Volatility in the market renders defensive stocks a rational option for investors who are fatigued by the erratic fluctuations.
An increasing number of apprehensive investors are seeking refuge in defensive stocks, a strategy that is supported by several compelling justifications.
The ongoing efforts of the U.S. Federal Reserve to manage inflation act as the main catalyst for the growing apprehension.
Several weeks ago, the Federal Reserve indicated that interest rates would be maintained at elevated levels for an extended period of time. This development instilled a fresh sense of apprehension inside the financial markets.
The recent Israel-Hamas conflict has introduced an additional element of risk to an already precarious market situation. However, there exist strategies that investors can employ to enhance the resilience of their portfolios.
The escalation of the Israel-Hamas war resulted in an increase in oil prices. The fluctuation in oil prices coincides with a period in which investors are already contending with concerns regarding elevated interest rates, inflationary pressures, and decelerating economic expansion.
This article examines the characteristics of equities that provide investors with stability during periods of market volatility.
If you want to invest as an expat or high-net-worth individual, you can email me (advice@adamfayed.com) or use these contact options.
In general, we don’t suggest that you should invest in individual stocks. ETFs and funds make more sense.
This article will merely look at some of the better defensive stocks.
What is a Defensive Stock?
A defensive stock refers to a type of stock that exhibits a reasonably consistent performance, irrespective of the prevailing economic conditions.
Defensive stocks, alternatively referred to as non-cyclical equities, have a reduced susceptibility to fluctuations in the economic cycle, encompassing both periods of expansion and recession. Defensive stocks are characterized by their consistent dividend payments and relatively stable share prices.
During a projected economic downturn, investors commonly incorporate defensive stocks into their investment portfolios, as these stocks are anticipated to exhibit favourable performance despite the prevailing recessionary conditions.
In contrast, cyclical stocks exhibit a tendency to closely align with the economic cycle, flourishing during periods of economic expansion and experiencing adversity during periods of economic contraction.
What are the Best Defensive Stocks
Lowe’s (LOW)
Lowe’s (NYSE:LOW), a retail corporation with a specialization in home renovation, can be considered a suitable choice for defensive stocks.
Due to the vernacular occurrence sometimes referred to as Murphy’s Law, the ability to anticipate the occurrence of unfavourable events remains elusive.
Nevertheless, whether it is the occurrence of a pipe rupture or the activation of a smoke alarm during the early hours of the day, such accidents tend to transpire at the most inconvenient moments.
Lowe’s offers a readily available solution through its retail outlets or delivery services. Furthermore, it is worth noting that LOW may still have the ability to get benefits from the ongoing Covid-19 pandemic.
The surge in homebuying resulting from economic events associated with the crisis may have potentially expanded the overall addressable market for the store.
Ultimately, the act of owning a home entails assuming responsibility for all the issues that arise in relation to one’s property.
Lowe’s currently possesses a forward yield of 1.89%. Despite not being notably generous, the corporation has achieved the impressive feat of maintaining 50 years of uninterrupted dividend increases.
Visa Inc. (V)
According to hedge funds, Visa Inc. (NYSE:V) is now regarded as one of the top defensive stocks for investment. Visa Inc. (NYSE:V) holds a dominant position in the payments business, which exhibits resilience even during periods of economic distress.
This is due to the necessity for enterprises, vendors, and customers to engage in payment processing and basic transactions, regardless of prevailing economic conditions.
Visa Inc. (NYSE:V) emerges as a reliable option for investors that prioritize risk mitigation, according to its track record of consecutive dividend growth over multiple years.
As of the conclusion of the initial quarter of 2023, a total of 173 hedge funds, out of the 943 funds in existence, had taken long positions in Visa Inc. (NYSE:V).
American Express Company (AXP)
According to hedge funds, American Express firm (NYSE:AXP), a prominent payment card firm, holds the 11th position in our current list of top defensive stocks for investment purposes.
The second quarter results of American Express Company (NYSE:AXP) were published in July. The earnings per share (EPS) under the Generally Accepted Accounting Principles (GAAP) for the quarter amounted to $2.89, surpassing the estimated value by $0.08.
The revenue for the quarter had a year-over-year increase of 12.3%, amounting to $15.05 billion. However, this figure fell short of the estimated value by $310 million. The American Express Company (NYSE:AXP) has additionally restated its 2023 outlook.
As of the end of the 2023 first quarter, it was seen that 77 hedge funds, out of a total of 943 funds, disclosed their ownership of shares in American Express Company (NYSE:AXP).
During this particular period, the primary shareholder of American Express Company (NYSE:AXP) was Berkshire, headed by Warren Buffett, who held a significant stake of $25 billion in the company.
Northrop Grumman (NOC)
Northrop Grumman (NYSE:NOC), a prominent company in the aerospace and defence sector, may elicit controversy due to the nature of its core operations.
Nevertheless, given the escalating geopolitical tensions in several countries, it is imperative for investors to acknowledge the potential of NOC.
No, it is not advisable to commemorate the escalating furore in the global sphere. Simultaneously, it is imperative that we avoid being unprepared in terms of our national security posture.
From a more bullish perspective, Northrop also offers itself as a promising investment option within the realm of defensive companies, primarily because of its involvement in the space industry.
According to the company’s official website, substantial investments have been made to foster the development and sustainability of the space sector, exemplified by their endorsement of NASA’s Artemis program. Hence, NOC expands its operations beyond the realm of defense.
Currently, the company exhibits a forward yield of 1.72%. The aforementioned figure is slightly below the average yield of 2.36% observed in the industrial sector.
In addition, Northrop has demonstrated a consistent track record of 20 consecutive years of dividend increases.
Mastercard Incorporated (MA)
Mastercard Incorporated, listed as MA on the New York Stock Exchange (NYSE), holds a prominent position inside Invesco’s Defensive Exchange-Traded Fund (ETF).
By the end of first quarter of 2023, it was observed that 138 hedge funds, out of a total of 943 funds, possessed ownership interests in Mastercard Incorporated (NYSE:MA).
During the specified period, the primary shareholder of Mastercard Incorporated (NYSE:MA) was Akre Capital Management, led by Charles Akre, with a significant ownership holding valued at $2.13 billion.
Mastercard Incorporated (NYSE:MA) reported robust second-quarter financial performance in July, mostly attributed to a substantial surge in global travel demand.
Colgate-Palmolive (CL)
Colgate-Palmolive (NYSE:CL) stands out as a highly favourable option for defensive stock investments, primarily due to its advantageous position as a beneficiary of the trade-down impact.
The content is characterized by a significant degree of cynicism, which should be noted. However, in periods of economic adversity, individuals may choose to forgo specific medical or dental interventions.
Nevertheless, despite this circumstance, only a small number of individuals will compromise on purchasing products with the Colgate name.
One of the most straightforward methods to prioritize self-care involves cultivating appropriate dental hygiene practices.
Indeed, the aforementioned argument appears to be conspicuously evident; however, it also serves as the primary impetus behind the performance of CL stock.
Individuals may choose to refrain from visiting dental clinics due to a variety of factors, primarily driven by economic constraints in some cases, while others may be motivated by fear or anxiety. However, the demand for Colgate is expected to remain largely stable.
Similarly, the company exhibits a forward yield of 2.62%. The aforementioned statistic exhibits a somewhat higher value compared to the average yield of 1.89% observed within the consumer staples category.
However, the primary point of emphasis is in its impressive record of 61 straight years of dividend growth.
AbbVie Inc. (ABBV)
AbbVie Inc. (NYSE:ABBV), a prominent pharmaceutical company, possesses a commendable track record of dividend payments.
It one of the top defensive stocks to be considered for investment at present. AbbVie Inc. (NYSE:ABBV) released its second-quarter financial results in the month of July.
The earnings per share (EPS) for the quarter were reported as $2.91, surpassing the estimated value by $0.10.
During the observed period, there was a decline of 4.9% in revenue compared to the previous year, resulting in a total revenue of $13.87 billion. This figure exceeded the estimated revenue by $350 million.
As of the end of the 2023 first quarter, a total of 75 hedge funds from our comprehensive database of 943 funds have disclosed their ownership of holdings in AbbVie Inc. (NYSE:ABBV).
During the specified time frame, the primary shareholder of AbbVie Inc. (NYSE:ABBV) was the Citadel Investment Group, led by Ken Griffin, with a significant ownership of $361 million in the firm.
UnitedHealth Group Incorporated (UNH)
Healthcare equities are widely regarded as resilient to economic downturns and characterized by a high level of safety.
UnitedHealth Group Incorporated, listed on the New York Stock Exchange under the ticker symbol UNH, is a prominent corporation of substantial size, boasting a market capitalization of $470 billion as of August 14th.
UnitedHealth Group Incorporated (NYSE:UNH) has had a consistent track record of dividend payments over an extended period of time, indicating stability and success within its business strategy.
This is why it is considered a preferred defensive option among hedge fund investors.
As of the conclusion of the initial quarter of 2023, it was observed that out of the 943 funds that possess interests in UnitedHealth Group Incorporated (NYSE:UNH), a total of 116 hedge funds were identified.
During the specified time frame, Rajiv Jain’s GQG Partners emerged as the primary stakeholder of UnitedHealth Group Incorporated (NYSE:UNH), possessing a substantial position valued at $2.3 billion.
Microsoft (MSFT)
Microsoft (NASDAQ: MSFT) is considered a noteworthy player in the technology sector due to its substantial investments in artificial intelligence.
Additionally, it is recognized as one of the leading defensive stocks that investors should consider purchasing.
Upon initial examination of its financial profile, the technology conglomerate demonstrates a pattern of sustained profitability.
Additionally, the company exhibits a notable trailing-year operating margin of 41.77% and a net margin of 34.15%.
In essence, the aforementioned entity possesses a reputation that instils confidence, rendering it a vital element in defensive stocks.
Moreover, Microsoft (MSFT) may persist in providing rewards to its shareholders, despite experiencing a significant increase of over 37% from the beginning of January.
Essentially, the AI projects of the underlying organization are experiencing rapid growth and widespread adoption.
In terms of generating passive income, Microsoft’s financial performance is not particularly generous, as it currently exhibits a forward yield of 0.83%.
Currently, it has had a span of two decades characterized by consistent growth in dividend payouts.
The payout ratio of the company stands at 24.75%, indicating a level of assurance regarding the sustainability of its yield.
Finally, financial analysts recommend Microsoft Corporation (MSFT) as a highly favourable investment option. The mean price objective is recorded at $391.88, suggesting a possible increase of more than 19%.
Union Pacific Corporation (UNP)
Union Pacific Corporation (NYSE:UNP) is considered to be a highly favourable defensive stock for investment at present.
By the end of first quarter of 2023, it was revealed that 85 hedge funds possessed ownership interests in Union Pacific Corporation (NYSE:UNP).
One of the primary stakeholders of Union Pacific Corporation (NYSE:UNP) with considerable influence is Soroban Capital Partners, managed by Eric W. Mandelblatt. The hedge fund holds a substantial interest of $1.6 billion in the firm.
The stock price of Union Pacific Corporation (NYSE:UNP) had a significant increase in July subsequent to the announcement of a new Chief Executive Officer for the company.
The replacement of Union Pacific Corporation’s (NYSE:UNP) CEO was prompted by the influence exerted by Soroban Capital Partners.
Following the announcement of the CEO transition, RBC has revised its evaluation of the stock, upgrading it from a “Sector Perform” rating to an “Outperform” rating. Additionally, RBC has set a price objective of $282 for the shares.
Merck & Co., Inc. (MRK)
Merck & Co., Inc. (NYSE:MRK), a prominent pharmaceutical corporation, can be considered a robust defensive investment option because of its extensive product development pipeline and consistent dividend payouts.
The shares of Merck & Co., Inc. (NYSE:MRK) experienced a recent increase subsequent to the company’s upward revision of its full-year sales forecast.
Merck & Co., Inc. (NYSE: MRK) experienced positive Q2 revenue performance, driven by increased sales of its cancer medication Keytruda and HPV vaccination, Gardasil.
By the end of the 2023 first quarter, a total of 75 hedge funds held long positions in Merck & Co., Inc. (NYSE:MRK).
During the specified period, the primary shareholder of Merck & Co., Inc. (NYSE:MRK) was AQR Capital Management, headed by Cliff Asness, with a significant ownership of $298 million in the firm.
Thermo Fisher Scientific Inc. (TMO)
Thermo Fisher Scientific Inc (NYSE:TMO) has the 4th position in our compilation of the top performing defensive stocks for current investment, as per hedge fund analysis.
Thermo Fisher Scientific Inc (NYSE:TMO) reported subpar financial performance for the second quarter of the year and adjusted its projected annual outlook, falling short of the expectations set by analysts.
This development occurred as a result of the prevailing global macroeconomic conditions. Thermo Fisher Scientific Inc (NYSE:TMO) continues to maintain a prominent position within the industry, as indicated by analysts who perceive the company as possessing substantial growth prospects.
Based on data sourced from Yahoo Finance, Wall Street analysts have provided a one-year price estimate (average) of $627 for Thermo Fisher Scientific Inc (NYSE:TMO).
S&P Global Inc. (SPGI)
S&P Global Inc. (NYSE: SPGI), a prominent ratings and financial data corporation, is among the best defensive stocks to buy. S&P Global Inc. (NYSE: SPGI) has regularly increased its dividend over the past five decades, a remarkable accomplishment.
S&P Global Inc. (NYSE: SPGI) released its second-quarter financial results in the latter part of July. The earnings per share (EPS) for the quarter was reported as $3.12, falling short of the estimated value by $0.01.
The revenue for the quarter experienced a year-over-year increase of 3.7%, amounting to $3.1 billion. This is above the estimated value by $40 million.
As of the conclusion of the initial quarter of 2023, it was observed that 90 out of the total 943 hedge funds possessed ownership interests in S&P Global Inc. (NYSE:SPGI).
Elevance Health, Inc. (ELV)
Elevance Health, Inc. (NYSE:ELV) is regarded as a top defensive stock for investment purposes within the health insurance industry.
By the end of first quarter of 2023, it was revealed that 81 hedge funds out of a total of 943 possessed ownership interests in Elevance Health, Inc. (NYSE:ELV).
The primary shareholder of Elevance Health, Inc. (NYSE:ELV) is Viking Global, managed by Andreas Halvorsen, with a significant ownership holding valued at $991 million.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is widely recognized as a prominent defensive investment option due to its extensive track record of increasing dividends for over six decades and its diversified business model.
Johnson & Johnson (NYSE:JNJ) has experienced a positive growth of approximately 4.4% throughout the previous twelve-month period.
Johnson & Johnson has recently announced that the United States Food and Drug Administration (FDA) has granted approval for its oral anti-cancer drug, Akeega, to be used in combination therapy for specific adult patients diagnosed with metastatic castration-resistant prostate cancer (mCRPC).
At the end of the first quarter of 2023, a total of 86 hedge funds held long positions in Johnson & Johnson (NYSE:JNJ).
During this period, D. E. Shaw emerged as the largest stakeholder of Johnson & Johnson (NYSE:JNJ), holding a significant position valued at $609 million in the corporation.
Final Thoughts
If you’re looking for portfolio stability and long-term growth, you might want to consider putting some of your funds into the best defensive stocks.
Aside from defensive stocks, stocks like the best consumer discretionary stocks and consumer staples stocks are favourites of private banks and investment funds because of their stability in times of economic uncertainty.
In addition, risk-averse investors might find a lot to like in the top FTSE 250 stocks, which are a great way to get exposure to the UK market.
Defensive stocks are a sensible option for protecting your money and preserving a level of financial security due to their durability and consistent performance in volatile economic environments.
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