September is typically the worst month for the markets, however with a much anticipated rate cut, 2024 might be a different story. The current market environment is unpredictable. We’re seeing higher highs and lower lows in different categories and for risk-averse investors, defensive stocks are the best bets right now.
“Investors Must Consider Quality Stocks”
On September 7, Co-Chief Investment Strategist at John Hancock Investment Management Emily Roland appeared in an interview on Yahoo Finance to discuss the impact of the September jobs report on financial markets. Roland has a bullish view on the economy, overall, considering that only 142,000 jobs were added in August.
Roland talked about how NVIDIA is influencing the overall market condition, reiterating that the company held the power to bring the market down, followed by other giants such as Broadcom. She believes that anything more than 50 basis points does signal that the Fed may know something that the general public does not.
Roland further added that while we cannot predict a recession coming, the US economy is decelerating at an easy pace. She also pointed out that weak and incomplete economic data has added to the uncertainty, making it hard to predict economic outcomes in the short and long run.
Roland expects that the Fed will be taking cuts slowly and won’t implement drastic measures, to not spook out the market. She believes investors should refrain from taking massive risks and invest in solid quality stocks, with great balance sheets, high cash, and strong return on equity rates.
She’s particularly concerned about mega-cap tech stocks and highlighted that, while they may be attractive, these giants do have a valuation issue, with forward earnings going above and beyond 30. Roland suggests that investors must explore other quality areas of the equity market with reasonable prices such as healthcare, consumer defensive, and utility stocks.
Is a 50 Basis Points Rate Cut Needed?
To shed light on the economic conditions of the United States, New Century Advisors Chief Economist, Claudia Sahm, appeared in an interview on Yahoo Finance on September 7. Sahm was overly concerned about the number of jobs added in August and how they were not enough to outdo a mini-recession. Sahm emphasized that the status quo is giving a clear direction as to how the Fed should proceed. She suggests that the Fed should ease its policies, potentially cutting rates by at least 50 basis points, contrary to what Roland suggested.
Sahm also added that a possible explanation for the softening labor market are Fed’s policies to curb inflation, indicating the need for more economic data points. She emphasized that unemployment data alone is not enough to predict a lingering recession and that broader economic data should be taken into account.
An uncertain market calls for safe investing. With that let’s take a look at the 10 best defensive stocks according to Reddit. You can also take a look at the safest stocks to invest in now.
A trader at a stock exchange, vigorously watching the stocks’ trends in the stock market.
Our Methodology
We looked at the best stocks in the utilities, finance, healthcare, and technology sectors by sifting through multiple active subreddits. We compiled an initial list of 20 stocks and then picked the top 10 with the largest number of hedge fund holders, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 52
Colgate-Palmolive Company (NYSE:CL) is one of the best defensive stocks to buy according to Reddit. The manufacturing company is based in New York, United States, and owns some of the most popular fast-moving consumer goods brands in the world. These include Protex, Speed Stick, PCA Skin, and Sanex.
In the second quarter of 2024, the company logged $5.06 billion in net sales, up by 4.9% year-over-year. For the past four quarters, Colgate-Palmolive Company (NYSE:CL) has been delivering double-digit growth rates in operating profits, net income, and earnings per share. For the complete fiscal year 2024, the company expects net sales to grow from somewhere between 2% and 5%. Additionally, the company saw an increase in organic sales by 9%, year-over-year. The company revised its full-year guidance of organic sales to 8% from the previously projected 7%.
Despite being based in the US, Colgate-Palmolive Company (NYSE:CL) has a strong international presence, accounting for 70% of its revenue. The company believes that its core strategy lies in making reinvestments into the business. In its Q2 2024 earnings release, the company highlighted that its growing sales coupled with an increase in advertising by 18% secures the long-term expansion goals of the business.
Latin America is a major market for the company, accounting for 25% of the company’s sales. Sales from Latin America grew by 7.6% year-over-year, while organic sales expanded by 18.8%. The region also logged $417 million in operating profits, the highest among all divisions in terms of dollar value. The company’s position in this segment and global market share of 41.3% across 200 countries is proof of its dominant position in the industry.
At the end of Q2 2024, 52 hedge funds owned stakes in Colgate-Palmolive Company (NYSE:CL), with total stakes amounting to $2.73 billion. Of this, First Eagle Investment Management was the largest shareholder with a position worth $875.86 million, as of June 30.
ClearBridge Investments’ ClearBridge Sustainability Leaders Strategy stated the following regarding Colgate-Palmolive Company (NYSE:CL) in its Q2 2024 investor letter:
“Colgate-Palmolive Company (NYSE:CL), added to the portfolio in 2023, started outperforming materially toward the tail end of last year as growth, margin and market share momentum began to turn favorably, and that momentum has continued year to date as the stock has nicely outperformed the large cap staples group. The fundamental upside has been driven by a combination of healthy organic growth (with positive volumes), good gross margin progression, and strong re-investment spending supporting market share gains and future growth.”
9. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 64
The Procter & Gamble Company (NYSE:PG) ranks ninth on our list of the best defensive stocks according to Reddit. The company behind Pampers, Always, Oral-B, Pantene, and Gillette sells its products in over 180 countries.
The Procter & Gamble Company (NYSE:PG) manages several small business units including baby, feminine, family, beauty, health, grooming, and fabric care. These SBUs manage 10 product categories and are present in focus markets that account for 80% of the company’s sales and 90% of the company’s profit.
In the past quarter, the company made significant investments to improve productivity, bringing in $2.3 billion for the business. These measures surrounded improvements in packaging, enhanced brand communication, and the launch of superior products. Nine of its 10 product categories logged massive organic sales in the quarter while five of its seven core regions grew organically at a rate of 2% for all its markets.
While the company is facing challenges due to geopolitical tensions in the Middle East and China, the company’s strong financial position makes it one of the best defensive stocks to buy. The company logged $20.5 billion in sales during the fiscal fourth quarter of 2024. For the fiscal year ended 2024, The Procter & Gamble Company (NYSE:PG) returned $14 billion in cash to shareholders, $9.3 billion in dividends, and $5 billion in share repurchases.
At the end of Q2 2024, 64 hedge funds owned stakes in The Procter & Gamble Company (NYSE:PG), with total stakes amounting to $7.73 billion. Of this, Fisher Asset Management was the largest shareholder with a position worth $2.9 billion, as of June 30.
8. PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders: 65
PepsiCo, Inc. (NASDAQ:PEP) is one of the largest food companies in the world. The company is home to some of the most consumed products in the world including Lays, Doritos, Cheetos, Gatorade, Pepsi-Cola, and Mountain Dew. These iconic brands are used by people in more than 200 countries and generate over $1 billion in revenue every year.
While the company increased its organic revenue by 2.3% year-to-date, in the second quarter of 2024, PepsiCo, Inc. (NASDAQ:PEP) plans to advance its productivity initiatives and commercial investments to manage growth. By the fiscal year ending 2024, the company expects to increase organic revenue by 4%, return $8.2 billion to shareholders, and log an 8% increase in earnings per share.
The company has more than 500 brands at its disposal making it one of the best defensive stocks to buy according to Reddit. It has grown its revenue by 30% between 2020 and 2023. While declining prices across the globe may be a cause of concern, the company’s diversified business and solid growth trajectory minimize the risk attached to macroeconomic changes.
Analysts are bullish on PEP and their 12-month median price target of $183 points to a 3% upside from current levels. By the end of Q1 2024, 62 hedge funds included PepsiCo, Inc. (NASDAQ:PEP) in their portfolios with total stakes amounting to $4.35 billion. Fisher Asset Management emerged as the largest stakeholder, with a position worth $1.21 billion.
Artisan Partners mentioned PepsiCo, Inc. (NASDAQ:PEP) in its Q1 2024 investor letter. Here is what the firm said:
“In the demographics/consumer trends theme, slowing sales volumes led us to focus more on services versus goods. As an example, we sold our position in food and beverage leader PepsiCo given slowing growth in its underperforming core beverage business, one which generates about 60% of revenues. Adding to the uncertainty of growth prospects beverages, PepsiCo was forced by local lawmakers and industry wholesalers to shift to a new distribution model during the rollout of Hard Mtn Dew, a new line of drinks that combines Mountain Dew with malt liquor.”
7. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 68
The Coca-Cola Company (NYSE:KO) ranks seventh on our list of the best defensive stocks to buy now. The Coca-Cola Company (NYSE:KO) is a soft-drink manufacturer with headquarters in Atlanta, United States. The company has more than 500 brands that sell in more than 200 countries.
Its simple business model with an emphasis on localization has been its go-to strategy. In the second quarter of 2024, The Coca-Cola Company (NYSE:KO) relaunched Ayataka, a local tea brand in Japan. In addition to that, the company has shifted its focus to anticipated events such as the Olympics, music festivals, and the Euro 2024 Football Championship from regular retailing, in Europe.
In the second quarter of 2024, the company logged $12.3 billion in revenue, up by 3% year-over-year. The company is known for its consistent performance, growing its net sales from $33 billion in 2020 to $46 billion in 2023. Over the past 5 years, The Coca-Cola Company (NYSE:KO) has grown its revenue at a compound annual growth rate (CAGR) of 6% and its free cash flow at a CAGR of 7%.
The company’s financial performance has made it one of the largest dividend-paying companies. The company has grown its dividends by 3.65% over the past 5 years and has a payout ratio of 67.74%. The company has grown its dividends consistently for 61 years and paid out $8 billion in dividends in 2023. With almost 4.3 billion shares outstanding and a dividend at $1.94 per share, the company is expected to pay $8.4 billion in dividends in 2024. As of September 6, the stock has a forward dividend yield of 2.67%.
Overall, KO was held by 95 hedge funds at the close of Q2 2024 with total stakes amounting to $31.98 billion. As of June 30, Berkshire Hathaway was the largest shareholder with a position worth $25.46 billion.
6. Philip Morris International Inc. (NYSE:PM)
Number of Hedge Fund Holders: 70
Philip Morris International Inc. (NYSE:PM) is a prominent tobacco company that ranks sixth on our list of the best defensive stocks according to Reddit. The company behind Marlboro sells its products in more than 180 countries from across the globe. Its product portfolio contains cigarettes, cigarillos, cigars, electronic cigarettes, heated tobacco products, and nicotine pouches.
Philip Morris International Inc. (NYSE:PM) logged $9.5 billion in sales during the second quarter, up by 9.6%. As for its smoke-free product lines, revenue climbed by 18% and gross profits surged by 22%. Almost 40% of the company’s income comes from its nicotine pouches and heat-not-burn devices. Philip Morris International (NYSE:PM) plans to invest over $232 million to expand its manufacturing plant in Owensboro, Kentucky. The expansion will be completed by the second quarter of 2025 and will help the company meet the growing demand for nicotine pouches in the area.
The company aims to build a smoke-free future by introducing such products. So far, the company has invested over $12.6 billion in developing smoke-free products and has given up on cigarettes completely. By 2030, Philip Morris International (NYSE:PM) intends to become a smoke-free company by a two-thirds majority. While smoke-free alternatives are not entirely risk-free, the company’s products may deliver a reduction in smoking-related deaths by more than 10 times. Marlboro, the company’s most prominent brand is set to be dethroned by PMI’s heated tobacco product, IQOS.
By the end of the second quarter, 70 hedge funds held shares in Philip Morris International Inc. (NYSE:PM) with total stakes amounting to $9.54 billion. The largest shareholder was GQG Partners, managed by Rajiv Jain, with a position worth $3.67 billion, as of June 30.
Andvari Associates stated the following regarding Philip Morris International Inc. (NYSE:PM) in its Q2 2024 investor letter:
“Andvari invested in Philip Morris International Inc. (NYSE:PM) a few months after initiating a position in fellow tobacco company Altria. The tobacco industry is one that has consolidated to only a handful of players. For decades, the industry has more than offset the continual decline in cigarette volumes with price increases. More recently, both Altria and Philip Morris have introduced several new product categories that deliver nicotine in much safer ways: vaping, nicotine pouches, and heat-not-burn products. Nicotine pouches in particular continue to have an extraordinary growth trajectory. In the most recent quarter, the volumes of Altria’s On! pouches and Philip Morris’ Zyn pouches continued their torrid growth rates at 30%+ and 70%+ year over year, respectively.
For Philip Morris and Altria, their margins are high, returns on equity and capital are high, and both trade at what Andvari views as cheap or very cheap multiples. Given the non-zero chance of a “nicotine renaissance” aided by less harmful products, we do not think the future for these companies is as dim as the market seems to think.”
5. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 71
Costco Wholesale Corporation (NASDAQ:COST) ranks fifth on our list of the best defensive stocks to buy according to Reddit. The company is a wholesale corporation with over 800 warehouses across the globe.
Historically, the company has always been the epitome of solid growth. Costco Wholesale Corporation (NASDAQ:COST) is one of the few companies that managed to reach $3 billion in sales within the first six years of operation. By 1993, the company was generating $16 billion in annual sales. In 2023, Costco Wholesale Corporation (NASDAQ:COST) ended the year with a revenue of over $242 billion.
Costco Wholesale Corporation (NASDAQ:COST) reported close to $58 billion in sales, an increase of 9.1% year-over-year, during the second quarter of 2024. Of this, e-commerce sales were up by 20.7% and sales in the international market grew by 7.7%. The company saw an overall increase in web traffic and shopping frequency by 6.1% worldwide and 5.5% in the United States.
The company’s reliable growth trajectory is what investors like about the stock. Before the end of 2024, the company plans to open another 12 locations, bringing the total to 30 for this year alone. The company spent over $1.06 billion on capital expenditures during the fiscal third quarter of 2024, bringing the full-year total to $4.3 billion.
Analysts are bullish on COST and their 12-month median price target of $908 points to a 4% upside from current levels. By the end of the second quarter, 71 hedge funds held shares in Costco Wholesale Corporation (NASDAQ:COST) with total stakes amounting to $5.96 billion. The largest shareholder was Fisher Asset Management with a position worth $2.51 billion, as of June 30.
ClearBridge Investments’ ClearBridge Sustainability Leaders Strategy stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Consumer staples holdings were also standouts in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to execute well and delivered better than expected earnings, helped by strong traffic driving better expense leverage. Customers also looked to be shifting toward more discretionary purchases.”
4. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 80
Johnson & Johnson (NYSE:JNJ) is a leading pharmaceutical company that ranks fourth on our list of the best defensive stocks according to Reddit. Johnson & Johnson’s (NYSE:JNJ) top-selling drugs include Stelaera, Darzalex, Imbruvica, Tremfya, Erleada, Uptravi, Invega, Symtuza, and Opsumit.
In the second quarter of 2024, the company reported sales of $22.4 billion, up by 4.3%. Xarelto, Stelara, and Imbruvica accounted for 19% of the company’s revenue in the second quarter of 2024. Johnson & Johnson (NYSE:JNJ) also saw success with regulatory approvals for some medications such as RYBREVANT and TREMFYA. Johnson & Johnson (NYSE:JNJ) is dominant in the oncology sector, with sales growing by 16% to reach $5.09 billion. This was attributable to the massive success of its cancer drug, Darzalex.
Johnson & Johnson (NYSE:JNJ) is one of the best defensive stocks to buy and we say that because of its growth trajectory over the years across all its departments. The company is expected to deliver over 20 novel therapies and over 50 product expansions by 2030. All its segments are expected to grow at a compound annual growth rate between 5% to 7% between 2025 and 2030. Over 10 assets in its Innovative Medicine segment hold the potential to bring $5 billion in projected operational sales.
Analysts are bullish on JNJ and their 12-month median price target of $170 points to a 3% upside from current levels. Overall, JNJ was held by 80 hedge funds at the close of Q2 2024 with total stakes amounting to $4.76 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $1.02 billion.
JNJ is currently trading at 16.44 times its forward P/E, a discount of 23% to its sector. Analysts polled by Yahoo Finance expect JNJ to grow its earnings by 1.1% this year.
3. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 95
Walmart Inc. (NYSE:WMT) is one of the biggest retail companies in the world that operates retail outlets, wholesale units, and e-commerce sites in more than 20 countries serving over 240 million customers every week. The company’s e-commerce platform provides services to mass consumers, low-income customers, and small business owners. Walmart entered the e-commerce space in 2000 and reported $100 billion in e-commerce sales in the fiscal year 2024, up from $73 billion in FY 2022. Walmart Inc. (NYSE:WMT) is also a well-known brick-and-mortar retailer with 10,500 stores globally.
The company currently operates 210 distribution centers and has a private fleet of 9,000 tractors, 80,000 trailers, and 11,000 drivers, all of which make quick deliveries possible. In the past 12 months, within the US, Walmart delivered 4.4 billion items on the same day or the next day, and 30% were delivered within three hours.
Walmart Inc. (NYSE:WMT) is making significant investments in innovating its customer offerings and storefront. In FQ1 2025, the company launched a generative AI-powered product search tool and a data analytics platform allowing customers to shop more effectively and receive intuitive product recommendations based on their likes and dislikes. As for its brick-and-mortar stores, by the end of FY 2026, the company expects 65% of its stores and 55% of its fulfillment centers to be run by automation.
Walmart’s e-commerce footprint is increasing, as evidenced by a 36% growth in sellers on its marketplace in the fiscal first quarter of 2025. Overall, the company is on track to add $130 billion in sales if it achieves its 4% sales growth target over the next five years.
Analysts are bullish on WMT and their 12-month median price target of $81 points to a 6% upside from current levels. Overall, WMT was held by 95 hedge funds at the close of Q2 2024 with total stakes amounting to $9.19 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $3.08 billion.
2. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 96
Merck & Co., Inc. (NYSE:MRK) is the second-best defensive stock according to Reddit. Merck & Co., Inc. (NYSE:MRK) is a pharmaceutical company headquartered in the United States. The company specializes in the production of vaccines and the provision of hospital care services. Keytruda, its drug for cancer, is the company’s best-selling product and is a global star.
In the second quarter of 2024, the company’s Human Health business grew by 11%, its Animal Health segment saw a 6% increase in sales, and KEYTRUDA, its star cancer drug, went up by 21% reaching $7.3 billion in sales. On the vaccines front, its GARDASIL logged $2.5 billion in sales, up by 4%, year-over-year, and VAXNEUVANCE, its pneumococcal vaccine, expanded sales by 16% to reach $189 million. Overall, the growth in sales was brought in by rapid launches in international markets.
Merck & Co., Inc. (NYSE:MRK) is an important company in the industry. Its new drug, CAPVAXIVE, a pneumococcal conjugate vaccine for adults just received approval from the FDA, followed by its ACIP recommendation. The two medical innovations are breakthroughs for patients. The company also closed its acquisition of EyeBio, in an attempt to venture into the ophthalmology industry and invent a treatment for retinal conditions. Its Animal Health segment also closed the acquisition of Elanco’s aqua business, presenting Merck & Co., Inc. (NYSE:MRK) as a leader in the animal health business.
Merck & Co., Inc.’s (NYSE:MRK) commitment to innovation is its economic moat. The company launched a new vaccine for adult patients with pulmonary arterial hypertension, WINREVAIR. The vaccine was only approved by the FDA on March 26 and logged over $70 million in sales in the quarter. 40% of these sales came from doses administered to patients and the remainder to distributors.
Analysts are bullish on MRK and their 12-month median price target of $141 points to a 20% upside from current levels. In Q2 2024, there were 96 hedge funds that held positions in the stock with total stakes amounting to $7.76 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $1.77 billion.
Baron Funds’ Baron Health Care Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its first quarter 2024 investor letter:
“Global pharmaceutical company Merck & Co., Inc. (NYSE:MRK), Inc. contributed on the continued growth of Keytruda, the company’s key asset and the leading immuno-oncology agent used to treat a variety of cancers. The FDA’s late March approval of pulmonary arterial hypertension drug sotatercept, also drove share gains. We retain conviction as Merck has started to transition from prioritizing its Keytruda franchise to building a more diversified business, with a focus on the Gardasil vaccine, pneumococcal vaccine development, and cardiovascular drug development, well in advance of the scheduled expiration of patent protection/exclusivity rights.”
1. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 114
UnitedHealth Group Incorporated (NYSE:UNH) ranks first on our list of the best defensive stocks according to Reddit. It is a multinational health insurance and services company that provides health coverage to over 50 million people in the United States. UnitedHealth Group Incorporated (NYSE:UNH) owns a range of subsidiaries including UnitedHealthcare Servic LLC, Optum, Change Healthcare, and United Health Foundation, to name a few.
In about a decade, UnitedHealth Group Incorporated (NYSE:UNH) has grown its revenue from $101 billion in 2011 to $372 billion in 2023. While the growth trajectory is great, UnitedHealth is also proactive in providing healthcare to patients and pre-patients alike. In the past year, UnitedHealth’s professionals made over 2 million home visits to identify health emergencies that would have gone undiagnosed otherwise.
In the second quarter of 2024, UnitedHealth Group Incorporated (NYSE:UNH) logged $98.9 billion in revenue, up by nearly $6 billion. The company has a huge opportunity to grow as the healthcare market in the United States is currently valued at $5 trillion, with multiple areas yet to be explored. That said, the company believes it can post strong results in 2025, which is evident from its client base of 148 million.
Analysts are bullish on UNH and their 12-month median price target of $620 points to a 4% upside from current levels. Overall, 114 investors were bullish on the stock at the end of Q2 2024, with total stakes amounting to $12.5 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $1.57 billion.
Invesco Distributors, Inc. stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH): Like many managed care providers, United Health has come under pressure from rising medical costs and higher-than-expected utilization. The stock is currently undervalued based on our analysis. We view the company as a high-quality compounder with secular growth opportunities in the managed care segment. The US Presidential election may cause additional near-term uncertainty, but we believe United Health will be able to rebound once pricing and utilization issues normalize.”
While we acknowledge the potential of healthcare companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the stocks on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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