what are defensive stocks

Defense companies manufacture lethal products and can be involved in supporting clandestine operations or intelligence-gathering that some find unsettling. If you don’t want to support those activities, then investing in defense stocks is not a great choice for you. Defense companies initially traded up when the war started, but they have given up those gains in the months since. The conflict is likely to add to defense sales in the years to come through replenishment of weapons sent to Ukraine and as European allies look to strengthen their military muscle. But investors need to understand that defense projects tend to have multiyear timetables.

3 Best Defensive Stocks to Protect Your Portfolio in August 2023 – InvestorPlace

3 Best Defensive Stocks to Protect Your Portfolio in August 2023.

Posted: Thu, 17 Aug 2023 07:00:00 GMT [source]

Some estimates suggest European defense spending could increase by about two-thirds between 2021 and 2026, reaching €488 billion (about $531.4 billion). The COVID-19 pandemic was a massive drain on government coffers, making it harder for the Pentagon to give business to defense companies. But in defense, as in the rest of the world, value is increasingly going not to the companies that forge the steel but to the ones that provide the brains that go inside it. Defense electronics and cybersecurity are growing pieces of almost every company’s portfolio.

It makes intuitive sense that companies in the consumer staples sector—which can encompass everything from bread to bacon, and toilet paper to toothpaste—generally hold up well in a rocky economy. We all still need to brush our teeth and eat breakfast in the morning, no matter what the market is doing. “The world is moving from a petro-state to an electro-state,” Simmons says, such as with increasing adoption of electric vehicles. SmartAsset Advisors, LLC (“SmartAsset”), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. SmartAsset does not review the ongoing performance of any RIA/IAR, participate in the management of any user’s account by an RIA/IAR or provide advice regarding specific investments.

They include food, beverages, hygiene products, tobacco, and certain household items. These companies generate steady cash flow and predictable earnings during strong and weak economies. Their stocks tend to outperform nondefensive or consumer cyclical stocks that sell discretionary products during weak economies while underperforming them in strong economies. Defensive stocks offer the substantial benefit of similar long-term gains with lower risk than other stocks.

Archer Daniels Midland Company (NYSE:ADM)

The Invesco Aerospace & Defense ETF (PPA) holds a broad range of stocks, including some from companies that are not pure-play defense companies, such as those involved in civilian aerospace manufacturing. However, it is the closest proxy available for the broader defense industry. PPA has risen about 3% over the last 12 months, while the Russell 1000 Index has shed almost a tenth of its value. Just like all other industries, technology and, in particular, artificial intelligence has had a major impact on the defense sector. High interest rates boosted returns on Berkshire Hathaway’s cash pile. Buffett made strategic investments in major U.S. home builders to capitalize on the housing market.

what are defensive stocks

Moreover, the top defensive stocks have the ability to grow their dividends. Benjamin Graham, who is widely known as “the father of value investing,” argued that defensive stocks should be moderately priced, have a good record of paying dividends and be conservatively financed. In the end, a defensive stock is any stock that performs consistently regardless of changes in the market. By developing a strategy that includes a healthy balance of defensive and cyclical stocks in your portfolio, you’re able to shield against total loss during a downtown and make the most of periods of economic growth. While they don’t offer huge growth potential, defensive stocks perform consistently even during periods of economic decline, when other equities are tumbling.

Healthcare is an “exceptional” business, says YH&C Investments’ Bock. Since selling GE Healthcare’s biopharma unit to Danaher to help the balance sheet, GE has become a buyer https://1investing.in/ of other companies again. Its first acquisition is Prismatic Sensors, a Swedish company whose photon-counting technology can directly benefit GE Healthcare’s CT scanners.

Add in a $0.79 dividend per share, and you have the recipe for an excellent defensive stock. Despite all of the financial challenges of 2020, they continue to generate excellent cash flow due to a robust business model. This is a great low-risk defensive stock to add to your portfolio right now. While this defensive stock company is most well known for their soup, they also make many other popular products.

LMT Stock

A rising RS line shows that a stock is outperforming the S&P 500 index. The U.S. has given Ukraine more than $29.3 billion in military aid since the war’s start. European allies are also spending billions in weapons aid for Ukraine. The U.S. is sending weapons such as the Lockheed Martin (LMT) Javelin anti-tank missiles and Raytheon (RTX) Stinger air-defense systems. They also include Stryker eight-wheeled armored vehicles, built by General Dynamics (GD).

  • Unfortunately, many investors abandon defensive stocks out of frustration with underperformance late in a bull market, when they really need them most.
  • As a result, these companies are able to provide relatively consistent growth over time, while remaining largely unaffected by market volatility.
  • Therefore, if its dividend payment rises by 5%, the market will tend to push the stock price higher by 5%, so as to maintain the same 3.5% dividend yield.

They also pay dividends, which can have the effect of cushioning a stock’s price during a market decline. A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. There is a constant demand for their products, so defensive stocks tend to be more stable during the various phases of the business cycle. Defensive stocks should not be confused with defense stocks, which are the stocks of companies that manufacture things like weapons, ammunition, and fighter jets. Companies in these sectors cater to people’s basic needs, providing goods and services that are in constant and consistent demand.

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It does this through managed care, in which it controls spending through contracts with front-line clinics, as well as acute care facilities such as dialysis centers, and by controlling drug disbursement. In May 2020, Mike Sievert replaced CEO John Legere, whose long hair and T-shirts defined the company’s advertising for nearly a decade. Sievert has spent most of his career in marketing, including a stint at AT&T. That end, which would occur with a 20% decline from a market peak, could be a long time coming.

  • As investors might expect, each sector has performed better than the broad market through the volatility we’ve seen over the past year.
  • While the Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq plunge throughout the pandemic, defensive stocks become a safe haven for fearful investors.
  • Yale Bock, founder of YH&C Investments in Las Vegas, agrees that “consumers will keep paying” for wireless service, giving Verizon a sound revenue base.
  • The company was in rough shape last year, suspending its dividend in March to conserve cash during the pandemic.
  • Berkshire’s stake in KO stock is now up to 9.25%, according to Coca-Cola’s latest proxy.

GE took a hit like most companies in 2020 but has climbed out of the hole to sit higher than their pre-pandemic share price. Creighton’s Robert Johnson adds Ford has “a solid corporate governance and management team in place” and even prefers Ford at current levels to Tesla (TSLA). CPB shares are up 33% since Clouse came aboard, underperforming the market but marking a clear turnaround after a couple years of declines. The model proved very popular on the Healthcare.gov exchanges created under the Affordable Care Act, as the company could offer lower prices than traditional insurers. Centene (CNC, $60.40) earns its money managing Medicare and Medicaid contracts.

While massive spending on defense products is a boon to defense companies, it also poses challenges. Defense companies must speed up production and innovate more quickly during times of war. The Bain report said that defense companies may be left scrambling to meet demand, particularly given supply chain issues hampering weapons production.

What Are Defensive Stocks?

In comparison, American Airlines (AAL) is an example of a cyclical stock that is highly affected by the economic cycle and was especially impacted by the pandemic. Defense IT also remains a priority, with vendors scrambling to provide secure networks and data-rich communications systems to the Pentagon. Raytheon Technologies doesn’t make warships or fighters, but it has a role in a wide range of important military platforms led by other contractors. It is the product of the 2020 merger between Raytheon, a defense electronics and missile specialist, and United Technologies, which makes aircraft engines and a variety of other aerospace parts. Northrop Grumman is responsible for stealth bombers and has a large space portfolio. The company is closely tied to the nuclear triad, a combination of nuclear missiles, bombers, and submarines able to strike back if the nation is attacked.

For example, even if FCF drops by 20% over the year, it still means Exxon will produce at least $50 billion in FCF throughout 2022. Coca-Cola (KO, $59.92) is a well-known beverage company that has long produced consistently growing earnings, cash flow and dividends. Moreover, Coca-Cola has been buying back shares over and above the amount it issues to employees. This also helps increase its earnings and dividends on a per share basis.

In this article, we will take a look at 12 best defensive stocks to buy now. If you want to see more of the best defensive stocks to buy, go directly to 5 Best Defensive Stocks to Buy Now. Oracle (ORCL, $87.78) is a major cloud software and services company that offers enterprise resource planning and enterprise performance management products. With that in mind, here are the six best defensive stocks to buy now. For example, the best dividend stocks tend to fall less in bear markets. This works if the market believes the company will maintain the dividend, even while other stocks are tumbling.

46 hedge funds were long on the company’s stock at the end of the third quarter, according to Insider Monkey’s database. Yacktman Asset Management had the biggest long position in the company at the end of Q3 2022. Energy has been the best-performing sector in the last month, thanks to surging oil prices on the back of production cuts. However, industrials have been among the biggest laggards lately as investors trim gains after a furious summer rally. Given that outsized risk, the firm’s top investing minds have warned that the market’s historically high valuation is unsustainable, barring an unexpected growth rebound or interest rate cuts. While Morgan Stanley’s base case is that the US will avoid a recession, its economists still think there’s a 35% to 40% chance of a downturn in the next year, which isn’t priced into markets.

So if at some point the “hopium” disappears, you’ll want to be exposed to more defensive stocks – companies that sell vital goods and services, have reliable earnings and, where possible, pay dividends. Almost everything is overvalued now, but these kinds of stocks should hold their value better in a downturn than the rest of the market. In addition to health care, the utilities and consumer staples sectors are also considered to be defensive sectors.

But it has created a lot of volatility in the stocks in the meantime. The COVID-19 pandemic was also a massive drain on government coffers, making it harder for the Pentagon to aggressively push new spending initiatives that would appear on corporate earnings statements. Large defense contractors generate much better margins on research and development into advanced new weapons systems than they do from selling one-off missiles or ammunition. If the U.S. government were to deemphasize research to fund active operations, the conflict in Europe or elsewhere could actually be a negative to defense stocks. However, given the importance of research, that seems unlikely to happen. The defense industry consists of the development, manufacturing, and sales of air-based, land-based, and sea-based military support and auxiliary equipment such as satellites, sonars, radars, etc.

For those who think we may head into a recession in the next couple of years, there’s significant value to holding such stocks right now. What’s more, XOM is one of the best value stocks at the moment, trading at just 9.9 times forward earnings. Moreover, Exxon has grown its dividend every year over the past 20 years, and its 3.5% dividend yield is more than covered by expected cash flow going forward. These points make XOM stock one of the best defensive stocks for investors right now. Another major trait of a defensive stock is a conservative balance sheet. This means investors should stay away from certain types of stocks with the highest dividend yields.

Still, being attentive to an individual stock’s relevant features is necessary to suggest its accurate defensive performance. Defensive stocks are also helpful in preserving the wealth and protecting you against the recession and its losses. Defensive stocks are nearly always in demand because they provide essential products and services while cyclical stocks are affected by consumer demand and systemic changes like market downturns. Many investors include defensive stocks in their portfolios to counterbalance potential losses from more volatile securities.

“More importantly, equity markets are starting to agree based on relative performance under the surface.” To propel the powerful F-35 engine, Howmet Aerospace supplies superalloy blades and vanes. More broadly in defense, it provides parts for fluid management systems, radars and other defense systems.

Exploring Resilient Stocks Amid Market Uncertainty – Nasdaq

Exploring Resilient Stocks Amid Market Uncertainty.

Posted: Thu, 07 Sep 2023 13:28:14 GMT [source]

While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. Utilities, consumer staples, and healthcare represent the main defensive sectors.

Pfizer has a strong foundation of diverse drugs that produce strong cash flows for its shareholders. The value of shares and ETFs bought through a share dealing account can fall as well as rise, which could mean getting back less than you originally put in. Apartment real estate investment trusts (REITs) are also deemed defensive, as people always need shelter. When looking for defensive plays, steer clear of REITs that focus on ultra-high-end apartments.

Also, avoid office building REITs or industrial park REITs, which could see defaults on leases rise when business slows. A report by consulting firm Bain & Co. said that NATO and European countries could boost their total defense budgets by $50-$75 billion as a result of the war. zzzz best inc 1986 These are the defense stocks that had the highest total return over the last 12 months. While these stocks remain cyclical, industry consolidation has created a few winning companies. The Russian invasion of Ukraine is likely to reverberate through the defense sector for years.