Some of the best FTSE shares have been weak lately. And some investors are worried about a second, full-on, stock market crash in 2020. But I reckon there’s a good chance most of the downwards pressure could already be behind us this year.
So, I’d scour the market carefully for bargains right now. And top of my list for further research are names such as Sage, Unilever, Smith & Nephew, Reckitt Benckiser, GlaxoSmithKline, Diageo, AstraZeneca, Britvic, British American Tobacco and Cranswick.
I think that roll call reveals my love of shares backed by defensive, cash-generating businesses. Indeed, I think enterprises operating in sectors such as IT, fast-moving consumer goods (FMCG), pharmaceuticals, food supply and others are some of the best the London stock market has to offer. And many shares with defensive characteristics are eminently suitable for inclusion in my long-term portfolio. As compounding machines for building wealth over long periods of time, they are all strong candidates.
I keep an active watchlist of shares just like these. And one of my favourites has just issued a positive trading update. Indeed, Smurfit Kappa (LSE: SKG) said today trading for the nine months to 30 September has been ahead of the directors’ expectations. And this is the latest in a line of good reports from the paper-based packaging solutions provider.
I’m keen on Smurfit Kappa because it operates in the supply chain feeding the FMCG sector. In the report today, the directors said the business is “strongly weighted” towards FMCG customers. The company reckons it is “well-positioned” to enhance its growth from the accelerating trends in “e-commerce, innovative packaging and increased consumer demand for sustainable packaging.”
A big enterprise
It’s a big enterprise. Production takes place at more than 350 sites spread over 35 countries, both in Europe and the Americas. And the firm claims to be “the only large-scale pan-regional player in Latin America.” And today’s update reveals to us that revenue for the period came in at €6,312m, which generated EBITDA of €1,125m. The directors expressed their satisfaction and optimism about the outlook by declaring a second interim dividend worth 27.9 cents per share.
Looking ahead, the company expects full-year EBITDA to be in the range of €1,460m to €1,480m. To put that in perspective, the prior-year figure was €1,650m, suggesting the effects of the coronavirus pandemic on the business have not been too severe. Meanwhile, the dividend is on course to yield just over 3% for the full year with the share price near 3,202p.
I think Smurfit Kappa could serve me well as part of a diversified long-term portfolio of defensive shares. The company operates in a buoyant sector. And I reckon the business could expand further as we move into the next period of economic growth around the world.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Britvic, Diageo, GlaxoSmithKline, Sage Group, and Unilever. 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.
Motley Fool UK 2020