What’s happened to Woolworths? Its share price has dumped by some 10% over the past 6 months, and 16% over the last year? Isn’t Woolworths a so-called defensive stock that’s supposed to stand firm during downturns? Australia’s largest supermarket chain is now trading at lows not seen since mid 2008.

Woolworth’s food and liquor stores are classic defensive plays, but that’s not the extent of Woolworth’s exposure; the company also sells consumer electronics, home improvement and liquor – which are vulnerable to a high Australian dollar, sluggish consumer sentiment and the trend to online shopping (indeed, similar ills plaguing more cyclical retailers at the moment). Woolworths is also venturing out into a new territory (more below) that increases risk somewhat.

Woolworths is loosing the supermarket sales battle against its rival Coles, owned by Wesfarmers. Shares in Wesfarmers have not suffered so badly, down just 4% over 6 months and 7% over the past year. Wesfarmer’s diversification strategy into mining (the company owns three coal mines) has so far paid off.

But looking at today’s share price, RBS Australia rates Woolworths as a Buy with a price target of $29.80, slightly up from its previous target price of $29.10. RBS thinks that Woolworths can improve margins and earnings from FY13 by cutting costs and undertaking productivity improvements.

Investors approaching Woolworths as a defensive stock must consider the risks associated with Woolworth’s most recent venture – it’s Masters hardware chain that will be pitted against Wesfarmer’s successful Bunning’s stores, Harvey Norman as well as highly successful multinational Ikea. Breaking into a hardware market dominated by powerful players in an economic downturn will be a challenge to say the least. Merrill Lynch analyst David Errington warns investors that Masters is likely to be unsuccessful and loss making.

Another classic defensive stock Telstra, however, is defying all doom and gloom, its shares up 17% this year. UBS continues its Buy rating on the stock, with the view that earnings will rebound in FY12 as subscriber numbers rise. Telstra’s move into India – via its 74% joint venture with Indian Microland – will see it offer services in seven Indian cities in the next six months. The joint venture has received three new licenses in India for Internet and national and international long-distance telecom services.

Investors in CSL are not too pleased by the stock’s 15% fall over the last 6 months as the high Australian dollar eats into profits, however Citi isn’t giving up on the company yet. It rates CSL as a Buy, arguing that industry plasma volumes are increasing due to rising product demand. The big hope for investors in CSL is that its Alzheimer’s drug gets up, but that is still way off analysts believe. CSL has been a victim of the high Australian dollar.

Singapore based Miclyn Express listed on the ASX in March last year and like Mermaid Marine provides services to the offshore oil and gas industry (it has around 115 oil service ships that are chartered out on longer-term contracts). Macquarie Capital, JP Morgan and Morgan Stanley were joint lead managers on the IPO with an issue price of $1.90. Its shares have since sunk to $1.80.

Macquarie recently increased its target price from $2.04 to $2.15 based on the completion of the final 50% purchase of WA offshore services company Samson Maritime, valuing the entire WA boat business at $47 million. Since the purchase, some 15% of the company’s revenue derives from Australia with the Middle East and South-East Asia more important revenue sources. Macquarie (note here that Macquarie Capital owns some 34% of the stock’s shares since listing) thinks that the deal will be 5% earnings accretive, with forecast earnings expected to rise 2.7% in FY12 and as much as 5% in FY13.

On the banking front, Suncorp Group has slowly crawled out of its share price trough that it hit around August; the shares slid to $6.03. It’s since back up to $8.61 – and Citigroup is still bullish.

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