Choosing defensive stocks requires a focus on stability, consistent performance, and resilience during economic downturns. Here’s a guide to help you select solid defensive stocks:
- Identify Defensive Sectors
Defensive stocks are often found in sectors that provide essential goods and services, such as:
- Healthcare (e.g., pharmaceuticals, medical equipment)
- Utilities (e.g., electricity, water, gas companies)
- Consumer Staples (e.g., food, beverages, household products)
- Telecommunications (e.g., broadband, mobile network providers)
These industries tend to remain stable because people continue to need their products and services regardless of economic conditions.
- Assess Financial Stability
Look for companies with:
Strong Balance Sheet – Low debt, ample cash reserves
Consistent Earnings – Stable revenue even in downturns
High Dividend Yields – Defensive stocks often offer reliable dividends
- Evaluate Performance History
- Choose companies with a track record of steady growth, especially during recessions.
- Look for businesses that outperform the broader market in bearish conditions.
- Check the Beta Value
- Beta < 1 — These stocks are less volatile than the market.
- Beta > 1 — More volatile and riskier in downturns.
A low-beta stock is ideal for defensive investing.
- Focus on Market Leaders
- Companies with strong brand recognition and established customer bases often fare better in uncertain economic times.
- Examples: Nestlé, Procter & Gamble, Johnson & Johnson.
- Diversification
- Don’t rely on one sector alone — spread investments across different defensive sectors for added security.
- Consider Dividend Aristocrats
- These are companies that have consistently increased dividends for 25+ years, indicating financial strength and reliability.
Example Defensive Stocks (Global Focus)
- Healthcare: Johnson & Johnson, Pfizer
- Utilities: Duke Energy, NextEra Energy
- Consumer Staples: Coca-Cola, Unilever
- Telecom: AT&T, Verizon
By: Pankaj Bansal
