1 Highly Defensive Play for Risk-Averse Investors

Here’s why Maple Leaf (TSX:MFI) could turn out to be a great long-term defensive holding for investors right now.

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Investors focusing on defensiveness certainly have a few options to choose from. Indeed, various commodities have taken off of late, providing such defensive returns.

That said, one overlooked stock in the defensive category right now is Maple Leaf Foods (TSX:MFI). We all need to eat, and food companies stand to benefit from rising consumption coming out of this pandemic. Accordingly, I think this is a sneaky defensive play with some serious upside.

With more people preferring plant-based proteins and veganism, Maple Leaf has also diversified its portfolio to plant-based meat alternatives. This has reflected in its turnover in the last quarter, in my opinion, and I think it will continue to churn more.

Here’s more on why I like this stock right now.

A strong balance sheet 

Defensive stocks inherently ought to have strong balance sheets. And on this metric, Maple Leaf is a solid play.

The company’s recent earrings have fueled expectations of continued debt reduction and cost savings on the horizon. The company recently reported much-improved numbers on a year-over-year basis as a result of improved supply and demand fundamentals.

Indeed, investors bullish on the pandemic recovery will want to consider this stock at these levels. The company’s revenue rose by 3% year over year, and with turnover and margins likely to increase over time, investors could see acceleration on the company’s top and bottom lines.

Maple Leaf remains a highly defensive option right now and is trading at a reasonable valuation. Given where broader valuations are in the market today, that’s a good thing for investors.

Something for every palate

What will aid Maple’s growth in coming times is its ability to keep up with changing norms and trends. Maple Leaf believes in reinvesting its profits over time. Indeed, the company has put more than US$1 billion to work in the recent past. Constant plant upgrades along with some targeted acquisitions has been the key focus for the company’s management team.

To fund these moves, the company also sold off some of its non-core assets like Canada Bread bakery and Olivieri pasta to enable intact focus.

The brand recently purchased Lightlife Foods for US$140 million in cash. The company hopes to compete in burgeoning product segments over the long term. And its investing the capital necessary to do so.

Maple Leaf has massive cash reserves providing a strong liquidity ratio, attracting institutional and retail investors alike. This cash reserve allows the brand to make lucrative deals like the recent purchase of Lightlife. The company’s existing cash position and new credit facilities enable Maple Leaf to take advantage of opportunities as it sees fit.

For long-term investors, Maple Leaf presents an intriguing case as a defensive holding today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

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