in the mid-to-high thirties. The fall in the share price is almost exactly the same as that of its smaller competitor, AJ Bell.
The shares then are relatively cheaper in what is a high margin, cash generative business. This is why I think HL exhibits a lot of the qualities of what is a quality business.
It’s been hit probably a little harder than the market overall because the shares had a higher P/E and because it’s a financial business. The underlying performance of the business is still robust in my opinion.
Before coronavirus, assets under administration were rocketing up 22% for the year ending December 2019. At the same time, earnings per share, profits, and revenue were also all strongly up.
The trend towards people managing their own pensions is one that will accelerate and help drive profits at HL. As will the generous ISA allowance. The two things mean ever more assets under administration, which gives HL money it can skim charges off of.
Regardless, of what happens to the stock market overall, I think both these shares are attractive for investors. That said, Imperial Brands in the short term will be better positioned to weather a more volatile market, whereas Hargreaves Lansdown will do better in a recovering bull market.
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Andy Ross owns no share mentioned. The Motley Fool UK has recommended Hargreaves Lansdown and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.